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TEILDOKUMENT:
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Section 4:
Appraisal of Credit Provision
Section 4
Appraisal of Credit Provision
4.1. CREDIT ACCESSIBILITY
This section of the booklet deals with small entrepreneurs’ access to credit. The information presented derives from an analysis of the criteria – financial and non-financial – applied by the credit providers interviewed in screening loan applicants. This analysis was done by means of questioning respondents about their credit scheme criteria.
TABLE 14:
OVERVIEW OF NGO CREDIT SCHEMES
Institution | Loan fund available (N$) | Number of loans disbursed |
Total capital disbursed as loans (N$) | Average loan amount (N$) | Percentage of operation in rural and urban areas | Breakdown by loan use |
DABE/ CISP/ ASDSE |
500000 |
118 | 275294 | 2333 | 60% rural | 30% start-up |
CD | 361000 | 189 | 202300 | 1070 | 100% urban | Mainly ongoing |
Lihepurura | 500000 | None yet | 0 | N.A. | 80% rural | Mainly ongoing9 |
Lisikamena | ILS | ILS | ILS | ILS | ILS | ILS |
MLS | MLS | MLS | MLS | MLS | MLS |
|
OHA | Not defined | 15010 | 300000 | 2000 | 100% urban | 100% ongoing |
COSEDA | 450000 | 122 | 120000 | 1000 | 100% urban | Mainly ongoing |
IMLT | 2300000 | 106 | 2217000 | 20915 | 35% rural | Mainly ongoing |
8 = Lihepurura’s urban/rural split is only an estimate as this scheme has not yet started disbursing loans.
9 = The Lihepurura indicators are targets as this scheme has not yet started disbursing loans.
10 =The data only indicate the number of clients who have received loans.
TABLE 15:
OVERVIEW OF PARASTATAL CREDIT SCHEMES
Institution | Loan fund available (N$) | Number of loans disbursed | Total capital disbursed as loans (N$) | Average loan amount (N$) | Percentage of operation in rural and urban areas | Breakdown by loan use |
DFN | 56.000.000 | 200 | 10.800.000 | 54.000 | 25% rural 75% urban | 100% ongoing |
NDC | 5.000.000 | 108 | 3.626.458 | 33.578 | N.A. | Mainly ongoing |
4.1.1 Collateral requirements for accessibility
All institutions offering credit schemes set financial criteria that have to be met by SMEs seeking to gain access to credit. The degree of stringency attached to each set of criteria varies for each institution and scheme. Tables 16 and 17 below present the collateral requirements of the institutions interviewed.
The majority of the NGO respondents require collateral of some kind, which should in most cases consist of an up-front saving equal to a defined percentage of the loan amount requested. This up-front savings deposit serves to affirm the entrepreneur’s commitment to mobilising his/her savings and repaying the loan. In the case of the Individual Loan Scheme (ILS) run by Lisikamena, the business applying for a loan should have a minimum of 50% of the loan amount as security, and/or a guarantor with a regular salary. The IMLT applies a hire-purchase policy because its loans are generally in higher amounts than are those disbursed under the other schemes covered in this study, and because IMLT loans are chiefly intended to enable businesses to acquire assets. The OHA, on the other hand, does not require collateral of any kind because the specific approach of this credit scheme adopts the "peer pressure" method instead.
Both of the parastatals interviewed use hire-purchase arrangements as a means of reducing risk. Their credit schemes address the needs of small- and medium-scale enterprises by providing larger loans, and legal action is taken against defaulters which leads to the repossession of assets acquired with the loan.
TABLE 16:
NGO ACCESSIBILITY BY FINANCIAL REQUIREMENTS
NGO | Collateral required | Loan fund available (N$) |
DABE/ CISP/ ASDSE | 10% savings | 500.000 |
CD | 20% savings | 361.000 |
Lihepurura | 10% savings for cash loans only | 500.000 |
Lisikamena | 20% deposit (MLS) | 705.658 (MLS) |
OHA | None | Undefined |
COSEDA | 10% savings for the second loan | 450.000 |
IMLT | Hire purchase arrangements | 2.300.000 |
TABLE 17:
PARASTATAL ACCESSIBILITY BY FINANCIAL REQUIREMENTS
Parastatal | Collateral required | Loan fund available (N$) |
DFN | Hire-purchase arrangements | 56.000.000 |
NDC | Hire-purchase arrangements | 5.000.000 |
4.1.2 Group guarantee for accessibility
Apart from their financial requirements, the institutions interviewed also set non-financial screening criteria for loan applicants, as presented in Tables 18-26 below. Tables 18 and 19 deal with the group guarantee as a criterion for accessing credit. Some of the NGO respondents require that applicants form self-selecting groups when applying for credit so that the group guarantee can stand as collateral. This approach among lenders is partially dictated by the nature of the target group, in the sense that group lending provides a means of creating social collateral among borrowers who do not have any formal asset-based collateral to offer. Group or peer pressure is considered to provide a good incentive to ensure that loans are repaid on time. Groups also serve as the administrative units for the relevant lending operations, since loans are repaid and savings mobilised during the groups’ meetings and through the officials elected by group members.
