Section 1:
Introduction to the Study

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This study has been conceived as an update of the research carried out by the Namibian Economic Policy Research Unit (NEPRU) in late 1995, discussed at a Joint Consultative Committee (JCC) workshop in March 1996, and published in October 1996 by the Friedrich Ebert Stiftung under the title, Credit Delivery Systems for Small Enterprises in Namibia (Hansohm, Matsaert & Bebi, 1996). This study, the first of its kind, was received with great interest and, due to the rapid developments in the promotion of small enterprises in Namibia, a need was felt to update the study. Furthermore, in line with the international discussion on small enterprise finance, the need for widening the conceptual framework beyond the provision of credit was recognised. For this reason, the present study is entitled Financial Services for Small Enterprises in Namibia.

The study has been conducted on the basis of the terms of reference defined by the JCC during the first half of 1998. Accordingly, its goal has been to analyse the available credit and savings facilities for small and micro enterprises (SMEs) in Namibia, and determine how they can be improved. The study findings are in line with national policy for the small enterprise sector (see Republic of Namibia, Finance Policy on SMEs, 1997).

Consistent with this goal, the main objectives of the study have been the following:

  • To analyse the service providers, looking at the different forms of financial support given to SMEs, the areas served by the programmes offered, the linkages and collaborations existing between service providers and their programmes, and the sustainability of the credit schemes that have been or are being implemented.
  • To compare the current data with the data collected during the first study as reported in the 1996 publication above-mentioned.
  • To provide general background information on the sector supported by the service providers and to list the needs and problems of this sector.

Agricultural credit has not been covered in this study, as it was not in the previous study, due to its unique nature which would require additional resources and time to research.

The target group of the study are the financial service providers to SMEs. In the Namibian context, these service providers are basically NGOs and parastatals. An analysis has been made of the credit system set up by these organisations and institutions. The information gathered pertains to outreach, performance rate, interest applied, repayment period and procedures, and accessibility.

To select the organisations and institutions to be interviewed, the list utilised in the previous study was examined, updated and reviewed. Some of the institutions analysed in the previous study are no longer involved in credit provision, this being the case with the Private Sector Foundation, the Northern Namibia Chamber of Commerce and Industry (NNRCCI) / Evangelical Lutheran Church in Namibia (ELCIN) / First National Bank (FNB) group and the Namibian Women Association. Others have changed their denomination and organisational setup, as in the cases of CISP, Canamco/Lihepurura and Co-operation for Development.

Two additional programmes that deliver credit to SMEs have been taken into consideration, namely Okutumbatumba (NGO) and the Namibia Development Fund (parastatal).

The study has been based on data collected from seven NGOs and two parastatals. As for the first study, the reliability of data is solely attributable to the answers given by the interviewees. Information on the commitment and participation of the formal credit and savings institutions in the development of the SME sector was also collected.

This study was comprised of four phases. The first phase involved a review of the relevant publications and research undertakings on the issues of micro credit and SME development in Namibia and, more generally, in other developing countries. The second phase involved identifying, in close co-operation with NEPRU, the existing service providers for SMEs. The third phase involved a review of the questionnaire used for the previous study on the basis of the new terms of reference elaborated by the JCC. The questionnaires were administered following this review (in June 1998), as part of the third phase. All the investigated organisations and institutions were interviewed, and special meetings were convened with the formal credit and savings institutions. The analysis of the data collected and the drafting of the report constituted the final phase of the study. It should be noted that the draft was discussed with all the members of the JCC’s Credit Standing Committee.

There is a basic difference in the methodology applied in the previous study and this one, flowing from the need to focus more attention and effort on comparing performances and achievements during the two periods in question. The credit delivery system model based on Otero and Rhyne (1994) that was used in the first study has not been used in this one.

Although this booklet is intended as a practical tool for all those engaged in the development of SMEs in Namibia, rather than as an exhaustive theoretical exercise, some of the main conceptual ingredients of the current debate on micro credit and small business have been considered.

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Although the conceptual interest nowadays goes beyond credit and encompasses savings mobilisation and other financial services, the actual provision of services in the area of savings in Namibia is still very limited. Thus, as in the 1996 study, the key subject in the present study is credit. The concept of credit utilised here is the same as that utilised in the previous study and defined in the 1996 report as follows: "Credit is the provision of capital by a lender to a borrower, with a legal agreement for the repayment of a specific amount over a given term."

