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N$500 million COVID-19 SME Loan Scheme commences

N$500 million COVID-19 SME Loan Scheme commences

The Minister of Finance, Ipumbu Shiimi, recently said that the prevailing COVID-19 pandemic has not only exposed the vulnerability of small businesses and start-ups to external shocks, but it also highlights the importance of the sector in the economy.

Shiimi echoed this when he launched the commencement of the N$500 million COVID-19 SME Loan Scheme last week.

The scheme is part of government’s efforts designed to assist SMEs that are hard-hit as a result of the economic and social impact of the COVID-19 pandemic.

The initiative will see government partner with the participating commercial banking institutions and with the financial support of the Bank of Namibia.

“The Scheme complements the SME and entrepreneurship facilities which are already operational. These are, for instance, the skills-based lending facility for youth entrepreneurs; the funding facility for the 121 constituency-based youth enterprises launched last year in collaboration with the Ministry of Sport, Youth and National Service as well as the Credit Guarantee Scheme which was rolled out in August this year under the SME Financing Strategy. These products are administered by the Development Bank of Namibia on behalf of the Government,” he said.

According to Shiimi the Covid-19 Loan Scheme will be provided through the four commercials with a specific emphasis on affordability of the loans provided.

“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. Through this Scheme, participating commercial banks will thus be able to extend loans to qualifying SMEs at the prime lending rate, which now stands at 7.50 %. The obligation to pay interest and capital on these loans will be deferred for six months from date of the first drawdown. The loans are repayable over a period of 5 years. The purpose of the loan is to enable qualifying SMEs to cover certain fixed costs and working capital during this challenging time,” added.

According to Shiimi, 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%.

“The third loss will be covered by the government guarantee which will be settled on a portfolio basis at quarterly intervals. This demonstration of a true spirit of partnership during this time of national need for which I commend the participating commercial banks,” he explained.

Shiimi said to qualify for the Covid-19 Loan Scheme, an SME must:- Be adversely impacted by the lockdown and it will be required to demonstrate financial distress as part of the application process;
demonstrate that it has insufficient normal borrowing capacity to fully fund its monthly operating expenses; be a registered business entity, including sole proprietorships; have an annual turnover not exceeding N$10 million per annum; in good standing with their bank, prior to the onset of the Covid-19 pandemic in Namibia i.e. prior to 1 March 2020 and be registered with the Receiver of Revenue. A certificate of good standing with the Receiver of Revenue will not be a mandatory

However, he said the business is expected to comply with the tax obligations once its cash flow improves during the loan repayment period.

“The government is well aware of the potential of the SME sector and remains committed to supporting this important sector of our economy. We remain convinced that this important sector has the potential to contribute toward employment creation and poverty reduction. Namibia’s post-covid-19 recovery will in part depend on a thriving SME sector,” he concluded.


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