Can pay, won’t pay – debt extension damages business
Unwarranted rescheduling of repayment of debts delays enterprise growth and capital formation of owners, says Development Bank of Namibia Communications Manager Jerome Mutumba, cautioning that it should only be considered in the utmost need.
“The Development Bank of Namibia (DBN) loans to enterprise are made with the mandate of the Bank in mind: to provide capital to enterprises that have a developmentally beneficial impact, particularly through creation of employment and development of infrastructure. However the Bank also has a duty to recover its capital from borrowers as the capital and interest repayment is then extended to other borrowers, who multiply development impact”, said Mutumba.
“In order to secure the long-term viability of emerging enterprise, the bank took measures to allow for debt rescheduling in the event of difficult operating conditions, particularly weather phenomena, such as major flooding which prevented northern enterprises from operating, and heavy rains which prevented SMEs from reaching payment milestones while completing infrastructure tenders. The primary purpose of rescheduling has been to ensure that enterprises continue delivering development impact, even though payments may be delayed. The secondary purpose has been to ensure that collateral, particularly in the form of fixed property is preserved. In the latter regard, the Bank actively seeks to prevent bankruptcy and its impacts on families, employees and communities”.
“Regrettably, there is a small number of entrepreneurs who abuse the concession of debt rescheduling even though they have the ability to repay loans. Delays in scheduled repayments, in spite of the ability to make repayments, indicate that the borrower is redirecting financial resources in spite of commitment to the terms of the loan. This can have two causes: personal expenditure and / or expenditure on other enterprises” he stressed.
Mutumba also said that both types of expenditure, at the expense of repayment to the bank, extend the period of repayment. “Rescheduling also increases the accumulated interest due to the bank. This places the enterprise at a disadvantage in the long term by reducing long-term profitability, and growth potential of the enterprise. In the case of personal expenditure, the bank counsels individuals not to make drawings against profits, but to provide for salary in the cash-flow projection, and preserve as much capital in the enterprise.