It must be emphasised that this definition does not include informal credit, which is delivered by private moneylenders, not always on a legal basis. In any case, informal credit has not formed part of this investigation.

The definition of credit serves primarily to make a clear distinction between credit and a grant. There is a growing awareness of the potential involved in using credit as a tool for social and economic development. In fact, credit is perceived as a means of avoiding dependency on outsiders, and it is considered to be potentially sustainable. Grants, on the other hand, are generally considered to be unsustainable and to generate a high degree of dependency on donors.

Several successful experiences have shown that the poor can be reliable borrowers if they are given the chance to start or improve a viable business and to become economically active. The lack of financial collateral is recognised as a major factor hampering the access of micro and small entrepreneurs to formal credit. Various credit programmes/projects have consequently been designed and implemented with the aim of ensuring access for small and micro entrepreneurs and reaching sustainability.

Donors and NGOs increasingly tend to finance development activities that have a high probability of becoming sustainable. This issue is particularly significant when viewed in the context of credit, because by definition a revolving credit facility or fund implies sustainability. Resources are delivered, supposedly repaid and then delivered again. Although a project always has a defined time span, a credit fund is meant to be self-perpetuating.

In other words, the real challenges of any micro credit scheme are to reach the needy entrepreneurs who have no access to formal credit, and to be economically sustainable. Any evaluation of the performance of a project focused on micro credit should consider these two issues as priority areas of assessment. Exchanges of experiences and results among stakeholders implementing similar programmes in different countries are certainly useful and can lead one to improve one’s own methodologies and to define strategies better. At the same time, the peculiarities of each country must be taken into account in designing a micro credit scheme. In fact, no single model is able to fulfil the needs and match the specific facets of the different realities.

Moreover, to ensure the sustainability of a credit fund beyond the life of a project, it is not sufficient to rely on the fact that it will necessarily revolve. There are some factors that lead to a diminishing of the resources and impact of the start-up funds. There are basically four such factors, and they are viewed as the "enemies of a successful credit intervention": (i) low repayment rates by borrowers; (ii) inflation; (iii) operational costs that are greater than fund income; and (iv) weakness of the institutional framework under which the micro credit scheme is implemented.

Since the borrowers in the credit schemes investigated are micro, small or, in the case of parastatals, medium entrepreneurs, entrepreneurship has represented a de facto area of investigation. Although the reality of the Namibian SMEs has not been directly studied for this analysis, its main facets have been considered in order to analyse the appropriateness of the offers of credit to the "clients". This was made possible by the experience acquired by CISP and NEPRU in dealing with SMEs in Namibia, as well as by the review of research already carried out on this subject (see selected references). A very brief summary of this review is reported below. It is therefore important to clarify what we mean by entrepreneurship. It will be appreciated that rather than being a purely academic issue, defining entrepreneur-ship is a step towards a better and clearer definition of the recipients of micro credit schemes. This holds true whether these schemes approach established businesses or whether they attempt to encourage the start-up of new enterprises.

Entrepreneurship can be assumed to be one of the major factors that guarantee a real potential growth of small businesses. Although a precise and unique definition of entrepreneurship does not exist, the literature on this topic has revealed diverse facets that can be used to develop a comprehensive typology.

First of all, since the last century the entrepreneur has been defined as "the bearer of non-insurable risk". The implication of this conceptualisation is that the skill of entrepreneurship includes the ability to minimise the risks related to profit-making. This is also true in the case of credit. Borrowing is always risky and credit should only be requested to run profitable operations, since the viability of businesses is the best way to reduce risks.

A second role assigned to entrepreneurship is that of managerial co-ordination. The success of any entrepreneur, regardless of the size of the business owned, depends largely on the owner’s capacity to co-ordinate the different aspects of the business, such as production, accountancy, pricing, marketing, etc. With regard to credit, managerial co-ordination is believed to play an important role in defining the criteria for the utilisation of a loan, as well as in incorporating the repayment process into the life of the enterprise. Once the loan has been received, repayment is not an optional ingredient of the credibility and viability of the business, but a vital one.

