‘DBN, most capitalised bank in Nigeria, attracts about $1.5bn funding so far’
Tony Okpanachi, managing director/chief executive officer of Development Bank of Nigeria (DBN) in this interview with select journalists, speaks on the renewed efforts of the bank to ensure sustainable funding for MSMEs across Nigeria, become a reference point for other financial institutions within Africa and globally and other initiatives. KEHINDE AKINTOLA was there. Excerpts:
What role will DBN play to ensure financial inclusion for the teeming Nigerian population by bridging the gap?
Financial inclusion involves a lot of stakeholders in different ways. First and foremost, it involves people having access to finance; access to having accounts with commercial banks, microfinance banks or any other formal financial institution as long as it involves having a bank account. Nigeria has witnessed significant growth in terms of the statistics of bank account ownership.
But for DBN in particular, our entry strategy will primarily focus on access to credit. For example, for micro, small and medium enterprises, we are in discussions with our partners and financial institutions to know how many new credits they are creating and how will people accessing credit for the first time to fund their businesses access it on a sustainable basis? So DBN is coming at that point and creating access to credit for all the micro, small and medium enterprises.
Overtime, we’ve seen some of the development financial institutions with laudable innovations go aground. For example, NERFUND, Peoples Bank of Nigeria, amongst others. So what measures has DBN put in place to avert such calamity?
First, I think the conceptualisation of DBN itself has taken into consideration all shortcomings of the previous banks that have failed. And how have we done that? First, it’s about the governance structure around DBN, which has been the most difficult challenge that most other development banks faced. The governance structure around DBN is formidable and credible. Like a properly structured private sector company, DBN has an independent board that is competitively sourced, a professional management team running the business with best global practice.
DBN is a Public Liability Company (PLC), licensed by the Central Bank and also regulated by Securities and Exchange Commission (SEC).
So you combine a strong regulatory environment, with ethical corporate governance, a formidable board and a competent management team; the chances of success are predictably high. This is what sets DBN apart.
The second differentiating factor is funding. The funding of DBN and the model is to help businesses on a sustainable basis. How is this done? If you see, DBN has the support from all the major development partners. For example, the funding available to DBN is provided from the World Bank, African Development Bank, the KfW – which is German Development Bank, and AFD, which is the French Development Agency. All these are core partners that came together to provide rich funding for DBN and they also come in with their expertise and practices to support DBN to ensure that the bank is run in a sustainable and professional way, ensuring best practices.
So from the structure, the funding base, the corporate governance base, DBN is also positioned to do well.
The third thing is the wholesale model, which DBN is running. Now, the wholesale model shows that we are not going to have network of branches. Based on this premise, we have our Participating Financial Institutions (PFIs) who already know how to lend or who already lend to MSMEs. For example, we are currently doing business with Microfinance banks because they have a strong MSME base. The commercial banks also rank high on our priority list because they already do business with SMEs, so we are now going to lend through them because they have the network of branches, which will ensure that our funding reaches the grassroots.
With your exposition on the capital base, can you let us into what it looks like?
DBN is going to be the most highly capitalised Development bank currently in Nigeria. Yes, because our capital base is a N100 billion by regulation. The regulatory capital base is N100 billion, so in terms of capitalisation, that’s going to be one of the largest capitalised banks in the country because by way of comparison, even commercial banks minimum capitalisation is N25 billion. So DBN as a DFI today is capitalised to the tune of N100 billion regulatorily. But beyond that, we also have funding so the total funding commitment available to us over time is almost $1.5 billion coming from the Development partners. So in terms of capital, another strong point for DBN is that it is coming with a very strong capital base to give it the strength to be able to intervene in the segment (MSMEs).
Is there any legislation required to ensure DBN has requisite regulatory framework?
DBN was set up not by Act of legislation but strictly as a private sector driven company. So we are licensed by the Central Bank of Nigeria and are a PLC so SEC is going to be our regulator. So Bank and Other Financial Institutions Act (BOFIA) takes care of all the regulatory frameworks.
You mentioned partnering with microfinance and commercial banks, but there is this information that over time the involvement of these third party institutions will further impede access to funding because of the high interest rates and other mark-up charges. Can we address the attendant challenges with their involvement?
Let me take you a step back and also tell you that our mandate in DBN comes in three folds. The major one is funding, which you are referring to as providing funds for on-lending to micro, small and medium scale enterprises. That is one aspect.
