Tony Okpanachi is the Managing Director/CEO of Development Bank of Nigeria (DBN). He is a seasoned banker with over 30 years’ experience. Before his appointment at the DBN, he served as the Deputy Managing Director of Ecobank Nigeria Limited, a position he held since April 2013. Before that, he was the Managing Director, Ecobank Kenya and Cluster Managing Director for East Africa, Ecobank. He was also at various times, Managing Director of Ecobank Malawi and Regional Coordinator for Lagos and South West, at Ecobank Nigeria. He holds a Doctorate degree (Ph.D.) in Development Economics from Nile University, Master’s in Business Administration (MBA) from the Manchester Business School UK, a Master of Science degree in Economics, from the University of Lagos and a Bachelor of Science degree in Economics, from the Ahmadu Bello University, Zaria, Nigeria. In this interview, Okpanachi told Onyinye Nwachukwu, BusinessDay’s Abuja Bureau Chief, how the recent accreditation by the Green Climate Fund (GCF) will boost DBN’s developmental roles as well as help Nigeria’s fight against the devastating impact of climate change. Excerpts …
The DBN has just received the Green Climate Fund (GCF) accreditation, making it the first direct access entity (DAE) and the only authorised Nigerian channel for accessing green financing from the Fund. What does this mean, and how will it boost the bank’s developmental mandate?
The first thing to note is that climate change has become an existential threat to humanity as extreme weather conditions continue to cause devastating effects on livelihoods. Globally, we have seen the depletion of grazing lands for livestock, rising sea levels causing excess flooding that displaces communities, changing rainfall patterns that negatively affect agricultural yields, poor water and air quality that impact health, and extensive loss of biodiversity, including plant and animal species. These and more are some of the consequences of climate change that the world faces today. The Green Climate Fund (GCF) is the world’s largest dedicated fund, helping small island states and least developed and developing countries reduce their greenhouse gas emissions and enhance their ability to respond to climate change. This it does by channelling climate finance to these countries and investing in their adaptation and mitigation activities through a project portfolio that is implemented by its partner organisations, known as accredited entities. These accredited entities, which can either be international accredited entities or direct access entities (DAEs), develop funding proposals to be considered by the GCF. They also oversee, supervise, manage, and monitor their respective GCF-approved projects.
Now, DBN’s accreditation by GCF will benefit Nigeria in many ways. Through this collaboration, Nigeria will receive a boost in its fight against the effects of climate change in terms of desertification, global warming, unpredictable rainfall patterns, storms, and floods, as well as assist the country’s efforts towards achieving sustainable development and promotion of environmentally friendly technologies in key sectors of the economy, including agriculture, manufacturing, healthcare, education, transport, logistics, etc. It will also help create greater awareness on climate change, culminating in greater involvement of Nigerians in climate actions, prompting a shift towards a green economy, raising the Nigerian portfolio in climate financing globally, and unlocking more climate funds. With the accreditation, the DBN is empowered to go ahead to develop and submit funding proposals for projects and programmes, oversee management and implementation of projects and programmes, deploy a range of financial instruments such as concessional loans, co-financing and blending for loans, and mobilise private sector capital for such climate change initiatives.
The accreditation also covers projects that fall under the categories of basic fiduciary standards, specialised fiduciary standards, project management, on-lending and/or blending for loans, Environmental and Social Categorization (ESS Risk) Category B, and medium-sized projects. Our excitement is that this is indeed a great milestone, not just for DBN but for Nigeria as a whole, given the opportunities it provides for the country to build resilience against climate change.
Can you break this down in terms of how much DBN can access from the GCF to enable businesses to address climate-related issues? If you can also speak to how the fund will be administered, in terms of whether on a concessionary basis or benchmarked against the monetary policy rate?
