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Published On: Sun, Feb 10th, 2019

MSME funding gap: DBN to the rescue

Managing Director, Development Bank of Nigeria (DBN), Mr. Tony Okpanachi

By OKEY ONYENWEAKU

Micro Small & Medium Enterprises (MSME’s)and other categories of small- scale businesses appear more hopeful now than ever before. This is because the Development Bank of Nigeria (DBN) which only joined in the deliberate efforts of the government to prop up this sector of the economy recently, seems to be making significant impact.

Experts say Development banks, national or regional financial institutions are designed to provide medium- and long-term capital for productive investments, often accompanied by technical assistance, in poor countries.

The development financial institutions also according to them concernthemselves with providing all types of financial assistance (medium as well as long term) to business units, in the form of loans, underwriting, investment and guarantee operations, and promotional activities — economic development in general, and industrial development, in particular.

DBN was established to pursue these developmental objectives across the width and breadth  of the country. But it appears DBN has taken its work beyond the primary responsibilities of development and enthroned a rare ingredient known as efficiency in its operations.

So far, in just one year, the Managing Director, Development Bank of Nigeria (DBN), Mr. Tony Okpanachi disclosed that the bank in its first year of operations exceeded its projected performance with a total loan disbursement of N31.36 billion to 35,000 Micro, Small and Medium Enterprises (MSMEs).

Presenting a scorecard of the bank’s performance in its first year of operations to the media recently in Lagos, Okpanachi stated that the Development Bank of Nigeria formally commenced lending operations in October 2017 to its first two Participating Financial Institutions, (Micro Finance Banks) but with a strong on-boarding exercise it carried out within the year, the bank now has a total of 29 Participating Financial Institutions (PFIs) which includes commercial banks at various stages of engagement.

“Our total disbursement-to-date stands at N31.364 billion thus exceeding our year end projection of N30 billion. Total number of end borrowers stands at 35, 000 which also exceeded our year-end target of 20,000 MSMEs”.

“Women accounted for 73% of the end-borrowers of the DBN loans and received 27% of the total amounts disbursed”, he added.

Spurred by the achievements attained in its first year of operations, Okpanachi hinted that the bank’s disbursement target for the year 2019 has increased to N70 billion and is expected to help deepen the bank’s penetration in the MSMEs sector of the economy.

As a proof of the bank’s professionalism, the DBN boss also noted the bank has been recommended for various ISO certifications such as Information Security- ISO 27001; Business Continuity ISO 22301 and IT Service Management ISO 20000.

The Development Bank of Nigeria (DBN) was set up as a wholesale development finance institution (DFI) to provide sustainable financing through eligible Participating Financial Institutions (PFIs), who would in turn, lend to end-borrowers – Micro, Small and Medium Enterprises (MSMEs) for the development of that segment.

With a vision to be Nigeria’s primary development finance institution; promoting growth and sustainability, DBN seeks to fulfil three key mandates which includes, Lending activities to MSMEs, Partial Credit Guarantees and Capacity Building. DBN says it has not come to intervene but to increase access and ensure sustainability of long- term loans to small businesses.

Industry analysts believe DBN has in fact, come to rescue and change the fortunes of MSME’s in Nigeria given that no economy develops without small and medium scale industries.

There is a consensus that micro, small and medium-sized enterprises (SMEs) are made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million

Small to medium enterprises (SMEs) make up the vast majority of businesses in most countries, Nigeria not excluded.

BH investigations reveal that there are over 37.07 million micro, small and medium-scale enterprises, MSMEs, which account for more than 84 per cent of jobs in the country.

Also, there are over 20 million Small and Medium scale Enterprises (SMEs) in Nigeria which recorded about 27 per cent international trade between March and May 2017, aided by the use of digital tools.

The Ministry of Industry, Trade and Investment revealed recently that the enterprises also account for about 48.5 per cent of the gross domestic product, GDP, as well as about 7.27 per cent of goods and services exported out of the country.

Of the total number, micro enterprises account for the bulk of the MSMEs in Nigeria, with 36,994,578 enterprises (about 99.8 per cent), while small enterprises took 68,168, and medium enterprises 4,670.

However, poor financing opportunities has been the most critical challenge hindering the development of MSMES

Despite huge interventions by the Central Bank of Nigeria among other institutions that have done a lot to help MSME’s, the funding gap has remained the main challenge impeding that sector’s development and growth.

The sector’s development would not only create jobs for the teeming unemployed youths, its growth and strength will also conserve foreign exchange reserves, encourage export and the expansion of agriculture and manufacturing and service other sub-sectors.

With a total capitalisation of $1.3billion(N480million) in DBN’s coffers, Mr. Okpanachi who noted that no level of funding of MSME’ could be acknowledged to be enough, believes that DBN will work in partnership with other stakeholders to tackle funding problems of the many MSME’s in Nigeria.

According to him, DBN is not sector specific in giving out loans to the myriad of smallscale enterprises that need financial support to grow.

‘’We also give longer term loans, ‘’ the DBN MD, stressed.

Capacity building which DBN considers to be of paramount importance is a sure way to help tackle the common problem of poor leadership among other strategic trainings that are required to ensure the successes of these categories of firms.

DBN loans can be accessed through PFIs, which include Commercial Banks, Microfinance Banks, Development Finance Institutions (DFIs) and other Financial Institutions.

Its repayment tenure is flexible (up to 10 years with a moratorium period of up to 18 months) and the interest rates are on a market-conforming and fully financially sustainable basis, The interest rate for the Development Bank of Nigeria loans are believed to be the best in the country at the moment. This is more so since it was created for the purpose of helping small businesses and entrepreneurs.

DBN says that all MSMEs (start up or existing) involved in productive enterprises are eligible for the loans. However, they must be customers of eligible financial institutions.

DBN is poised to provide funding and risk-sharing guarantees through Participating Financial Institutions (PFIs), who will then on-lend to end beneficiaries.

To be eligible to receive financing from DBN, the PFI shall have met the minimum eligibility requirements set out below on the Cut-Off Date. The PFI shall maintain the minimum eligibility requirements throughout the Financing Period.

‘’DBN or its representative will conduct an annual due diligence process to confirm that the PFI is not in breach of the minimum eligibility requirements and may declare all advances to the PFI immediately payable if the PFI is in breach of one or more of the requirements or fails to remedy the breach of a requirement within any grace period allowed by DBN at DBN’s absolute discretion.’’,

To be eligible to receive financing from DBN, the PFI shall:

– hold a duly issued and valid license from CBN to carry on business as a bank or finance company;

– demonstrate within the three most recent financial years, two years of profitable lending operations, with effective risk management procedures, controls, and acceptable levels of loan portfolio quality and performance;

“In Nigeria, there are over 37 million MSMEs contributing to over 50% of Nigeria’s GDP. However, less than 5% of these businesses have access to credit in the financial system.” DBN

HOW THE LOAN IS GIVEN

The Development Bank of Nigeria does not give this loan or financing directly. The loan is given through banks, micro finance banks and different financial institutions.  All the banks, micro finance institutions and other organisations that give out the loans are called Participating Financial Institutions (PFIs).

That means you cannot go directly to the Development Bank of Nigeria. You have to go through any of the banks or other PFIs.

What the Development banks does is give the money to these banks, then the banks now offer the loan to everyone that needs it.

 

 

 

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