ADFIAP cited in Namibian DFI newsletter

ADFIAP was cited in the latest issue (October 2012) of the Development Bank of Namibia’s “Developments”, a monthly newsletter of the Bank.

In an article penned by DBN CEO David Nuyoma, https://www.dbn.com.na/index.php?option=com_content&view=article&id=397:2012-10-insight-afdaip&catid=21:articles-insight, he relates the experience of ADFIAP member-DFIs and mentions that the DBN fulfils the roles required of a development finance institution (DFI) and is comparable in effect to similar institutions across the world. The full article follows:

Earlier in the year, I had the opportunity to attend a gathering of heads of development financing institutions (DFIs). One of the sessions which struck me the most, was a presentation delivered by Octavio B. Peralta, Secretary General of the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP).

The idea which came through the strongest was the similarity between the mandates and missions of the Development Bank of Namibia (DBN) and many members of ADFIAP. Although the countries may differ, the mandates and requirements of institutional governance requirements are with a few deviations the same.

According to Peralta, the model DFI has four primary purposes: to foster an economic agenda, to assist in development of mechanisms which improve social development indicators, to assist in adaptation to changes in the environment, and to do so in a manner which is sustainable and ethical.

The economic purpose of the DFI is to finance MSMEs, agriculture, larger industry, infrastructure, development of technology and trade. DBN follows this agenda with two deviations.

Agriculture is dealt with by its counterpart, the Agricultural Bank, however DBN recognises the strategic role of food production, and so fosters food production through finance of agri-processing. The bank’s funding of the abattoirs, milling plants and dairy enterprises are testimonies in this regard.

DBN does not engage in direct financing of micro-enterprise, the ‘M’ in ‘MSME’, but makes available capital for apex financing, in other words financing for enterprises that lend onwards to micro-enterprises in a sustainable and ethical manner. This particular field of finance will be boosted by operations of the SME bank, which will bolster capacity to deal with the priority.

The social purpose, improvement of social development indicators, has several aspects which receive attention from DBN. In the past, the bank has been able to report on establishment of schools and health facilities, as well as a number of initiatives that indirectly support the requirements for provision of housing while reducing the cost of raw materials for building and making them more accessible across the regions. Yet perhaps the bank’s greatest source of pride has been to finance technology for NamPost Savings Bank, which, through the network of post offices, has increased its client base from 160,000 to 450,000 and with that partnership, has contributed very significantly to alleviating the pressing need for financial access.

Adaptation to changes in the environment and climate has been an underlying factor in many of the bank’s activities. Finance for semi-purification of water in Walvis Bay was one of the bank’s showcase projects. An active interest in agri-processing and food production as a strategic requirement for the future is another.

Namibia has yet to fully understand the adaptations required for climate change. According to various reports, Namibia may become either hotter and drier, or hotter and wetter. Both of these scenarios pose huge challenges for future operations in the financing sector, and should be viewed against the backdrop of the global rule of thumb that five per cent of GDP of nations will be required to adapt over the coming decades.

The results of DBN are due to the foresight of stakeholders at establishment of the bank. During that period, strong governance mechanisms were put in place in a way that they were able to drive day-to-day operation of the bank. During the initial phase, the directors of the bank and myself were fortunate enough to travel on fact-finding missions to establish case studies for successful DFIs and become aware of pitfalls to avoid.

Out of the knowledge that we gained, the bank adopted three strategies.

Firstly, a strong system of governance was put in place driven by a system of values. The system of governance ensures the integrity of the bank, and the values ensure that all members of the bank’s team know what the results of their activities and values should be. The values are also instrumental in enabling the bank to identify circumstances in which the bank can adapt to fulfil the needs of development as they change.

Secondly, the bank implemented mechanisms to support borrowers throughout the process, from the first application to the final payment of the loan. This includes risk mitigation to ensure that applications which will lead to bankruptcy of borrowers is avoided. It also entails business training for borrowers and strategic interventions to turn around larger entities which are in danger of failing.

Thirdly, the bank opted for a rigorous principle of self-sustainability by operating on commercial principles that ensure that the bank’s resource continues to grow through interest levied on loans. The accumulation is then put back into use to finance yet more projects. Although unpopular and implemented with tact and broadmindedness , the combination of collateral requirements, capital repayment and interest have been shown in all circumstances across the world to spur borrowers on to success. The alternative is capital which has to be replenished from the national coffers, and that is given without commitment on the part of the borrower.

DBN matches the model put forward by Octavio Peralta and the ADFIAP, but it has one additional impact which is worth considering.

In the course of its activities, the bank has also been able to develop new products for financing. Although a new product is a risk, the bank’s ability to absorb risk has been instrumental in showing the way for commercial sources of finance by finding and opening new segments. The bank’s activities have been particularly notable in the fields of SME finance, tender-based finance and finance for private sector health and education provision, which alleviate pressure of public sector resources.

Having observed the entrance of new players, like other financial institutions in this space, it is opportune for the DBN to move on and take advantage of new windows of opportunity in the financial market. In the history of development financing the world over, good development finance institutions have always been pioneers of introducing new products in markets previously considered high risk, and move on once others have seen the benefits.

The bank continues to find new fields of endeavour, and reaffirms its governance and values on a regular basis. In my speech at the 2012 Good Business Awards, I made an off-the-cuff remark that the bank would be a far larger organisation in the span of a few years. I am confident that DBN has the ability to continue gathering momentum and growing, and will be a very significant agency in the development of Namibia.