The private sector is poised to get a boost from the planned $70 million (N21.4 billion) investment from African Development Bank (AfDB) and European Investment Bank (EIB).
Over the years, access to cheap capital has been a major pain for most business in Nigeria, however the country may see a soft facelift as AfDB and EIB readies a $70 million investment in the Development Bank of Nigeria (DBN), created in 2016 to strengthen lending to SMEs.
EIB finalized a $20-million equity stake in the new financing institution, alongside $50-million equity participation from the African Development Bank, according to a statement from the European Union Delegation to Nigeria released to journalists at the 2018 Spring Meetings in Washington DC.
“This new private sector investment is crucial in creating jobs and enabling business expand and reduce limited access to long-term financing holding back economic growth,however EIB is pleased to support the DBN to strengthen private-sector investment in Africa’s largest economy,” said Ambroise Fayolle, Vice-President of EIB.
Tony Okpanachi, Managing Director of DBN said with this partnership DBN can overcome the funding gap in the small and medium scale enterprises space and help businesses unlock opportunities across Nigeria.
“DBN’s ambition is strengthened by the financial and technical support of international partners, including EIB and AfDB; the new institution builds on international experience and uses a business model that has demonstrated proven success to enhance private-sector investment across Africa and around the world where other financing options are inadequate or absent,” said Okpanachi in a press statement.
Currently, new investment essential for companies to expand and create jobs is hindered by limited access to commercial banks. The DBN estimates that only 5 per cent of the 37 million entrepreneurs and small businesses in Nigeria that contribute about 50 per cent of GDP can access credit in the financial system.
“Private sector businesses are critical to the development of the Nigerian economy as they possess huge potential for employment generation and output diversification; nevertheless, there has been under-performance of these businesses and this has undermined their contribution to economic growth,” said Stefan Nalletamby, Director of Financial Sector Development Department at the African Development Bank.
“Among the issues affecting their performance, the shortage of finance, particularly investment finance, occupies a very central position. Nigeria’s DBN is expected to contribute to mobilizing significant long-term financing to an important yet underserved sector with high development potential,” said Nalletamby.
“The European Union is committed to supporting private-sector investment in Nigeria, the new backing for the Development Bank of Nigeria by both the European Investment Bank, the bank of the European Union and the African Development Bank, with 13 EU member state shareholders, will make a clear contribution to tackling the lack of access to credit by entrepreneurs and businesses across the country,” Ketil Karlsen, Head of the European Union Delegation to Nigeria and the Economic Community of West African States (ECOWAS) said.
Karlsen added, “With more investment, we hope to promote a vibrant economy and stimulate growth, employment and increase opportunities, especially for youth.
Despite playing a crucial role in economic growth and poverty reduction, Small and Medium Scale Enterprises (MSME’s) are collectively, the largest employers in many low-income countries including Nigeria, yet their viability is being threatened by lack of access to risk-management tools such as savings, insurance and credit facilities. Indeed, their growth is often stifled by restricted access to credit, equity and payments services.
In line with addressing the major financial challenges facing MSME’s in Nigeria, DBN was conceived in 2015 with the principal mission of increasing financial inclusion and improving access to fiancé.
DBN’s main aim as stated on its website is “to alleviate financing constraints faced by MSMEs and small Corporates in Nigeria through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.”
