Financing innovation a must for economic growth
By Jerome Mutumba /
As the economy evolves and as new needs become apparent, it’s vital that enterprise and infrastructure finance evolves as well.
If not for this evolution, the economy will begin to lag in terms of providing an enabling environment for economic activity, solving issues, and in terms of national competitiveness on the regional and global stages.
The ability of finance to adapt to the changing Namibian economy and enterprise ecosystem is hampered by two factors.
Firstly, commercial sources of finance are risk avoidant. Their duty to their investors is to deliver consistent returns, and to protect their customers in delivering fixed interest rates on savings and borrowing. All capital advanced or deployed has to be in a measured risk environment and adhere to the regulatory measures of central monetary policy.
Secondly, although the funds subsector is developing, there is limited space for venture capital, in which high returns to successful enterprise investments can offset losses and low returns on unsuccessful enterprises. This biases venture capital to smaller investments with lower risks.
As a result, the Development Bank of Namibia has adopted the role of pioneering avenues of finance and absorbing risk on innovative forms of finance for enterprise and infrastructure.
Although the Development Bank of Namibia operates competitively it takes pride in pioneering financing models that are adopted by other sources of commercial finance.
The Bank accepts that its models will be replicated in terms of its mandate, to foster economic and social wellbeing in Namibia. Through its models, the bank effectively mitigates the risk of finance within the sector or financing space and leads by example.
Notable examples of this include finance for privately owned renewable energy facilities as well as contract or tender-based finance, the latter in terms of which contracts are financed on the basis of revenue streams from the contract.
However, the Bank takes a cooperative approach from time to time.
In the past it has provided stimulus for SME finance in the form of tranches of capital to two commercial banks to foster on-lending to SMEs. The Bank also administers the Credit Guarantee Scheme (CGS) which is offered by First National Bank and Standard Bank. The CGS reduces the collateral requirement by 60% for qualifying SMEs.
However, the Bank is a leader in the enterprise financing industry in other respects that extend beyond pure financing. The Bank was the first to package mentoring and coaching with finance to enhance sustainability of SMEs, and the first to implement environmental and social management in its financing decisions.
In terms of addressing current economic issues, the Bank has pioneered land servicing in PPP models, skills-based finance for young artisans and professionals and is actively promoting agri-industry to support primary agriculture and food security.
The latter takes the form of manufacturing inputs and services for agriculture, agricultural infrastructure and processing of agricultural produce.
The Bank’s track record in the field of ICT and transformation includes finance for Nampost’s biometric system that substantially expanded access to banking, finance for Namibia’s second mobile provider (Cell One), as well as finance for internet service providers and ICT companies.
Looking ahead, the Bank is actively researching a financial product to promote access to finance and inclusive economic participation for women and youths.
The Bank’s success in innovating finance is rooted in its deep understanding of the sectors and enterprises that form its ecosystems. Aside from its own substantial body of experience, this is also embodied in its Project Preparation Fund.
Taken together, the track record of the Development Bank in innovating, as well as its experience and its role as a brains trust indicates that the future of the Namibian economy and the financing sector is in good hands.
– Jerome Mutumba is the senior marketing and communication officer at Development Bank of Namibia.
