Investigating the challenges of financing small and medium enterprises in construction: with specific reference to the Development Bank of Namibia

Amupolo, Hellen (2013-03)

Thesis (MDF)--Stellenbosch University, 2013.

Research Reports

The Small and Medium Enterprises (SMEs) within the construction industry are presenting challenges to both industry and financial institutions in Namibia. The Development Bank of Namibia’s (DBN) investments in the construction industry yield mixed results, which have become worrisome. The percentage of non-performing loans within the construction portfolio continues to rise, hence a suitable contractor-financing model is required in order to advance financial resources and capacitate the contractor for their own development. The challenges of SMEs in construction business point to the need for the integration of knowledge from fields as diverse as business, finance, management and technical skills. This integration necessitates the need to create an enabling environment in which they can persevere. Understanding and experiencing these challenges, this researcher from the Development Bank of Namibia has taken the initiative to establish advanced financial solutions mainly for SMEs in the construction industry through the Bridging Finance Facility (BFF). This research report compiled findings gathered through the investigation of challenges impeding the success of SMEs, with a specific focus on SMEs engaged in the construction industry. A review of their satisfaction levels pertaining to the DBN’s application requirements, the adequacy of the BFF, mentoring, training, and client relationship support were some of the aspects investigated. The report also brought to the fore the bank’s internal lending processes that are currently in place. The main findings revealed that technical capacity, mentoring and training remain key shortcomings faced by SME’s. This matches the bank’s internal credit assessment processes that do not address the assessment of technical capacity sufficiently. The research found that the standard BFF induction program being implemented by the bank, and credit assessment turnaround times remain challenges for the DBN. Interestingly, road contractors were found to be a less risky portfolio group to finance in comparison to building contractors. The objectives of the document are in accord with the DBN’s overall strategic priorities, namely financial sustainability, stakeholder satisfaction and business development. Fundamental to the success of these investigations with the SMEs challenges was the use of the sets of structured questionnaires tailored to a selected sample of road and building contractors, consultants, quantity surveyors and architects as well as interviews with senior management at the DBN.

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