NAMIBIA – First National Bank (FNB) is the first to open its doors to for small and medium enterprises (SMEs) to get access to Credit Guarantee Scheme (CGS) that helps entrepreneurs who have no collateral be now able to access funding from commercial banks.
Martin Inkumbi, chief executive officer of the Development Bank of Namibia, said a second financial institution has been approved for participation in the scheme, but will only be able to make the scheme available once contractual matters are finalised.
Inkumbi said SMEs which have been waiting for this platform can already approach FNB’s SME Business Unit for their funding needs.
The Ministry of Finance earlier this week indicated the government, through Namibia Special Risks Insurance Association (Nasria), will provide collateral cover of 60% for qualifying SMEs applying for finance from participating commercial finance institutions.
Inkumbi said FNB will assess applications for projects needing funding, and if found bankable and only lacking collateral, the SME will be considered for security cover of 60% of the principal loan amount.
Inkumbi said FNB and other lending institutions may have different credit policies and may require further collateral beyond 60% after reviewing loan applications.
“Depending on the lender’s credit policy and the viability of the SME’s business plan, the participating financial institution may require additional collateral,” he said.
The financial institutions at their own discretion could also decide on limiting the collateral requirement to 60% of the loan.
Inkumbi said borrowing limits are solely based on the participating financial institution’s credit policies. He said potential entrepreneurs should note that the credit-guarantee scheme is for SMEs only – meaning businesses with an annual turnover (or projected turnover) of N$10 million or less.
There have been numerous claims from budding entrepreneurs that their proposals have been rejected and then hijacked. To this Inkumbi said participating financial institutions will go about their normal operating procedures and governance standards.
According to available evidence, many Namibian SMEs barely survive beyond two years, while those who survive don’t graduate from SME status for decades.
Minister of finance Iipumbu Shiimi upon the announcement of the scheme said the rationale behind it is that there are SMEs with excellent prospects for success and viable business plans, but which lack the necessary collateral to obtain loans.
Commercial finance institutions require the security of collateral to ensure their capital is recoverable in the event of an SME being unable to repay their loans.
“By insuring credit granted to qualifying SMEs, the scheme substantially reduces the collateral requirement for qualifying SMEs,” he said.
After the demise of SME Bank, SMEs without security have had no access to funding. The collateral was funded with seed capital of N$98 million (US$6.58m) from the government and the Bank of Namibia that went to Nasria to secure as part of an SME-funding strategy launched last year.