The fund would promote energy, education and housing projects as well as a land reform in Namibia, the Sächsiche Zeitung reported this week.
Germany's Namibia Commissioner, Ruprecht Polenz (CDU), announced the atonement plans on Monday evening during a discussion with journalists in Berlin.
The fund would be accompanied by an official apology from Germany for the colonial crimes against the Herero and Nama peoples during the German colonial period.
"The question is only in what form the apology takes place so that it can also be accepted by the Namibian government," said Polenz.
Berlin ruled what was then called South West Africa as a colony from 1884 to 1915.
Incensed by German settlers stealing their land and cattle and taking their women, the Herero people launched a revolt in January 1904 with warriors butchering 123 German civilians over several days. The Nama tribe joined the uprising in 1905.
The colonial rulers responded ruthlessly and General Lothar von Trotha signed a notorious extermination order against the Hereros.
Rounded up in prison camps, captured Namas and Hereros died from malnutrition and severe weather. Dozens were beheaded after their deaths and their skulls sent to German researchers in Berlin for "scientific" experiments.
Up to 80,000 Hereros lived in Namibia when the uprising began. Afterwards, only 15,000 were left.
Norbert Lammert, speaker of the German parliament, has previously called the slaughter of indigenous Namibians by German colonial forces a genocide.
However, so far the German government has not officially referred to this colonial crime as such, and has previously refused to pay reparations, arguing that Germany's contributions for development aid were for the benefit of all Namibians.
The announcement of the fund comes after the Herero and Nama peoples went to court in New York in January to seek reparations for the alleged genocide and injustices of German colonial rule.
The Namibian government, for its part, has denied that it will seek reparations from Germany before the International Court of Justice in The Hague.
This contradicts a report from the newspaper The Namibian which stated that Namibia wanted to sue Germany for $30 billion (about € 27.9 billion) as compensation.
Vice President of Namibia Nickey Iyambo said that the claim was without foundation.