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Establishment and legal form: From the survey, it was established that term-lending MFIs are all registered companies that fall under the same regulatory and supervisory authority of the non-bank financial institutions (NAMFISA). They include the ones that are subsidiaries of commercial banks as well, despite the fact that banks fall under the banking institutions regulatory authority. This is because the current regulatory framework (Government Exemption Notice 189 of 2004 issued in terms of Section 15 of the Usury Act, Act No. 73 of 1968) requires that banks that want to conduct microloan transactions separate from their banking operations need to establish a separate legal entity that would engage in such activities. There is only one such entity currently, as the other one has deregistered a few years back, as indicated earlier in this chapter.

As mentioned earlier, participating term-lending MFIs were all established during the period 2002–2009,86 _{therefore they are still in a nascent stage. This period falls within the post-}

political independence era of Namibia,87 _{which could suggest a relatively more conducive}

environment for setting up these types of institutions, as they saw an opportunity to fill the gap for microloans created by traditional banks that had not been ready to serve this type of

85 _{Key stakeholders of microfinance as defined by Ledgerwood, Earne and Nelson (2013) include providers of financial services}

(banks, MFIs, NBFIs and their associates), regulators (central banks, financial regulators, consumer protection agencies) as well as consumers, individuals and advocacy organisations.

86 _{MFI2 was established in 2002, MFI1 in 2004, MFI3 in 2008, MFI5 in 2005 and MFI4 in 2009.}

market, given their risk-averse nature discussed earlier in this thesis. The political environment during the period prior to independence (when the apartheid system was practised) would have made it difficult for this type of institution to exist, as the environment was more conducive to conventional banking.

Ownership and funding: The ownership aspect is an important issue to examine in the

context of this study, as it is among the possible factors that would determine the motive for an institution wanting to upgrade to a microfinance bank level and whether or not it would be willing to align itself with the policy expectation of serving the identified needy market (i.e. the poor and SMEs) once it has obtained that status.

Staschen (2010), citing the case of Uganda, is of the view that ownership composition is probably the most important determinant for MFIs remaining true to their mission of serving the poor. The argument normally advanced in this regard is that when MFIs become commercialised (formalised) and start pursuing financial objectives, they would lose sight of social objectives, i.e. their mission of providing banking services to the poor by lending very small sums to very poor borrowers, as they would now prefer catering for customers who are better off than their original customers (Strøm & Mersland, 2010). This situation is normally referred to as MFIs experiencing a ‘mission drift’ as they become more commercialised. Strøm and Mersland (2010) quote an example by Rosenberg (2007) of the initial public offering of Banco Compartamos in Mexico that led to a handful of people making a fortune to the tune of US$450 million as among the events that have sparked the fear towards commercialisation of MFIs.

However, the issue of whether or not ownership influences the mission of MFIs has been a debatable one in the literature. In their study that sought to establish evidence of mission drift by analysing 379 MFIs in 74 countries, Strøm and Mersland (2010) found no evidence of mission drift in the overall industry. They however found some evidence of possible mission drift in individual MFIs that had transformed to profit-seeking, but at the same time found that the effect is neutralised if the MFI is more cost-efficient, and they therefore recommended that the focus be on reducing an MFI’s costs rather than on the aspect of profit making. Further, Mersland and Strøm (2008), in their study on whether ownership mattered for the performance and trade-offs in microfinance organisations, found the difference between shareholder-owned microfinance organisations (i.e. formal MFIs) and non-government microfinance organisations (i.e. semiformal MFIs) to be minimal. This reinforces the conclusion, in their earlier study that investigated whether NGOs and

specialised MFIs incorporated as shareholder firms differ in bringing along social benefit to their clients, that they are more similar than different, and this led to the rejection of their hypothesis that NGOs are more socially oriented than shareholder firms. Their findings further revealed that the benefit in scale and scope by shareholder firms was not related to ownership, but to legal constraints that impede NGOs to mobilise savings (Mersland & Strøm, 2007).

The above findings imply that MFIs’ ownership and form of funding is not an impediment to the provision of socially oriented financial services. These empirical findings should provide some guidance to Namibia in this regard. A key message from the empirical evidence is the fact that MFIs that have become more profit-oriented have better depth of outreach in the long run and are more sustainable. In fact, Rhyne (1998) and Christen and Drake (2002), cited by Mersland and Strøm (2010: 2), suggest that “a more commercialised microfinance industry is better able to serve the poorest members of the community, since their profit motives lead them to be more efficient and more willing to seek out new markets for their loan products”.

In the case of Namibia, the survey found that credit-only term microlenders that responded to the survey are either subsidiaries of other regulated non-bank financial institutions (1), commercial banks (1) or other registered companies (3). These are in most cases single shareholding institutions with own funding, as only one of them (MFI5) has been sourcing funds from an international development partner. The researcher’s observation from fieldwork results points to the fact that inasmuch as these MFIs have also been serving low- income salaried people, they have been more profit-oriented than development-oriented, i.e. they have had preference for catering for better-off customers (earning a regular income) who mainly borrowed for consumption purposes rather than productive purposes. Given this fact, and in its effort to have relevant institutions lined up to the policy objective of developing a microfinance sector that will serve SMEs and the poor, Namibia might place consideration on the ownership of the would-be industry entrants as one of the qualifying criteria to entry, and the researcher is of the view that it should do so taking into account the above highlighted arguments in literature.

Based on the advocacy by the Namibian Financial Sector Strategy, the issue of localising Namibian financial institutions is for instance one of the prominent aspects in the draft amended BIA, i.e. financial institutions in Namibia, including DMFIs, are expected to be majority-owned by Namibians going forward. The strategy views locally owned financial

institutions as more “better suited to respond to the country’s needs than foreign owned institutions” (Republic of Namibia, no date: 33). While there could be merit in the intent to enhance local ownership of DMFIs, the researcher argues that there could be a need for some differentiation in ownership rules applicable to DMFIs, especially if the intended objective of developing the industry is to be achieved. The proposed differentiation could be either in the form of having shareholding limits that are different from those imposed on other established and matured financial institutions or industries, or applying some flexibility to accord DMFIs a transition period for limits in their shareholder diversification. This is because not only would current shareholders of existing MFIs (who are potential entrants to the DMFI industry) wish to retain majority shareholding in the institutions they have built, but attracting new entrants into the industry might also require incentives. This also becomes important when considering the possible new capital and technical expertise that foreign investors can bring to the industry, which could be of great help in the process of developing the industry. It is therefore important for Namibia to take into consideration the above as well as earlier cited empirical evidence as it designs its measures and limits on ownership of DMFIs going forward.