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DBN Explains Its Financing Approach

January 17, 2014

The Development Bank of Namibia has quashed assertions that its financing is often extended to well-connected individuals, saying it always follows an exact set of requirements on a fair and transparent basis of sound business principles. "Finance is approved for enterprises that are most likely to fulfil its mandate of creating employment, spreading ownership to formerly disadvantaged Namibians and stimulating enterprise in regions that need greater levels of economic activity. If the bank is satisfied that the enterprise fulfils these requirements, it will consider the viability of the proposal. If the proposal is not viable, the application will be declined," said the bank's communications manager, Jerome Mutumba . Applications are declined for businesses that are bound to be short lived, as it makes more sense to finance businesses with long-term prospects. In addition, the bank would not expose itself to financial risks as it has to consider the financial security of the prospective shareholders and their dependants. "The wisdom of this approach can be seen in the fact that most enterprises financed by DBN are still in operation today," said Mutumba. DBN's primary assessment is based on a sound business plan that demonstrates that the applicant has considered a wide range of operational and managerial aspects, in addition to realistic cash flow projections. Unfortunately, many promoters sidestep the effort by relying on consultants without making their own contributions to the plans. These standard business plans are easy to recognise, and an interview with the applicant can quickly confirm the reality of the plan and the applicant's understanding. DBN says it recognises that consultants can alleviate the burden for clients, but strongly urges applicants to take an active role in developing the business plan to ensure that the plan is realistic and reflects the abilities and experience of the applicant. In this regard, CVs of applicants and managers are also very important. DBN says it has seen different business promoters advancing similar business plans, which could be an outcome of plans developed by the same consultants. It also takes time before DBN makes a final decision as it has to carry out due diligence and reference checks, while at times the bank has to assist the applicant to restructure a business concept and implementation strategy to improve the risk profile and the project's bankability. "Unlike applications for personal finance, for instance a car loan, overdraft or even a mortgage loan, where a bank only considers the salary and expenditure patterns of the applicant, business loans are complex because business revenue, the source of repayment, can be adversely impacted by various factors that DBN needs to consider," he said.

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Source: AllAfrica

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