The second part of our mandate is also building capacity for the participating financial institutions to enable them do the needful. And then the third part is the setting up of a subsidiary of DBN. This subsidiary is going to be a credit guarantee company, which will provide partial credit guarantee for lending. Now to answer your question, we all see challenges in different areas while the funding is not getting to them.
Let me take the microfinance banks for example, for them the issue is they already know how to lend to the segment but capacity in terms of funding has been an issue. So DBN will provide the funding and in engaging with them, we are providing funds for their pipeline transactions, since they are bringing their clients for us to fund.
In our transactions with them, we know what rate they’re going to charge their clients, so we are able, in some ways, to influence the rates they’re going to charge so as to ensure that the benefits they are getting from DBN is also passed on to their clients.
Now for the commercial banks, the funding might not be their issue but DBN is also coming with tenor, which is a major advantage of DBN funding. We are providing tenure of up to 10 years, which is not available in this market for now. So tenor of up to10 years, even when necessary, we also do moratorium of 18 months. So effectively, you’re giving funding of almost 12 years to MSMEs that will be able to help extend their business over time. This way, they are able to stabilise their business and repay with ease.
Where the institutions don’t have the capacity or they have challenges in lending, we are also going to provide technical support, offer assistance to them in setting up and making sure they do lending to this segment on a sustainable basis and in a very professional way. So, looking at those interventions at different stages, we expect that the impact will be felt by the MSMEs.
So how soon are you starting the capacity building for these participating financial institutions?
For us in terms of capacity building there’s a segment of it, which will be handled by the Project Implementation Unit (PIU). Already talks are ongoing, consultants are being hired who are going to help in terms of capacity building. In terms of on-lending, we commenced sometime in November 2017 with three microfinance banks. As we speak, we are already talking to several commercial banks. We are at different stages now of finalising the onboarding process with them to come on board so that we will be able to lend through them. So, we expect that between now and the middle of 2018, you’re going to see many commercial banks also lending out DBN loan.
Is there any rate specified from the onset?
We are benchmarking our rates with the micro economic rates. Because our rate is variable, it is based on the microeconomic indices and for now, it depends on the tenure and the risk profile of the financial institutions we are going to lend through. So we are providing that. But I can assure you that our lending rate to PFIs is much lower than the commercial rates currently in the market
But will it be in the single digit?
We are not fixated on talking about single digit or no single digit, that’s not going to help us. Like we said, we also want to run this business on a sustainable basis in a way that DBN will be there in the long run. If you’re getting funding, which is made up of equity and debt, debt has to be repaid, right? So you have to run your business profitably so that you will be able to pay the debt and also continue.
The differentiating factor with DBN is that our pricing is tied to microeconomic rates, which will reduce as the economic situation improves. This actually reflects the economy. But I can assure you that in the long run, with these interventions at different stages, we’re going to make the rates go down eventually for the benefit of the MSMEs.
To really succeed, have you any feedback mechanism in place?
One of our major departments in DBN is department called Monitoring and Evaluation. And what does that department do? The department goes out to find out how the beneficiaries are utilising these funds. Though we are not taking their direct credit risk, but we also want to ensure that the funds that they get are being used for the right purpose and they’re creating the right impact. So we are going to have an impact analysis to measure the relationship between funding and job creation; has it been able to empower more people, has it been able to bring about further diversification of the economy; which sector of the economy is it impacting more, etc? Because we are not sector specific, but we know there are priority sectors that will also bring about the developmental impacts we want to see, the monitoring and evaluation department would go in and find out if the funds are getting to the right people, how they are being utilised and if the right impact is being made. So that there won’t be issues of funds not getting to the beneficiaries or the beneficiaries diverting funds. So we will get this feedback, which will always continue to help us to fine-tune our processes to ensure that at the end of it all, we get the maximum impacts we are suppose to get.
On statistics, when you came on board, you met some statistics ranging from 31 million MSMEs and so forth. Are you not looking at conducting new survey at expanding to see how many MSMEs you intend to impact?
In terms of statistics on MSMEs, there’s no need reinventing the wheel I can tell you, Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) has done extensive work in gathering data on MSMEs in the country. That figure currently stands at about 37 million businesses. That information is credible enough for our projections and planning. For the MSMEs and small corporates that constitute this number, we believe that the continuous funding on a sustainable basis will build their capacity for growth and expansion. Remember no single institution can meet the needs of all these businesses. So it has to be through collaboration with all other financial institutions to be able to meet the needs of this growing segment of MSMEs.
