As players in the Micro Small and Medium Enterprises (MSME) segment of the economy continue to face stiff financial huddles to scale and keep their businesses afloat, the Development Bank of Nigeria (DBN) has said it will empower MSMEs with the sum of N100 billion before the end of 2019.
Joseph Nnanna, the chief economist of the DBN disclosed this at the 5th edition of the Refined Economic Development (RED) quarterly lecture recently held at the University of Abuja. “This year alone, the DBN plans to disburse N100 billion to MSME and we are quite on track as it is already. We are very confident that we will achieve that this year and beyond,” he said.
According to Nnanna, the DBN offers partial risk sharing, that is credit guarantees with prospective financial institutions granting credit to MSME operators to aid in reducing the risk associated with the MSME segment of the economy.
Speaking on “Contemporary Strategies for Financial Inclusion and Prosperity in Nigeria,” Nnanna reiterated that MSME are the backbone of any economy, considering the fact that the segment makes up over 90 per cent of all firms and accounts for an average of 60 to 70 per cent of total employment and roughly 50 per cent of Gross Domestic Product (GDP) of Nigeria.
Limited access to finance for the MSME segment severely constrained opportunities for economic diversification in Nigeria, which results into a ‘crowding out effect’ due to government borrowing
“As a result, over a period of one year, we witnessed an increase in treasury bill rates peaking at 18 per cent in 2017. At the same time banks facing a challenging external environment worked to reduce risks, crowding out liquidity to real sector including MSMEs.
“Presently, treasury bill rates have declined to 12.7 per cent. However, yields on government bonds are around 14.5 per cent making it still very attractive to lend to the government. Typically, Nigerian banks observe a value chain business model that deals with already established firms with a track record of success.
“Consequently, banks tend to ignore MSMEs because of poor or no credit history, insufficient collateral to name a few reasons. To that effect, Nigerian banks resort back to what they understand to be a sale investment choice which is competing for larger firms and accepting lower margins only to exploit the higher yields earned from credit and perhaps other fees earned through product offerings as part of the loan agreements,” Nnanna said.
It will be recalled that DBN recently partnered with GTBank to disburse N25 billion to SMEs in the country.
The DBN in its first full year of operations disbursed over N30 billion to over 35,000 end-borrowers in the MSME segment, while also collaborating with other development finance institutions to remove some of the barriers to access to finance in the segment.
