Namibia Financial Sector Strategy 2011-2021

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2 Towards Achieving Vision 2030 2 Namibia Financial Sector Strategy: 2011-2021 Ministry of Finance, Fiscus Building, 10 John Meinert Street Private Bag 13295, Windhoek, Namibia Tel: +264 61 209 9111 Fax: +264 61 230179 The document is also available on the internet at the following: www.mof.gov.na www.bon.com.na www.namfi sa.com.na ISBN:978-99945-0-058-1

1 Towards Achieving Vision 2030 1 Namibia Financial Sector Strategy: 2011-2021 Namibia Financial Sector Strategy 2011-2021 A Sector Development Document Towards Achieving Vision 2030 Republic of Namibia

2 Towards Achieving Vision 2030 2 Namibia Financial Sector Strategy: 2011-2021 Namibia Financial Sector Strategy: 2011-2021 TABLE OF CONTENTS Acronyms and Abbreviations 3 Foreword 4 Executive Summary 5 Vision at a Glance 7 Introduction 8 The Namibian Economy in 2021 and the Role of the Financial Sector: Vision Unpacked 10 Current Status of the Namibian Financial System 13 Reform Areas and Outcomes 17 Financial Markets Deepening and Development 18 Financial Safety Net 23 Financial Inclusion 25 Consumer Financial Literacy and Protection 25 Access to Financial Services and Products 28 Localisation of the Namibian Financial Sector 33 Skills Development in the Financial Sector 35 Institutional Arrangement, Monitoring and Evaluation of the NFSS 38

3 Towards Achieving Vision 2030 3 Namibia Financial Sector Strategy: 2011-2021 ACRONYMS AND ABBREVIATIONS ATM Automated Teller Machine BON Bank of Namibia BES Book Entry System CMA Common Monetary Area EFT Electronic Funds Transfer GDP Gross Domestic Product GIPF Government Institutions Pension Fund NAMFISA Namibia Financial Institutions Supervisory Authority NDP National Development Plan NEEEF New Equitable Economic Empowerment Framework NFLWG National Financial Literacy Working Group NFSC Namibian Financial Sector Charter NFSS Namibian Financial Sector Strategy NISS Namibia Interbank Settlement System NPS National Payment System NSX Namibian Stock Exchange Repo Repurchase Agreement SADC Southern African Development Community SME Small and Medium Enterprise SOE State-Owned Enterprise WEF World Economic Forum 3

4 Towards Achieving Vision 2030 4 Namibia Financial Sector Strategy: 2011-2021 Namibia Financial Sector Strategy: 2011-2021 FOREWORD The Namibian Financial Sector Strategy is a long-term development strategy for the Namibian fi nancial sector. It is expected that the strategy will guide the achievement of the fi nancial sector objectives as set out in the various national development plans (NDPs and Vision 2030); through consolidating them; especially those relating to capital and fi nancial markets development, ownership of fi nancial institutions, access to fi nance, consumer protection and fi nancial literacy. Ultimately the Strategy should contribute to fostering economic growth and poverty alleviation as well as reducing income inequality. Furthermore, the Strategy takes cognisance of on-going regional initiatives with regard to fi nancial sector development, as well as global initiatives in response to global developments such as those witnessed during the recent global fi nancial crisis. The successful implementation of the identifi ed strategic initiatives and the outcome of the Strategy will offer signifi cant benefi ts for Namibia; however this will only be possible with the support and timely interventions from all stakeholders. There should be a continuation of a process that led to the development of this Strategy, which involved a wide-spectrum of industry stakeholders in addition to the working group consisting of offi cials from the Ministry of Finance, Bank of Namibia and NAMFISA. I would like to extend my sincere gratitude to all of you who gave contributions and supported the formulation of the Strategy. Saara Kuugongelwa- Amadhila Minister of Finance

5 Towards Achieving Vision 2030 5 Namibia Financial Sector Strategy: 2011-2021 EXECUTIVE SUMMARY The importance of the fi nancial sector to the general economic growth of a country is well documented, especially through the intermediation channel. Where fi nancial services are supplied broadly and effi ciently, they accelerate economic growth, increase the effi ciency of resource allocation and improve the distribution of wealth. This, in essence, is what Namibia needs taking the aspirations of the country’s Vision 2030 into consideration. Achieving a more effi cient, competitive and resilient fi nancial system will be vital for securing the prospects for sustainable economic growth and development. A review of Namibia’s fi nancial system shows that although the system is sound and well-functioning, there are structural weaknesses that need to be addressed to enable the fi nancial sector to contribute meaningfully to the overall performance of the country’s economy. Key weaknesses identifi ed include: a shallow fi nancial market; limited competition, limited fi nancial safety nets, under-developed capital market; inadequate and less effective regulation; limited access to fi nancial services; low fi nancial literacy and lack of consumer protection; lack of consumer activism, limited skills; and low participation by Namibians and thus dominance of foreign ownership. A ten year strategy has been developed to address the weaknesses in the Namibian fi nancial system, covering the period 2011-2021, which will enable the country’s fi nancial sector to transform and contribute meaningfully to the developmental objectives of the country. The purpose of the Strategy is to chart the future direction of the fi nancial system over the next 10 years that will ensure its effectiveness, competitiveness and resilience. The overall objective of the Namibian Financial Sector Strategy (NFSS) is therefore to develop a more resilient, competitive and dynamic fi nancial system with best practices in order for the sector to realise its full potential in respect of its contribution to the growth of the economy and the achievements of socio-economic objectives of poverty reduction and wealth creation., Further, the strategy envisions the emergence of strong and innovative domestic fi nancial institutions that are more technology driven and ready to face the challenges of globalisation. Threats of the global marketplace are becoming more intensive, as global players and technological advancement are having an unprecedented impact on the business approach of fi nancial institutions. Against this background, it is vital for the fi nancial sector, to prepare and ensure that it remains effective and responsive in the face of a more globalised, liberalised, diversifi ed and sophisticated domestic economy. Thus, the development of the Namibian Financial Sector Strategy is a national response to address the structural weaknesses in the sector in order to achieve the above-stated national and sector-specifi c objectives. The Strategy constitutes a single reference document that guides the development of the country’s fi nancial sector despite existing national policy documents (e.g., Vision 2030, NDP3 and the NFSC). In particular, it provides the strategic policy guidance for the achievement of goals, including the NFSC The fi nancial sector plays an important role in the economy Weaknesses have been identifi ed in the fi nancial system Weaknesses necessitated the development of the Strategy Implementation of the Strategy will result in the sector realizing its full potential Strategy aims to guide the development of the fi nancial sector

6 Towards Achieving Vision 2030 6 Namibia Financial Sector Strategy: 2011-2021 initiatives, within the context of overall national development policies, i.e. the NFSC is in actual fact part of the Strategy. In this regard, the Strategy consolidates and articulates the strategic initiatives contemplated in the sector development and transformation policies. Once fully implemented, the initiatives shall result in a developed and modern fi nancial system for Namibia. To this end, the Strategy entails an Action Plan to implement, monitor and evaluate progress towards the achievement of the outcomes. The development of the Strategy has become more urgent in view of threats posed by advances in technology that enables fi nancial institutions to develop products that are inherently more risky and can destabilise the fi nancial system. In fact, the recent global fi nancial crisis was mainly attributed to these risky products. The Strategy focuses on reforms in the following key areas: • Financial markets deepening and development • Financial safety net • Financial inclusion: Consumer fi nancial literacy and protection Access to fi nancial services and products • Localisation of the Namibian fi nancial sector • Skills development in the fi nancial sector Strategy has identifi ed fi ve (5) reform areas

7 Towards Achieving Vision 2030 7 Namibia Financial Sector Strategy: 2011-2021 VISION AT A GLANCE By the end of year 2021, the following should have been achieved: • a deepened, an effi cient and developed fi nancial system; • respected, world class and effective regulators; • a stable, well regulated and competitive fi nancial sector; • signifi cant local ownership of fi nancial institutions; • an inclusive fi nancial sector; and • fi nancially literate and protected consumers of fi nancial services and products. By having these in place, Namibia would have an effective, efficient, stable, competitive, resilient and inclusive financial system by 2021. 7

