WINDHOEK – Management of loan terms, particularly repayment of loans, is critical for both the Development Bank of Namibia and its clients, the bank has said.
According to the Development Bank of Namibia (DBN) Communication Manager, Jerome Mutumba, one of the bank’s dictums is ‘what is given gets given back’. Explaining the concept in a statement released yesterday, he said that the bank has a fair approach to lending that fosters the mandate of development. However, he said that DBN also has to ensure that loans are repaid, as it uses the capital and interest that it recovers to make more loans available for development of enterprise and infrastructure.
The contract between DBN and clients is a contract to responsibly use national resources, as DBN was established from national resources, Mutumba said. The contract allows clients to start up new enterprises or strengthen existing ones, he said.
He pointed out that since its inception 10 years ago, the bank’s annual level of lending had grown consistently. In the financial year 2005, when the bank achieved full operating capacity, loan approvals were N$110 million, growing to N$840 million for the 2013 financial year, with a total of N$3,379 billion approved since the bank’s inception.
These amounts translate into prosperity for recipients of loans, infrastructure, employment creation and retention, as well as improved social development. If repayments are not made, the pace of development will slow, and enterprise and infrastructure will slow, Mutumba said.
On impediments to repayment, Mutumba cited three primary causes of impairments and defaults. Firstly, primary impediment is unrealistic business planning. Entrepreneurs are often overoptimistic in the early stages of planning, and may not be able to cope with the operational reality of the plans on which they base their applications for finance.
This, he said, would lead to lower streams of revenue than initially expected, and would have an impact on the enterprise’s ability to keep up with repayment.
Secondly, Mutumba said, the administration of enterprise also plays a critical role in the ability of the enterprise to repay. If administration is lax, additional costs may mount up, placing strain on the enterprise’s ability to service its loan repayments.
Thirdly, he said, some entrepreneurs do not reinvest earnings, or they are quick to make drawings on profits. This also reduces the ability to repay loans in future. Mutumba stressed that an enterprise must never be seen as an instant source of wealth for owners, but should instead reinvest revenue in operations and in growth. On the importance of collateral, Mutumba said while DBN does not base its credit extension on collateral, the bank does request a certain level of collateral in some instances. Collateral serves two main purposes. Firstly it helps align the borrower’s interest with that of the bank, that is, the borrower shares the risk with the bank and it ensures the borrower’s commitment to the success of the enterprise. Secondly, collateral serves as a secondary source of loan repayment in case of the worst case scenario of business failure. If the entrepreneur is collateral-resistant, he said, the bank perceives this as a lack of confidence on the part of the entrepreneur in his or her own business.
He added that the bank does, however, make provision for reduced collateral for emerging entrepreneurs who have not yet been able to build up a portfolio of assets, which can be pledged as collateral. The bank also accepts certain assets acquired with bank finance as collateral, he said.
“We firmly believe that good business is good for development and, as a part of this, what is given gets given back,” Mutumba concluded.