The mutual responsibilities of lending and borrowing
By Jerome Mutumba
DBN Executive for Marketing and Corporate Communication.
In the wake of emerging calls for write-offs of loan repayments for small and medium enterprises issued with the purpose of enhancing Namibia’s development, economic activity and prosperity the Development Bank amplifies important aspects of mutual responsibility for lending and borrowing, which must be factored into the concept of development finance.
There is a distinction between finance for development and commercial finance. Finance for development will be allocated with the goal of supporting and enhancing economic activity, while commercial finance in the main will have the goal of achieving returns for the lender, without the natural preoccupation to impact development. Both, however, will have the prerequisite of returns on capital, in order to sustain their operations. In the event of loans that are not repaid, both development and commercial finance will fail.
In making the choice between sources of commercial or development finance, the borrower will envisage the same outcome, regardless of the source of finance: a viable enterprise that will be a source of financial growth and income. The choice of lender, on the other hand, may influence the terms of the loan in favour of the borrower. A development finance institution (DFI) may, for instance, accept a greater degree of risk, offer capacity development services to borrowers and offer flexibility on repayment.
In order to qualify for a DFI loan, the borrower has to recognise the goals of development finance, and ensure that she or he 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 the DFI’s development goals, such as employment, development of capital, economic activity and other factors.
As a lender, the DFI will have the additional consideration of its own sustainability. It has the moral, patriotic 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. What is given, gets given back. In the case of DBN, the Bank endeavours to recover all public money that it lends out.
As the benefits of development finance are allocated from a common national resource, with the broader goals of development impact that extends beyond the owner and the DFI. Both the lender and the borrower must hold themselves responsible.
However, when enterprises do experience difficulty, this is rapidly identified by the Bank, at which stage the Bank will approach the borrower to examine the source of the business challenge and try to rectify the situation, rather than immediately call up the debt and recover it through a legal process.
Once the impact of Covid-19 became clear the Bank rapidly implemented repayment holidays and extended loan repayment periods to reduce the monthly debt burden on SMEs as well as tourism and hospitality borrowers. It subsequently launched Covid-19 Business Recovery Loans.
When the Bank has in a few instances experienced difficulty with loans, it is often as a result of a number of factors, but mainly attributable to a lack of administrative skills and capacity from the side of the entrepreneurs. The Bank has taken steps to rectify this with the implementation of a Mentoring and Coaching Unit which provides capacity building in the form of mentorship and coaching, through a network of experts in various fields on business management.