The Development Bank of Nigeria (DBN) has advocated for government policies that encourage smaller businesses to grow and formalise their operations, including cutting down registration fees, as well as deferring their tax liability – though within a specified time frame.
The DBN, which is Nigeria’s foremost wholesale development finance institution, believes that the growth and formalisation of these smaller enterprises is of utmost importance because of the attendant benefit to the economy and the government.
Total assets of the 39,654,385 Micro, Small and Medium-scale Enterprises (MSMEs) operating in the country as of 2020 reached N8.41 trillion, according to data from the National Bureau of Statistics (NBS). But of this figure, over 34 million of them are informal.
BusinessDay had during a recent media parley in Abuja, raised concerns on why this huge number of MSMEs still operate as informal businesses, considering the gains that could be harnessed for the struggling economy.
Tony Okpanachi, managing director of DBN, responding, explained that the government has done considerable work in promoting the importance of MSMEs but that more needed to be done.
He said MSMEs – formal or informal – were facing a tough time staying afloat, and that some of the most pressing problems they face, including obtaining finance, irregular power supply, infrastructure deficit, multiple taxation, rent, cost of capital, coupled with a lowered saving propensity, explain why formalisation may not be a priority to them.
Again, formal businesses have a higher survival rate, enhanced capacity to run profitably and ability to use debt more efficiently, which better place them for more significant impact on economic activities, employment and government revenues by way of taxes and levies.
“However, policies, which of course should be time-bound, like the reduction of fees for business registration and deferred taxes would surely encourage the formalisation of some of these businesses,” Okpanachi noted, adding that, as a development-based institution, DBN is committed to help alleviate financing constraints faced by the MSMEs in the country.
Read also: DBN calls for policies to spur MSMEs growth
The DBN was set up to provide wholesale credit and risk-sharing facilities through Participating Financial Institutions (PFIs), including commercial banks, microfinance banks, existing development finance institutions and leasing companies for onward lending to businesses.
Okpanachi said that in the past five years, the bank has demonstrated how best to deliver development financing while ensuring desirable social impact, resilience and sustainability.
He further announced that as of the end of 2021, the DBN disbursed funding worth some N482 billion to more than 208,000 MSMEs, according to available numbers.
The bank’s profitability has also remained resilient despite the challenging environment and the impact of COVID-19.
Profit before tax and profit after tax stood at N22.7 billion and N15.7 billion respectively, translating to return on assets and return on equity of 4.8 percent and 12.8 percent respectively for 2021 as seen in the bank’s last audited financial period.
Till date, the bank has not recorded zero Non-Performing Loan (NPL), which, according to the MD, gives credence to their strong risk management system and the great work of the entire team at DBN and our participating financial institutions.
But like many other institutions, global and domestic headwinds from COVID-19 and now the Russia-Ukraine war has impacted its operations, making the pricing of its loans less attractive to financial intermediaries.
“Nevertheless, we keep broadening our funding base to make financing more available for MSMEs in line with our overarching mandate to alleviate financing constraints for MSMEs in Nigeria.
“In addition, DBN has various products and programs targeted at meeting the needs of MSMEs. For instance, DBN has an interest drawback program for its PFIs through which they grant rebates on loans to MSMEs playing within sustainability sectors such as renewable energy, waste management, among others,” Okpanachi stressed.
It would be recalled that in 2020, the bank received an Accreditation Certificate of Acceptance in line with Sustainability Standards and Certification Initiatives (SSCI) by the World Development Finance Forum in Germany, making it the first DFI in the country to attain such a high-level rating.
“Sustainability is one of our core values at DBN and part of our DNA,” Okpanachi explained.
“The SSCI rating was an important step in integrating core sustainability principles into our policies, processes, and procedures.
“We are already seeing the advantages in the refinement of key processes across our general operations, products business model, and technology.”
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