Nigeria’s Development Bank (DBN) is to lend some N5 billion, long term money to over 20,000 Micro, Small and Medium Enterprises (MSMEs) in commencement of its first mandate – lending activities to the MSMEs.
The loan would be disbursed through three selected Participating Financial Institutions, including Fortis Microfinance Bank, LAPO Microfinance Bank and NPF Microfinance Bank, which are all National MFBs.
Announcing this in Abuja, DBN Managing Director, Tony Okpanachi said the loan rates are not predetermined but that pricing would depend on market rates.
“Our pricing is quite pragmatic. We are referencing some specific instruments in the market,” Okpanachi stated.
He explained that the risk profile of the different Participating Financial Institutions (PFIs) matters, but that they would benchmark rates against major instruments like the Treasury Bill rates or the bond, whether it is long or short tenor.
“In the short tenor, we benchmark treasury bills rate and in the long tenor, we benchmark the bond rate, plus some premium based on the risk profile of the PFIs, that is our model,”
“But ultimately, we will ensure the end borrowers get cheaper rate than what they have been getting before,” he added.
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According to him, DBN loan repayment tenure is flexible of up to 10 years with 18 months moratorium period.
The Nigerian economy is powered by the MSMEs, which are largely unstructured.
Figures from the National Bureau of Statistics indicate that there are over 37 million MSMEs with activities within the segment accounting for over 50 percent of the country’s GDP.
The DBN commenced in March, 2017 as a Wholesale Development Finance Institution to then provide sustainable financing through eligible PFIs, which would, in turn, lend to end-borrowers- the MSMEs for the development of that critical sector.
With a vision to be Nigeria’s primary development finance institution; promoting growth and sustainability, DBN seeks to fulfill three key mandates, including
Lending to MSMEs, offering Partial Credit Guarantees as well as Capacity Building for the sector.
Explaining why the DBN rates cannot be cheaper at least in the short run, Okpanachi said the DBN was crafted, to be a long-term, private sector-led institution which would be self sustaining, and could eventually go to the market, local and international to raise funding for its business.
When asked of the specific rate which the institution would be lending, he stated, “..we benchmark against the current macroeconomy rates so that as the macroeconomic situation improves and rates are going down, our rates too will go down unlike saying putting a fixed rate, irrespective of whatever macroeconomic situation.
“So we are going to to give those funding, in a way that it reflects the macroeconomic environment. So the issue of subsidy will not be part of the business model,” he also stressed at the brief event where the DBN also signed an agreement with the three selected Microfinance banks.
Okpanachi lamented that less than 5 percent of MSMEs have access to credit in the financial system.
He said regardless of the number, many of these businesses still struggle with access to adequate financing.
He said the DBN was therefore created to fill the gap since existing financing options are inadequate to address the demands of the segment.
“It is against this context that the DBN loan will provide sustainable financing to Nigeria’s burgeoning MSME segment,” Okparachi stated at the event.
Hd said unlike the other Development Finance Institutions that are sector specific, DBN loan cuts across all sectors and seeks to achieve the Nigerian Sustainable Banking Principles (NSBP) of the Central Bank of Nigeria (CBN), where financial inclusion ranks high, as well as the United Nations Sustainable Development Goals and it’s in line with the Economic Recovery and Growth Plan of the Federal Government of Nigeria.
He said for the PFIs to be eligible, they must be licensed by the CBN and that their prudential ratios and several other ratios that make them going concern is equally key.
He also mentioned that going forward, more Participating Financial Institutions including Commercial Banks, other DFIs, would be signed on to access DBN loans which will be available to MSMEs who are already their customers across the nation.
Godwin Ehigiamusoe, Managing Director MD of LAPO Microfinance Bank also speaking at the event said the loan is “what the SMEs have been waiting for.”
He however stressed that pricing would depend on the market rates while putting into consideration their operation costs and the peculiar nature of the MSME sector.
Onyinye Nwachukwu, Abuja
