• SECTION 6:
  CONCLUSIONS, SUGGESTIONS AND RECOMMENDATIONS
  
  
  • 6.1 ANALYSIS OF STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS
    
    
  • 6.2 SUGGESTIONS AND RECOMMENDATIONS FOR THE DEVELOPMENT OF FINANCIAL SERVICES FOR SMES IN NAMIBIA
    • 6.2.1 Credit as a human right
    • 6.2.2 General, not individual, enabling effects
    • 6.2.3 Diversification in credit provision
    • 6.2.4 Standardisation in credit provision
    • 6.2.5 The minimalist and interventionist approaches
    • 6.2.6 Partnerships in credit provision
    • 6.2.7 Policies and procedures in credit provision
    • 6.2.8 Follow-up support and advice
    • 6.2.9 Minimising dependency on timed grants through co-operation and collaboration with public and private sectors
    • 6.2.10 Establishment of specialised micro-finance institutions
    • 6.2.11 Structure and approach of specialised micro-finance institutions
    • 6.2.12 Data-collection systems
    • 6.2.13 Borrower participation
    • 6.2.14 Research into informal savings and credit behaviours

SECTION 6:
Conclusions, Suggestions and recommendations

6.1 ANALYSIS OF STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS

Most of the conclusions and recommendations formulated in the 1996 study report may still be considered as valid as well as consistent with the current situation as analysed according to the responses given in this 1998 survey on credit provision to SMEs in Namibia.

In particular, the authors of the 1996 report utilised the "Strengths, Weaknesses, Opportunities and Threats (SWOT)" analysis methodology to provide a general overview of the credit delivery systems available for SMEs in Namibia at that time. Table 36, which stresses the main elements believed to characterise the situation in 1998, has been constructed in accordance with the SWOT method, but with the aim of avoiding a repetition of the concepts formulated in the 1996 analysis.


TABLE 36:
TENTATIVE SWOT ANALYSIS OF CREDIT DELIVERY SYSTEMS IN NAMIBIA
(AUGUST 1998)

Strengths

„ A high level of flexibility exists which allows for very diversified target groups to be reached. „ The enabling environment sought for SMEs is indeed materialising and could well benefit the entire sector. To this end the government and media are also playing a vital role by persistently addressing the issue of SME development. „ All the role-players show an interest in finding solutions to the constraints experienced in current efforts to improve the quality of financial services. These constraints pertain to crucial aspects of finance provision, e.g. savings mobilisation and the credit provider’s relationship with formal credit institutions. „ There is a tendency to utilise credit as a means of, inter alia, developing an entrepreneurial culture (see requirement to present a business plan in applying for credit). „ The adoption of international best-practice models is increasing among local credit providers. „ The commercial banks are increasingly open to becoming active in providing credit to SMEs in Namibia.

Weaknesses

„ There is a lack of commonly-defined strategies for outreach and assuring sustainability, as well as a lack of strategies (e.g. training, follow-up procedures) to synergise the efforts of credit providers and eradicate the contradictory aspects (e.g. disparate interest rates charged) of finance delivery systems. „ Effective monitoring and follow-up procedures are lacking, which implies weak data-collection systems and a lack of clearly-defined common strategies for repossessing loan funds or assets in the event of default. „ A real participatory approach – whereby clients take part in the designing and decision-making processes of the credit schemes – is rarely, if ever, adopted. „ The transfer of knowledge between role-players in credit provision to SMEs is limited despite the existence of collective bodies such as the Joint Consultative Committee. „ The low credit disbursement levels and lengthy procedures point to an under-utilisation of the potential capacity of credit providers. „ Institutional weakness is evident for most credit providers surveyed. „ Despite the increase in loan disbursements to SMEs in Namibia between 1996 and 1998, the loan output in the country is still very low according to international standards.

Opportunities

„ The increased involvement of commercial banks in credit delivery to SMEs, even through a real risk-sharing agreement, will go a long way to promoting an enabling environment for SMEs. „ The exploitation of favourable conditions for improving information-sharing and consequently outreach efforts through government offices and the media will also help to create an enabling environment for SMEs. „ The participation of all role-players in formulating government policies affecting SMEs will help to build and stabilise the sector. „ The use of resources made available by donor agencies aimed at building the capacity of public bodies that could take over projects funded by timed grants will help to assure the sustainability of credit schemes and the SMEs served by them. „ The new JCC structure should enable improved co-ordination among the entities involved in SME support.

