With $1.5bn capital, Nigeria’s Development Bank takes off to Revolutionise MSME financing

Nigeria, on Monday launched its National Development Bank, a $1.5bn capital wholesale finance institution which promises  – for the first time -to revolutionise financing in the Micro, Small and Medium scale Enterprise sector in the country.

Structured to be private sector led, the Development Bank of Nigeria (DBN) significantly de-risks the country’s MSME sectors bringing cheap, affordable lending of up to ten years tenor and about 18 months moratorium for the first time in the country.

Another exceptional feature is that as a private sector run institution, the bank would bring in corporate governance tenets, unlike what is obtainable in the existing Development Finance Institutions, (DFIs) thereby guaranteeing sustainability.

The DBN would also alongside its partners, provide hands-on business training for over one million MSMEs, making them more bankable and thus more attractive for commercial bank lending. The participating financial institutions would also benefit in the capacity building to reposition them for better MSMEs financing.

President Jonathan said at the launch that for the first five years of operation, the DBN is expected to disburse over 200,000 new loans to MSMEs, and create millions of  direct and indirect jobs.

He explained that DBN is private sector driven and would operate as a self sufficient institution and not reliant on government subsidy. It would source for funds to run its operations and also leverage on the exiting structure on the financial sector.

Loans will transmit from it to the existing DFIs and other financial institutions for onward lending at more affordable rates to the NSMEs due to the blend of concessional resources from multilateral institutions its other market based resources.

“We are pleased  because of the participation we are getting from the private sector and especially from countries and people that have been working in these areas. ADB is a success story and the DBN will be a major success story for Africa,” 

“Government will ensure international best practices and financial discipline will be established in this new institution,” President Jonathan assured.

BusinessDay was told that to set up the institution, the World Bank has pulled in some $500 million cheap loan, African Development Bank, $500 million of which $50 is equity, French Development Bank, $100 million, KFW of Germany, $200 million, while the government would bring in equity of about $200 million and will spread it. Also, the Nigerian Sovereign Investment Authority (NSIA) would be investing in the bank at some point, but detail is not yet decided.

The government is hopeful that the DBN would be adequately capitalised and expects that the $1.5 bn capital would be ramped up to $5 billion (N1 trillion) in the medium term and ultimately to N2 trillion within 10 years.

The DBN has been registered as a publically sponsored private institution and would be regulated  by the Central Bank of Nigeria. Shareholders are the Federal Government and African Development Bank. Other institutions and social enterprises  have also expressed interest to participate in equity and these would be

considered and brought in due course, BusinessDay also gathered.

Currently, Nigeria  has over 17 million MSMEs which contribute over 45 percent of the country’s GDP and employ about 66 percent of the labour force have been starved of funds for long, the President acknowledged. Lending to the sector hovers just around 5 percent of total lending in the  country, according to him.

The president raised concerns that of the five existing DFIs, only the Bank of Agriculture and Bank of Industry have strong focus on agriculture and even the entire MSME sector, noting that even the two have struggled to address the shortfall, largely due to corporate governance challenges and over dependence of capital injection from government to sustain their operations. 

The President was optimistic that the DBN would drive economic growth and development by removing  the financial constraints faced by MSMEs in the country by providing financing, partial credit guarantees and technical assistance for eligible financial intermediaries on a market-conforming  and fully financially sustainable basis.

Ngozi Okonjo Iweala, Coordinating minister for the Economy and minister of finance said that the bank  is still open for investors over time and that the federal government can increase its stake in the institution over time.

The minister said the DBN is an outcome of a study commissioned two years ago by President under the auspices on the National Council of a Privatization to look at the issue of quality and affordability of financing in the MSMEs sector.