Collateral lifeline for SMEs
New credit guarantee scheme launched
19 August 2020 | Business
The rationale behind the scheme is that there are SMEs with excellent prospects for success and viable business plans, but that lack the necessary collateral to obtain loans.
Commercial finance institutions require collateral to ensure that their capital is preserved should an SME be unable to repay their loan. But by insuring credit granted to qualifying SMEs, the scheme reduces the collateral requirement for qualifying SMEs.
According to finance minister Ipumbu Shiimi, the scheme is a smart partnership between the Development Bank of Namibia (DBN), Namibia Special Risks Insurance Association (NASRIA) and participating financial institutions. This partnership will be funded with N$98 million seed capital from government and the Bank of Namibia.
Shiimi said SMEs will have to apply for business loans at participating financial institutions. Once being assessed as bankable and only lacking collateral, the SME can be considered for collateral cover of 60% of the principal loan amount.
At the moment the scheme is available from First National Bank of Namibia (FNB). A second financial institution has been approved for participation, but will only be available once contractual matters are finalised.
DBN chief executive Martin Inkumbi said the scheme is designed to provide accessibility to SME borrowers, and thus participation was offered to private sector lenders such as FNB and others. He added that SMEs will be assessed in line with the participating financial institution’s credit (business loan) risk policies and procedures.
The scheme will be underwritten by NASRIA Ltd., while DBN provides expert support during the adjudication of claims.
Shiimi said that collective efforts from all stakeholders will ensure that the challenges that the SME sector faces are addressed effectively, including overall inclusive economic growth and social development, particularly during this seriously challenging time.