Why DBN’s N5bn lending scheme deserves accolades

Why DBN’s N5bn lending scheme deserves accolades

Monday, October 30 may be described as the official unveiling for the Development Bank of Nigeria (DBN). But, instead of the gaiety that usually characterizes such celebrations; the atmosphere was full of seriousness and determination. The event was the formal commencement of lending activities by the institution that was established to promote growth of small businesses – categorized as Micro, Small and Medium Scale Enterprise (MSMEs).

Playing host were Tony Okpanachi, Managing Director of DBN, and his team which included; Ijeoma D. Ozulumba, the Chief Finance Officer, and Olu Adegbola, the Chief Risk Officer. Among guests were Tiko Okoye, Managing Director, Fortis MfB; Godwin Ehigiamusoe, Managing Director of LAPO Microfinance Bank.

The determination on the faces of Okpanachi and his team was very appropriate because the DBN’s mandate is a very important one. It was set up to tackle the long-standing problem of inadequate financing that has prevented the growth of MSMEs, a critical segment of the economy. It is not an exaggeration to say that the institution is a critical component for building in the foundation for a strong, inclusive and sustainable Nigerian economy.

To underscore the enormity of the DBN’s mandate, Okpanachi captured in a few words, the challenges and the hope that the institution represents: “The Nigerian economy is powered by the MSMEs, however unstructured. The activities within this segment account for over 50% of Nigeria’s GDP. However, less than 5% of these businesses have access to credit in the financial system. Statistics show that there are over 37 million MSMEs in Nigeria. Regardless of the number, many of these businesses still struggle with access to adequate financing”.

DBN’s mandate is therefore directly relevant to deepening and expanding the economy. The bank has set aside N5billion as kick-off funds that will be made available as loans to over 20,000 businesses that fall within the MSMEs category through its partner banks.

Another key part of the kick-off at Monday’s event, was the signing of partnership agreements with the first set of DBN’s Participating Financial Institutions (PFIs) that have met its lending standards. The bank on that day put pen to paper with leading lenders to small business such as Fortis Microfinance Bank Plc, LAPO Microfinance Bank Limited and NPF Microfinance Bank Plc. It is noteworthy that DBN being a wholesale institution is designed to act in the back end and does not lend directly to beneficiaries. Its role is to leverage its institutional capacity and network to source long term finance at highly concessionary rates from the local and international markets and use it to finance loans provided by its partner banks. These first set of financial institutions will be responsible for receiving loan applications, processing them and making disbursements to beneficiaries that meet the criteria.

The partnership with the banks marks an important first step, in the overall strategy of the DBN to institutionalize a streamlined risk-mitigating framework for achieving the goal of increased lending to the sector in a sustainable manner.

The institution’s initial moves give confidence that it will make a success of its mandate. For instance, the kick-off of DBN’s formal lending activities is momentous for the business sector. It promises to bring relief to existing and potential entrepreneurs that battle daily with accessing finance to do their businesses. For the country, DBN’s drive to put more money into the hands of serious business people that are engaged in economic activities that solve problems, meet needs and power everyday life from agriculture, trading, manufacturing, information technology and entertainment, will help ignite individual ingenuity and wealth creation. This will help to a great extent, in creating much needed jobs, and contribute significantly to boosting business growth as a critical aspect of the economic diversification program of the Buhari administration.

The unique packaging of DBN’s loans stands it out. The terms and conditions are very different from what obtains in the financial sector. Unlike traditional institutions, DBN’s terms are friendly and structured to lessen the financial pressure on entrepreneurs and to help them pay back in a way that does not kill their business.

In specific terms, the loans come with unmatched flexible repayment tenure of up to 10 years. In addition, beneficiaries are given the allowance of up to 18 months to start, grow their businesses and start making decent profit before they can begin to repay the loan. This principle of ensuring that businesses are strong enough to support repayment of loans that were taken to set them up is innovative, and would help a great deal in ensuring success of start-ups in the country.

The interest rates for DBN loans are also flexible and referenced to market rates to ensure the sustainability of the DBN private sector-led operating model. According to Okpanachi, DBN’s managing director, it would eventually help reduce the interest rates through its long-term financing program. “Our approach is to affect the interest rate in a systematic way; systematic because, if you are going to provide long-term fund, there is no way it will not bring the interest rate down. Secondly, why do commercial banks, MFBs price MSMEs high? “It is because they think the risk is higher. So if DBN is going to provide Partial Credit Guarantee, share the risks with the banks, obviously, it makes them to bring down the interest rate. Thirdly, for some of them (banks), they don’t even understand the businesses of MSMEs, because of that, they are running away from them. So, in building capacity, training them (banks) on how to lend to the sector, they will be more encouraged, relaxed and they are going to price them (MSMEs) appropriately.”

The gradual interest reduction strategy that DBN has adopted is impressive and builds on the bitter experiences of earlier development finance institutions in the country. As a catalytic tool designed to attract long term funds from serious organizations for driving sustainable financing for business growth, DBN must be anchored first on strong business principles that would allow it to grow and be financially strong. It is not a government bazaar. We have seen such and they have not lasted despite very good intentions. As with most business enterprises, it is believed that over time, the interest rates will follow the trend of businesses and drop as banks compete for access and the general macro-economic environment improves.

By encouraging and supporting the Minister of Finance, Kemi Adeosun to ensure DBN’s successful take, the President Muhammadu Buhari has demonstrated commendable capacity to support the growth of small businesses. Under the leadership of a banker and technocrat Mr. Tony Okpanachi, the clouds are indeed bright. It might just be time for entrepreneurs to ramp up their bottom-line.

Anthony Nlebem

Anthony Nlebem reports for BusinessDay Media Limited, Lagos

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