Parastatals do not disburse credit to groups but only to individuals, their target being small and medium enterprises requiring larger loans. A different and more stringent form of non-financial collateral is conceived in these cases (see Table 19).
TABLE 18:
NGO GROUP GUARANTEE REQUIREMENTS
NGO | Group guarantee required |
DABE/ CISP/ ASDSE | None |
CD | For first loan only |
Lihepurura | None |
Lisikamena | For MLS only |
OHA | None |
COSEDA | For all loan applications |
IMLT | None |
TABLE 19: PARASTATAL GROUP GUARANTEE REQUIREMENTS
Parastatal | Group guarantee required |
DFN | None |
NDC | None |
4.1.3 Gender accessibility
The gender of loan applicants may also be a criterion determining their accessibility to a credit scheme (see Tables 20 and 21). Women generally find it more difficult to access credit than do men, largely because few women own "property" that may serve as collateral. Two NGO schemes target women entrepreneurs exclusively: Lisikamena’s Micro Lending Scheme and CD’s Limbandungula Credit Scheme. Most NGO schemes covered in this study acknowledge the "gender issue", with the result that the majority of their borrowers are women. The loan amount requested by most women who apply for credit is very small, as the funds are usually sought for small retailing and catering ventures which do not involve high start-up or running costs.
Parastatals do not target women specifically, so the number of loans disbursed to female entrepreneurs is lower than the number disbursed to them by NGOs.
TABLE 20:
ACCESSIBILITY TO NGO CREDIT BY GENDER
NGO | Percentage of fund disbursed as loans | Number of loans disbursed and percentage disbursed to women | Total capital disbursed as loans (N$) | Loan fund available (N$) |
DABE /CISP/ ASDSE | 55% | 118 – 66,94% F | 275.294 | 500.000 |
CD | 56% | 189 – 100% F | 202.300 | 361.000 |
Lihepurura | N.A. | N.A. | N.A. | 500.000 |
Lisikamena | ILS 77% | ILS 147 – 58% F | ILS 1.974.233 | ILS 2.563.940 |
MLS 42% | MLS 359 – 97% F | MLS 296.376 | MLS 705.658 |
|
OHA | N.A. | 15011 – 97,33% F | 300.000 | Undefined |
COSEDA | 26,6% | 122 – 87% F | 120.000 | 450.000 |
IMLT | 96,4% | 106 – 49% F | 2.217.000 | 2.300.000 |
11 = See note 10 [=the data only indicate the numer of clients who have received loans.]
TABLE 21: ACCESSIBILITY TO PARASTATAL CREDIT BY GENDER
NGO | Percentage of fund disbursed as loans | Number of loans disbursed and percentage disbursed to women | Total capital disbursed as loans (N$) | Loan fund available (N$) |
DFN | 19,2% | 200 – 15% F | 10.800.000 | 56.000.00012 |
NDC | 72,5% | 108 – 39% F | 3.626.458 | 5.000.000 |
12 = This amount constitutes the total loan portfolio of the DFN, which includes loans to SMEs as well as loans in amounts of above N$100 000 that have not been included in the analysis.
4.1.4 Entrepreneurial skills and training for accessibility
Training is a requirement of all NGO credit providers, so to qualify for a loan the applicant should undertake the relevant training courses, which normally include courses in basic business management and credit procedures. The training that COSEDA provides focuses mainly on explaining the scheme policy and procedures. In some cases – DABE/CISP/ASDSE, IMLT and NDC – training is provided on the basis of individual needs, while for Lisikamena’s Individual Loan Scheme, and the schemes of COSEDA, CD, the OHA and Lihepurura, training must be completed before the entrepreneur applies for the loan. Applicants for these schemes are in fact required to complete their loan application form (which usually constitutes a business plan) that is compiled during the training sessions. The study data indicate that all the institutions interviewed consider training to be an important element of the support provided to enterprises accessing credit.