8 Towards Achieving Vision 2030 8 Namibia Financial Sector Strategy: 2011-2021 INTRODUCTION

1. The Namibian economy has recorded satisfactory and sustained growth since independence. Growth has averaged 3 percent while infl ation has remained low at single digits, on average, during the period. The sector has experienced a phase of dynamic growth. Financial intermediation’s contribution to GDP grew from 2.0 percent in 1990 to 3.6 percent in 2000 and further to 4.3 percent in 2010. In the next ten years, the fi nancial sector is expected to play a pronounced role in supporting economic growth through an expanded intermediation role.
2. The Namibian fi nancial system remained stable during the global fi nancial crisis started in 2007 and intensifi ed in 2008. The overall direct impact of the crisis on the domestic fi nancial system has been relatively low, thanks in part to limited exposure to sub-prime-related investments by fi nancial intermediaries which was made possible by existing exchange control regime. The 2009 World Economic Forum (WEF) report also appraised the banking sector of Namibia as being sound, ranking in the 7th position in Africa; and thus evidencing the stability of the system. While there has been stability so far, the future is unpredictable and the opportunity is now taken to be forward looking so as to build the necessary foundation that will enable the fi nancial sector to continue playing its important role in the economy and to continue being strong and resilient in facing possible future challenges.
3. An assessment of the current status of Namibia’s fi nancial system shows that although the system is sound and well-functioning, there are weaknesses that need addressing to enable the fi nancial sector to contribute more meaningfully to the overall performance of the country’s economy. Key weaknesses identifi ed include: a shallow fi nancial market; limited competition, limited fi nancial safety nets, under-developed capital market; inadequate and less effective regulation; limited access to fi nancial services; low fi nancial literacy and lack of consumer protection; absence of effective consumer activism, limited fi nancial management skills; and low participation by Namibians and thus dominance of foreign ownership of fi nancial institutions.
4. To address the weaknesses in the Namibian fi nancial system, a ten-year Strategy covering the period 2011-2021 has been developed which will enable the country’s fi nancial sector to transform and contribute more meaningfully to the socio-economic objectives of, amongst others, poverty reduction and wealth creation as contained in the various development plans (NDPs and Vision 2030). The purpose of the Strategy is to provide a road map of the fi nancial system over the next 10 years that will ensure its effectiveness, competitiveness and resilience. This future landscape has been developed against the backdrop of an increasingly global and integrated economic environment and fi nancial markets as well as the socioeconomic objectives of the country. The objective of the Namibian Financial Sector Strategy (NFSS) is therefore to develop a more resilient, competitive and dynamic fi nancial system with best practices, that support and contributes positively to the growth There has been Increased fi nancial sector contribution to the economy since independence while the sector is expected to even enhance its role further Namibia’s fi nancial system has been stable but the future is unpredictable A review of the Namibian fi nancial system revealed key weaknesses A ten-year Strategy is being developed to address the weaknesses

9 Towards Achieving Vision 2030 9 Namibia Financial Sector Strategy: 2011-2021 of the economy, and has strong and innovative domestic fi nancial institutions that are more technology driven and ready to face the challenges of globalisation. 5. While it is acknowledged that there are plans and targets already set in various documents (e.g., NDP3 and NFSC) directed towards the development of the fi nancial sector, the development of the Namibian Financial Sector Strategy is a national response to address the structural weaknesses in the sector in order to achieve the above-stated national and sector-specifi c objectives. As such, the Strategy constitutes a single reference document that guides the development of the country’s fi nancial sector, and the voluntary NFSC should be viewed as part of the Strategy. In the absence of a consolidated strategy and strategic initiatives, sector development impediments and defi ciencies might persist. Namibia’s fi nancial system has been stable but the future is unpredictable The Strategy will serve as a single reference document for fi nancial sector development in Namibia

10 Towards Achieving Vision 2030 10 Namibia Financial Sector Strategy: 2011-2021 THE NAMIBIAN ECONOMY IN 2021 AND THE ROLE OF THE FINANCIAL SECTOR: VISION UNPACKED 6. According to the Vision 2030, the Namibian economy is expected to grow on average by 6.2 percent. The fi nancial sector is expected to play an important role towards the achievement of the projected growth, with fi nancial intermediation expected to grow on average by 6.3 percent over the next 10 years. As the economy grows, there will be increased demand for fi nance from companies that are expanding. This demand for fi nancing will be met not only by banks, but increasingly by the capital market as well as venture capital and private equity. At the same time the demand for auxiliary fi nancial services such as insurance will increase. To underpin this, the fi nancial sector will continue to be developed and deepened, through the introduction of new and specialised products that respond to the needs of sophisticated consumers that are increasingly literate. 7. The Namibian fi nancial system will have the ability to create a dynamic set of fi nancial players, which are able to provide support to the domestic economy, and more importantly, which are increasingly more effi cient, competitive, and able to facilitate the economic transformation process. 8. The fi nancial system will be more resilient, competitive and dynamic with best practices, which support and contribute positively to the growth of the economy, and has strong and innovative domestic fi nancial institutions that are more technology driven and ready to face the challenges of globalisation. Threats of the global marketplace are becoming more intensive, as global players and technological advancement are having an unprecedented impact on the business approach of fi nancial institutions. Against this background, it is vital for the fi nancial sector, to prepare and ensure that it remains effective and responsive in the face of a more globalised, liberalised and a more complex domestic economy. 9. Going forward, the ability of the fi nancial institutions to deliver products and services in the most effi cient and effective manner will be key to determining performance and relevance of the fi nancial sector. The Namibia Financial Sector Strategy, therefore, will ensure a fi nancial system that is best suited to the Namibian economy, given the challenges posed by the environment in which Namibia as a small open economy operates. In this regard, achieving a more effi cient, competitive and resilient fi nancial system will be vital for securing the prospects for sustainable economic growth and development. 10. In summary, the overall goal of the Strategy is therefore for Namibia to have a well developed and diversifi ed fi nancial sector which will be characterised by efficiency, effectiveness and stability. Vision 2030 expects the economy to grow and hence an increase in the demand for fi nance Namibia will have a more resilient, competitive and dynamic fi nancial system to support sustainable economic growth

11 Towards Achieving Vision 2030 11 Namibia Financial Sector Strategy: 2011-2021 Effi ciency 11. Effi ciency will manifest in the form of a range of fi nancial products and services that should be offered at the lowest possible cost to both institutional and individual consumers, namely borrowers, investors, depositors, risk managers, etc. In this regard, improvement in productivity and higher returns on assets for the fi nancial institutions will need to be realised through greater penetration of effi cient and low cost delivery channels, procurement and other back-offi ce functions, and leveraging on world-class skills. This operational effi ciency can be achieved through greater investment in technology and skills enhancement. Effectiveness 12. An effective fi nancial system will require fi nancial institutions to be innovative in coming up with a range of highly differentiated products, services and delivery channels, tailored to meet specifi c demands of the consumers and the corporate sector. Stability 13. Regulatory and supervisory efforts will be geared towards the maintenance of the stability of the fi nancial system. In this regard, robust fi nancial institutions, infrastructure and prudential regulation will be an important necessity. This will be to ensure that the system is able to withstand sudden adverse economic and fi nancial shocks that emanate from within and outside the system without signifi cantly disrupting the intermediary function and the functioning of the economy. Prudential regulations 14. Financial institutions will have to be robust, backed by strong prudential regulations and supervision. The robustness of institutions will be demonstrated in having strong risk management capabilities and credit skills in place as well as sound corporate governance. In this regard, the use and application of, among others, fi nancial models and comprehensive risk, liquidity, and credit management frameworks will be necessary, so as the quality and accountability of the board of directors and management of fi nancial institutions. Robust fi nancial institutions 15. Amidst the need to provide an environment which is conducive to the development of an effi cient and innovative fi nancial system, strong and effective prudential regulations and supervision is necessary as these are the foundation of a strong fi nancial system and effi cient regulatory institutions.