Innovation is a third major component of the entrepreneurship function. This role is closely related to the roles of strategic planning and decision-making. Changes frequently occur in any social and economic environment, leading to new market opportunities and new demands from potential customers. Accordingly the success of an enterprise also depends on its ability to introduce innovations to meet changes in its environment. In other words, innovation is usually necessary to make an enterprise really market driven and able to compete with similar enterprises.

The three components of entrepreneurship described above do not constitute an exhaustive definition of entrepreneurship. Nevertheless, the concepts of risk-bearing, managerial co-ordination and innovation can be utilised in evaluating the performance of an enterprise and for planning financial programmes for SMEs.

The main assumptions of this study have been formulated as follows:

  • The growth of the SME sector could have a very positive impact in terms of employment and social and economic development.
  • This growth is currently hampered in Namibia by a number of factors, including a lack of formal collateralised credit to micro and small enterprises.
  • There is consequently the need for micro credit schemes, specifically aimed at the SME sector as well as the informal sector.
  • The success of any micro credit programme depends on its financial sustain-ability and its impact on entrepreneurship development.

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[ Most of the information here reported is based on Republic of Namibia, Namibia: Policy and Programme on Small Business Development , January 1997.]

There is no unique definition of a small business or enterprise, since this definition would have to take into account the legal, social and economic environments of different countries.

The most common criteria used to arrive at such a definition would include the number of employees, the turnover and the capital employed. The following definition of a small business has accordingly been adopted to fit the Namibian context: [ Whenever this study refers to SMEs or small businesses it is also referring to micro businesses which are not included in the government’s definition given above.]






Capital Employed



Less than 10 persons

1 000


All other businesses

Less than 5 persons



This definition is believed to cover the most disadvantaged small enterprises in the country.

Small businesses fall under the wider category of SMEs, which are believed to provide employment and income for approximately one third of the Namibian workforce. This fact indicates the weight that the sector has objectively acquired in Namibian society and substantiates the rationale for programmes aiming to promote the growth and development of small and micro enterprises.

In Namibia, as in any country, a small business may be an informal unregistered enterprise or a formally licensed firm. Informal businesses are generally very small enterprises with a turnover of below N$20 000, while formal small enterprises are generally larger in terms of both staff size and turnover.

It has to be stressed that the participation of women in the small business sector is consistently higher in the informal sector vis-à-vis the formal sector. In fact, less than 1% of women in Namibia own a formal business; most of those in business are engaged in a low-profit informal business. It is widely recognised that women entrepreneurs are the most disadvantaged of all entrepreneur types in Namibia.

It is widely believed that of the many constraints to the stability and growth of small businesses in Namibia, a lack of finance is the most crucial. The lack of collateral, as well as difficulties in dealing with banking procedures and regulations are the main factors impeding the access of small entrepreneurs to formal credit. Women are again particularly disadvantaged in this regard, as they rarely own property that can be used as collateral for loans. Relatives and friends are usually the only sources of finance for those who intend to start any kind of business.

After finance, other important constraints to the development of the small business sector in Namibia reportedly relate to marketing, purchasing, technology, training and a lack of business support. In addition, managerial skills and strategic planning abilities are generally very low among Namibia’s small entrepreneurs.

Both local and international institutions in Namibia are still in a learning process with regard to the most effective ways of promoting the development of the small business sector (see selected references). Periodic evaluations of the impact of ongoing programmes are certainly necessary as a tool for ensuring that these programmes meet existing needs and that they are driven by the needs of the sector they intend to support. This booklet should be viewed in this light, as it attempts to detect possible areas of improvement for the ongoing interventions that are aimed at developing small business.


A milestone in the promotion of SMEs in Namibia was the launching of Namibia’s "White Paper on Small Business Development" in September 1997. This document gives the sector a high profile, and in line with this notion the Finance Minister, in his 1997/98 budget speech, highlighted the sector as a priority sector. A finance policy for SMEs that complements the White Paper is presently in its final stage of development, in consultation with the stakeholders.