Threats

„ The current excessive dependence on timed grants could lead to the collapse of credit schemes and the programmes they support once these grants have terminated. „ The contradictory aspects of finance delivery systems (e.g. disparate interest rates charged) that currently apply could result in fragmentation and ‘unfair’ competition in the SME sector. „ The current lack of opportunities for developing forward linkages with larger enterprises could constrain the growth of the SME sector. „ The possibility of political pressure being placed on parastatals to provide loans for unsustainable projects should be eradicated. „ There is a potential among credit providers to neglect non-financial services.

6.2 SUGGESTIONS AND RECOMMENDATIONS FOR THE DEVELOPMENT OF FINANCIAL SERVICES FOR SMEs IN NAMIBIA

6.2.1 Credit as a human right

One of the more significant ideas to have emerged in recent times in the diversified environment of development agencies – governmental or non-governmental – is that credit, apart from being an economic concept, is a human right. Poor people must have the right to gain access to credit because they need the opportunity to become self-sufficient. This basically "ethical" assumption does in fact seem to be widely shared by the parties interviewed for this study.

6.2.2 General, not individual, enabling effects

Credit schemes have traditionally been evaluated on the basis of the simplistic assumption of a direct causal link between the provision of credit to an individual and an immediate improvement in her/his life brought about by a higher income. However, it is now argued that financial services should be valued more for their general enabling effects across the entire economic sector they intend to serve, rather than for the direct effect on the individuals to whom loans are granted.

6.2.3 Diversification in credit provision

There is already a high degree of diversity among the existing schemes that provide loans to SMEs in Namibia. For example, there is considerable variation in the loan amounts granted by the different schemes, in their respective financial and general requirements, in the provisions each scheme applies to cover inflation, default and operational costs, in their target groups and in their application procedures. These differences are linked to the methodologies employed by credit providers in reaching beneficiaries, as well as to the financial criteria they apply to assure sustainability of the schemes. While partnerships between banks and NGOs are more common now than in the past, these partnership models or patterns differ among the credit providers, and the differences typically relate to the "learning process" of each institution surveyed. In other words, the institutions are testing and evaluating different ways of delivering credit to SMEs. Some are also in the process of reviewing their policies and financial as well as non-financial criteria. This diversification among credit providers also reflects the differences existing among the target enterprises, which may be micro, small or medium in size.

6.2.4 Standardisation in credit provision

While the methodological diversification discussed above is indicative of a flexible approach in designing and implementing credit programmes, which is favourable on the whole, it is believed that some degree of standardisation should also be introduced. Experience suggests that certain criteria could be profitably applied in every scheme. This standardisation could be achieved through a joint evaluation – involving all the main credit providers to SMEs – of each scheme’s performance. An analysis of international "success stories" used in combination with this booklet would greatly help the role-players to achieve this objective.

6.2.5 The minimalist and interventionist approaches

Although the criteria applied by institutions providing credit to micro enterprises vary in many respects, an important shared strategy should be emphasised: their choice of the "interventionist" approach as opposed to the "minimalist" approach. The only notion upheld in both of these approaches is that credit should be made available to those who cannot provide collateral to guarantee their loans.

• Minimalist approach: In general terms the minimalist approach aims to run a sustainable credit scheme while keeping operational and administrative costs as low as possible, as does a bank. The main objective of this approach is long-term financial viability. The recipients of services rendered through this approach are likely to be seen as ordinary commercial clients because they are charged commercial rates for the services. The provision of non-financial services is seen to be counterproductive because it potentially leads to an increased dependency among the poor on top-down planning and subsidies. Minimalist ideas are summed up by the motto, "banking the unbankable". The poor are trusted to already have some expertise in coping with strategies and small investments because they cope with hardship in everyday life.
• Interventionist approach: According to this approach, which is usually the approach adopted in Namibia, [ This analysis does not include the formal credit institutions, which typically tend to adopt a minimalist approach worldwide. ] credit schemes must provide financial as well as non-financial services such as vocational and business management training, enterprise evaluation services and follow-up services. It is much more difficult for such projects to be sustainable, and interest rates cannot usually cover the costs of the services rendered. For this reason recipients are likely to be seen as beneficiaries rather than clients. The interventionist philosophy assumes that poor people are deprived in many ways and should therefore be supported in many ways. Interventionist programmes are often highly subsidised. There are micro-financing institutions which were set up according to the minimalist approach, but which evolved into interventionist institutions when their managers realised that credit alone cannot serve the goal of promoting the growth of small business among the poorest strata of entrepreneurs. The assumption that the poor can identify and adopt coping strategies by themselves, without external support, is considered by many micro-credit providers to be unrealistic. A minimalist-oriented micro-credit provider would reply that if other services are linked to credit, the scheme could not by any means be sustainable.