12 Towards Achieving Vision 2030 12 Namibia Financial Sector Strategy: 2011-2021 Infrastructure 16. Strong infrastructure will have to be available to ensure overall stability of the fi nancial system. This will be achieved through institutional development and capacity building, increasing the competitive environment, the continuous improvement in the existing payments and fi nancial markets infrastructure, and instituting a more market-driven consumer protection framework. 17 Against the above objectives, the Strategy identifi es outcomes for the fi nancial sector to progressively develop to achieve the broad national objectives and to adapting and adjusting to the forces of change in the domestic and international environment.

13 Towards Achieving Vision 2030 13 Namibia Financial Sector Strategy: 2011-2021 CURRENT STATUS OF THE NAMIBIAN FINANCIAL SYSTEM 18. The Namibian fi nancial system comprises the Bank of Namibia as the central bank, fi ve commercial banks, a number of other banking institutions, a range of non￾bank fi nancial institutions such as insurance companies and pension funds, smaller fi nancial intermediaries in the form of stockbrokers and money market funds, and the Namibian Stock Exchange. The fi nancial institutions operating in Namibia are the following: (a) Commercial Banks • First National Bank of Namibia (Ltd.) • Standard Bank of Namibia (Ltd.) • Nedbank Namibia (Ltd.) • Bank Windhoek (Ltd.) • FIDES Bank (Ltd.) At the end of 2010, total bank assets, deposits and loans increased from the level recorded in 2009 (see table below). Total Assets Total Deposits Total Loans 2009 2010 2009 2010 2009 2010 Industry (N$m) 47,669,192 52,501,025 41,200,832 44,583,831 35,418,820 38,725,170 Source: Bank of Namibia (b) Other specialised fi nance institutions • Namibia Post Offi ce Savings Bank (a division of NamPost Ltd) • Agricultural Bank of Namibia Ltd • National Housing Enterprise Ltd • Development Bank of Namibia Ltd Financial depth 19. The importance of the fi nancial sector to the general economic growth of a country is well documented, especially through the intermediation channel. When fi nancial services are supplied broadly and effi ciently, they accelerate economic growth, increase the effi ciency of resource allocation and improve the distribution of wealth. 20. Financial depth is measured as deposit resources mobilised and credit extended by the fi nancial system (banking) relative to GDP. In Namibia, domestic credit to

14 Towards Achieving Vision 2030 14 Namibia Financial Sector Strategy: 2011-2021 the private sector as a percentage of GDP was recorded at 46 percent in 2010, as was the case in 2009. Broad money supply (M2) as a percentage of GDP was 41 percent in 2010, compared to 40.0 percent in 2009. 21. Although the depth of the Namibian fi nancial system is relatively higher (compared to other countries in the region), there is still room for growth and expansion in order to reach a higher level comparable to the developed nations. This would require growth of the fi nancial sector by reaching those segments of the population currently not served by it. (c) Non-bank fi nancial institutions Non-bank fi nancial institutions comprise of insurance, pension funds, investment managers, unit trusts, microfi nance institutions, a stock exchange and stock brokers. At the end of 2010, total industry assets1 were recorded at N$205,217 million, an increase from N$172,296 million in 2008, and N$191,451 million in 2009. Insurance 22. At the end of 2010, there were 18 long-term insurance companies and one reinsurance company in Namibia. The industry’s assets were N$25.2 billion, accounting for 29.6 percent of GDP in 2010. During 2010 there were 14 short￾term insurers, including one re-insurer, as well as 121 insurance brokers and 395 insurance agents. The industry’s assets were N$2.4 billion, accounting for 2.8 percent of Namibia’s GDP2 in 2010. Access to especially short-term insurance services remains very low for the greater portion of the population. According to the 2007 FinScope survey, less than 10 percent of the population have access to these services. Pension Funds 23. Namibia has a high number of registered pension funds. In 2010, there were 167 active registered pension funds (excluding foreign funds), which covered about 161 478 members. There is a need to expand the pension coverage in Namibia, since the existing pension funds do not extend to all Namibians. Therefore, there are efforts underway to establish a National Pension Scheme that will cover all Namibians. The GIPF accounts for the bulk of pension funds assets (around 70%). The assets of the pension funds were N$63.9 billion in 2010, accounting for 75.1 percent of GDP. Namibia has one of the highest rates of pension assets as a percentage of GDP in the world, the bulk of which is mainly invested outside the 1 The assets of insurance, pension funds and medical aid funds are included in the assets managed by investment managers and management companies. In addition, a portion of assets managed by management companies are also managed by investment managers. There is, therefore, considerable double counting of assets. 2 Estimated GDP fi gure by BoN used, given the absence of fi nal data.

15 Towards Achieving Vision 2030 15 Namibia Financial Sector Strategy: 2011-2021 country. Local investment requirements compel pension funds and long-term insurers to invest a minimum of 35 percent of their assets in Namibia so as to curb capital outfl ow and ensure effective utilization of funds in the local economy. Investment managers 24. The total registered investment managers or asset management companies in Namibia were 38 in 2010, while the total funds under management was recorded at N$86.1 billion as at the end of 2010. Investment managers mainly invest the resources from pension funds, long term insurers and unit trust schemes. In 2010, investment managers invested about 55.3 percent of total assets from pension funds and 14.1 percent from long-term insurers. Unit trusts 25. The unit trust industry in Namibia has shown tremendous growth over the past few years. There were 10 registered unit trust management companies at the end of 2010. The total funds under management increased from N$13.9 billion in 2007 to N$25.9 billion in 2010, with most of the infl ow and growth recorded in the money market funds. Microfi nance institutions 26 Micro fi nance institutions have the potential to provide fi nancial services to many people that the banks are not able to serve. The number of micro lending institutions increased from 186 in 2006 to 347 in 2010. Total loans granted by the registered micro lenders amounted to N$682million during 2008. This represents an increase of 27 percent from N$538 million granted in 2007. For 2010, loans amounting to N$1,080 million were issued by micro lenders, an increase of 28 percent, when compared to the 2009 fi gure. This increase can be attributed to the growth in the number of micro lenders during that period. Microfi nance institutions’ rates are, however, exorbitant compared to other conventional lenders. Existing microfi nance institutions only cater for a certain segment of the population, i.e. salaried individuals, thus there is a need for more microfi nance institutions that will cater for the excluded segment of the population who are mainly the poor and also for small-scale entrepreneurs. Stock exchange 27. The Namibian Stock Exchange (NSX) is the only licensed stock exchange in Namibia in terms of the Stock Exchanges Control Act (No.1 of 1985). Securities listed on the NSX consist of primarily dual-listed South African companies and primary-listed Namibian companies.

16 Towards Achieving Vision 2030 16 Namibia Financial Sector Strategy: 2011-2021 Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 Local market (N$ million) Market capitalisation 1 728 2 054 2 492 2 630 3 820 4 781 5 720 7 126 7 782 Listed securities 12 11 9 7 Liquidity (%) 1.96 1.86 10.6 2.62 7.00 6.20 5.15 2.58 1.72 Overall market (N$ million) Market capitalisation 386 617 460 315 573 878 769 585 1112 542 1186 365 736 456 1 047 527 1178 257 Listed securities 35 35 32 28 28 27 29 33 33 Liquidity (%) 0.45 047 7.16 6.75 8.76 11.24 12.72 0.83 0.64 Source: NSX 28. As can be seen from the above table, the NSX is characterised by low levels of liquidity. This can be ascribed to the buy-and-hold strategy adopted by most investors in Namibia, partly due to a lack of suffi cient instruments. The reason for holding on to trading instruments has been often cited to be the need to comply with local investment requirements. There is, however, defi nitely a case for improving the liquidity on the local exchange. Stockbrokers 29. There are 4 registered stockbrokers in Namibia, who act as intermediaries between investors and the stock exchange. 30. From the above, it is clear that the Namibian fi nancial sector is relatively developed, sound and well-functioning. However, there is room for improvement especially in addressing the identifi ed weaknesses. Therefore, the next section gives details of the identifi ed weaknesses and proposes outcomes, which would result in a developed and modern fi nancial system for Namibia.