The White Paper identifies five key constraints to SME growth and development: finance, markets, purchasing, technology and training. Access to finance is seen as the greatest constraint, in both the formal and informal sectors. Particularly, gaps are identified in the paper in respect of the informal sector and in the areas of seed capital and venture capital.

The policy framework that will guide the government’s approach to the sector’s business over the next three years will aim to operate through three kinds of interventions:

  • Deregulation and incentives
  • Proactive programmes
  • Institutional support

As part of the deregulation process the government has taken several policy and legislative measures towards creating a more favourable regulatory environment, such as the Close Corporations Amendment Act of 1994, the 1993 moratorium on the use of the highly restrictive Road Transportation Act of 1977, the Trades and Occupational Licenses Repeal Act of 1995 and the Married Persons Equality Act of 1996 which has eliminated the gender bias against women.

These steps went a long way to improve the environment for SMEs in Namibia. However, there is a need to further reduce the legal and bureaucratic obstacles to establishing and operating small businesses. Among the remaining obstacles are many cumbersome procedures, which often result in long delays in processing permits, licenses and approvals. Indeed, processes such as those involved in the proclamation and establishment of townships in rural areas may still take 24 months or more to complete. The environment can be improved by repealing or simplifying such administrative procedures.

The White Paper sets out a plan to launch programmes designed to overcome the main constraints on the sector’s development and help small businesses to exploit market opportunities. These programmes will cover the following six areas:

  • Finance
  • Markets
  • Technology transfer
  • Purchasing
  • Sites and premises
  • Training

The Ministry of Trade and Industry is to serve as the leading government agency in developing the small business sector. The Ministry of Finance, in conjunction with the National Planning Commission (NPC) and the Namibia Development Corporation (NDC), will be largely responsible for mobilising the required financial resources to implement the programmes. The NDC and NGOs that work with small entrepreneurs are expected to play a substantial role in implementing and running these national programmes.

The White Paper, which covers the period 1997-2000, envisages budgets of N$37,5 million, N$46,5 million and N$42,5 million respectively for the three years, bringing the total to N$126,5 million. The paper aims to increase the contribution of the SME sector to GDP from less than 5% to 10%, as well as to create additional gainful employment for 35 000 persons and to raise average sector incomes by at least 10%.

However, it has to be understood that the White Paper represents a vision and an appeal to government and donors to support this vision, rather than a binding document based on concrete commitments.

Although many agencies are involved in the provision of financial services to SMEs, these services are still far from sufficient, especially from the side of the commercial banks operating in Namibia. Thus, over the short to medium term, government aims to provide the bulk of the sector’s financial requirements. In the longer term, however, government hopes that commercial banks will come to take over the lead role in financing SMEs.

Over the medium term, according to the White Paper, government plans to provide financial assistance of four types:

  • A micro loan scheme (of up to N$20 000 for capital expenditure and up to N$10 000 for working capital).
  • A credit guarantee scheme (encouraging commercial banks to lend to SMEs) for larger loans than those provided in the micro loan scheme.
  • Seed capital (to pump-prime the establishment of new businesses; through the NDC).
  • Venture capital (to enable SMEs to access equity and loan finance; through the NDC).

The current state of the four planned forms of financial assistance is as follows:

  • Micro loan scheme: no budget available.
  • Credit guarantee scheme: still under consideration, but likely to happen.
  • Seed capital: in the proposal stage.
  • Venture capital: presently not under consideration.

The White Paper is an important step taken by government in its focus on SME promotion. However, the following shortcomings of the paper are worth noting:

  • The references to existing actors and their invaluable experience are very limited, and there is a danger of missing important potentials.
  • No critical review of the many experiences in SME promotion in Namibia is provided, which could have formed a solid basis for achieving maximum success.
  • Lessons learned in SME promotion internationally have not all been taken up. Specifically:
    • the economic perspective of SME promotion is somewhat mixed with social welfare objectives;
    • government is envisaged as a strongly interventionist actor (i.e. active in implementation), although international experience generally points to a more restricted role for government as enabler and catalyst;
    • the paper proposes assistance in virtually all areas imaginable, rather than taking a selective approach which would avoid the danger of creating dependency and undermining sustainable development.

© Friedrich Ebert Stiftung | technical support | net edition fes-library | Mai 1999

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