The Credit Guarantee Scheme to be housed by the Development Bank of Namibia (DBN) will require N$500 million in funding, in order to effectively lend to Small and Medium Enterprises.
“In my view, in order to make a significant contribution over the years, the Credit Guarantee Scheme should be built up to at least a minimum of N$500 million,” Inkumbi said.
The funds are expected to come from DBN, government, local banks and international lending institutions.
“The demand for finance by SMEs is big. We know that resources (government) are limited. We also have to engage international development partners that may be willing to assist the programme.”
This week, the DBN and the Bank of Namibia (BoN) signed a Memorandum of Agreement on the Operational of the Small and Medium Enterprises Financing Strategy.
The strategy was approved by Cabinet in June and comprises of three interlinked facilities namely, Mentoring and Coaching Programme, Credit Guarantee Scheme and the Venture Capital Fund with BoN announcing a grant of N$20 million to the scheme which is meant to fill the gap left by the collapse of the SME Bank last year.
Inkumbi said DBN’s SME portfolio has already advanced N$500 million over the years to SMEs and is confident that commercial banks will buy into the idea of the Credit Guarantee Scheme to enable them to lend more money to SMEs.
“The commercial banks have been part of the discussions over the past one and half years, when the idea was conceived.”
He said commercial bank’s participation in the scheme will assist DBN in sharing the risk.
“We are of the view that commercial banks will come to the table and many have indicated that they will participate and also make a small contribution towards the Credit Guarantee Fund.”
Inkumbi explained that in the past, the Credit Guarantee Scheme was managed by the trade ministry and was structured differently with the scheme taking 80 percent of the risk while commercial banks only took 20 percent of the risk.
“Our view is that there was no incentive for commercial banks to do proper due diligence because the position was we give the money and 80 percent of that is guaranteed by the scheme. We are trying to avoid that and now, it’s a 50-50 guarantee split so that if the commercial banks do not maintain due diligence, they are also putting themselves at risk.”
Bank of Namibia Governor, Iipumbu Shiimi, disclosed during the signing ceremony that there are plans by the Ministry of Finance to further capitalise the scheme.
An SME is defined as a company with a turnover of not more than N$10 million per year, Inkumbi said. Companies can qualify to borrow amounts ranging from N$150,000 up to N$400 million.
Meanwhile, Inkumbi disclosed that plans by the Ministry of Finance and DBN to set up an Infrastructure Fund have been shelved after it was realised that the projects that will be successful are self-funding ones.
“We have reviewed the environment and realised that the only successful projects are the ones that are self-funding, generating income, for example a toll road. In the absence of a self-funding project, it means government will have to guarantee the repayment and that is really not what we would like. It is something that could be looked at in the future. For now it’s off.”