Development Bank looks at equity participation
The Development Bank of Namibia (DBN) is conducting research on how to provide capital to businesses through equity investments to complement the current practice in which the bank gives loans to businesses as start-up capital.
CEO Martin Inkumbi said the bank through the National Risk Facility (NRF) will provide capital by way of equity investments.
Through this facility, the DBN will take up shareholding in businesses and economic projects.
The DBN has so far limited its involvement in equity investment with the bank’s 10% shareholding in Ohorongo cement being the only notable investment thus far.
Inkumbi said the decision to look at the feasibility of the NRF was taken with the view that businesses often require funding in the form of equity rather than debt as many business projects are not at the stage where they can list on the Namibia Stock Exchange to raise capital.
“Further, the idea is to pool equity capital from various sources in Namibia and possibly foreign sources.
Therefore the NRF is expected to complement the activities of DBN and commercial banks in terms of availing financial capital for business activities,” Inkumbi said.
He added that a business often require funding in the form of equity capital rather than debt because equity funding does not put immediate pressure on the business in terms of repayment like a loan does.
“Therefore, equity funding allows the business to start and grow before equity providers can expect some form of repayments.
That is the main benefit the NRF which will provide finance in the form of equity capital offers, compared to debt funding provided by banks.” A consultant will soon be appointed to carry out a study to determine the demand for equity capital in the market and the quantum of such demand. The study will also look at other ancillary matters such as the nature of a typical business that requires equity and the impediments to the access of equity capital. Depending on the outcome of the first phase of the study, a second phase that will recommend the appropriate form of the NRF will be commissioned. Inkumbi said it was premature to give timelines on when the NRF will be established as this will depend on the readiness of the various partners to this exercise.