Half-a-billion SME loan scheme launched
23 November 2020 | Business
Namibia’s post-covid-19 recovery will in part depend on a thriving SME sector. – Iipumbu Shiimi, Finance minister
Speaking at the launch, finance minister Iipumbu Shiimi pointed out that the scheme is designed to assist SMEs that are hard-hit as a result of the economic and social impact of the Covid-19 pandemic.
“The prevailing Covid-19 pandemic has not only exposed the vulnerability of small businesses and start-ups to external shocks, but it also reminded us of the importance of this sector in the economy and its role in supporting the livelihood of a large number of our people,” he said.
The scheme complements the SME and entrepreneurship facilities which are already operational. “These are, for instance, the skills-based lending facility for youth entrepreneurs, the funding facility for the 121 constituency-based youth enterprises launched last year in collaboration with the Ministry of Sport, Youth and National Service.
“It also includes the credit guarantee scheme which was rolled out in August this year under the SME financing strategy. These products are administered by the Development Bank of Namibia (DBN) on behalf of the government,” Iipumbu said.
INTEREST RATE, RISK
The BoN will play a crucial role in the roll-out of the Covid-19 loan scheme by availing funding to the participating four commercial banks at the prevailing repo rate.
The commercial banks will thus be able to extend loans to qualifying SMEs at the prime lending rate, which now stands at 7.5%. The obligation to pay interest and capital on these loans will be deferred for six months from date of the first drawdown.
The loans are repayable over a period of 5 years. The purpose of the loan is to enable qualifying SMEs to cover certain fixed costs and working capital during this challenging time.
The four participating commercial banks will earn zero economic profit as all profits will be deposited in a ring-fenced portfolio. When losses are recognised in the portfolio, the first loss will be absorbed by the ring-fenced profit account, while the second loss will be funded by the participating commercial banks up to a participation rate of 5%.
The third loss will be covered by the government guarantee which will be settled on a portfolio basis at quarterly intervals. This is a demonstration of a true spirit of partnership during this time of national need, Iipumbu said.
To qualify for the scheme, the SME must have been adversely impacted by the lockdown and it will be required to demonstrate financial suffering as part of the application process.
It should also be able to demonstrate that it has insufficient normal borrowing capacity to fully fund its monthly operating expenses and be a registered business entity, including sole proprietorships.
Moreover, the SME should have an annual turnover not exceeding N$10 million per annum, be in good standing with their banks prior to the onset of the Covid-19 pandemic in Namibia and be registered with the Receiver of Revenue.
However, the business is expected to comply with the tax obligations once its cash flow improves during the loan repayment period.
The government is well aware of the potential of the SME sector and remains committed to supporting this important sector of the Namibian economy, Iipumbu said.
“We remain convinced that this important sector has the potential to contribute toward employment creation and poverty reduction. Namibia’s post-covid-19 recovery will in part depend on a thriving SME sector,’’ Iipumbu concluded. [email protected]