DBN: Five years of impactful partnership with Nigeria’s MSMEs

The Development Bank of Nigeria (DBN), the country’s foremost wholesale development finance institution is five. In those five years, the bank has demonstrated how best to deliver development financing in the country, while ensuring desirable social impact, resilience, and sustainability.

It has particularly made remarkable progress in its commitment to, not just support but partner with the Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria and drive financial inclusion across identified vulnerable groups. So far, the DBN has successfully disbursed over N512 billion in loans to more than 225,000 MSMEs. About 67 percent of those beneficiaries are women, 27 percent are youths. The availability of these loans also enabled the creation of over 150,000 jobs in the economy.

The Bank’s profitability has also remained resilient despite the challenging environment heightened by the impact of COVID-19 and the latest Russia-Ukraine war. In 2021 alone which was the bank’s last audited financial period, Profit before tax and profit after tax stood at N22.7 billion and N15.7 billion respectively, translating to return on assets and return on equity of 4.8 percent and 12.8 percent respectively.

DBN’s capital adequacy ratio at 64 percent is well above the minimum regulatory threshold for wholesale development finance institutions of 10 percent. Under asset quality, the bank has sustained a zero percent Non- Performing-Loan ratio since inception.

Across other metrics such as environmental sustainability, the bank has taken major steps to ensure that its processes and operations align with global standards on environmental sustainability. A major feat in this direction is the achievement of the highest global rating of the Sustainability Standards and Certification Initiative (SSCI) by the European Organisation for Sustainable Development in 2021. DBN is the first DFI in the country to attain such a high-level rating under the Initiative. In the same year, the Bank clinched the highest credit rating, Triple ‘A’ from Agusto & Co, and GCR.

MSMEs are, collectively, the largest employers of labour in many low-income countries including Nigeria, yet their viability is being threatened by lack of access to risk-management tools such as savings, insurance credit, and even payments services. In Nigeria, there are over 41.5 million MSMEs (96 percent of the total number of businesses), contributing to over 50 percent of Nigeria’s GDP and accounting for over 80 percent of employment in the country, according to the 2020 survey by PwC.

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

DBN commenced operations in 2017 to alleviate financing constraints faced by MSMEs and small corporates in Nigeria. 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.

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.

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

DBN however, operates a Wholesale lending model, which means it does not lend directly to MSMEs. Instead, it on-lends through its participating financial institutions (PFIs), which are primarily Commercial Banks and Microfinance Banks. This, therefore, implies that lending to MSMEs is based on the PFIs’ lending criteria and risk assessment of the MSMEs and not by geopolitical allocations, although it continues to leverage various instruments and offerings to incentivize its PFIs to direct more lending to key impact segments such as Gender, Youth, Green MSMEs, and Economically challenge/underserved regions.

In five years, DBN has onboarded 60 PFIs, most of which have a presence in the northern region to channel funds to MSMEs there. According to official statistics, about N10.3billion was disbursed to some 18, 669 MSMEs in economically-disadvantaged states such as Borno, Adamawa, Katsina, Yobe, Zamfara, among others.

With some N3.8billion disbursed to startups and more than N48billion to first-time access to credit, the bank has trained over 1,300 MSMEs across the country, with the aim of understanding the problems faced by entrepreneurs within Kano and the northern region, to effectively provide solutions to the identified challenges.

As part of its strategic partnership, the DBN, on a regular basis, organises Regional MSME Summit which was conceptualized as part of stakeholder engagement strategy to create awareness around the bank’s mandate of providing access to finance for MSMES, and small corporates enterprises in Nigeria through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.

The idea behind the conversations is usually to inspire and empower the MSMEs to deploy innovation, strategy, and creativity to sustainably address these challenges and thereby build enterprises that create exponential value and contribute to Nigeria’s Socio-economic development.

The DBN Annual Lecture Series is another way that the bank continues to engage with all stakeholders to search for solutions and influence policies aimed at addressing the constraints faced by MSMEs, especially as it relates to access to finance and building their capacity to upscale sustainably.

“The strategy is to overcome MSMEs’ major challenges and transform them into a major fulcrum for the transformation of the Nigerian economy so that they are at the centre of technological innovation and transformation, local value addition, non-oil export drive with dynamic linkages to larger enterprises, and a veritable engine for job generation,” Shehu Yahaya, Chairman, DBN said. Yahaya also spoke of DBN’s five-year strategic plan of expanding reach, exploring new channels, and advocating for MSMEs, among others. He added that the bank has extended engagements with critical stakeholders in advocating for enabling policies that promote the growth and development of essential segments of our economy.

DBN has three broad mandates which are on-lending, risk-sharing, and technical assistance to the participating financing institutions. However, it has realized there is need for the MSME operators to be equipped to manage their businesses judiciously. As a result, it introduced at the onset of its operations, capacity building to the end-beneficiaries.

“In this regard, we have trained over 1300 businesses operating in diverse sectors all over the country,” Tony Okpanachi, DBN Managing Director notes. “We deliver this through partnerships such as collaborations with Google Africa, Enterprise Development Center of the Lagos Business school, and Wider Perspective Limited to train MSMEs on different modules ranging from accounting and record-keeping, marketing, management, negotiations, to green financing, sustainability, business planning.

Consequently, the bank has witnessed immense success at these trainings as beneficiaries have demonstrated an improved understanding of the industries they operate, as well as how to develop and implement their business plans.