Some credit providers provide the training themselves while others rely on training institutions such as the Pahuka Training Programme, as in the case of Lisikamena and Lihepurura. The training required for NDC and DFN credit is mainly given through the IMLT, the WVTC, and until recently the PSF.
All the credit providers interviewed agree that there is a need for an assessment of the business applying for credit, which should provide evidence of its viability. This assessment normally takes the form of a business plan, the presentation of which is usually followed by a visit to the business in question.
TABLE 22:
TRAINING REQUIRED FOR NGO LOANS
NGO | Training compulsory? | Business plan required? |
DABE/CISP/ASDSE | Yes, if needed | Yes |
CD | Yes | Yes |
Lihepurura | Yes | Yes |
Lisikamena | Yes, for ILS only | Yes, for ILS only |
OHA | Yes | Yes |
COSEDA | Yes | No 13 |
IMLT | Yes, if needed | Yes |
13 = COSEDA does not require that a Business Plan Questionnaire be completed by trainees, but COSEDA officials carry out a viability assessment of each business involved.
TABLE 23:
TRAINING REQUIRED FOR PARASTATAL LOANS
Parastatal | Training compulsory? | Business plan required? |
NDF | Yes | Yes |
NDC | Yes, if needed | Yes |
4.1.5 Locality (area of operation) for accessibility
People in rural areas find it difficult to gain access to credit due to a lack of financial services in certain regions, and due to the long distances involved in travelling to obtain services elsewhere. Table 24 below reflects the extent to which the rural/ urban credit-access gap has been bridged by the credit providers interviewed, who were asked to provide the rural/urban split in their portfolios. Only the DABE/ CISP/ASDSE project favours rural over urban areas, and this is due to its much wider area of operation. Some credit providers only serve urban areas due to the location of the institution (e.g. Katutura or Oshakati) and its limited resources.
The DABE/CISP/ASDSE, NDC and DFN schemes operate countrywide, which is made possible by their respective organisational structures and resources. The rural/urban split for these schemes is therefore determined on the basis of their priorities, available loan fund and the loan amounts requested.
TABLE 24: ACCESSIBILITY TO NGO LOANS BY LOCALITY
NGO | Total capital disbursed as loans (N$) | Percentage of operations in rural and urban areas |
DABE/CISP/ASDSE | 275.294 | 60% rural; 40% urban |
CD | 202.300 | 100% urban |
Lihepurura | N.A. | 80% rural; 20% urban 14 |
Lisikamena | ILS 1.974.233 | ILS 50% rural; 50% urban |
MLS 296.376 | MLS 100% urban |
|
OHA | 300.000 | 100% urban |
COSEDA | 120.000 | 100% urban |
IMLT | 2.217.000 | 35% rural; 65% urban |
14 = Lihepurura’s urban/rural split is only an estimate as this scheme has not yet started disbursing loans.
TABLE 25:
ACCESSIBILITY TO PARASTATAL LOANS BY LOCALITY
PARASTATAL | Total capital disbursed as loans (N$) | Percentage of operations in rural and urban areas |
DFN | 10.800.000 | 25% rural; 75% urban |
NDC | 3.626.458 | N.A. |
4.1.6 Sector and use of capital for accessibility
The differences prevailing between the sectors and activities of enterprises targeted for credit reflect the specific facets of each economic environment approached by credit providers. In a few cases the sectors and activities of the target enterprises are predefined by the credit providers. This is the case for Lisikamena’s MLS and for the CD credit scheme, which lend only to women trading in markets, as well as for the OHA which targets hawkers exclusively. Overall the main sectors currently benefiting from loans made by the study respondents include the retail, trade and service sectors. Only in the case of Lisikamena’s ILS has the majority of loans been disbursed to enterprises in the manufacturing sector.
Some businesses are a priori excluded by the institutions interviewed, regardless of their sectoral classification. There are basically two reasons for such exclusion: the business’s socially negative impact (which typically applies for alcohol-related activities), and the high risk to which a business falls prey due to its weak economic viability.
Where access to a credit scheme is determined by the use of the loan requested, Tables 26 and 27 reveal that ongoing activities are privileged over those just being started. The reason for this is that credit providers perceive the risk potential of more established businesses to be minor.
