Access to finance major stumbling block for business
For a small business in the informal economy, 31% said it was impossible to get a business loan, while a further 28% found it difficult.
The creation and expansion of sustainable enterprises require access to financial resources.
SMEs are an important part of developing economies as they help to address the challenges of employment growth and income distribution. They are a key source of dynamism and innovation but face difficulties due to high transaction costs, and the lack of instruments with which to manage risk, the Enabling Environment for Sustainable Enterprises (EESE) report states.
The survey was spearheaded by the International Labour Organisation (ILO) and the Namibian Employers’ Federation (NEF) and its findings published last year.
A total of 683 respondents participated in the survey. Compared to EESE surveys conducted in other African countries, this is an extremely representative sample, according to the ILO. Of the participants, 404 were business owners or partners, 155 were managers and 124 employees. Included were 263 from the SME sector, 206 from large enterprises, 100 from the informal sector.
The survey was conducted in Khomas, Erongo, Omusati, Oshana, Kavango East and Oshikoto. 600 of the interviews were conducted face to face. Sectors covered included agriculture, wholesale and retail, manufacturing, tourism, mining, financial services, health and business services.
Access to microfinance has been identified as a determinant of the sustainability and growth of SMEs, the report states.
“The informality of most SMEs contributes to their difficulty in accessing finance, their assets remain undocumented and cannot be used as collateral in formal financial institutions,” according to the EESE report.
Credit to the private sector continues to expand, in line with GDP growth in Namibia.
Findings
The EESE survey findings also provide evidence that access to finance presents a challenge for businesses in Namibia, across all sectors but particularly for SMEs and enterprises in the informal economy.
When asked about whether financial sector policies were conducive to the growth of small enterprises, 31% said they did not know while 30% thought they were hardly or not conducive. About 7% stated they were conducive and 1% thought they were very conducive.
In general business loans were thought to be hard to obtain for a small formal business, though business insurance was easy for 25%, the report states.. Most respondents answered that they did not know when asked about equity capital and lease financing.
For a small business in the informal economy, 31% said it was impossible to get a business loan, while a further 28% found it difficult and 35% said they did not know.
Only 4% described the access to finance for small informal businesses as easy or very easy. There was little variation in these results according to the type of business the respondent belonged to, the reports states.
When asked about the kind of enterprise that was less likely to have access to formal finance the results were mixed: 37% stated that they would find no difference between the likelihood of accessing credit between men and women, either young or above the age of 30 and 32% overall saying they didn’t know. In general, there seemed to be the belief that youth were more likely to access formal finance, according to the EESE survey.
Respondents were asked about their preferred source for a loan for a new business idea. About 35% stated that they preferred to use their own savings, with another 25% naming the bank as their first choice.
Only 2% named micro-lenders as their first choice. Large enterprises preferred to seek funding from a bank while SMEs and informal enterprises preferred the use of their own savings, the report states.
Insufficient collateral was identified as the biggest problem for entrepreneurs, alongside the inability to provide the required information. Having their business plan rejected or insufficiently prepared was also found to be a recurring problem, according to the survey.
Indices
The share of “Domestic Credit to Private Sector” in Namibia’s GDP has shown a gradual growth between 2009 and 2015, going from 48.65% to 53.79%, according to the report.
Malawi is low at 12.20 for 2015, while Botswana is also lower than Namibia at 33.85 for the same year. The Sub-Saharan average was 45.98 for 2015, and South Africa was far above this at 149.18, surpassing the world average at 128.85% in 2015.
The “Depth of Credit Information Index” measures rules affecting the scope, accessibility, and quality of credit information available through either public or private credit registries.
On a scale from 0 to 8 where higher values indicate better performance, Namibia performs very well moving from 6 in 2013 to 7 in 2016. Botswana has remained steady at 6, while South Africa was at 8 in 2013 and moved to a value of 7 for 2016. Malawi has a value of 0 for these years.
The “Interest Rate Spread” indicator measures the difference between lending rate and deposit rate.
In 2015, Namibia’s interest rate spread was estimated at 4.61% compared with 5.45 for Botswana, 3.26 for South Africa, a Sub-Saharan average of 6.77 and 32.79% for Malawi.
Financial inclusion
Financial inclusion refers to improving the access to financial resources for vulnerable groups, and low income sections of the population, including timely and adequate credit at an affordable cost.
Among a series of other measures to promote financial inclusion and poverty reduction, the Bank of Namibia (BoN) introduced the Namibia Financial Sector Strategy to run from 2011-2021. This introduces reforms to the financial sector in order to improve regulatory frameworks for banks and non-banking financial institutions, savings mobilisation, and increasing the access to credit for SMEs and the general public.
The BoN is the national central bank and is responsible for regulating the banking sector and maintaining the overall health of the banking infrastructure in Namibia.
The commercial banking sector is well developed, and has weathered the financial crises of recent years well, the EESE report states.. Most commercial banks operating in Namibia are South African-owned. The Development Bank of Namibia (DBN) provides credit lines for start-ups and expansions of private sector interests. Funding for SMEs and bulk finance to microfinance providers is also managed by the DBN.
According to a survey cited by the Africa Development Bank (AfDB), the proportion of financially excluded persons in Namibia fell from 51.7% of the population in 2007 to 31% in 2011.
“Savings mechanisms and other financial services are provided by institutions other than banks, such as the post office system. Growth in mobile telephony has led to increased transactions over the phone and greater financial inclusivity. However low financial literacy, lack of collateral and limited demand for financial services due to low incomes continue to result in poor access to finance,” the report states.