17 Towards Achieving Vision 2030 17 Namibia Financial Sector Strategy: 2011-2021 REFORM AREAS AND OUTCOMES3 The outcome of the proposed reform areas, together with the undertaking by the voluntary Financial Sector Charter, should result in a developed and modern fi nancial system for Namibia. 3 Due to a lack of baseline data/information, some outcomes have not been quantifi ed as well as timelines for some strategies have not been indicated due to the nature of the strategies. This should however be done once information becomes available. 17

18 Towards Achieving Vision 2030 18 Namibia Financial Sector Strategy: 2011-2021 FINANCIAL MARKETS DEEPENING AND DEVELOPMENT 31. A deepened fi nancial system stimulates economic growth and lowers the cost of fi nancial intermediation by increasing both the range and variety of fi nancial instruments available to savers and investors. It can also mobilize and channel savings more effectively to productive investments. Such a fi nancial system enjoys increased stability and resilience and can adjust to better absorb internal and external shocks. A fully developed fi nancial system is able to link the domestic and international fi nancial markets and thereby enhance international capital fl ows and portfolio diversifi cation.

Current situation assessment and challenges 32. The Namibian fi nancial system is not considered deep enough, but relatively well developed compared to most fi nancial systems in African countries. However, although the system is sound and well-functioning, there are structural weaknesses that need to be addressed to enable the fi nancial sector to contribute meaningfully to the overall performance of the country’s economy. These include a shallow fi nancial market which this chapter aims to address. The shallow fi nancial markets have been manifested in the outlined below. 33. Though well developed, the available instruments in the money market falls short of expectation. The bonds market on the other hand is Government dominated with only a few public and private institutions, which poses a serious challenge to the development of the primary bonds market as the issuers’ base is not well diversifi ed. Furthermore, the secondary market is relatively illiquid, with trading having been by and large constrained by the relatively lower issuance of bonds and this has created a situation whereby holders of these instruments are unwilling to trade in fear of the struggle faced when trying to replace an instrument which is sold. Other factors such as the limited number of issuers in the local capital market and domination of institutional investors as largest holders of debt securities also contributes to the situation somewhat. The NSX has also been faced with a challenge of a lack of liquidity as not much trading has been taking place. There is also only a limited number of local listed companies, and hence the dominance of dual listed companies on the NSX. 34. Moreover, the banking system is characterized by high concentration and a lack of competition. Attracting new foreign fi nancial institutions could provide a competitive stimulus and help spur innovation in products and practices, and Namibia The Namibian fi nancial system well developed and sound but is shallow There are insuffi cient instruments in the money market, bonds market is Government dominated while the secondary market is relatively illiquid There is not much trading at the NSX The Banking industry is highly concentrated and lacks competition A deepened fi nancial system stimulates economic growth and lowers the cost of fi nancial intermediation

19 Towards Achieving Vision 2030 19 Namibia Financial Sector Strategy: 2011-2021 Namibia has good fi nancial infrastructure Financial regulation in Namibia is sound, but archaic laws need to be reformed Legislation reform is in process, new laws have been enacted, amendments to some others have been effected has established a Competition Commission whose role is to enforce competition laws and ensure that there are no competition distortions to all fi rms operating in the marke as well as to potential fi rms wanting to enter the market. 35. There is good local fi nancial services infrastructure, though, with National Payment System as a backbone. With the reform of the National Payment System, the Namibian banking industry managed to establish local payment infrastructure for the clearing and settlement of domestic transactions. The Namibia Inter-bank Settlement System (NISS) facilitates settlement of Namibian interbank transactions, while a payment clearing house (NAMCLEAR) is also in place. The local switch (NAMSWITCH) enables all Namibian inter-bank Automated Teller Machine (ATM) card transactions to be switched locally and settled as well as Point-of-Sale terminals card transactions to be switched locally and settled in NISS. In addition, the Bank of Namibia and the banking industry has recently launched the revised Vision for the Namibian National Payment System which sets strategic objectives for the National Payment System until 2015 36. Other identifi ed issues that are considered as important aspects in the process of striving for the deepening and development of the fi nancial markets in Namibia relates to regulation. This is because fi nancial regulation can have an impact on the structure, size and effi ciency of the fi nancial system, operations of the fi nancial institutions and markets as well as the level of competition in the fi nancial system. The Namibian fi nancial sector regulation is generally sound; however, there has been an existence of certain archaic pieces of legislation. Further, as new standards are set globally; Namibia must also follow these trends and update its regulatory structure accordingly. 37. The country has thus in recent years embarked upon reforming certain laws, passed new laws and adopted standards similar to the ones adopted globally. Amongst others, recent pieces of legislation that relates to the fi nancial sector include the introduction of the Financial Intelligence Act and the Prevention of Organised Crime Act and the Combating of the Financing of Terrorism Bill, the implementation of Basel II and the enactment of the Bank of Namibia amendments to the Banking Institutions Act in 2010. These amendments provide for amongst others, consolidated supervision, outlawing pyramid schemes and money laundering, licensing, governance and various fi nancial and operational requirements of banks. 38. In view of the above identifi ed weaknesses, reform is needed so that the ideal situation as suggested by the below outcome is achieved.

20 Towards Achieving Vision 2030 20 Namibia Financial Sector Strategy: 2011-2021 Outcome 1: Namibia to have an active capital market (securities market) characterised by higher turnover, liquidity and immediacy. In this regard, the NSX local market capitalisation is expected to reach 75% of GDP by 2021.

Strategies to achieve the outcome To achieve the above outcome, the following will be undertaken: i. Determine through a Cost and Benefi ts Analysis Study the possibility of demutualizing the NSX to enable it to be listed on the exchange to segregate its trading rights from its ownership and to enhance its regulatory functions. ii. The viabillity of the primary dealership system for the government bond market will be reviewed as well as the secondary market repurchase agreements (repos) operationalized, i.e. there will be lending through repo market among commercial banks and among third parties to improve liquidity in the interbank market and the bond market. As such, the insolvency law will have to be amended to facilitate repo market transactions. iii. New instruments such as exchange traded funds, securitized securities and derivatives in general, may be developed to facilitate the process of deepening the market. iv. To lessen the burden on the State, that usually manifest itself in the form of government subsidies and/or guarantees extended to state agencies, certain state agencies (including local authorities) with good balance sheets will be encouraged to issue more corporate papers (both short- and long-term) as an alternative to bank fi nancing. This will increase the number and size of debt instruments available in the Namibian capital market. v. The Government shall consider working with the private sector to leverage on public private partnerships. This will increase investment opportunities, effi ciency and growth. vi. All Namibian incorporated fi nancial institutions, with an embedded valuation in excess of or upon reaching a certain amount (which is still to be determined), as well as their foreign holding company, if any, will be encouraged to list on the NSX. With regards to banking institutions, there is envisaged to be a regulation that would prescribe mandatory listing. vii. The infrastructure needed for effi cient operation of the stock exchange will

21 Towards Achieving Vision 2030 21 Namibia Financial Sector Strategy: 2011-2021 be supported. These include amongst others a Central Securities Depository (CSD). Thus, the feasibility and viability of having a sustainable CSD shall be investigated so as to design and implement a CSD which will enable electronic trading of Namibian government securities and other securities; achieve international standards and best practices, and facilitate the deepening of the fi nancial market in Namibia. This is so because the existence of the CSD (as opposed to the current Book Entry System (BES) environment) will have the capability to serve the entire securities market in Namibia. It will also be able to be integrated within the Namibia Inter-bank Settlement System (NISS) in order to achieve Delivery versus Payments (DvP) for securities transactions as envisaged in the National Payment System Vision 2015. viii. By virtue of it being a major player in the economy, there shall be a national strategy to enhance the role that the long-term national funds, such as those administered by the Government Institution Pension Fund (GIPF), should play in the development of the market, without compromising the funds’ returns or being detrimental to the rest of the market. In this regard, a study on which the strategy is to be formulated should be carried out by an independent consultant. ix. The amended regulations 15 and 28, which stipulate domestic asset requirements of long-term insurance companies and pension funds, respectively, shall be reviewed and effectively implemented. Amongst others, the amendments will require mandatory investment in “unlisted investments” as well as a requirement that these institutions should invest a minimum of 35% in Namibia. This will ensure that there are funds available for local economic development. x. In view of the importance to have an enabling regulatory environment that facilitates fi nancial markets deepening and development, the following shall be undertaken: (a) The Financial Institutions and Markets (FIM) Bill, which aims to be a fl exible, potent and responsive piece of legislation shall be promulgated and implemented. This will replace the existing legislations and be able to address the dynamics of the modern fi nancial sector. (b) The regulatory regime of Namibia shall be harmonised and collaboration amongst regulators strengthened/enhanced. Collaboration and coordination is especially important since fi nancial groups are often regulated and/or supervised by more than one regulator; and in which case effective consultation needs to take place. (c) Before any regulation or new law is enacted there shall always be a consultative policy paper (comprehensive regulatory impact assessment) Creating enabling regulatory environment is important for fi nancial sector deepening and development

