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Development Bank unpacks lender/loaner relationship

Development Bank unpacks lender/loaner relationship

Development Bank of Namibia said in the wake of recent reports of lapses in repayment of debt on small and medium enterprise loans they have clarified the important aspects of mutual responsibility for lending and borrowing, which must be factored into the concept of development finance.

Jerome Mutumba, Senior Communication Manager at the Bank said that there is a distinction between finance for development and commercial finance and therefore making the choice between sources of commercial or development finance, the borrower will envisage the same outcome, regardless of the source of finance.

“A development finance institution (DFI) may for instance, accept a greater degree of risk, offer capacity development service to borrowers and under exceptional circumstance, offer flexibility on contracted terms of repayment,” added Mutumba

Mutumba said that in order to qualify for a DFI loan, the borrower has to recognise the goals of development finance, and ensure that they can fulfil those requirements. The first cut decision of development finance will be a clear indication that the borrower can satisfy the terms of the loan.

“If not, the borrower will not be able to satisfy development goals, such as employment, development of capital, economic activity and other factors,” he added.

He said as a lender, the DFI will have the additional consideration of its own sustainability. It has the moral and economic obligation to preserve its own capital, as well as collect interest, which will be used to sustain and grow its operational capacity, by providing more loans to a greater number of borrowers. In this way, the agreement between the borrower and the DFI must be mutual, to produce the best possible outcome for both.

Mutumba pointed out that as the benefits of development finance are allocated from a common resource, such as the national coffers, with the broader goals of development benefits that extend beyond the owner and the DFI, the finance is at the heart of an Ubuntu in which the benefit extends beyond the two parties to the loan. Both entities have to be aware of the Ubuntu.

With post-lending, Mutumba said that the Bank maintains relationships with borrowers. In addition to monitoring of repayment, visits can be used to ascertain that the application of capital disbursed by the Bank is used for the purpose for which it is intended.

Mutumba said that the Bank’s track record shows that the partnership between it and its borrowers is sound, and provides developmentally beneficial results. However, he challenges stakeholders to use the Bank’s anti-fraud mechanism, if they believe there are irregularities in transactions.

About The Author

Mandisa Rasmeni

Mandisa Rasmeni has worked as reporter at the Economist for the past five years, first on the entertainment beat but now focussing more on community, social and health reporting. She is a born writer and she believes education is the greatest equalizer. She received her degree in Journalism at the Namibia University of Science and Technology (NUST) in June 2021. . She is the epitome of perseverance, having started as the newspaper's receptionist in 2013.

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