The Development Bank of Namibia’s Head of Lending, Martin Inkumbi, says that strict application of traditional lending practices by financial institutions are a stumbling block for entrepreneurs trying to access finance.
Generally lenders look critically at the character, capacity, capital, collateral and conditions of any potential borrower.
According to Inkumbi, “I view capital and collateral as major stumbling blocks for entrepreneurs trying to access capital. This is especially true for young entrepreneurs or entrepreneurs with no money to invest as equity, or with no assets they can offer as security for a loan. Any effort to improve access to finance has to address the challenges related to access to capital and collateral. However banks, whether private or public financial institutions, are entrusted with public funds and are expected to lend responsibly and recover money from borrowers. One way to guarantee the recovery of loaned money is to take some sort of collateral on a loan. This is a straightforward way of dealing with the aspect of securing depositors’ funds,” he said.
Instead, the development bank looks at more complex forms of securing depositors’ funds, such as thoroughly assessing applications to ensure there is no uncertainty about a business’ expected success. Also developing innovative, risk-mitigating products and strategies are ways in which DBN tries to improve access to finance. “The bank’s bridging finance product, used to finance tenders and contracts, is one way in which the DBN secures loans,” he said and “the main form of security for the product is the contract income ceded to the bank and paid directly by the entity awarding the contract,” he said. The development bank also uses asset-based finance, whereby the asset financed through the installment sale, serves as collateral. “By working with partner institutions, the development bank sets out to address the immediate needs of upcoming businesses and also to contribute to the transformation of Namibia’s economic landscape,” Inkumbi said.