Development Bank of Namibia (DBN) chief executive officer Martin Inkumbi said additional loans and temporary relief measures are not always the solution for struggling businesses impacted by COVID-19.

In a media statement on Friday, Inkumbi said one of the solutions can be found in equity finance through the national equity fund for qualifying enterprises currently experiencing headwinds, but with the potential for future growth prospects.

“The financial sector has deployed a raft of measures to reduce enterprise vulnerability due to COVID-19. These include repayment holidays, grace periods, additional finance for operational costs and extension of repayment periods to offset the monthly cost of interest to the enterprise. These measures are only effective when the depressed economic cycle lasted for a short period of six to 12 months. In the case of the protracted depressed economic cycle that we are seeing now, these measures are proving ineffective,” he said.

The national equity fund would add to the financing toolkit, provided the equity investments or debt to equity conversions are made on pure business and economic merit, and on the potential viability and recovery of an enterprise.

The equity finance vehicle should not be taking a permanent shareholding, but should enable the original shareholders to repurchase their shareholding as the enterprise recovers and grows, or to onboard new shareholders depending on the preferences of the existing shareholders, the CEO stated.

The arrangement should allow the national equity fund to intervene or recommend managerial or operational methods to strengthen governance and improve business growth.

“The ideal will be to allow existing enterprise shareholders the independence to manage their business and turn it around through their own business acumen, learnings and experience. On the topic of capitalising on an equity fund, the requirement will be substantial and suggests pooling of funds in a national vehicle. If such a Fund is capitalised with borrowed funds, such as the private sector bonds issued to capitalise the fund, and repaid by taxpayers over time, this will be in exchange for equity in Namibian companies that will continue to grow in value over time,” stated Inkumbi. The national equity fund is aimed at boosting business recovery, that is affected by COVID-19.

Source: Namibia Press Agency