DBN has been accredited under the Medium Category, which means it can access GCF’s funding for projects between $50m and $250m. It has also been accredited for on-lending, blending for loans, and project management only. This also means at this stage, DBN cannot access grant funding, equity, and guarantee instruments from GCF. However, plans are underway to seek an upgrade to include these instruments in the future. To underscore the importance of this, we all know very well the issue of climate change and the challenges that we are facing globally, and Nigeria is not exempt. This is the first time we are getting direct access entity accreditation for Nigeria. DBN, being now a direct access entity, has provided Nigeria an opportunity to be able to attract some of this funding for climate adaptation and mitigation to different companies.
This means that projects for climate adaptation and mitigation between $50 million and $250 million, DBN is able to package and send to GCF for funding. Projects of that size and purpose can be brought to DBN to process, package, and send to access the funds. So it is a major breakthrough, and I believe that we need to share with our partners and Nigerians. Beyond that, DBN, being a bank that is focused essentially on micro, small, and medium enterprises (MDMEs), understands the critical roles they play in the economy, the transition to the green economy, the importance of the circular economy, the blue economy, and all that. The accreditation is therefore an opportunity to draw attention and position these MSMEs to access those funds for green projects, and then, of course, to position the country to attract funding globally. As you are aware, there was a commitment of over $100 billion to finance climate adaptation and mitigation in developing countries and small island countries. Nigeria is one of those countries, and we believe that with this accreditation we are also positioned to draw the attention of this funding. If you also recall, at the last meeting of the GCF, about $1 billion was approved for similar projects. Again, we believe that now that the DBN has a direct asset entity and is working with the National Council on Climate Change (NCCC), we will be able to come out with projects to process and tap into that funding. That, in a nutshell, is what it is all about, and it is quite a major breakthrough for Nigeria, especially in our drive towards a green economy.
Talk us through the process of the accreditation.
From experience, most other countries or partners that have been accredited usually take a minimum of about four to five years from the beginning. First, you have to get more like ‘a no objection’ from the Ministry of Environment to show intent to go ahead and get accredited as a direct access entity. By that you commit that whatever you are going to do is in alignment with the indices agreed by the government, and as a country. So we applied, got that no objection from the Ministry of Environment, and then started the application process. We also worked with the NCCC to ensure that we are aligned with the indices of Nigeria, as captured in our application. We went through a very rigorous process before the final approval and last accreditation. I can assure you that there are, in fact, thousands of entities applying, but in the end, I think, if I recall, there were only six that were accredited globally. That tells you how rigorous the process was for DBN to be among the few. But the important thing is that whilst we note that a major work was done to get this accreditation, greater work needs to be done to get in projects that can qualify to access the funding. And it starts with the project preparation, project appraisal, and then sponsorship of those projects to GCF themselves which must approve that they align with what they want to finance, and then, of course, the financing will come. As I mentioned earlier, at the last meeting, almost a billion dollars globally was announced, but I do not think that any project in Nigeria was funded. But now with the DBN, projects in the country will be able to get, especially within that medium category, between $50 million to $250 million.
We need all the funding that we can attract given our precarious situation. But with the rigorous process in getting this accreditation, I’m concerned that it will also be tough accessing the fund. Do you think that Nigerian entities are positioned to meet up with the requirements? Is there any cap on what they can draw from the fund?
Our next step is to come up with some kind of guidelines, again working with NCCC, which has a major role to play in, first and foremost, clearing those projects in line with the indices. This is before the project comes to DBN to appraise, package, and then sponsor to GCF. So, we start by giving that guideline broadly, and a lot of education and awareness will go out. Secondly, we know that other projects have succeeded—what are the learning points from them, what are the hurdles, and how did they scale through? We are going to learn from that; we are not going to reinvent the wheel. That is also going to help with our committee of experts that will ensure that projects get funded. We want to ensure minimal rejections, and that means putting in a lot of the work before the project itself is sent to the GCF. In terms of caps, there are none. This means that as long as you go through the process and you are able to meet those criteria, you get it. As long as you are able to prepare yourself and get good projects ready for financing to attract funds from them, we will get it done. So the onus is on us, working with NCCC and other partners, to ensure that projects that we are going to sponsor for the Fund meet all these criteria. We do not want to have a lot of rejections, pushbacks, or even questions being asked that may prolong the process of getting the needed financing.