22 Towards Achieving Vision 2030 22 Namibia Financial Sector Strategy: 2011-2021 with the aim to improve the quality of regulations in the country and make them cost-effective, compatible with economic growth objectives, job creation and competitiveness. This exercise will also aim to achieve greater regulatory alignment between government policies so as to avoid possible inconsistencies and enhance trade and investment that the country is striving to achieve. (d) There will be continuous review and improvement in prudential standards. This will require that the regulators are up to date with latest international standards such as Basel II and those set by the International Association of Industry Supervisors; and adapt them to Namibia. The application of international best practices and standards is necessary to help ensure a stable integrated fi nancial system, although it has to be ensured that international best practices must be adapted to local circumstances and conditions. (e) For purposes of ensuring the provision of a more conducive climate to investors to start and operate local businesses, fi nancial regulators shall strive to harmonise the regulations as well as be consistent in their approach on aspects that are under their mandate. This is envisaged to improve the ease of doing business in Namibia.

23 Towards Achieving Vision 2030 23 Namibia Financial Sector Strategy: 2011-2021 FINANCIAL SAFETY NET 39. The recent fi nancial crisis is not the fi rst one to affect the global fi nancial system. There have been many before this episode and there is no guarantee that the current one will be the last one. Historically fi nancial crises have been precipitated by bank failures, which spread and result in systemic failure of the fi nancial system. 40. To make fi nancial system breakdowns less likely and to limit their costs if they occur, countries have fi nancial safety nets in place. These nets are amalgams of policies including early warning systems, explicit or implicit deposit insurance, the central bank’s lending of last resort, bank insolvency resolution procedures, and bank regulation and supervision. Current situation assessment and challenges 41. At present the Bank of Namibia has in place early warning systems, but these can still be enhanced to make them more robust in order to respond to the ever-evolving technological innovations in the fi nancial system. NAMFISA has made provision for a compensation scheme in the FIM Bill to cater for cases where regulated entities are unable to meet their obligations. Further, the Bank of Namibia has a lender of last resort policy in place aimed at lending support to needy banks, if and when such banks request assistance from the central bank. However it should be noted that the effi cacy of the current fi nancial safety net regime has not been robustly tested, as there have been no problem institutions in Namibia in recent years. 42. The challenge facing the Namibian fi nancial system with regard to fi nancial safety nets is to develop a comprehensive and modern safety net regime that includes all elements that allows for early detection and limiting the impact of failing institutions. As such, below is the envisaged outcome. Outcome 2: Appropriate safety nets shall be put in place to protect depositors and to ensure and maintain fi nancial stability. Strategies to achieve the outcome The following shall be undertaken in an effort to achieve the outcome: i. The feasibility and format of an appropriate deposit insurance and resolution scheme for Namibia shall be investigated and determined. The aim is to protect depositors in case of a bank experiencing fi nancial distress such that the impact of bank failures on its depositors as well as the contagious impact of bank failures Financial safety net is important to limit the costs of crises when they occur There is limited fi nancial safety net for the banking sector Namibia needs a comprehensive and modern safety net regime

24 Towards Achieving Vision 2030 24 Namibia Financial Sector Strategy: 2011-2021 is minimised. Deposit insurance in the event of bank closures has the objective of ensuring that the reimbursements of depositors are carried out in an effi cient, transparent, and speedy manner, in order to contain the risk of a bank run. This is considered to be relevant as its existence will provide confi dence in the system and reduce the risk of a fi nancial system crisis occurring. A resolution scheme will ensure that Systemically Important Financial Institutions should be required to make contributions that is based on the risk profi le of such entities and that will serve towards the cost of resolution of such entities in the event of failure.

25 Towards Achieving Vision 2030 25 Namibia Financial Sector Strategy: 2011-2021 FINANCIAL INCLUSION 43. The level of fi nancial exclusion in Namibia is very high. The 2007 FinScope Survey indicates that more than half of the Namibian bankable population is unbanked. SMEs have also experienced diffi culties in obtaining fi nancing from formal fi nancial institutions as evidenced by the Namibia Chamber of Commerce and Industry (NCCI) Survey of 2009. Given the negative impact that fi nancial exclusion can have on the economy, Namibia will strive to reduce the exclusion rate through various means. As such, fi nancial inclusion is defi ned as the process of ensuring access to fi nancial services and timely and adequate credit where needed by vulnerable groups such as weaker sections (i.e. micro- and small enterprises) and low income groups, at an affordable cost. 44. In addition to the establishment of an inter-ministerial Financial Inclusion Council that will provide policy direction and monitor the implementation of strategies to enhance fi nancial inclusion in Namibia, below are other strategies, specifi c to each individual element of fi nancial inclusion. CONSUMER FINANCIAL LITERACY AND PROTECTION 45. The importance of consumer protection and fi nancial education stems from the fact that consumers all over the globe are facing greater fi nancial insecurity, given the dynamism of the fi nancial sector. This has also been evidenced by the recent global economic crisis that originated from problems in the fi nancial sector. Low consumer knowledge regarding rights, fi nancial products and services; defi cient protection mechanism and poor personal fi nance management can lead to adverse impacts on the national economy and its citizens. It is therefore important that the necessary infrastructure is put in place to protect consumers from unfair practices. Education and awareness are essential to ensure that the level of information and guidance to the public is enhanced.

Current situation assessment and challenges 46. A review of the current status in as far as consumer protection is concerned shows that there has not been a fully functional consumer protection law and or policy in existence in Namibia. The current Bank of Namibia Act does not have a provision on consumer protection, though the Bank is in the process of developing recourse mechanisms, especially for the banking sector. NAMFISA has included provisions on consumer protection in its new Bill (the Financial Institutions and Markets Bill) which is yet to be promulgated. Further, the Competition Commission caters for the protection of consumers to a certain degree, while the Ministry of Trade and Industry has also established a Consumer Protection Unit, though the consumer protection law is not yet in place. Consumer protection and fi nancial literacy is important for the economy There has not been a fully functional consumer protection law in Namibia, while the level of fi nancial literacy has also been low Financial inclusion is important due to its link to economic growth and stability of a country