In general, the experience in many countries – including Namibia in our opinion – reveals that the challenge is to get the balance right. This implies, on the one hand, that sustainability is assured in adopting a minimalist approach to credit delivery and providing financial services to the largest possible number of clients. On the other hand this implies that measures will have to be taken to incorporate marginal groups and to promote an entrepreneurial culture among the owners of small and micro businesses.

6.2.6 Partnerships in credit provision

One way to get the minimalist-interventionist balance right could be to develop partnerships between rigorous and technically sound financial institutions and NGOs or other developmental organisations able to provide non-financial support services to small and micro entrepreneurs. It is therefore possible for micro-finance institutions to adopt a dual approach in providing credit services, whereby the financial aspects of credit provision are left in the hands of the existing specialised financial institutions. This could generate lower operational costs as well as increase outreach. In fact, the first lesson learnt from experience in the field is that the most important sustainability determinants of a credit scheme are the technical capacity of the provider and the institutional setup of the scheme.

6.2.7 Policies and procedures in credit provision

Working closely with formal lending institutions should also involve persuading them to adapt their policies and procedures to allow for credit to be provided from existing funds to target potential clients who have no access to credit, thus simultaneously widening the banks’ clientele. This process would hopefully lead banks to open a special window for micro and small businesses.

Development-oriented lending policies should also take into account important issues such as the following:

• Savings: Savings should be encouraged to the extent that they become the major source of capital. Imposing compulsory saving as one of the guarantee mechanisms and encouraging voluntary saving could help to attain goals.
• Group guarantees: Credit delivery systems incorporating the group guarantee mechanism have proved to be extremely popular following the experience of the Grameen Bank in Bangladesh and other "Village Bank Schemes" based on the same model. The borrowing groups organised in accordance with this model should be of a manageable size and group members should preferably receive loans in turn so that the group security principles are respected. To strengthen the group guarantee process, the small primary groups should converge to form larger groups, often called "centres", in a sort of pyramidal structure.
• Gender equality: The promotion of gender equality in the credit provision arena should be encouraged, for the following reasons essentially. First of all, women in particular have been deprived of access to formal credit because they rarely own property that can serve as collateral, so credit programmes are potentially significant tools for balancing society’s gender imbalances. Secondly, the income generated by women often has a more crucial impact on the welfare of their households than does the income of men. Thirdly, the Namibian experience has shown that women’s commitment to repaying their loans tends to be higher than that of men.
• Public awareness: Adequate information about credit opportunities and the terms and conditions of the loan schemes should be widespread in the home and working environments of potential borrowers. Information-sharing and public awareness-raising activities may play an important role in relation to many facets of the programmes.
• Default procedures: Adequate information about clear procedures for dealing with defaulters should be given.
• Technical assistance: In many cases technical assistance should be provided for reviewing the business plans elaborated by loan applicants or integrating the plans with the loan applications.

6.2.8 Follow-up support and advice

Most of the issues raised in the previous section are not typically issues that engage banks. They may be considered priority areas of engagement for NGOs, parastatals or, more generally, development agencies. These agencies should also undertake the responsibility for follow-up work with the enterprises they support, so as to support their marketing and coping strategies and to provide relevant business information and advice to the entrepreneurs. This is particularly pertinent in the case of ventures starting up. In the absence of any business orientation, potential small investors are often led to imitate others in making choices. In the long term this may lead to excessive competition among small businesses operating in the same sectors and localities. NGOs and parastatals should also focus – when it is deemed necessary – on supportive activities such as adult education, managerial training, and building-market infrastructures and facilities. The presentation of relevant "success stories" of people who started their enterprise under very fragile economic conditions has proven to be a useful tool for encouraging and inspiring micro and small entrepreneurs. The role of developmental agencies should also be that of liaison agent between banks and local communities.