In specific terms, which kinds of projects qualify for this funding?
First and foremost, the projects have to align with climate adaptation or mitigation, for instance, renewable projects, which will reduce carbon emissions. Those are called green projects because, in adapting, you want to reduce the greenhouse emissions to the climate, you want to reduce or mitigate the risk of climate change, and all the projects have to be aligned with that and all the indices committed to by Nigeria. It is not sector-specific; any sector can have projects that adapt to or help to mitigate climate change. So it could come from different sectors. For example, if you are doing renewable energy and you are bringing alternative sources of energy, that’s a different area. If you are providing another alternative to your production process that you know is going to reduce carbon emissions, it’s another area. So it’s not specific. But the ultimate objective is to ensure that at each point in time, the project is either adapting to climate change or mitigating it; that’s the key thing. How it is helping us to meet Nigeria’s determined contribution to reduce climate emissions is key. The exciting thing is that GCF funds will be administered on a concessionary rate basis and project-specific, not one-size-fits-all. It will come through a structure that will involve close collaboration with the NCCC for project selection, appraisals, and alignment with the Nigerian NDC’s. Shortlisted projects will then require detailed funding proposals that will be sent to the GCF for approval. I must note again that the resources can only be used for climate mitigation and adaptation projects, which must be aligned with Nigeria’s NDC focus areas. And it is concessionary because of the anticipated impact on climate-related issues, so they want to encourage you to take it. Also note that the money will be repaid, not free.
But away from GCF, given the significant role of MSMEs in Nigeria’s economy, like you alluded to earlier, how has the DBN been able to bridge the financing gap for these businesses, particularly in underserved sectors and regions?
The DBN has particularly focused on underserved segments and regions by channelling significant resources to women- and youth-owned businesses. It also remains unwavering in its support for women-owned MSMEs, recognising the unique challenges they face in accessing financial and business development services.
It was exciting and encouraging to see the bank’s commitment to supporting women entrepreneurs being recognised with an honourable mention at the 2022 Global SME Finance Awards. The bank has also directed efforts towards empowering the youth, who constitute approximately 70 percent of Nigeria’s population and are the nation’s greatest assets. As you may well know, innovation remains at the core of DBN’s operations, which is why the bank has introduced innovative products such as longer-tenured loans and the Finance Finance product, which facilitates funding for financial institutions that have active MSME portfolios but are unable to receive direct funding from DBN.
The DBN has achieved an “AAA” rating from GCR and other favourable ratings from other agencies. Can you speak to what qualified the bank for this rating in terms of strategies and operational efficiencies?
At the DBN, we are all proud of this rating, although this is not the first positive global rating we have received. That said, DBN’s exceptional creditworthiness can be attributed to several strategies, including: Robust Risk Management, in which we have implemented comprehensive risk management frameworks that ensure the quality and safety of our loan portfolios. Another strategy is our strong financial performance. As you know, we have consistently reported impressive financial performance, including our ability to maintain high levels of liquidity and profitability, and this has been crucial. Another strategy is our operational excellence. At the DBN, our focus on operational efficiencies, including the use of technology and streamlined processes, has enhanced the bank’s service delivery. And of course, strategic partnerships, which include various collaborations with reputable financial institutions, consultants, and development partners, have bolstered our credibility and financial strength.
We are also interested in knowing how the DBN has leveraged its partnership with financial intermediaries to expand its reach and impact on MSMEs across Nigeria. Any challenges, and how have you addressed them?
One of the merits of DBN’s wholesale model is the advantage it provides to leverage the extensive and vast network of its Participating Financial Institutions (PFIs) to reach MSMEs dispersed across the country. Interestingly, the bank has strategically partnered with over 69 PFIs across commercial banks, microfinance banks, and other financial institutions as of the end of 2023. We have also worked out strategies to partner with more PFIs within the financial sectors to disburse loans more effectively. As you can imagine, we have encountered and surmounted diverse challenges in the course of our work. Among such challenges is limited financial literacy among MSMEs and the varying capabilities of PFIs. We have made remarkable progress in addressing this through regular targeted training programmes and continuous technical assistance support. One of DBN’s mandates revolves around providing technical assistance to PFIs, enhancing their capability and willingness to lend to MSMEs. Again, through strategic partnerships with organisations such as Google Nigeria and the Entrepreneurship Development Centre (EDC) of the Lagos Business School, we have facilitated capacity-building programmes for Nigerian MSMEs to enable these businesses to become financially viable. Additionally, with the introduction of a learning management system, the bank has, as of December 2023, equipped over 5,000 MSMEs with the necessary knowledge and skills to overcome financing challenges and pursue growth aspirations.
