‘We invested more in Nigeria in 2020 than any year since 2013’

JEAN GUYONNET-DUPERAT, country director for PROPARCO in Nigeria, in this interview with CALEB OJEWALE, speaks about the French Development Finance Institution’s investments since 2013, how it has managed to record zero default on loans, the unprecedented increase in investments last year, and the desire to invest in more projects across the country. Excerpts:

Can we get an insight into your project in Nigeria and how much funding has been committed since it took off?

Proparco has been actively present in Nigeria since 2013. Since it took off, most of the businesses that we finance have been through the local financial institutions.

If we calculate how much has come to Nigeria since 2013, it is roughly 800 million euro, which is around 80 to 90 million euro a year on the average. Looking specifically at Choose Africa initiative, which started in 2018, then about 100 million euro has so far been invested in Nigeria.

Are there certain sectors that can be said to be of priority to you?

One of the key sectors we are focusing on is the health sector. The reason for that is not only the COVID. Sure, the COVID has put emphasis on the health sector, but even before COVID it has been a top priority sector for us. Even before COVID, in Nigeria, we have always tried to finance the health care sector and it is not easy, but I am confident that we would manage to do at least one major operation soon.

Second would be renewable energy, because we know the power challenge in Nigeria. We want to address that. There are other important sectors for us, such as Agribusiness and education.

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Can you share some of the impact made through these investments?

I think a good example of an impact that we have made is the story of Rensource, one of the beneficiary companies. They develop mini-grids especially in rural areas, and it is a very good example of what we want to achieve, which is contributing to finance projects that would have direct impact on the population, even remote populations.

I understand the funding from Proparco is given in loan form, what has been the default rate

Actually, we have not experienced any default so far.

Did you have to make a deliberate plan to ensure that there was no default or it just happened on its own?

We put a lot of emphasis on the due diligence parts of our work. The due diligence that we perform are really important because we want to check many aspects, not only the financial aspects, but also the social aspects, the governance aspects, the Eco aspects of our targets and of our clients.

Before entering into business relationship with someone, we would really check if the company meets our requirements and if the strategy of the company is compatible with our strategy. And I think this explains why we have the low default rate.

Sometimes people say to us that it takes a bit of time to get funding, not only from Proparco but also generally from all the DFIs. While it is true that most of the time, the development financial institutions take time to assess their clients, in the end, I think the result is there. I mean, we experienced a low default rate because we know our clients very well.

What role do the traditional Banks and financial institutions play in your interventions?

Local banks are the key players of the real economy. We are just providing additional services that the local players are not offering now.

For us, working with the existing players, which are the Nigerian commercial banks is key and this is what we have done from the very beginning. You know we are very different from them, they have a network, they know the country, and they are everywhere. They can reach out to almost every Nigeria, and these banks are our clients, and also our partners. With our funding and finances, we want to reach out to people, to small entrepreneurs, to people from the north, from the south from all over the country, and we cannot reach out to them on our own.

This is the reason why a big amount of our investments goes through the local commercial Banks, so that the banks can use these funding to reach out to their clients, which we otherwise don’t know personally, but whom they know.

So you provide funding to the banks, and the banks lend to their customers?

Exactly. And we strategize with these Banks to tell them that the type of customers that we want to reach are for instance SMEs, and then the bank tells us, ‘okay I have a certain portfolio of SMEs, so give me or lend me 50 million dollars for that’. So we provide the funding for the SMEs and then the bank would attest that these 50 million dollars have been used for the SMEs and this is the philosophy of Choose Africa.

We cannot do everything on our own and we don’t want to, we want to do intermediate financing because we want to play with the local players.

Can you give an estimate of how much has gone directly to banks out of the 800 million disbursed so far?

It is about 75%. We have done more of intermediate financing. We work with almost all the major banks in Nigeria, including UBA, Access Bank, FCMB, GTB, Zenith, Fidelity, Stanbic.

It appears you give some sort of incentive for microfinance institutions to lend to businesses. Can you give some context into exactly how that happens?

With microfinance institutions, we do more or less the same as what we do with banks. We grant them credit lines that they would use for their own clients. The credit lines that we grant to them might be at a better interest rate than they would get elsewhere. They would then use this money for the benefits of their own clients.

What kind of guarantee system do you put in place for those banks that are lending to the MFIs?

What I forgot to mention is that we can provide credit lines but also guarantees. We can provide a grantee line to a bank and the bank then can use this guarantee line to finance other businesses such as MFI. The mechanism is that once we provide a guaranty line through a bank, like a five million dollars guarantee line, the bank would use that facility to cover a certain portfolio of its balance sheet. And every time there is a default it would be covered by the guaranty. So in the end we would take part of the risk and part of the default.

What other success stories are you anticipating in the future based on all the interventions you have done?

It is my hope that we would be able to finance within the months to come, a major project in the healthcare sector. Another thing that I would like to achieve is to finance major infrastructure based projects. There are many opportunities for major infrastructure projects in Nigeria, especially in the areas of transportation and it would be fantastic if we could achieve something there.

What do you think small businesses need to do for them to be able to attract more investments like yours?

When we look at projects especially at big projects like infrastructures, sometimes there is a lack of structuring. We need structured projects, structured teams and documentation. A project has to be structured on the legal aspect and not only on the financial aspects. So we need to know who’s doing what, who’s taking responsibility for what. Structure is key for us.

As a business leader if that’s an accurate description, can you share what lessons you took away from 2020 being the pandemic year?

2020 has demonstrated the resilience of the people, definitely. And it is very interesting to note that by the end of March, we had a pipeline of operations that had not been done. However, by the end of 2020, we made other transactions that we thought we wouldn’t make.

So it means in the end, 2020 was a very successful year for us. We invested more than ever since we opened the office in 2013. So it shows that there is really resilience, Nigerians especially are resilient.

I think that 2020 has taught us how to be resilient and to keep our commitment even though things are not happening as we would have expected.

How did you come about investing more in 2020 than previous years?

We’ve committed about 180 million euros of financing last year compared to an average of 80 to 90 every year since 2013.

Any other thoughts you’d like to share.

We’ve been around Nigeria for more than eight years, this is definitely a place that we very much like, and Proparco wants to do more in Nigeria. We are confident that we can bring more to the development of the nation and our goal is to do more than we already have. We can always do more and it is just a matter of finding the good people, the good projects. If the projects are well structured, we are still willing to take risks and make more commitments.