Slightly a year after it took off, Development Bank of Nigeria (DBN) has stretched its mandate beyond dealing with micro-finance banks in lending to medium small and micro enterprises (MSMEs) as its scope has included conventional deposit money banks in a bid to fill the absence of long term lending. ABDULWAHAB ISA reports
Conventional banks are not cut out for long term lending needed for business start up. They are comfortable with short term facility; and their balance sheets are tailored for short tenured loans.
Ironically, the Medium Small and Micro Enterprises (MSMEs) need facility with a long gestation period of paying back. This is the void DBN is created to fill. It is to create long term facility for SMEs’ growth and expansion, which conventional banks dread.
The bank in addition is also mandated to provide loans to all sectors of the economy including manufacturing, services and other industries not currently served by existing development banks.
Lifeline for MSMES
A wholesale bank designed to drive expansion and growth of MSMEs in Nigeria, DBN is the newest kid on the development financial institutions’ block. A Federal Government initiative though, it has the buy-in of the World Bank, German Development Bank, African Development Bank (AfDB) and the Agence Française de Development (French Development Agency) and European Investment Bank (EIB).
The bank commenced formal operations last year November primarily to deepen the growth, expansion of MSMEs in Nigeria.
Its Managing Director, Mr. Anthony Okpanachi, while reflecting on the journey thus far at a recent interview, was very optimistic that the bank’s target of giving facility to over 20,000 MSMEs would be met.
To demonstrate the bank’s commitment to live up to its core mandate, it made available over N5 billion to microfinance banks for on lending to SMEs the first week it flung its door open for business.
“We are working towards meeting the target. Remember, DBN is a start-up and there is a process to start-up. But now we have a full house, so we will start from this year. We now have full operations in place. We were licensed on March 29, 2017. The process for setting up the structures took some time.
Also, because we are a wholesale bank, we will partner with financial institutions and that means we will have to bring them onboard to lend to them. I can assure you we are on course,” Okpanachi said, adding that “so far, the request from the PFIs for MSMEs is beyond N5,000. As they make requests and meet the conditions, we fund them.”
DBN has expanded the scope of its players beyond the traditional microfinance banks. It has enlisted conventional deposit money banks (DMBs) as intermediary. Six are already on the lending league and more are being considered in the months ahead.
The first batch of DMBs enlisted by DBN includes Wema bank Plc, Ecobank, Fidelity Bank, Diamond Bank and Sterling Bank.
Justifying their inclusion, Okpanachi said: “You will recall, November last year, we started our lending activities with three microfinance institutions. We have made available to them almost N5 billion. This was supposed to be for several MSMEs. Since we are a wholesale institution, we work through financial institutions. So, when they come, we make a line available to them, and as they come with their clients we draw down on the line.
“Beyond that, we have started bringing on board some commercial banks, which you can see on our website. We have also made credit lines available to them. So as they come, we draw down the line. But I am glad to tell you that we have nine currently on our list, both commercial and microfinance banks, and between now and the end of June, we expect more commercial banks.”
He said the bank was doing a lot in the area of derisking and capacity building for microfinance banks whose duty is to lend directly to the SMEs.
Providing perspective into workings of DFIs, Okpanachi said the bank was a catalyst for long term development.
“Every development finance institution is more like a catalyst. You cannot meet all the demands. A typical business comes to a bank; they need working capital, for instance, which is mostly short tenored like 90 days, six months, etc and most banks are willing to take those businesses. But if a guy comes and says he needs to buy equipment for his factory and he needs four years to pay, the banks run away from that. And that is where development finance institutions come in.
“Another guy comes and says he needs seven years, usually most banks would run away and that’s where we step it. So it’s not either or, it’s collaboration. That’s the way it works. Some people say why do you guys want to go through banks again? But look at the total balance sheet of banks in Nigeria, which DFI can come near?
“Look at their branch networks across the country, and the customer history they have. Which DFI can meet that? So, the financial institutions can now give long-term financing to their customers with DBN funds and short term with their own funds. Which is why we are having a lot of uptake coming now because the gap was long-term funding,” he said.
One major setback of previous DFIs in Nigeria, the likes of National Economic Reconstruction Fund (NERFUND) and Nigeria Industrial Development Bank( NIDB), that largely accounted for their demise was the inability to adequately derisk investment terrain.
Besides, there was no initiative on their part to impart capacity building on those seeking facility by deepening their knowledge in the area of businesses the loan facility is meant to be invested in. With DBN, it is a different ball game as the bank is working to create a separate credit guarantee department on risk sharing. Approval has been secured from relevant quarters on this as was recently confirmed by Okapanachi.
“We have obtained the regulatory approval to set it up. It’s going to be a subsidiary of the DBN, and we have started working with the World Bank to get the consultant to put the structure in place. It is our projection that towards the end of this year or early next year, the credit guaranty should come on board.”
On derisking the industry and providing capacity to PFIs, Okpanachi said efforts were also ongoing.
“If you recall that we have a unit with the ministry called the project implementation unit, the idea is to have a different unit handling the capacity building issues so that we are not distracted from the core mandate of lending and they have sent out RFPs expression of interest for consultants to come in and the process is ongoing.
“The next stage is to ensure that the consultants are short-listed and we identify which PFIs need this capacity building and allocate consultants to them. In the process of appraising the PFIs, some of them that do not meet our criteria, we identify ways we can help them, that’s where the technical assistance comes in.
“For example, if it is lack of a strong SME desk that is the problem, we give assistance. The idea is that even if a firm does not qualify today, we work with them to make them qualify. The overall objective is to create more access to credit for the SMEs,” he added.
There are key institutions providing direction for SMEs operations in Nigeria. These bodies do not provide fund to SMEs, but their relevance is key to the sector’s survival. A few of these include SMEDAN and the National Association of Small and Medium Enterprises (NASME). They are key partners of DBN working with the bank for MSMES development.
“We are currently working with SMEDAN. We have technical committees from their end and our end. They have clusters around the geopolitical zones. We want to key into those clusters to help build capacity for the MSMEs.
“We notice that the MSMEs lack certain capacities so we want to start teaching the MSMEs on a case-by-case basis. We hope that everyone who is interested in expanding their businesses should learn the basics of doing so. They were here a couple of weeks ago and we have been talking.
“Beyond SMEDAN, we also know we need to collaborate with a lot of institutions like NASME), for instance. We need to engage them. There are so many partnerships we are going into. We have to work in collaboration. Other DFIS have been working in silos but that has not worked well, so we are coming with a collaborative approach to ensure that all the institutions playing key roles work together. The idea is to take leadership to ensure that MSMEs have easy access to funds,” Okpanachi said.
The horizon looks brighter for MSMEs operations in Nigeria as DBN provides unhindered intervention in the sector through PFIs. The bank’s major shareholders have taken decision to deepen their investment stakes.
“We have equity shareholders coming in; that is the African Development Bank and the European Investment Bank. They have invested $50 million and $20 million respectively. As we speak, effectively they have funded the investment in DBN. So they are now shareholders in the DBN. The $50 million from AfDB and European Investment Bank are already in the system, so now the bank is owned by the Federal Government of Nigeria, NSIA, AfDB and European Investment Bank,” Okpanachi said.
Evidently, the decision of management of DBN to enlist conventional deposit banks as part of primary financial institutions to lend facility to eligible SMEs operators will create more liquidity for its operation and sustainability.