6.2.9 Minimising dependency on timed grants through co-operation and collaboration with public and private sectors

A problem that is very often highlighted – internationally and in Namibia – is the strong financial dependency of developmental agencies on external timed grants, whether the donors are national governments, other governments or international institutions. The risk is that when this funding stops, the activities themselves are stopped. The responsibility of minimising this risk probably falls to the national government and developmental agencies. Two possible ways to minimise this risk are as follows:

• Co-operation between public and private sectors: If there is close co-operation between government bodies and developmental agencies, the former may be asked to take over projects when the programmes supported by external funds are terminated. Despite the great number of constraints hampering small businesses in Namibia, the situation is still better in this country than it is in other developing countries due to the existence of a well-scattered banking network. Banks could be utilised as a base for service delivery in support of micro and small businesses. In some cases municipalities could also play this role. This idea is believed to be consistent with the Namibian government’s attitude towards facilitating the growth of the private sector by creating links between the private and public sectors. The handing over of projects, however, is not a simple exercise that can be executed during the last months of an externally-supported programme. Programmes have to be conceived and implemented from the start in such a way that they can also be managed by existing and already operational public institutions. For instance, developmental agencies often have a specific "know-how" in the small-business development arena which is not necessarily found in public institutions. The training of trainers and other capacity-building efforts in support of these institutions should therefore be regarded as high priorities of any micro-credit programme.
• Collaboration between developmental agencies and private sector: Developmental agencies could collaborate and co-ordinate programme activities with the relevant private-sector establishments to benefit small enterprises. This could apply in the case of the JCC, which on 9 June 1998 was officially registered as an Incorporated Association not for Gain, representing the private sector and NGOs engaged in developing services for SMEs. Once the formalisation process has been completed, the JCC will be more effective as an organisation instituted specifically to address the needs of the sectoral service providers, to exchange information and experience, to co-ordinate efforts, and to ensure the most effective utilisation of available resources to support the horizontal development of the SME sector.

The potential strengths and weaknesses of such reliance on either public or private institutions to deliver additional financial services to small businesses may be summarised as follows (this summary being based chiefly on the experience of other countries):



TABLE 37:
POTENTIAL STRENGTHS AND WEAKNESSES OF CREDIT DELIVERY TO SMEs BY PUBLIC AND PRIVATE SECTORS

Strengths – public sector	Weaknesses – public sector
„ There is consistency of action taken in support of small businesses in terms of general poverty alleviation strategies. „ Attention is paid to incorporating micro businesses into the country development strategy. „ Attention is paid to rural areas and more disadvantaged businesses.	„ Delivery of services (i.e. training) is less market-driven. „ The capacity to impart business know-how and carry out market analyses is lower. „ Excessive bureaucratic constraints exist that could result in a low efficiency level.
Strengths – private sector	Weaknesses – private sector
„ The delivery of services is market-driven. „ There is development of backward and forward linkages among enterprises. „ The incorporation of small businesses into the private sector environment could result in a greater lobbying capacity for small entrepreneurs.	„ Insufficient attention is paid to informal micro businesses. „ Less attention is paid to businesses located in isolated areas which are not easily accessible. „ Start-up policies are insufficient. „ Little attention is paid to integrating social issues such as the gender issue.

The two options could be applied simultaneously, with some programmes relying on the involvement of private institutions and others relying on partnerships with public institutions. Bearing in mind the weaknesses of both options as listed above, it is very important that credit programmes opting for either arrangement take the necessary measures to minimise the risks.

6.2.10 Establishment of specialised micro-finance institutions

Although it has been recommended that programmes supporting small businesses consider collaborating with existing banks or specialised financial institutions, there is an alternative potential option to consider: the establishment of specialised micro-finance institutions. The rationale for this option would be that, despite any efforts made by NGOs, parastatals or other public and private bodies, the commitment of banks to small and micro businesses will never be satisfactory due to their mandate. There are no specialised micro-finance institutions in Namibia at present, since all the credit schemes investigated tend to deliver numerous and diversified services.

