Government, in partnership with the participating commercial banking institutions and with financial support of the Bank of Namibia, on Friday announced the commencement of the Covid-19 SME loan scheme to the tune of N$500 million.
Minister of Finance Iipumbu Shiimi said the scheme is designed to assist Small and Medium Enterprises (SMEs) that are hard-hit as a result of the economic and social impact of the Covid-19 pandemic.
“The prevailing Covid-19 pandemic has not only exposed the vulnerability of small businesses and start-ups to external shocks, but it also reminds us of the importance of this sector in the economy and its role in supporting the livelihood of a large number of our people,” said Shiimi.
The Covid-19 loan scheme will be provided through the four commercial banks with a specific emphasis on the affordability of the loans provided.
Shiimi stated that the Bank of Namibia will play a crucial role in the roll-out of the Covid-19 loan scheme by availing funding to participating commercial banks at the prevailing repo rate.
He added that participating commercial banks will thus be able to extend loans to qualifying SMEs at the prime lending rate, which now stands at 7.5%. The obligation to pay interest and capital on these loans will be deferred for six months from the date of the first drawdown.
The loans, repayable over five years, are to enable qualifying SMEs to cover certain fixed costs and working capital during challenging operations in a Covid-19 environment.
“With interruptions in the regular flow of customers, small businesses are unable to receive the cash flow that is required to meet their contractual obligations,” the finance minister stated.
Meanwhile, participating commercial banks will earn zero economic profit as all profits will be deposited in a ring-fenced portfolio. As and when losses are recognised in the portfolio, the first loss will be absorbed by the ring-fenced profit account, while the second loss will be funded by the participating commercial banks up to a participation rate of 5%.
Shiimi noted that the third loss will be covered by the government guarantee, which will be settled on a portfolio basis at quarterly intervals.
“This SME loan scheme is affordable, thanks to the Bank of Namibia’s loan. The cost of borrowing, which is not to be more than the prime lending rate, overcomes the cost barrier as a binding constraint on access to finance for qualifying SMEs,” he explained.
To qualify for the scheme, an SME must be adversely impacted by the Covid-19 lockdown and will be required to demonstrate financial distress as part of the application process, must demonstrate that it has insufficient normal borrowing capacity to fully fund its monthly operating expenses, and must be a registered business entity, including sole proprietorships.
SMEs should have an annual turnover not exceeding N$10 million per annum, must have been in good standing with their bank before the onset of the pandemic and should be registered with the Receiver of Revenue.
“A certificate of good standing with the Receiver of Revenue will not be a mandatory requirement. However, the business is expected to comply with the tax obligations once its cash flow improves during the loan repayment period,” Shiimi explained.