Read also: Five takeaways from Access Holdings’ latest financial report

DBN’s focus in the short term is to strengthen its catalytic role in the Nigerian economy by expanding reach to more MSMEs in underserved regions such as crisis-impacted areas and enhancing development impact in other key areas such as women- and youth-owned enterprises, startups, and first-time borrowers.

“We will also continue to build our internal capacity to drive the growth ambition of the institution. In addition, we plan to amplify our sustainability drive through the implementation of our green finance strategy, leveraging our SSCI certification, and exploring Green Climate Fund (GCF) accreditation as a direct access entity.

“We also plan to crowd in more social and impact funding to build our balance sheet resilience amidst the challenging macro and business landscape. Finally, we will continue to provide capacity building for MSMEs and technical assistance to our participating financial institutions to strengthen their lending capacity to MSMEs,” Okpanachi tells BusinessDay.

In the medium term, the plan is to complete the digital transformation efforts currently underway within the bank and expand channels of disbursement to MSMEs, which speaks to its drive for increased collaboration with other players within the space. In the long term, the focus is to be recognized locally and internationally as the foremost institution driving the growth and sustainability of the Nigerian economy through the provision of financing support to MSMEs.

According to Okpanachi, major areas stand out for the DBN. The SSCI rating was an important step in integrating core sustainability principles into the bank’s policies, processes, and procedures. Immense value from the SSCI process was realized in the creation of DBN’s Purpose Statement and High Impact Goals. These have helped to re-focus attention on using sustainability as a driver.

“We are already seeing the advantages in the refinement of key processes across our general operations, products, business model, and technology.

“For the Nigerian economy, this rating means a national DFI is taking conscious decisions today on behalf of the country that will secure lives and livelihoods for the future. This is the essence of sustainability, and we believe DBN has become a custodian of this promise for our country. Secondly, the bank has a newly created Innovation Framework which has caused a resurgence of creative thinking across its operations.

“We expect that this new model will help drive improved financial and non-financial performances across our institution,” he notes.

Finally, its newly developed Stakeholders Management Framework has enabled the bank to think creatively about how best to keep a continuous loop of communication with the individuals and groups that matter to us the most. It must be noted that the geographical spread of DBN loans is not determined by geographical allocations but based on PFIs meeting DBN’s eligibility criteria and the PFIs’ risk assessment criteria for the MSMEs, especially as defined by the Central Bank of Nigeria.

This, therefore, implies that while DBN seeks to improve the impact of its interventions in northern Nigeria, the Bank’s disbursements to MSMEs across the country are purely demand-driven and per the PFIs’ assessment.

The clarification is necessary considering recent reports that DBN’s loans and activities were lope-sided to favour the South. Authorities at the DBN understand the huge financing gap across various parts of the country, especially the Northern region which has led the Bank to intensify its efforts in increasing awareness about its loan products to catalyze the demand for its facilities from the North through various offerings and programs.

“We are well aware of the high-interest rate within the environment. Hence, as an institution, we strive to crowd in more social and impact funding to make financing more accessible for MSMEs amidst the challenging macro and business landscape and in line with our overarching mandate to alleviate financing constraints for MSMEs,” the MD further notes.

Some of those programs according to BusinessDay findings include that the DBN actively seeks to drive more lending across all regions by incentivizing its PFIs through schemes such as the Interest-Drawback Program (IDB) which grants rebates on loans to PFIs that are targeted at Women, Youth, Green Sectors, and Focus States (which consists of states with low financial inclusion and those affected by conflict and insurgency).

DBN has also expanded its channels of disbursement by onboarding non-interest financial institutions with deep penetration in the northern Nigeria, supported by the development of tailored products to meet the financing needs of underserved MSMEs within the ecosystem, especially in regions like the North East, North West, and North Central. For instance, the DBN Non-Interest Banking (NIB) product allows the Bank to partner with financial institutions that serve focus regions such as North East, North West, and North Central, thereby enabling the Bank to drive impact to those locations.

The bank also created the Service Ambassadors Program & Awards to drive and incentivize its PFIs to scale their lending to DBN’s Impact Areas such as Gender, Youth, Green Sectors, Focus States (North), etc.

Besides, the DBN rolls out a technical assistance program for its PFIs. In October, a new batch of the program was commenced, comprising 15 PFIs (including commercial banks and microfinance banks). This helps to augment the capacity of the participating financial institutions to channel more financing to underserved regions of the country and generally increase their appetite to on-lend funds to MSMEs.

Every year, the bank organizes the Entrepreneurship Development Program which supports MSMEs across the country with knowledge and skills to run their businesses more efficiently. DBN ensures that the participation rate in the program is equitable across all regions. For instance, in 2021, records show that MSME participation from the North and South accounted for 50 percent each.

The Bank further holds various engagements in the North to increase awareness about the institution. Most recently, engagements were held in Kano and Maiduguri, mainly covering MSMEs and Market Associations to create awareness of its product offerings and how to access funding. During the summit, panel discussion was held, and experiences were shared to a wide range of youth entrepreneurs from the North, and other parts of the country.

Going Forward, the Bank has outlined several mass awareness initiatives to drive the offtake of the DBN loan not only in the North but across all the geographical regions of the country. It has also, outlined several capacity-building activities to address the peculiarities of each region, as it assures that will deliver the much-needed developmental impact across every sphere of our National Lives.

Experts affirm that as Nigeria’s foremost wholesale finance institution, the DBN has done well in delivering its mandate so far. However, they strongly point out the need for the bank to expand its communication strategy and intensify awareness on its activities to drive more impact and financial inclusion particularly in the challenged areas and regions.