About a fortnight ago, you were in Kogi State in the company of the Vice President, where you gave assurances of providing intervention funds for MSMEs. Can you expatiate on your role in the clinic and your partnership with other state governments for them to leverage on the opportunity your bank is providing?
DBN was invited to be part of the MSME clinics happening nationwide being coordinated from the office of the Vice President. Through this initiative, the Vice President goes round all the states of the federation, encouraging MSMEs to see how they can take advantage of the ease of doing business; they’ve put all the agencies that interface with MSMEs together so that we can have a one-stop shop for everybody. Now DBN and other institutions like Bank of Industry (BOI), NEXIM who are fund providers are also invited and be part of it, to also educate business owners on the process of getting a business registered with agencies like CAC, NAFDAC and more. It also includes how funds can be accessed and that’s where the financial institutions play a key role.
So what we did in Kogi, was to be part of that campaign. We went there to let them know that DBN has come on board. The most interesting part for us is that because we don’t lend directly, we always go with our participating financial institutions. For example, in Kogi, LAPO Microfinance Bank and NPF Microfinance were both there to attend to as many customers who were interested in taking a DBN loan as well as their respective bank loans.
So, DBN used that platform to get PFIs who may not be directly involved in MSMEs to get them to lend. Also, we go to these clinics to ensure that we give access to so many of these MSMEs.
So at long run, expanding MSMEs in Nigeria, where do you see Nigeria in terms of targets you are impacting on?
You know when we started, I told you the first fund we made available is supposed to fund about 20,000 MSMEs through the PFIs and we believe that this year, we will hit our target of 100,000 MSMEs by the time we onboard so many of the new financial institutions. The idea is that on a yearly basis, we begin to increase the number of MSMEs that have access; those who are growing their businesses, those who are starting and those who will be accessing credit for the first time. So, we are going to ensure that we do that. The idea is that in the next five years, the impact of DBN would be so felt that a lot of other financial institutions can leverage on that to ensure that funding becomes available to that segment of the economy on a sustainable basis.
So where do you see DBN in the next five years?
In the next five years, I see DBN being a major player in terms of funding for the MSMEs segment. To see DBN as being an influencer in the market, making loan pricing more competitive for the MSME sector. We see DBN in the next five years being a major opinion leader through capacity building so much that access to funding for these MSMEs comes relatively easier on a long-term basis. Because the status quo has mostly been short-term funding, DBN coming with a longer term funding model will allow more businesses stabilise and pay back their loans with ease without the strenuous and tough conditions of shorter tenors.
We also see DBN being a reference point for other financial institutions within Africa and globally, where they will see best practice going on in terms of an institution that is built and run professionally.
The issue of NPL (Non Performing Loans) is a major one; so what measures have you put in place to address this challenge?
One of the things we look at when we are dealing with the financial institutions that we onboard is the issue of their non-performing loan. The idea is that banks with high non-performing loans discourage us from lending to them until they put their acts together to be able to improve on their risk management profile to ensure that they lend the funds that they collect. It’s an issue in the industry that bothers every stakeholder and the regulators are paying keen interest to it. I’m also aware that, most of the financial institutions are now extra cautious and are putting stringent risk management strategies and frameworks to make sure they lend and funds are recovered on an ongoing basis.
Lastly, how can cooperative societies benefit from the DBN loan?
For us, one of our eligibility criteria to access DBN fund is that you must be licensed by the Central Bank. So in as much as those cooperatives societies are not yet licensed by the Central Bank it becomes a major issue. It is a challenge for us to deal with them directly. But there could be a structure where they can come through a participating financial institution that is already on-boarded by DBN as a cooperative society. When they come, we lend through those participating financial institutions. So in our engagement with the participating institutions, we are also encouraging them to come with clusters to bring them to DBN. For example, some microfinance banks are ready doing lending to these cooperative societies. So they can come under that umbrella through the participating financial institutions to DBN and we will be able to lend to them. But in terms of direct lending to them, because they are not licensed as financial institutions by the Central Bank, we will be unable to lend directly.
For us DBN, is a unique model, we know that we have the best support across globally and all the development partners are strongly behind us and we believe that with the ownership structure which extends beyond the Federal Government to African Development Bank, the European Investment Bank and other shareholders, all these come together to form a very strong support for the bank. The bank is positioned to be able to make a difference in lending to that segment of the economy. DBN is also positioned to makes its own impact in terms of diversifying the economy, creating jobs by financing some of those Micro, Small and Medium Enterprises that are coming on board. And most importantly, we also want to see businesses run on a long term and sustainable basis.
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