Nedbank Namibia, one of the country’s leading banks, is set to play a pivotal role in supporting small and medium enterprises (SMEs) through a pioneering programme initiated by the Namibia Special Risks Insurance Association (Nasria). Participating financial institutions seek to address a significant hurdle faced by SMEs – the lack of collateral to secure business loans from commercial finance entities.
In a landmark move aimed at revitalising the small-business sector, Finance and Public Enterprises Minister Iipumbu Shiimi unveiled the Credit Guarantee Scheme (CGS) for SMEs in 2020. The scheme is a collaborative effort between the Development Bank of Namibia (DBN), Nasria, and the Bank of Namibia. After being assessed as bankable and lacking only collateral, SMEs can be considered for collateral cover of 60% of their principal loan amount.
Nedbank Namibia Head of SME Banking, Sam Ikela provides further insight on the scheme “The CGS is a timely intervention designed to provide collateral cover for qualifying SMEs applying for loans from participating commercial finance institutions. Namibia has a burgeoning SME sector with enormous potential for success and economic growth. However, these businesses often lack the necessary collateral that traditional lenders demand to secure loans. This disconnect has stifled their growth and hindered their contributions to the economy. To bridge this gap, the CGS will ensure credit is granted to eligible SMEs, significantly reducing the collateral requirement,” Ikela said.
In his announcement, Minister Shiimi emphasised that this was a ‘smart partnership’ designed to offer a lifeline to SMEs struggling with collateral requirements. The scheme, which is funded with N$98 million in seed capital from the Namibian government and the Bank of Namibia, will provide collateral cover of 60% of the principal loan amount to qualifying SMEs. SMEs in Namibia are defined as businesses with between 1 and 200 employees and an annual turnover of up to N$10 million. These businesses, widely believed to be around 40 000 across the country, contribute significantly to the country’s economic growth and development. According to an online news article, the Namibia Statistics Agency states that SMEs contribute approximately 12% of the country’s GDP and employ over 200 000 people. SMEs are also a source of innovation and job creation, particularly in rural areas where formal employment opportunities are limited.
Nedbank, as a leading financial institution in Namibia, has taken an active role in the CGS as the bank’s application for a portfolio guarantee facility of N$20 million has been approved after a rigorous vetting process. Nedbank is now one of 2 commercial banks in the country offering this ground-breaking scheme to SMEs, and demonstrates the bank’s commitment to supporting the growth and development of the SME sector. Nedbank has a long history of engaging with the SME community, and this new initiative is another step in strengthening this partnership.
Nedbank’s participation in the CGS means that SMEs can now apply for business loans and be considered for collateral cover, effectively mitigating a significant hurdle in obtaining financing. The bank’s involvement is expected to not only encourage more SMEs to seek financial assistance but also contribute to the growth of the bank itself.
There are plans for more financial institutions to join the CGS, and this expansion is expected to give SMEs even more options when seeking financing and to foster competition among financial institutions, which could lead to better terms for borrowers.
While DBN, which was established to support SMEs, already offers relaxed collateral requirements to make financing accessible to many SMEs, the bank aims, with the involvement of other financial institutions like Nedbank, to reach a broader audience of SMEs who may have specific reasons to choose a commercial bank over a development bank. This decision aligns with the objective of providing widespread accessibility to SME borrowers.
Nasria Ltd, established in 1987 through a partnership between the short-term insurance industry and government, provides special risk insurance to bring about social and economic change. As a specialist in the field of insurance, Nasria will underwrite the scheme, providing an extra layer of security for participating financial institutions and, by extension, the SMEs they support.
In his address to launch the scheme, Minister Shiimi highlighted the importance of collective effort to address the challenges faced by the SME sector in Namibia, particularly during these trying times of economic downturn and the aftermath of the Covid-19 pandemic. He urged all stakeholders, including financial institutions, government bodies, and SMEs to work together innovatively to contribute to sustainable development and inclusive economic growth in Namibia.
“Nedbank’s involvement in the CGS represents a significant step forward in supporting the growth and development of SMEs in Namibia. By offering collateral cover to qualifying SMEs, Nedbank is not only contributing to the success of these businesses but also bolstering its own standing as a supportive and innovative financial institution,” says Ikela.
The CGS, with its emphasis on collaboration and smart partnerships, is poised to bring about positive changes in the SME landscape of Namibia. As more financial institutions come on board and SMEs gain easier access to the financing they need, the future looks brighter for the SMEs that are the backbone of the Namibian economy. Minister Shiimi’s call to action echoes the sentiment of collective responsibility, reminding us of that sustainable development and economic growth can be achieved when we work together.
“The CGS has the potential to be a game-changer for Namibia’s SMEs and the nation as a whole,” concludes Ikela.