6.2.11 Structure and approach of specialised micro-finance institutions

The discussion must revert at this point to the minimalist and interventionist modes of operation discussed above. It is widely believed that a specialised micro-finance institution should preferably adopt a clearly minimalist approach, for two reasons: because sustainability must be attained, and because the concept of specialisation is inconsistent with the notion of delivering several diverse services simultaneously. The structure of a micro-finance institution should thus take into account certain crucial issues, including the following:

• Finance source: The amount of initial capital should be fixed and then made available. Thus the potential financing sources must first be identified. Some internal and external donors could be attracted by a well-structured, reliable project.
• Target: There is a need to clearly define the institution’s target group/s and accordingly its lending policy, as well as to fix the running-costs amount.
• Feasibility study: A structured feasibility study should preferably precede the establishment of a micro-credit institution. This study could involve experts from similar institutions that have proven to be successful in other countries. Among other things, the study should also assess the potential market of the institution vis-à-vis the existing banking system and the legal framework according to which the institution is to be established.
• Pilot phase: There should preferably be a pilot phase of operation, during which a clearly written and well-structured manual setting out the "rules of the game" could be tested.
• Social and cultural norms: There is a need to be consistent with the socially and culturally widespread savings and credit habits existing in the country.
• Approach and "know-how": A micro-finance institution should combine the approach and know-how of a competent poverty alleviation-oriented NGO with those of a rigorous, financially sound and market-driven bank. Its staff policy should also be planned accordingly.

6.2.12 Data-collection systems

A well-structured and reliable data-collection system is advantageous, if not crucial, to a development programme of any kind. It has been observed that programmes are not always able to provide up-to-date information on matters relating to their sustainability and outreach efforts. It must be reiterated here that monitoring and evaluation are only possible if reliable and regularly updated information is made available. Furthermore, credit programmes should preferably adopt the same data-collection criteria if a clear picture of the country situation is to be obtained. An effort towards standardising these criteria therefore appears to be necessary, and it is believed to be achievable through a good level of co-operation and discussion among existing credit providers.

6.2.13 Borrower participation

The participation of borrowers in designing, implementing and evaluating credit programmes is highly advantageous and thus advisable. The programmes have to recognise small and micro entrepreneurs as equal partners – to work with rather than for. This issue of borrower participation could be addressed by means of strengthening the role of entrepreneurs in the loans disbursement decision-making process. This process could therefore involve a loans committee composed of representatives of the bank/s, the promoting organisation/s and the SME sector. Entrepreneurs of small businesses in any target sector could be encouraged to elect their loans committee representatives on a rotational basis. Alternatively loans committees could consult SME representatives to procure their own evaluation of the viability of business plans presented by loan applicants. This mode of operation might have a number of positive effects, including the following:

• There would be a far greater degree of transparency throughout the decision-making process on loan disbursements.
• The level of co-ordination and co-operation within the SME sector would be much higher.
• The level of awareness among borrowers of the importance of a scheme’s sustainability would be far greater. In other words, borrowers should be encouraged to perceive the loan funds as own resources in respect of which there can be no defaulting.
• The capacity of small entrepreneurs to formulate and assess viable business plans will be greatly increased.

In some cases credit providers could also involve themselves in joint ventures with micro and small enterprises, thereby sharing their risks and profits on a defined basis. It is very important that credit providers and their borrowers develop a mutual understanding and sense of partnership because they are confronted with the very same challenge.

6.2.14 Research into informal savings and credit behaviours

In-depth research into and an analysis of informal savings and credit habits in the country would be invaluable. Various meetings held during the course of this study have confirmed that little information and analyses exist on this topic, and this is considered to constrain the design and implementation of credit programmes. Informal savings mobilisation and credit delivery are usually culturally driven, so cultural perceptions and attitudes should be taken into account by programme designers and incorporated into projects by implementing agents. To decide what interest rate to charge – in addition to the necessary projections on the scheme’s sustainability – it is useful to pose these simple questions:

• What interest rate do private money lenders charge "unbankable" people?
• Who are the private money lenders to the poor in Namibia?
• How do poor people save?
• Is saving always a personal affair or are savings mobilised on a community basis too?

Sometimes the international community and national development agencies tend to have a strictly negative perception of private money lenders, who they perceive as exploiters of the poor because they charge exaggerated interest rates on the loans they disburse. Although this may be partially true, there have been cases recorded in several countries, particularly in their rural areas, where private money lenders are relatively "better-off" people who take the risk of making funds available to the poor without demanding any security. Could informal credit experiences not serve as the basis for the design and implementation of micro-credit schemes? It is strongly believed that a survey of informal savings and credit habits in Namibia would be of concrete benefit in any effort made to secure the sustainability of credit delivery programmes in the country.