The continued rise of the Monetary Policy Rate (MPR) by the Central Bank of Nigeria to tame inflation has obviously resulted in a high cost of borrowing. How is the DBN stepping in to help MSMEs and small corporations navigate this challenge?
We recognise the difficulties businesses face in this challenging economic landscape, and this has indeed increased our resolve as an institution to accelerate and catalyse access to finance for MSMEs. It is on the back of this understanding and commitment that we have developed an interest drawback programme that incentivizes the PFIs to on-lend to businesses in key impact segments and sectors of the economy. As you do know, there is a close relationship between cost of capital and risk perception; therefore, reducing both the inherent and perceived risk in the MSME sector will go a long way in reducing the cost of capital. To this end, we have developed a robust capacity-building programme to enhance the capacity of MSMEs to thrive and become fund-ready. This has helped in unlocking more affordable financing.
We all understand the critical role that measurement and evaluation play in delivering intended outcomes. In specific terms, how does the DBN measure its impact on job creation, poverty reduction, and economic growth?
Our core mandate and impact target is to support Nigeria’s economic transformation and sustainable socioeconomic growth through financial and non-financial support mechanisms to enable a vibrant, diverse, and growing MSME sector. One of the most tangible impacts of increased MSME financing is job creation, which is well acknowledged. As of December 2023, DBN’s activities had resulted in the creation of about 1.2 million jobs. What we do is try to assess the impact of our initiatives across three different levels, namely, at the ecosystem level, at the Participating Financial Institution (PFI) level, and at the MSME level. For instance, at the ecosystem level, DBN’s impact target is focused on improving investor confidence to support MSMEs. This leads to new investors and sources of capital in the ecosystem, alongside a variety of fit-for-purpose funding models and supportive regulations and policies. Indicators of this include the percentage of DBN’s loan book funded through new investors and the number of MSME finance policies or regulatory instruments drafted with DBN input.
The second level is the PFI, where we have outlined the impact target to include equipping PFIs with an improved understanding of the MSME sector. This enables them to become better positioned to provide appropriate products and services to the MSME sector. What we do is measure this through indicators such as the number of PFIs reporting an increased understanding of the MSME sector as well as an increased ability or willingness to lend to MSMEs, leveraging DBN loans, guarantees, and capacity building. For the MSME level, key metrics include the percentages, volume, and count of loans disaggregated by gender, youth, sector, and geography. Over the next 5 years, and in line with our new strategic direction, our target is to disburse at least 30 percent of loans outstanding to youth-led MSMEs, 40 percent to women-led MSMEs, and 15 percent to MSMEs in underdeveloped geopolitical zones/focus states.
Obviously, there is still so much work to be done, especially in the Nigerian MSME space. So what do DBN’s expansion plans look like, in terms of both geographic reach and product offerings, to further deepen its impact on the MSME ecosystem?
We are bold to say that DBN has firmly established itself as the primary development bank supporting MSMEs in Nigeria. With the recent launch of a new 5-year strategic plan, we aim to accelerate impact and reach over 2 million MSMEs, reflecting our commitment to scaling greater efforts and driving sustainable growth in the Nigerian market. A key plan to expand the bank’s geographic reach is by increasing presence in underserved regions, particularly in the North-East and North-West. I must emphasise that we are broadening our product offerings to include more tailored financial solutions for impact segments such as green, youth, and gender-based financing. Beneficial collaborations with more financial intermediaries are key, and we are leveraging technology to scale impact over the bank’s new strategic cycle.
