Namibian microfinance lender Trustco Bank has completed the country’s second largest debt financing using the private placement market to raise capital for SMEs.
The financing of US$32 million is expected to be deployed through Trustco Group’s lending arm to fund SMEs as well as home loans, and could increase the size of the firm’s US$60 million loan book by around 50 percent while it seeks to address southern Africa’s neglected lower-middle income market.
Edmund Higenbottam, managing director of Verdant Capital, a firm which acted as Trustco’s financial advisor and arranger on the deal, told Development Finance: “Banks in Namibia are not focused on lending to SMEs. They’re focused on mortgages for the upper-end, they’re focused on high-end corporates. Trustco Bank now has a facility which we arranged for them to lend to SMEs and also, to some extent, microenterprises.”
Higenbottam said the main barrier to scaling up financings such as this remains the risk banks in the region face of taking thin margins on loans extended to small businesses.
Without caps on lending rates, he explained, those margins are a still a deterrent that keep smaller enterprises from access to funding.
“The maximum lending interest rate is 1.6 times prime interest rate. When you take into account potential loan losses, that is quite a thin margin to work with,” Higenbottom said. “That is contributing to the lack of funding in the SME community.”
The debt financing programme has brought in several international investors, with US$10 million from NORSAD Finance, an impact investor, as well as US$8.1 million from the European Investment Bank (EIB).
The EIB’s funding will be specifically channeled towards small enterprises and individual business loans extended by Trustco Bank.
Dr Quinton van Rooyen, group managing director of Trustco, said the facility would provide loans “that traditionally have been difficult to obtain”, adding that Trustco Group would “fully demonstrate its commitment to business and entrepreneurs”.
“This facility will enable Trustco to contribute meaningfully to the aspiring citizens of Namibia, for whom I hold a great affinity,” he said.