SMEs are an important part of developing economies as they help to address the challenges of employment growth and income distribution. They are a key source of dynamism and innovation but face difficulties due to high transaction costs, and the lack of instruments with which to manage risk, the Enabling Environment for Sustainable Enterprises (EESE) report states.
The survey was spearheaded by the International Labour Organisation (ILO) and the Namibian Employers’ Federation (NEF) and its findings published last year.
A total of 683 respondents participated in the survey. Compared to EESE surveys conducted in other African countries, this is an extremely representative sample, according to the ILO. Of the participants, 404 were business owners or partners, 155 were managers and 124 employees. Included were 263 from the SME sector, 206 from large enterprises, 100 from the informal sector.
The survey was conducted in Khomas, Erongo, Omusati, Oshana, Kavango East and Oshikoto. 600 of the interviews were conducted face to face. Sectors covered included agriculture, wholesale and retail, manufacturing, tourism, mining, financial services, health and business services.
Access to microfinance has been identified as a determinant of the sustainability and growth of SMEs, the report states.
“The informality of most SMEs contributes to their difficulty in accessing finance, their assets remain undocumented and cannot be used as collateral in formal financial institutions,” according to the EESE report.
Credit to the private sector continues to expand, in line with GDP growth in Namibia.
Findings
The EESE survey findings also provide evidence that access to finance presents a challenge for businesses in Namibia, across all sectors but particularly for SMEs and enterprises in the informal economy.
When asked about whether financial sector policies were conducive to the growth of small enterprises, 31% said they did not know while 30% thought they were hardly or not conducive. About 7% stated they were conducive and 1% thought they were very conducive.
In general business loans were thought to be hard to obtain for a small formal business, though business insurance was easy for 25%, the report states.. Most respondents answered that they did not know when asked about equity capital and lease financing.
For a small business in the informal economy, 31% said it was impossible to get a business loan, while a further 28% found it difficult and 35% said they did not know.
Only 4% described the access to finance for small informal businesses as easy or very easy. There was little variation in these results according to the type of business the respondent belonged to, the reports states.
When asked about the kind of enterprise that was less likely to have access to formal finance the results were mixed: 37% stated that they would find no difference between the likelihood of accessing credit between men and women, either young or above the age of 30 and 32% overall saying they didn’t know. In general, there seemed to be the belief that youth were more likely to access formal finance, according to the EESE survey.
Respondents were asked about their preferred source for a loan for a new business idea. About 35% stated that they preferred to use their own savings, with another 25% naming the bank as their first choice.
Only 2% named micro-lenders as their first choice. Large enterprises preferred to seek funding from a bank while SMEs and informal enterprises preferred the use of their own savings, the report states.
Insufficient collateral was identified as the biggest problem for entrepreneurs, alongside the inability to provide the required information. Having their business plan rejected or insufficiently prepared was also found to be a recurring problem, according to the survey.
Indices
The share of “Domestic Credit to Private Sector” in Namibia’s GDP has shown a gradual growth between 2009 and 2015, going from 48.65% to 53.79%, according to the report.
Malawi is low at 12.20 for 2015, while Botswana is also lower than Namibia at 33.85 for the same year. The Sub-Saharan average was 45.98 for 2015, and South Africa was far above this at 149.18, surpassing the world average at 128.85% in 2015.
The “Depth of Credit Information Index” measures rules affecting the scope, accessibility, and quality of credit information available through either public or private credit registries.
On a scale from 0 to 8 where higher values indicate better performance, Namibia performs very well moving from 6 in 2013 to 7 in 2016. Botswana has remained steady at 6, while South Africa was at 8 in 2013 and moved to a value of 7 for 2016. Malawi has a value of 0 for these years.
The “Interest Rate Spread” indicator measures the difference between lending rate and deposit rate.
In 2015, Namibia’s interest rate spread was estimated at 4.61% compared with 5.45 for Botswana, 3.26 for South Africa, a Sub-Saharan average of 6.77 and 32.79% for Malawi.
Financial inclusion
Financial inclusion refers to improving the access to financial resources for vulnerable groups, and low income sections of the population, including timely and adequate credit at an affordable cost.
Among a series of other measures to promote financial inclusion and poverty reduction, the Bank of Namibia (BoN) introduced the Namibia Financial Sector Strategy to run from 2011-2021. This introduces reforms to the financial sector in order to improve regulatory frameworks for banks and non-banking financial institutions, savings mobilisation, and increasing the access to credit for SMEs and the general public.
The BoN is the national central bank and is responsible for regulating the banking sector and maintaining the overall health of the banking infrastructure in Namibia.
The commercial banking sector is well developed, and has weathered the financial crises of recent years well, the EESE report states.. Most commercial banks operating in Namibia are South African-owned. The Development Bank of Namibia (DBN) provides credit lines for start-ups and expansions of private sector interests. Funding for SMEs and bulk finance to microfinance providers is also managed by the DBN.
According to a survey cited by the Africa Development Bank (AfDB), the proportion of financially excluded persons in Namibia fell from 51.7% of the population in 2007 to 31% in 2011.
“Savings mechanisms and other financial services are provided by institutions other than banks, such as the post office system. Growth in mobile telephony has led to increased transactions over the phone and greater financial inclusivity. However low financial literacy, lack of collateral and limited demand for financial services due to low incomes continue to result in poor access to finance,” the report states.
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