The Development Bank of Namibia (DBN) says Namibia’s SME sector still faces greater challenges that impact its growth and development, rather than the Bank’s delayed implementation of its Venture Capital Fund (VCF).
“With the pandemic, the market for many SMEs and many other businesses suddenly disappeared. Restaurants had no customers, construction activity decreased and consumers delayed big purchases. Access to funding cannot bring back market demand. Funders will not extend debt or equity finance if there is not a clear indication that a business will eventually be able to repay,” DBN Head of Marketing and Corporate Communication Jerome Mutumba told The Brief.
“As a result, even if the VCF had already been operational, it would have been unlikely that the fund would have made significant investments to date.”
He said recommendations by the national Business Rescue Task Force will be key in assisting the sector to grow.
“To try to help keep struggling businesses afloat, the national Business Rescue Task Force was established by the President. Their recommendations will be critical in helping the SME sector to survive and grow,” Mutumba said.
He said the VCF will only support a very specific type of SME that is expected to grow to a large company fairly quickly.
“It is also important to note that the VCF is meant to provide equity financing to high growth small and medium enterprises in Namibia, whereas most SMEs in Namibia are lifestyle businesses with no prospects for growth beyond the current scale. Therefore, the VCF will only be able to support a very specific type of SME (that is expected to grow to a large company fairly quickly), meaning that the ultimate impact on the SME sector will remain small, while the impact on Namibia’s economy as a whole is expected to be meaningful,” Mutumba said.
Namibia’s SME Financing Strategy was developed in August 2020 and launched by the Ministry of Finance, and mandated the DBN to implement it.
The financing strategy comprises three complimentary components, the Credit Guarantee Scheme (CGS), the VCF and the Mentoring and Coaching Programme (MCP).
The bank has not implemented the VCF after deciding to focus on the CGS and the MCP first.
“This decision was based on limited fiscal space to fund all the SME Financing Strategy initiatives and the time and resources to implement the three pillars. The CGS was viewed as a low-hanging fruit since the major reason for SMEs failing to obtain bank loans was lack of collateral,” Mutumba said.