26 Towards Achieving Vision 2030 26 Namibia Financial Sector Strategy: 2011-2021 47. In order for consumer protection to be effective, it should be accompanied by consumer literacy on fi nancial matters. In Namibia, the level of consumer and fi nancial literacy among citizens, both old and young is insuffi cient. Being clearly aware of the need to improve fi nancial literacy in the country, various institutions have been offering public education through the media. These initiatives include activities undertaken by NAMFISA, BoN, while there are also consumer education and protection undertakings by fi nancial institutions through the Namibian Financial Sector Charter (NFSC). The consumer literacy initiatives are thus largely fragmented, often brand-related and suffer from duplication, showing a lack of coordination and ineffi cient utilisation of resources on a country level. The effectiveness of these efforts is thus yet to be determined. An inter-agency working group, namely the Financial Literacy Initiative (FLI) consisting of stakeholder institutions led by the Ministry of Finance and assisted by GIZ has been set up with the objective to look at broader issues of consumer literacy. The FLI has since been in the process of developing a framework to that effect. 48. The FLI has identifi ed the lack of up-to-date national baseline data that hinders assessment of progress achieved through various consumer education efforts; the non-existence of a clear policy framework that hampers the effectiveness and enforcement of efforts aimed at consumer literacy; as well as the non-inclusion of fi nancial literacy in the Namibian formal education curriculum which does not enable learners to become fi nancial literate during early stages of their lives, as some of the challenges in terms of consumer literacy efforts in Namibia. 49. The Strategy has identifi ed the below to be the ideal outcome, for the consumer fi nancial literacy and protection components of fi nancial inclusion, after implementing relevant initiatives which are also outlined below. Outcome 3(a): Namibia shall have and implement a consumer protection legal framework in the fi nancial sector, which will ensure transparency and disclosure as well as consumer complaints and redress mechanisms. Strategies to achieve the outcome To ensure a solution for consumer protection, the following will be embarked upon: i. Market conduct principles and oversight will be developed and benchmarked to international best practices to ensure consumer protection. To that effect, the Bank of Namibia will develop guidelines on the protection of consumers of banking services and encourage banks to incorporate such in their code of good banking practice, while NAMFISA also envisages setting up market conduct Outcome 3(a): Namibia shall have and implement a consumer protection legal framework in the fi nancial sector, which will ensure transparency and disclosure as well as consumer complaints and redress mechanisms. Effective protection of consumers requires fi nancially literate consumers

27 Towards Achieving Vision 2030 27 Namibia Financial Sector Strategy: 2011-2021 standards for the non-banking fi nancial institutions. This is necessitated by the inherent information imbalance between fi nancial service providers and consumers. Once in place, they will not only preserve confi dence in the fi nancial system but also encourage responsible dealings on the side of fi nancial service providers. Consumers on the other hand are expected to play their part by making use of available information to choose wisely. Such market conduct codes and standards shall therefore aim to ensure transparency (such that customers know what they are getting into), fair treatment of customers and effective recourse for customer complaints. ii. In line with the undertaking by the voluntary Financial Sector Charter, a fi nancial services complaints adjudicator shall be established where consumers of fi nancial products and services would be able to launch complaints that cannot be settled by customers and their fi nancial institutions and the adjudication for such can take place. iii. Consumers will be educated on their rights and obligations as well as the redress provisions, so as to ensure consumer activism in the market. Consumer education should thus also involve debt counseling for consumers of fi nancial products so as to provide advisory services where needed and rehabilitate people who are over-indebted. Outcome 3(b): The national fi nancial literacy rate shall be increased by 2020 from the baseline to be determined by FinScope 2011. Strategies to achieve the outcome The following will be put in place to increase the level of fi nancial literacy in Namibia: i. A clear policy framework for the coordination of fi nancial literacy initiatives will be developed. This will outline the type of fi nancial literacy programmes to be put in place as well as the necessary institutional arrangements to implement fi nancial literacy programmes. As such, encompassing fi nancial literacy guidelines shall be developed, with various sub-programmes catering for specifi c target audiences and levels (in terms of the life cycle) of the different groups of the population. It is necessary to have targeted programmes in order to ensure maximum impact on the target groups. ii. A national baseline data on fi nancial literacy shall be developed and updated regularly. This will assist in measuring progress made by the country in the area of fi nancial literacy.

28 Towards Achieving Vision 2030 28 Namibia Financial Sector Strategy: 2011-2021 iii. Financial education shall increasingly be incorporated into the school curriculum so as to empower the would-be fi nancial services consumers. It is a widely accepted view that empowering people with skills and knowledge while they are still young will lead to inculcating in them a sense of being responsible adults in future. iv. The pledge by the industry voluntary Charter for fi nancial institutions to invest 0.2 percent of after tax operating profi ts in consumer education, shall be one of the sources of funds for purposes of fi nancial literacy. Other sources of funds for this purpose will have to be explored. v. Mechanisms to monitor and evaluate the effectiveness of the fi nancial literacy programmes will be put in place. Monitoring and evaluation is necessary so that corrective measures are implemented if programmes are found not to make the intended impact. ACCESS TO FINANCIAL SERVICES AND PRODUCTS 50. Access4 to fi nancial products and services plays an important role in economic growth and development of countries as it contributes to, among others, the reduction of poverty and inequality. However, many people worldwide still do not have access to fi nancial services and products. This lack of access to fi nancial services and products has potential to retard growth and development if not addressed and corrected. Some non-governmental organisations as well as saving and credit cooperatives have been trying to improve access to fi nance by rural people by running programmes especially in the microfi nance fi eld. Current situation assessment and challenges 51. Limited access to fi nancial products and services in Namibia is well documented and has been recognised as one of the priority areas to be addressed in the fi ve-year national development plans (NDPs) and the Financial Sector Charter. According to the FinScope Namibia survey (2007), 51.7 percent of the Namibian population is fi nancially excluded. The majority of fi nancially excluded are in the rural areas. Some non-governmental organisations as well as saving and credit cooperatives have been trying to improve access to fi nance by rural people by running programmes especially in the microfi nance fi eld. 52. Apart from individuals, small and medium enterprises also face serious access problems. The predicaments faced by the SMEs5 are two fold: they are considered too small for lending by the commercial banks, in the sense of their ability to repay 4 Access to fi nance is hereby defi ned to refer to access to fi nancial services and products as well access to fi nancial service infrastructure which enables consumers to gain access to fi nancial services and products. 5 SMEs, in the Namibian context, shall be defi ned to include all micro-entrepreneurs as well, while it would be ideal to review the existing defi nitions and determine the exact levels. There is a high level of fi nancial exclusion in Namibia The SME sector is important for economic growth and employment creation and needs to be supported

29 Towards Achieving Vision 2030 29 Namibia Financial Sector Strategy: 2011-2021 back the money borrowed and too large for lending by micro-lenders, in the sense that the amount required often exceeds the available credit limits. 53. Financial service providers (banks in particular) have initiated efforts in order to address the lack of access to fi nance. The Development Bank of Namibia has been channelling funds for SME development through commercial banks. Moreover, commercial banks have established specialised branches dedicated to SME lending and have also initiated mentoring programmes in order to assist SMEs. Furthermore, the NFSC also addresses access issues and has defi ned principles related to products and contains commitments by fi nancial institutions in respect of access. 54. However, there are challenges that hamper access to fi nancial services especially relating to rural people and SMEs. These include, but not limited to: high transaction/ information costs; unmitigated risks, e.g., risk of default by borrowers; lack of appropriate collaterals; regulation, e.g., laws that do not allow fi nancial institutions to offer certain products; oligopolistic bank market structure that inhibits innovation due to limited competitive pressure; and land tenure system that does not recognise assets such as houses in rural areas as collateral. 55. The below has been identifi ed as the ideal situation going forward. Outcome 4(a): Improved access to fi nancial services and products by eligible Namibians by reducing lack of access from the current baseline of 51.7 percent to 26 percent. Strategies to achieve the outcome The below strategies shall be embarked upon to enhance access to fi nancial services and products to the underserved and vulnerable segments of the society. The implementation of these, together with the access principles outlined in the voluntary sector Charter should be able to increase the level of fi nancial inclusion in Namibia. i. The level of exclusion of economic active Namibians from the use of fi nancial services and products shall be determined by FinScope 2011 so as to have an updated indication and assess whether or not there had been an improvement after the 2007 FinScope survey indicated an exclusion rate of 51.7 percent. To enable implementation of appropriate and targeted policies, such an assessment will have to be detailed such that it provides information on all

