New Hope for SMEs
Tuesday, September 13, 2005
The Small Business Credit Guarantee Trust (SBCGT) is to be transformed into a finance institution that will provide financial services to Small and Medium Enterprises (SMEs).
As early as next year, the trust, which will also undergo a name change to be more reflective of its new role, will start lending money to SMEs.
The institution will lend out money to individuals and groups at market related interest rates to avoid market distortions.
As a micro lending institution, the new company’s core products would be credit guarantee facility, individual business loans, group business loans and group savings. It will guarantee loans to individual SMEs for commercial bank loans of between N$75 000 and N$250 000. It will also give individual business loans of two levels, namely Level 1 (from N$30 000 to N$50 000) and Level 2 from N$50 001 to N$75 000. (Note: Namibian $1 equals about US $0.15.)
The group-based loans will include two levels, with Level 1 loan starting from N$5 000 to N$15 000, while Level 2 loan will be N$5 001 up to N$30 000.
The group savings will be mandatory through the taking of weekly deposits.
The transformation of the trust comes after consultants carried out a review of its operations to establish the performance of the trust against its objectives and targets and determine options available for accessing by micro, small and medium enterprises in Namibia, on a basis that is both operational and sustainable.
Chief executive officer of the SCGTF, Onesmus Upindi told New Era on Friday that the trust would be transformed from a project into a sustainable financial institution that aims at serving the micro, small and medium enterprises.
Upindi said the new institution, whose name has already been reserved, should be able to sustain its activities both financially and operationally with minimum subsidies in terms of technical assistance for a period of less than two years.
The trust will however continue with the function it was created for – guaranteeing loans. Upindi said that the trust would continue facilitating access to credit for the target client through a guarantee facility arrangement with conventional lending institutions covering the whole of Namibia, but on terms that ensure proper management of portfolio performance, proper risk management and direct involvement of the trust.
The objectives of the transformation are to promote economic diversification through the inclusion into the scheme of small-holder farmers who are in need of capital to expand their activities; to provide support to those who want to venture into non traditional activities and services such as aquaculture and tourism; to reduce current dependency of the trust on government and also to create an appropriate institutional legal form that will serve as a suitable financial intermediary for SMEs, through which the private sector, donors and other social partners can continue to play a supporting role to SMEs.
This will come as a relief to SMEs, which especially face difficulties in accessing credit from the country’s finance institutions due to the risk that is associated with starting up enterprises.
In most cases, said Upindi, all emerging SMEs have a business plan with projections.
In this, the trust has identified a gap in the financial market in that commercial banks are not prepared to give smaller loans.
Although the new financial institution will also get collateral from its clients, Upindi said the trust has structured it in such a way that it does not put more pressure on businesses. For group lending, the institution will get group collateral. Upindi said the trust is also looking at borrowers keeping cash savings, for example amounting to 30 percent of the money they intend to borrow in case of defaults.
It will also look into using one’s household goods as collateral.
The trust will identify a number of potential social investors who buy into the idea of seeing SMEs succeed and contribute to poverty reduction. The trust CEO also said there would be talks with some commercial banks who want to outsource the lending function so they can concentrate on their core business.
The new company will need to mobilise financial resources to operate, which initially may be sourced from the government in the form of a loan, grant or guarantee before it can talk to investors.
“Outsiders want to see government commitment and tangible results before they can get involved,” he added.
Before coming in, Upindi noted that investors would send in a rating mission to check the institution’s repayment, management, governance, skills of workers, as well as its relationship with the State.
The origins of the SBCGT date back to a Cabinet decision of 1997, which aimed at increasing the rate of growth of existing small businesses to enable them to employ additional labour and help the self-employed to develop into businesses that will employ others.