AN Evaluation of Commercial Banks Lending to The Productive Sectors: Evidence From Namibia

ABSTRACT

The primary objective of this study is to evaluate the commercial banks on lending to the productive sectors in Namibia. The problem that the study has identified is that the commercial banks are reluctant to lend to the productive sectors of the economy. Most of the deposits that are mobilised locally by the commercial banks are not used to develop the domestic economy. Commercial banks in Namibia do not see it as their business to lend to risky long-term investments which are the driving force of the economy. This study reviews the main barriers to credit allocation to the private sector, small and medium enterprises, and the productive sectors. It also examines the extent to which the expansion of financial institutions offices, and improved links between these and the informal financial sector, could help to fill the credit gap. The quantitative approach analyses the data from bank’s annual reports. Qualitative approach is used through semistructured interviews to get the relevant information required for the study. In addition to the issue of access, the study observed that the issue of collateral played a crucial role in SME access to bank credit. Commercial banks insist on the “strict” form of collateral (insurance, salary/income, investment guarantees) which the SMEs cannot afford. Several actions, policies and recommendations are suggested to address these obstacles. The study suggests that it is necessary to establish the Development Bank of Namibia to avail financial resources to productive sectors of the economy in order to propel the iii country’s growth. The study reviewed initiatives that relates to venture capital taking place in Namibia and outlines some of the potential areas in which venture capital can play a role in the Namibian economy. It also reviewed different forms of private equity and established that there is a scope for the private activities in Namibia in both venture capital and non-venture capital forms. However, it suggests that the venture capital component could be the most appropriate vehicle for Namibia. This is so as venture capital ordinarily known to be critical in the promotion of start-up companies, which seems to be more important in the case of Namibia. The study points out that the situation in Namibia is not a lack of funds but rather the perceived level of risks by banks in lending, especially to new clients. Finally the study recommends that Government should institute laws and regulations to encourage the sharing of credit information amongst lenders and credit bureaux. These calls for a review of the existing laws to enable lenders develop some level of confidence in borrowers and the design of targeted mechanisms to reach hitherto excluded populations.