• Sunday, February 25, 2024
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BusinessDay

Proposed wholesale DFI takes off in 6-9 months with $5bn seed capital

Nigeria’s proposed wholesale Development Finance Institution (DFI) is to take off in 6 to 9 months with up to $5 billion seed capital to be sourced through a combination of debt and equity, BusinessDay was told on Tuesday.

Discussions are still ongoing on the entire funding sources and structure, but it was reliably gathered that while the Nigerian government takes a major participation, the World Bank, African Development Bank (AfDB), German and French governments have made over 1$ billion initial funding commitments already.

While the AfDB has pledged some $500 million, the World Bank and the German governments have all pledged some $500 million and $200 million, respectively, to help set up the institution that would hopefully change the long time neglect of the SMEs, seen as key drivers of inclusive growth.

Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of finance, confirmed on Tuesday that the DFI to be called the Development Bank of Nigeria would provide up to 15-year money to Nigerian businesses to tackle the age-long poor access to long term funding to the nation’s industrial sector.

She said two key sectors, manufacturing and agriculture, are being targeted and the idea is to particularly promote these two sectors that have high potential for jobs.

The model, however, envisages that large firms would get about 20 percent of the total loan portfolio, BusinessDay also gathered.

The incorporation process for the DFI is almost complete with an approval -in-principle already granted by the Central Bank of Nigeria (CBN).

Ousmane Dore, AfDB country director in Nigeria, has confirmed to BusinessDay in an exclusive interview that his bank was committing some $500 million into the project, coming in a combination of equity and debt.

Dore said the equity contribution is to stir confidence in the project, and possibly spur other equity investments from other sources while the remaining debt part would be coming mainly from the African Development Bank window at rates below 3 percent.

He disclosed that AfDB has advanced talks with the Nigerian government on the project, and would be presenting the assessment report to the board in October for final approval.

“We have finished appraising this project. We had a team here back in June, we have done several discussions with the government and other stakeholders and we are preparing the appraisal report so that we can go to the board sometime in October,” Dore stated.

“We are pretty much certain about this, it is one of the bank’s major programmes for Nigeria this year,” he added.

Stressing the importance of the institution, Dore stressed their belief that the DBN is going to be a major institution and a successful one in the financial architecture in Nigeria.

“We believe that this is an initiative that really aims at resolving a lot of underlining problems in the SMEs sector, including access and cost to
finance in the economy and we think that even though the government is a majority shareholder, the management of the institution is going to be essentially private.

“So there is a strong corporate governance scheme built in, and that gives us some comfort to really come in. And by coming in, we can also have this stimulating effect on others to take stakes because they would know that such institution like AfDB has already taken equity stake,” Dore told BusinessDay.