TABLE 26:
ACCESSIBILITY TO NGO LOANS BY SECTOR AND CAPITAL USE
NGO | Manufacturing sector | Trade sector | Service sector | Retail and other sectors | Businesses excluded | Breakdown by loan use |
DABE/ CISP/ ASDSE | 28% | 0% | 55% | 17% (retail) | Alcohol-related | 30% start-up 70% ongoing |
CD | 0% | 0% | 0% | 100% (retail) | Alcohol-related | Mainly ongoing |
Lihepurura | 30% | 0% | 0% | 70% (agriculture) | Cuca shops | Mainly ongoing 15 |
Lisikamena | ILS 58% | ILS 0% | ILS 10% | ILS 32% (retail) | Agricultural | ILS N.A. |
MLS 0% | MLS 100% | MLS 0% | MLS 0% | – | MLS 100% ongoing |
|
OHA | 0% | 0% | 0% | 100% (retail) | Sewing | 100% ongoing |
COSEDA | 5% | 88% (includes retail) | 7% | 0% | Taxi trades | Mainly ongoing |
IMLT | 36,7% | 13,3% | 50% | 0% | Bottle-stores and taxi trades | Mainly ongoing |
15 = The Lihepurura indicators are targets as this scheme has not yet started disbursing loans.
TABLE 27:
ACCESSIBILITY TO PARASTATAL LOANS BY SECTOR AND CAPITAL USE
NGO | Manufacturing sector | Trade sector | Service sector | Retail and other sectors | Businesses excluded | Breakdown by loan use |
DFN | 80% | 0% | 20% | 0% | Traders | 100% ongoing |
NDC | 50% (includes agro-industry) | 10% | 20% | 20% (building) | Businesses contributing to social decay | Mainly ongoing |
4.2 OUTREACH
4.2.1 Outreach indicators
In the context of this survey, "outreach" basically refers to the current capacity of credit providers to deliver loans to small and micro enterprises. No specific analysis has been undertaken of the potential loans demand level among these businesses, nor of the potential disbursement capacity of the credit providers interviewed. The data presented below thus only provide an indication of these potentials.
A total of 1 191 loans have been disbursed to date under the NGO credit schemes covered in this study. In this regard it should be noted that the periods of operation of these schemes differ, with some having started to operate in 1994 and others a year or more later. The average loan processing capacity of the NGOs is 14,1 loans per month, the average disbursement period is 1,6 months and an average of 7,5 people are involved in processing loans. The average loan size of the NGO schemes is N$6 573, but evidently this average is increased by the IMLT scheme which has an average loan size of N$20 000.
The total number of loans disbursed by parastatals to date is lower than the total for NGOs, at 308. The current loan processing capacity of parastatals is also lower, at 10 loans per month, but the average disbursement period is similar to the NGO average, at 6 weeks, and an average of 7 people are involved in processing loans. Finally, the average loan size of the two parastatals interviewed is N$43 789.
The large discrepancy between the average NGO and parastatal loan sizes – the NGO average being roughly one seventh of the parastatal average – suggests that a distinction is made by credit providers between target enterprises. It is believed that while NGOs tend to support micro businesses, parastatal clients are in most cases small or medium enterprises.
TABLE 28:
NGO OUTREACH INDICATORS
NGO | Number of loans disbursed | Loan processing capacity (No. per month) | Disburse-ment period | Number of persons involved in loan process | Loan fund available (N$) | Total capital disbursed as loans (N$) | Average loan size (N$) |
DABE/ CISP/ ASDSE | 118 | 7 | 1,5 months | 4 | 500.000 | 275.294 | 2.333 |
CD | 189 | 12,5 | 2 months | 3 | 361.000 | 202.300 | 1. 070 |
Lihepurura | None yet | N.A. | 1 month (prevision) | 10 | 500.000 | 0 | N.A. |
Lisikamena | ILS | ILS | ILS | ILS | ILS 2.563.940 | ILS 1.974.233 | ILS 13.493 |
MLS | – | MLS | MLS | MLS | MLS | MLS |
|
OHA | 150 16 | N.A. | 1 month | 11 | Undefined | 300.000 | 2.000 |
COSEDA | 122 | 24 | 8 weeks | 4 | 450.000 | 120.000 | 1.000 |
IMLT | 106 | 5 | 4 weeks | 10 | 2.300.000 | 2.217.000 | 20.915 |
16 = The data indicate the number of clients who have received loans.
