Namibia: Creating a Legal & Regulatory Framework for Deposit-taking Microfinance Institutions

Namibia: Creating a Legal & Regulatory Framework for Deposit-taking Microfinance Institutions

Limited access to finance is an important obstacle to economic growth and poverty reduction across Sub-Saharan Africa, where financing constraints are among the largest obstacles impeding firms’ growth.  As described in the 2007 FSAP report, Namibia’s financial sector has historically been unable to serve the majority of the population effectively - namely the low income population and informal small businesses.  Many low income individuals are excluded from formal banking relationships due to the very high costs of basic accounts as well as poorly adapted credit and savings services.

Banking and financial services legislation is one significant obstacle to deepening Namibia’s financial markets. The current regulatory and supervisory framework for banks is poorly adapted for microfinance.  In particular, retail deposit mobilization and access to the payments system are limited to full commercial banks, leaving a narrow role for other institutions seeking to offer low end microfinance clientele a full range of financial services. The Namibia government has detailed increased access to finance as a core element of the country’s current National Development Plan (NDP 3) as well as the overall national Vision 2030 plan that aims for Namibia to reach the ranks of developed countries by the year 2030. The 2008 Namibia Financial Sector Charter explicitly requires the financial sector to expand offerings of appropriate financial products and services to underserved segments of the market.

Given the obstacles noted above, and the high priority on increasing access to finance, the Bank of Namibia approached FIRST to provide technical assistance; the main objective of the project is increased access to finance for Micro, Small, and Medium Enterprises (MSMEs) and low income individuals in Namibia. Specifically, this will be achieved through creating a legal framework and accompanying regulations for specialized deposit-taking microfinance institutions (DTMs) that will be able to offer low income clients and microenterprises a full range of financial services.

The framework should remove unnecessary barriers to entry and provide an opportunity for the specialized full-service microfinance providers to reach currently under or un-served market segments with credit, savings, and payments services, or other potential services.

It is felt that project will be instrumental in creating a coherent and sound regulatory framework for DTMs in Namibia. The outcome of this work in the longer term should be tangible improvement in access to finance for MSMEs and low income Namibians, and an overall development and deepening of the financial sector. While the project is still in implementation stage and it is too early to know outcomes/ impact, the BoN have said that they have received a number of expressions of interest from local investors to pursue obtaining a license under the new DTM window. Further, based on on-site training BoN supervisory staff are better equipped to oversee the DTMs.