• Sunday, December 10, 2023
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DBN’s N23bn debut bond adds firepower to funding MSMEs

DBN, OEAHD empower over 200 women in North East

The Development Bank of Nigeria (DBN) has raised some N23 billion from its debut local bond issuance, allowing the country’s foremost wholesale Development Finance Institution more money to continue to fund the Micro, Small, and Medium-Scale Enterprises (MSMEs).

The issuance is part of the DBN’s N100bn medium-term bond program and came a few months after Tony Okpanachi, the managing director/CEO indicated plans to continue to expand the bank’s funding base both in terms of capital and debt, just as may be appropriate to meet the needs of MSMEs.

The program’s objective is to expand DBN’s capacity to provide funding for the critical sectors of the economy, especially to spur the growth and development of MSMEs in the country.

The N20bn series 1 bond deal was oversubscribed and was issued at a 14.40 percent coupon rate with a maturity of five years, due in 2028. DBN’s initial plan was to raise about ₦20 billion from this first phase, however the deal recorded total subscription of ₦25.37 Billion, indicating 1.26 times oversubscription. It was then launched at a clearing coupon of 14.40 percent with ₦23 billion in qualified bids.

DLM Advisory was the lead issuing house for the bond issuance, with Standard Chartered Bank as joint issuing house. Other parties to the transaction include G. Elias, Meristem, First City Monument Bank, Access Bank, Deloitte, Zenith Bank, Agusto &Co., GCR Ratings, an affiliate of Moody’s Investors Service, Olaniwun Ajayi, and ARM Trustees.

At the signing ceremony which was held in Lagos, Okpanachi, DBN’s CEO reiterated the bank’s commitment to its core corporate mandate of supporting MSMEs by leading the charge in deepening access to finance. This would then enable small businesses to play the critical role of wealth and job opportunities for the nation’s unemployed youths.

“The purpose of this issuance is to locally raise capital to meet the needs of the MSME sub-sector of the economy which is huge and whatever we are trying to raise will boost our funding base for them,” Okpanachi stated.

Since commencement of operation about six years ago, the DBN had relied on the initial funding from its foreign development partners, therefore the debut bond became the first time that it would source funds locally.

MSMEs are, collectively, the largest employers in many low-income countries including Nigeria, yet their viability is being threatened by not just lack of access to risk-management tools such as savings, insurance and credit, but often stifled by restricted access to credit, equity and payments services.

According to a 2020 survey by PricewaterhouseCoopers (PwC), Nigeria has over 41.5 million MSMEs, which is 96% of the total number of businesses, contributing to over 50% of Nigeria’s GDP and accounting for over 80% of employment in the country.

 The support for SMEs in the country has become critical, with over 80 percent of Nigeria’s population now dependent on the informal economy

Despite the crucial role in economic growth, poverty reduction, employment creation, and shared wealth creation, less than 5% of these businesses have access to credit in the financial system.

DBN was therefore created in 2017 to alleviate some of these financing constraints. This, it does through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.

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The bank was created out of a collaboration between the federal government and global development partners including the World Bank, African Development Bank, KfW Development Bank, French Agency for Development (AFD) and European Investment Bank (EIB).

From inception, DBN understood the huge challenges which MSMEs face, and committed to playing a focal and catalytic role in providing funding and risk-sharing facilities. It would also incentivise financial institutions, predominantly Deposit-Money and Microfinance Banks, by augmenting their capacity and by providing them with funding facilities designed to meet the needs of these smaller clients.

The bank however, operates a Wholesale lending model, which means it does not lend directly to MSMEs. Instead, it lends through its participating financial institutions (PFIs), which are primarily Commercial Banks and Microfinance Banks.

Okpanachi noted that the successful local bond issuance was therefore a clear validation of the bank’s commitment to not just rely on off-shore funds but is capable of even raising monies locally – a strategic shift towards diversified sources of funding.

“This move not only enhances DBN’s financial sustainability but also fosters financial independence and resilience,” the MD stated.