TABLE 29:
PARASTATAL OUTREACH INDICATORS
NGO | Number of loansdisbursed | Loan processing capacity (No. per month) | Disburse-ment period | Number of persons involved in loan process | Loan fund available (N$) | Total capital disbursed as loans (N$) | Average loan size (N$) |
DFN | 200 | 10 | 5 weeks | 10 | 56.000.000 | 10.800.000 | 54.000 |
NDC | 108 | 9-12 | 7 weeks minimum | 4 | 5.000.000 | 3.626.458 | 33.578 |
4.2.2 Loans structure for interviewed institutions
Tables 30 and 31 reflect the loan sizes of all the credit schemes surveyed. Only two incorporate two different loan ranges in the same scheme, as these schemes serve different target groups. It is worth noting the significant disparity in the average size of NGO loans to micro enterprises (N$1 465) and small enterprises (N$33 028). Parastatals essentially target larger enterprises than those targeted by NGOs.
TABLE 30:
NGO LOAN STRUCTURE
NGO | Number of loans disbursed | Loan range (N$) | Average size of loans (N$) |
DABE/CISP/ASDSE | 118 | 500 to 5.000 (micro) | 2.333 |
CD | 189 | 800 to 2.500 | 1.070 |
Lihepurura | None | 1.000 to 20.000 | N.A. |
Lisikamena | ILS 147 | ILS 5.000 to 20.000 | ILS 13.493 |
MLS 359 | MLS 200 to 5.000 | MLS 835 |
|
OHA | 150 | 350 to 5.000 | 2.000 |
COSEDA | 122 | 200 to 4.500 | 1.000 |
IMLT | 106 | 5.000 to 50.000 | 20.915 |
TABLE 31:
PARASTATAL LOAN STRUCTURE
NGO | Number of loans disbursed | Loan range (N$) | Average size of loans (N$) |
DFN | 200 | 5,000 – 100,000 | 54,000 |
NDC | 108 | 1,000 – 200,000 | 33,578 |
4.3 Default and Interest Rates
4.3.1 Default rates [ The respondents all agreed that "default rate" means, as also defined in the study questionnaire, "total principal amount collected during the period / total loans matured during the period".]
Tables 32 and 33 below reflect current default levels in the credit schemes covered. If we compare the data on default with the data on loan sizes presented above, we see that in some cases the schemes lending relatively larger loans tend to have a higher default rate. Among the NGO lenders this applies to Lisikamena and the IMLT, and of the two parastatal lenders this applies to the NDC.
TABLE 32:
NGO CREDIT SCHEME DEFAULT RATES
NGO | Current default rate | Total capital disbursed as loans (N$) |
DABE/CISP/ASDSE | 2% | 275.294 |
CD | 19% | 202.300 |
Lihepurura | N.A. | 0 |
Lisikamena | ILS 20% | ILS 1.974.233 |
MLS 6% | MLS 296.376 |
|
OHA | 5% | 300.000 |
COSEDA | 0% | 120.000 |
IMLT | 13% | 2.217.000 |
TABLE 33:
PARASTATAL CREDIT SCHEME DEFAULT RATES
NGO | Current default rate | Total capital disbursed as loans (N$) |
NDF | 8% | 10.800.000 |
NDC | 25% | 3.626.458 |
4.3.2 Interest rate provisions to cover inflation, default, operational costs
Tables 34 and 35 below clearly reflect that uniform criteria have not yet been set to assure the sustainability of the credit schemes surveyed.
In general it will be observed that the respondents have assigned different values to the prime interest rate, which is due to the fact that this rate has recently changed.
TABLE 34:
NGO INTEREST RATE PROVISIONS
NGO | Provision of interest rate to cover inflation | Provision of interest rate to cover default | Provision of interest rate to cover operational costs | Interest rate charged |
DABE/ CISP/ ASDSE | 15% | 5% | 6% | Prime + 2% |
CD | N.A. | N.A. | N.A. | 25% fixed |
Lihepurura | None | None | None | 21,5% fixed |
Lisikamena | None | None | ILS 25% | ILS 25% |
MLS 29% | MLS 29% |
|||
OHA | None | None | None | None |
COSEDA | 10% | 5% | 4% | Prime |
IMLT | 15% | 4-6% | 0% | Prime – 2% 1st year |
TABLE 35:
PARASTATAL INTEREST RATE PROVISIONS
NGO | Provision of interest rate to cover inflation | Provision of interest rate to cover default | Provision of interest rate to cover operational costs | Interest rate charged |
DFN | None (under revision) | None (under revision) | 15% | 15% fixed |
NDC | 15% | 15,5% | 4,5% | Prime for tourism and manufacturing; Prime + 2% for trade; Prime + 3% for services |
© Friedrich Ebert Stiftung | technical support | net edition fes-library | Mai 1999
