2023-12 Robert Eiman Social Banking

Namibia's economy is poised to evolve and grow. New sources of economic activity and revenue streams are imminent, and impetus for development of well-being and capital formation at the household level is growing.

Recognition of and support for informal enterprise, and structural reforms that give momentum to ultra-affordable housing, are on the immediate horizon. In the coming decade, economic activity will be driven by development of green hydrogen, oil extraction, natural gas and associated infrastructure, as well as upstream and downstream industrialization and service expansion.

However, the promise of the future economy is not only dependent on expansion of economic activity but needs a translation of newfound national wealth into the economies of individual households. Key to this will be the distributive capacity of the banking subsector.

Namibia has made exceptional strides in developing services for the unbanked since the early 2000s. In fact, due to expansion of Nampost Savings Bank, and the rise of electronic and mobile banking, 78% of economically active Namibians, and many of their dependents, now have access to a banking product, formal or informal financial products.

However, access to basic banking is necessary, but not sufficient. The focus must now shift to the quality of services, and the narrative must shift from the unbanked to the underserved. The nature and quality of financial products and services will have a material influence on socio-economic development.

The current commercial banking sector justifiably focuses on its mandate of delivering returns to shareholders. This is the nature of private sector enterprise. However, the focus on profitability favors the affluent in terms of services, and often excludes less affluent segments of society.

Capital formation through provision of finance for ultra-affordable housing is a case in point. Commercial banking may provide finance for this category of housing, but the risk and return configuration of the commercial banking model might favor short-term finance of 60 months or less for the amounts envisaged (72 months was trialed for Covid-19 relief).

The backdrop of need for ultra-affordable housing (also referred to as social housing) is an income of N$5,000 or less which is currently earned by 62% of the Namibian population . This figure was reported by Centre for Affordable Housing Finance in Africa in 2023. According to local commercial bank calculators, the monthly repayment on N$120,000 for an ultra-affordable house over 60 months at 11.5% (N$2,639) will probably not be affordable for the intended beneficiary. However, over 120 months, the repayment becomes N$1,687. Despite the lower accumulated value of the shorter-term loan, the higher repayment still places ultra-affordable housing out of reach for the less affluent, and inequality continues to burden the economy.

To address the issue, the most successful approach will be to introduce an intermediate banking model, social banking, to fill the gap between postal banking (offered by Nampost) and commercial banking. Social banking, in this case, will combine financial services with social objectives, promoting community development for positive social and development impact.

The social banking model offers a complete suite of banking services, however with a flexible focus on growth of capacity through the balance sheet, rather than extraction of value to recompense shareholders. As the risk return profile of social banking is capped by the balance sheet and can absorb risk in the longer term, not within the parameters of standard duration commercial loans, this type of bank can be more flexible in its terms, for instance offering longer repayment terms for the lower capital amounts that are required for ultra-affordable housing.

The model does not compete with commercial banking, a pillar of the current economy. Rather, through growth of capital formation and expansion of economic activity, it has potential to augment the base market through graduation from informal and subsistence economies into the market for commercial banking.

The net development impact will be a reduction in equality and material gains in socio-economic well-being.

In conclusion, the introduction of intermediate social banking will be a win-win scenario for the endeavor of national development and reduction of inequality, commercial banking, and most importantly the socio-economic well-being of Namibians.

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