Okpanachi also emphasised that as an institution, the DBN’s primary purpose is to alleviate financing constraints faced by MSMEs and small corporates in the country through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.

“What we are doing essentially, is expanding our funding base beyond the development partners to catalyse funds within the economy itself to lend to MSMEs,” he said. He further urged young entrepreneurs to take advantage of these funds to upscale their business operations, in order to thrive and build sustainable businesses.

Okpanachi was quick to caution that as much as the DBN is poised to ensure that small businesses are adequately funded, the monies borrowed from the development partners would be repaid, just like the funds given to MSMEs. “These are all loans. Therefore, I advise the beneficiaries to make themselves bankable to have access to these funds and be able to repay when due.”

He also assured that through its processes, DBN will always monitor and evaluate the benefiting businesses, with an eye on how their businesses are impacted positively.

Okpanachi had, at a recent parley, explained how the DBN will continue to leverage its strengths, whilst building viable partnerships and exploring new opportunities all in the bid to play its catalytic role for sustainable development.

According to official figures, DBN’s financing support to its participating financial institutions reached N631 billion by December 2022. Over 313,000 MSMEs have so far benefited from the support, while more than 900,000 jobs were created, and according to the Managing Director, these numbers signify hope and prosperity for countless individuals and families across the nation.

The support for SMEs in the country has become critical, with over 80 percent of Nigeria’s population now dependent on the informal economy. In specific terms, more than N230 billion have been channelled to support small businesses in the Trade and Commerce sector over the past five years.

DBN has also shown commitment in addressing Nigeria’s critical food challenge, and as such has extended facilities to the agriculture sector.

The Food and Agriculture Organisation (FAO), had indicated a looming food crisis and raised concerns that millions of Nigerians could face acute hunger in 2023 as climate adversely affects the production of food crops.

In recognition of the place agriculture in the Nigerian economy in terms of guaranteeing food security, and taming soaring inflation, the DBN has allocated substantial funding to agro-MSMEs. As of December 2022, the Bank has provided N27 billion to Agro-MSMEs, official figures indicate.

“This funding has played a vital role in supporting agricultural activities, empowering farmers, and promoting agro-entrepreneurship,” Okpanachi noted.

“The financial support provided by DBN has helped agro-MSMEs to enhance their operations, invest in modern farming techniques, acquire machinery and equipment, expand their production capacity, and access new markets.”

The DBN has also extended its financing support beyond just agriculture to various other sectors, in recognition of their importance in the overall development and prosperity of the Nigerian economy.

DBN has also provided some N13 billion in financing support to MSMEs operating in the hospitality and tourism sector. Leveraging this funding, such businesses have been able to expand their operations, improve infrastructure, enhance service quality, and contribute to the growth of Nigeria’s tourism industry.

The bank also allocated N12 billion in financing to support quality education in the country, which has been instrumental in improving educational facilities, promoting skill development programs, and enhancing access.

DBN has further channelled N11.5 billion in financing support to the health sector. This is aimed at improving access to healthcare services and enhancing the health conditions of the Nigerian populace. According to Okpanachi, this has supported the development and expansion of healthcare facilities, procurement of medical equipment, and the training of healthcare professionals.

DBN also recognizes the immense potential of technology and innovation in driving development and digital transformation across sectors, and has allocated N11 billion to supporting businesses involved in the industry.

The funding aims to foster increased efficiency, productivity, and expanded market access for Nigerian businesses.”

Nwabu Okonkwo, vice president, Investment Banking at DLM Advisory Limited, while speaking on the bond issuance said it was well received by the market and attracted participation from a wide range of investors, including domestic pension funds, asset managers, and insurance companies.

For Amaka Nsofor, executive director at Standard Chartered Capital & Advisory Limited, the deal was a landmark event. “This move made by DBN has not only brought diversification to the market by enabling MSMEs to access funding but will also improve the drive to achieve financial inclusion and establish sustainable partnerships to accelerate the growth of MSMEs in Nigeria,” she said.