30 Towards Achieving Vision 2030 30 Namibia Financial Sector Strategy: 2011-2021 indicators that measure access, such as those suggested by relevant international bodies like the Alliance for Financial Inclusion (AFI) and Consultative Group to Assist the Poor (CGAP). ii. The Credit Agreements Act (which is viewed to be out-dated as it is almost 30 years old) shall be revised so as to capture newer fi nancing instruments; modernize collateral laws and enhance the balance between both debtor’s and creditor’s rights. The revised legislation will encompass all facets of access, including stronger implementation guidelines. iii. The determination of usury rate thresholds that differentiate between the loans provided by commercial banks and those by microfi nance institutions shall be reviewed and aligned with international best practices. In this regard, a policy paper shall be produced with appropriate recommendations. iv. The regulation on electronic money (e-money) shall be issued in an effort to enhance access to fi nancial services. The regulation will provide clear guidance to those wanting to provide such services while protecting the funds of the Namibian citizens who would use these services. v. The action plans under the National Payment System (NPS) Vision 2015 that aims to set clear standards for fees and charges as well as other activities resulting from the outcome of the Study on fees and user charges, will be implemented to achieve fi nancial inclusion, effi ciency and cost-effectiveness in the provision of low cost fi nancial services. This will address the issue of high fees and charges that has characterised the Namibian fi nancial system and has to some extent led to fi nancial exclusion of some Namibians not being able to take up fi nancial products and services offered by the sector. vi. In recognition of the need to overcome barriers to fi nancial access, such as collateral requirements, ways and methods that have proven successful elsewhere will be explored. For example, the possibility of registering movable collateral as done in countries such as China as well as the successful fi nancial support for SMEs in India and Bangladesh would be investigated. Furthermore, the current land tenure system that renders land in communal areas not to qualify as collateral security (mainly due to insecure land rights) could be reviewed with a view to enhance access to credit. vii. The Banking Institutions Act shall be amended to make specifi c provision for microfi nance deposit-taking institutions whose mission will be to serve the poor and low income communities as well as microenterprises that are currently not having access to formal fi nancial services. viii. A national venture capital fund (risk facility) would be considered to help increase the fi nancing options for start-up projects in the economy, including

31 Towards Achieving Vision 2030 31 Namibia Financial Sector Strategy: 2011-2021 feasibility studies. Once established, this fund would also take advantage of the regulations 15 and 28 that intends making funds available for unlisted investments. ix. Efforts shall be directed to ensuring the availability of micro-insurance products in the country. This is necessary because due to their low asset bases, low-income people are particularly vulnerable to risk and negative external shocks (e.g. natural disaster, illness and/or death of main breadwinner, etc.). The existence of micro-insurance products will reduce such vulnerability and mitigate the negative effects associated with external shocks on poor households. x. The inherent confl ict between fi nancial integrity and fi nancial access shall be guarded to ensure a good balance. Access to fi nancial services could be affected by the Anti Money Laundering (AML) legislation and thus consideration should be given to reduce access requirements to low risk customers (who in most cases are low income customers), so that access is made possible without compromising the stability of the fi nancial system. Outcome 4(b): Namibia shall have effective institutions in place that will provide suffi cient support to SMEs and offer adequate products, services and knowledge to increase access to fi nance. Strategies to achieve the outcome The following shall be put in place to ensure SMEs get the necessary support and access fi nancing: i. There shall be consideration given to whether there is a need to revise the 1997 SME Development Policy; so as to strengthen implementation and enforcement and to ensure improvement in SMEs access to fi nance. A revision to the policy might also be necessary to ensure that it is in line with the new thinking encompassing all facets of SME enterprise development, i.e.to be in line with the new paradigm with respect to SMEs fi nancing and business support. As such, the revised policy could for instance, cover among others: • The creation of a one-stop unit for SME support that would spur the development of SMEs by providing advisory services, and other support programmes; and thus fi ll the existing gap with respect to the necessary business support for SMEs in terms of skills required to run a successful business. This unit would therefore serve as a “one-stop shop” for information and advisory services for all SMEs in Namibia.

32 Towards Achieving Vision 2030 32 Namibia Financial Sector Strategy: 2011-2021 ii. A study will be undertaken to determine the viability of a Credit Guarantee Scheme in Namibia as there may be a need for such to guarantee loans and improve access to fi nance for SMEs as well as shield the credit providing entities against the perceived/inherent default risk associated with SMEs. iii. There shall be a legislation created to enable the establishment of a credit bureau. The creation of the law will be preceded by a study that will look at how such a credit bureau can be organized. The credit bureau will be an avenue for information about both positive and negative credit track records of individuals and SMEs and will thus allow a platform for information sharing among all entities supporting SMEs. As such, fi nanciers and other credit grantors shall be able to retrieve credit information and ratings for credit evaluation which will lead to the reduction of the credit risk of lenders and prevent over-indebtedness on the side of borrowers. The Bureau could also incorporate an Invoice Clearing function to enable a platform for validating invoices fl owing into the Namibian economy. Entrepreneurs, especially SMEs that engage in tender based activities, will stand to benefi t from invoice clearing as it will enhance and facilitate easy access to working capital. iv. A specialised SME bank shall be created to cater for the fi nancial needs of viable SME projects/businesses. v. It will be investigated how best the existing various initiatives (such as the existence of funds/programmes, which are housed under several ministries, aimed at assisting small entrepreneurs (micro, small and medium enterprises (MSMEs)), can be coordinated so as to yield optimum results. vi. The mandate of the Namibia Post Savings Bank (NAMPOST Bank) could be reviewed to enhance its contribution to fi nancial inclusion. This will be done to enable the NAMPOST Bank to extend the required services, given its already established extensive branch network country wide. vii. All credit providing entities such as DBN and commercial banks, as well as other fi nancial institutions shall be encouraged to provide SME advisory services and/or make use of other bodies that provide such services and lend to priority sectors.

33 Towards Achieving Vision 2030 33 Namibia Financial Sector Strategy: 2011-2021 LOCALISATION OF THE NAMIBIAN FINANCIAL SECTOR 56. Financial intermediation plays an important role in economic development, therefore, it is essential that fi nancial institutions are owned and controlled by locals as locals are better suited to respond to the needs of the country. Current situation assessment and challenges 57. The Namibian fi nancial services sector has been historically characterised by dominance of foreign ownership. Most of the fi nancial service providers operating in the country are majority owned by South African parent companies, with no or very little local ownership. There is a need to have a mix of locally owned and foreign owned institutions so as to ensure the developmental needs of the country are addressed. Usually local institutions would be familiar with the needs of the country and would be attracted to making a contribution to its developmental needs. 58. The sector is further characterised by low numbers of indigenous/previously disadvantaged Namibians in management positions. This phenomenon has been in the past attributed to low skill levels among previously disadvantaged Namibians. In order to address this defi cit, there is a need to implement human resource development programmes so as to ensure that there is a strong pool of Namibians with the requisite skills to work in the fi nancial sector. 59. The Government has constantly urged the fi nancial sector to transform in order to become more inclusive. The fi nancial sector has heeded Government’s call and adopted a voluntary Charter for the sector which spells out the sector’s transformation agenda. It is expected that the industry will carry out the commitments as given in the Charter in order to achieve transformation. 60. As per the agenda set out in the National Development Plans and the Government’s New Equitable Economic Empowerment Framework (NEEEF) and in line with the transformation agenda of the Financial Sector Charter, it is important that the NFSS, being the main guiding document on the development of the fi nancial sector, leads to genuine transformation of the sector. Identifi ed under outcome 5(a) and (b) below is the ideal situation for Namibia. There is low participation by Namibians in ownership, control and management of local fi nancial institutions, a situation that needs to be addressed.

34 Towards Achieving Vision 2030 34 Namibia Financial Sector Strategy: 2011-2021 Outcome 5(a): There shall be increased Namibian ownership of fi nancial institutions. Strategies to achieve the outcome: In line with and in addition to the provisions under NEEEF and the undertaking by the voluntary Namibia Financial Sector Charter (NFSC) to improve and/or reduce the inequitable distribution of ownership and control of fi nancial institutions through transformation, the strategies below aim to consider a much wider scope of ensuring increased ownership of fi nancial institutions by Namibians with the emphasis on institutional ownership. i. Regulators will recommend to the Minister of Finance to issue the appropriate level of Namibian ownership of fi nancial institutions under their respective jurisdictions. This could be achieved through a relevant regulatory framework. Outcome 5(b): There shall be signifi cant representation of Namibians at Board and management level of fi nancial institutions. Strategies to achieve the outcome In order to ensure the attainment of this outcome, the following will be implemented: i. Regulators will monitor the implementation of the provisions under various initiatives, such as the NEEEF, NFSS as well as the sector voluntary Charter and advise the Minister of Finance accordingly. Outcome 5(a): There shall be increased Namibian ownership of fi nancial institutions.

