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The mutual responsibility of lenders and borrowers

The mutual responsibility of lenders and borrowers

By Jerome Mutumba
DBN Executive for Marketing and Corporate Communication.

In the wake of the repeated calls for write-offs of loan repayments for small and medium enterprises issued to enhance Namibia’s development, economic activity, and prosperity, Development Bank of Namibia (DBN) Executive for Marketing and Corporate Communication, Jerome Mutumba, has amplified important aspects of mutual responsibility for lending and borrowing, which must be factored into the concept of development finance.

The Development Bank of Namibia’s emphasis on mutual responsibility in lending and borrowing for small and medium enterprises (SMEs) in Namibia reflects a nuanced understanding of development finance. Mutumba explains that the emphasis on mutual responsibility underscores the multifaceted nature of development finance, where lending is not just about providing funds but also about fostering accountability, sustainability, and positive developmental outcomes.

The loans issued to SMEs are aimed at enhancing Namibia’s development, economic activity, and prosperity. This implies that there is a specific developmental agenda behind the loans, which goes beyond mere financial transactions. The Bank recognizes the importance of directing financial resources towards projects and businesses that contribute positively to the country’s overall development goals. Mutumba explained that there is a distinction between finance for development and commercial finance. “Finance for development will be allocated to support and enhance 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.” He however stressed that both will have the prerequisite of returns on capital, to sustain their operations. “In the event of loans which are not repaid, both development and commercial finance will fail,” Mutumba said.

By highlighting mutual responsibility, the DBN underscores the shared obligations between lenders (the Bank) and borrowers (SMEs). This includes responsibilities such as transparent communication, adherence to agreed-upon terms and conditions, diligent utilization of loan funds for their intended purposes, and timely repayment. This concept of mutual responsibility also encompasses prudent risk management. The Bank must ensure that loans are extended based on a careful assessment of risks and that borrowers have a viable repayment plan. This helps mitigate the risk of non-performing loans, which is essential for the sustainability of development finance initiatives. Mutual responsibility extends to ensuring that loans contribute to long-term sustainable development outcomes.

In choosing 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.

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 sustainability. It has the moral, patriotic, and economic obligation to preserve its 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, Mutumba emphasizes. In the case of DBN, the Bank endeavours to recover all public money that it lends out.

Mutumba also pointed out that the benefits of development finance are allocated from a common national resource, with the broader goals of development impact that extend beyond the owner and the DFI. Both the lender and the borrower must hold themselves responsible.


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