Nigeria could learn lessons from the Brazilian development bank template which thrives on the back of correction on market failures, infrastructure funding as well as good governance, Kaberuka Donald, former president, African Development Bank said on Monday.
Speaking in Abuja at an inaugural annual lecture series of Development Bank of Nigeria, Kaberuka said for a development bank to succeed, it is important to identify and correct its market failures for SMEs in a friendly way as well as expand funding base without relying so much on the state.
He said another condition needed for development bank is good governance in terms of board, investment decisions and decisions made based on market principles.
“My model for development banks is the BNDS of Brazil,” he said. “
“I’m not saying it is perfect, but they have done exactly what your country is trying to do with the DBN. The BNDS total assets is about $272 billion as at 2016, bigger than the total assets of the world bank.”
He said even though the BNDS is being criticized for funding big corporations, not SMEs, Nigeria can pick tweak its own template to suit local situations.
He further stressed that it is important for the Nigeria to have a sustainable economic growth to fund it’s economic projects, pointing adding the need to ensure growth in all sectors of the economy and expanded income base.
He said “Nigeria revenue to GDP ratio is still 7 percent, the average in southern Africa is 15 percent , Kenya is about 18 percent while morocco is over 21 percent. There is need for Nigeria to do much better in terms of increased capacity and efficiency”. This he, said would help expand funding options for the small businesses, which are often challenged by financing, multiple taxation, delayed payment on sales of goods, technology, regulations, good rules applied in assymetrical way
Meanwhile, the DBN – which claims to be changing the country’s over 41m MSMEs narrative- has in the last 18 months advanced some N70bn loans, impacting over 50,000 Micro, Small and Medium Enterprises – most of which are women-owned, its Chairman, Shehu Yahaya said
This comes amid concerns that the viability of the MSMEs – Nigeria’s largest employers of labour and 50% GDP contributor – is still hugely threatened by lack of access to risk management tools, including savings, insurance and credit.
“Less than 5% of these businesses have access to credit in the financial system,” Tony Okpanachi, DBN CEO said in his opening remarks at the event.
Latest figures indicate that at the Micro level, about 90.5% do not have access to credit whilst the figure for SMEs is put at 67.9%.
According to Okpanachi, other pressing areas which rank high for SMEs are assistance in power and water supply – 83.5% as well as tax rate reduction – 73.1%.
Development Bank of Nigeria was set up to alleviate financing constraints faced by the Micro, Small and Medium Enterprises (MSMEs) in the country by providing long term financing and partial credit guarantees to eligible financial intermediaries on a market conforming and fully financially sustainable basis.
Debt and capital available to the bank at commencement of operation last two years was about $1.3bn and 80 percent of has been expended, Okpanachi told BusinessDay on the sidelines.
“We are not yet at that stage of sourcing additional capital,”Okpanachi however notes.
“We want to deploy the funds we have now after which can raise more funds either through bonds or getting other partners to join us.
The theme for the Annual Lecture Series was “SURVIVING TO THRIVING: MSMEs as the key to unlocking inclusive growth in Africa.”
The lecture series provided platform for a robust exchange of ideas to tackle the challenges and take advantage of opportunities that exist in the MSME segment of the economy.
Okpanachi told BusinessDay that the bank has done over N77bn in terms of loans through Participating Financial Institutions (PFIs) to over 68,000 end borrowers.
“We see the numbers growing everyday and we have 26 financial institutions already working with us,” he said.
He said over 70% of the micro loans went to women, which is equally growing.
He said their plan now is to on-board as many financial institutions as possible, creating new partners to ensure that SMEs that require financing with good business plan will have funding options.
He disclosed that in terms of geographical spread, the bank plans to cover the entire country also partnering with the financial institutions to ensure that loans reach those at the rural places.
“For us ultimately is to ensure that once the SMEs require long term funding which is our focus, they should be able to have access to any PFIs close tho them.”
He however, told BusinessDay that a critical challenge DBN faces has been getting some of the financial institutions to come on board and the willingness to be able to lend to the MSMEs.
He noted that the development of needed infrastructure is key as well as cutting down, the current high cost of borrowing which is stifling the small businesses, which he however noted should be tackled by the financial institutions through “competitive pricing”.
“The DBN addresses just an aspect of the problem which is long term financing, so we are not in competition with the commercial banks which usually do the long term funding. But we must all work together to unlock the potential of the SMEs as reap the gains,” he stressed.
He said the bank is coming with technical assistance Program for the PFIs to enable them do more innovative financing.
‘These are some of the issues we are already discussing with the partnering banks to ensure that the risk perception of the MSME sub-sector is moderated.”
Okpanachi is hopeful that discussions from the lecture would help to upscale the capacity of PFIs to lend to MSMEs and improve the capacity of MSMEs across all sectors of the economy to access and use finance efficiently.
“DBN is positioned to play a focal and catalytic role in providing funding and risk-sharing guarantees,” he assured.
Mahmoud Isa-Dutse, Permanent Secretary at the Ministry of finance commenced DBN for recording tremendous results in addressing some of the challenges facing MSMEs through the provision of wholesale loans to Financial institutions for on lending to MSMEs and thought leadership.
Onyinye Nwachukwu & Cynthia Egboboh, Abuja