35 Towards Achieving Vision 2030 35 Namibia Financial Sector Strategy: 2011-2021 SKILLS DEVELOPMENT IN THE FINANCIAL SECTOR 61. A well-functioning fi nancial sector is essential for economic development. Importantly, a robust fi nancial sector, however, depends not only on the effective institutional infrastructure, but also on the capability of its human resources. Human capital plays a critical role in the growth and development of the fi nancial sector. Investments in human capital is instrumental in shaping the improvements to the fi nancial services industry where knowledge, skill, competencies and capabilities have become key strategic drivers of productivity, competitiveness and growth. 62. With globalisation and integrated fi nancial markets, the need for capacity development in any countries’ fi nancial sectors becomes even more important to ensure that professionals within the sector will be able to keep up with the dynamism and expectations of the new developments. In the next decade, there are likely to be many changes in the type of skills needed by the fi nancial services industry. New roles will be created and existing roles modifi ed or expanded. As such, it is crucial that the fi nancial services sector constantly improve the quality of its workforce and ensure an adequate supply of qualifi ed human capital. This is because employees working at all levels in fi nancial services organisations will need relevant skills in the new and changing environment. Examples of such skills that will be needed are: risk management and compliance skills, which will be driven by greater regulation of fi nancial services companies and demand for transparency among stakeholders; product knowledge and advice skills so as for fi nancial institutions to be able to assist and provide advice on the ‘new generation products’ to the less affl uent clients; and cultural and language skills which will become more important as fi nancial services are extended more and more to the previously excluded and less fortune segments of the population, and as the client base becomes more diverse and sophisticated and which will raise the need to engage in specialized fi nancial transactions. Current situation assessment and challenges 63. One area of concern in the Namibian economy cited by many players in the fi nancial sector is the lack of appropriate skills and this has restrained to a great extent innovations and aggressive entrepreneurship. It has further resulted in a lack of meaningful representation of Namibians on the board and executive management structures of fi nancial institutions. 64. This has been the case despite tertiary institutions having produced graduates since independence, i.e. despite courses offered by existing tertiary institutions, many still lack skills needed to work in the fi nancial sector. This might be a refl ection of the general lack of skills to the requirements of the job market experienced by the country as was found by surveys carried out by the Ministry of Labour in 2006, There is a lack of appropriate skills in the Namibian fi nancial sector Skilled human resources important for fi nancial sector development

36 Towards Achieving Vision 2030 36 Namibia Financial Sector Strategy: 2011-2021 followed by that of NEF/IPPR in 2010, both of which revealed the existence of vacancies hard to fi ll due to skills and qualifi cation shortages. It was clear from the surveys that Namibia is experiencing a shortage of skilled workers. Also while Namibia has managed to maintain a middling position over the last few years on the global Competitiveness’ Index of the World Economic Forum, the country is ranked very low in terms of innovation and the availability of specialised skills. 65. All of the above calls for both the government and the private sector to make concerted efforts to enhance the country’s human resource development with the view to improve skills, especially in the areas of fi nance and entrepreneurship. Outcome 6: Skills needed by the fi nancial sector shall be identifi ed and developed. Strategies to achieve the outcome: In line with, and in addition to the provisions under the Government’s education and training sector improvement programme (ETSIP) as well as the undertaking by the Namibia Financial Sector Charter to build and develop skills needed by the fi nancial sector, the following strategies will be implemented: i. A sector Skills and Training Plan, proposed to be called the Financial Sector Skills Enrichment Programme, shall be designed which will have the objective to address the shortage of skills in the fi nancial services industry and produce highly trained industry professionals. The programme will be funded by the fi nancial industry players and regulators, while other sources of funds, including initiatives such as the newly introduced skills levy will be explored. ii. To match up with changes and new developments in the fi nancial sector, existing courses offered by tertiary institutions such as the Polytechnic of Namibia and University of Namibia will be reviewed to determine their relevance and adequacy, and if found not to meet the requirements of the sector, relevant courses and/or modules will be developed in conjunction with those institutions. The courses so developed will also address the strategic skills demand of stakeholders in the fi nancial sector. iii. Various professional qualifi cation institutes, including the Institute of Bankers (IOB) in Namibia shall be strengthened to build up the skills of fi nancial sector professionals (bankers, insurers, securities brokers and issuers, and accountants and auditors, among others); while also building up the capacity of fi nancial sector professional associations. This will help develop the infrastructure, institutions, systems and processes required to support expanding fi nancial markets. Partnering with institutions of high learning should also be considered. Outcome 6: Skills needed by the fi nancial sector shall be identifi ed and developed. There is a need to develop the current and future skills required by the sector

37 Towards Achieving Vision 2030 37 Namibia Financial Sector Strategy: 2011-2021 iv. As a short-term solution, the fi nancial sector will engage relevant authorities, such as the Ministry of Home Affairs, on putting in place a strategy pertaining to the acquisition of work permits for foreign employees with critical skills. The strategy will aim to allow the import of skilled persons where needed, as has happened in other developing countries, as well as to ensure that skills so imported result in skills transfer to Namibians. The long-term solution, which should be a top priority of the industry, however, is to train more people and have the needed local skills.

38 Towards Achieving Vision 2030 38 Namibia Financial Sector Strategy: 2011-2021 INSTITUTIONAL ARRANGEMENT, MONITORING AND EVALUATION OF THE NFSS 66. The Strategy shall be owned by the Government of the Republic of Namibia, under the custody of the Ministry of Finance. 67. Monitoring and evaluation will be vital to ensure the successful implementation of the Strategy. As such, an Implementing Committee consisting of the Permanent Secretary of the Ministry of Finance, the Governor of the Bank of Namibia and Chief Executive Offi cer of NAMFISA shall be set up to ensure the implementation of the NFSS. 68. To facilitate a smooth implementation process, Working Groups shall be created where relevant, identifying lead agencies and other stakeholders to be involved in the implementation of a strategy/specifi c action plan. 69. Given the special nature of the reform areas relating to fi nancial inclusion as set out in this NFSS, there shall be established a Financial Inclusion Council, which will be responsible for the implementation of the fi nancial inclusion agenda. The Council will be chaired by the Prime Minister of the Republic of Namibia, with Ministers/Heads of the following Ministries/Institutions as members: (a) Ministry of Finance (b) Ministry of Trade and Industry (c) National Planning Commission (d) Ministry of Education (e) Ministry of Agriculture, Water and Forestry (f) Ministry of Youth and Sport (g) Ministry of Labour and Social Welfare (h) Ministry of Gender Equality and Child Welfare, and (i) Ministry of Information, Communication and Technology 70. An Advisory Body to the Council shall be formed, composing of relevant institutions, agencies and/or bodies, members of which shall be allowed to attend meetings of the Council. The Head of the following institutions will form the Advisory Body: Monitoring and evaluation is key for successful implementation of the Strategy

39 Towards Achieving Vision 2030 39 Namibia Financial Sector Strategy: 2011-2021 (a) Bank of Namibia (b) NAMFISA (c) Development Bank of Namibia (d) Agricultural Bank of Namibia (e) Namibia Post Ltd (NAMPOST) (f) Social Security Commission (g) Namibia Competition Commission (h) Bankers Association of Namibia (i) Non-banking industry Representative: Association of Asset Managers Association of retirement funds Association of Long-term Insurers Association of Short-term Insurers (j) Namibia Consumer Trust (k) Namibia Chamber of Commerce and Industry (l) Joint Consultative Council (m) Namibia Business Innovation Centre (n) Institute of Bankers in Namibia 71. The Implementing Committee referred to in paragraph 67 above shall report to the Minister of Finance and to the Prime Minister in the case of fi nancial inclusion matters, on a half yearly basis, who in turn will report the progress of implementation to Cabinet.

40 Towards Achieving Vision 2030 40 Namibia Financial Sector Strategy: 2011-2021 Notes

41 Towards Achieving Vision 2030 41 Namibia Financial Sector Strategy: 2011-2021 Development Competitive Effective Resilient Inclusive

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