Mr Tony Okpanachi, speaks on issues affecting the financing of Micro, Small and Medium Enterprises sector of the economy
Question: Given that a lot of people may not be aware of your operations, why was the Development Bank set up?
Answer: The Development Bank of Nigeria was set up by the Federal Government to confront financing difficulties hindering private sector investment in the country. The bank is to play an important and catalytic role in providing funding and risk sharing facilities to Micro, Small and Medium Enterprises. The target of DBN is to overcome the funding gap in the Micro-, 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 the European Investment Bank and African Development Bank. 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.
Question: How much Small and Medium Enterprises operators benefited from the bank?
Answer: One of the issues affecting the performance of MSMEs is the shortage of finance, particularly investment finance, which occupies a very central position. The Development Bank of Nigeria (DBN) is expected to contribute to mobilising significant long-term financing to this important yet underserved sector with high development potential. We started our lending activities on 1st of November 2017 with three microfinance institutions. We have made available to them almost N5bn. This was supposed to be for several SMEs. Since we are a wholesale financial institution, we work through financial institutions. So when they come, we make a line available to them and as they come with their clients we draw on the line.
What is available now to the three micro finance institutions is N4.9bn. So as they are bringing their clients on board, we sign. Beyond that, we have started bringing on board some commercial banks which you can see on our website; we have also made lines available to them. So as they come, we draw down the line and that’s when we will begin to give actual. But I am glad to tell you that what we have for disbursement for both commercial and microfinance banks is about N9bn.
Question: What is the current ownership structure of DBN and what is the level of investment in the bank by international finance institutions?
Answer: We have equity shareholders coming in; that is African Development Bank and the European bank. They have invested $50m and $20m respectively. So effectively, they are shareholders of Development Bank of Nigeria. The announcement that was made recently was to the effect that they have committed that. SEC has approved the basis of allotment and so as we speak, effectively they have funded the investment in the Development Bank of Nigeria. They are now shareholders in the Development Bank of Nigeria.
So the $50m from African Development Bank and $20m from European Bank are already in the system and as such, the bank is owned by the Federal Government, Nigeria Sovereign Investment Authority, African Development Bank and European Investment Bank.
Question: You said some banks have signed onto the bank’s loan disbursement arrangement; which banks?
Answer: For the commercial banks, we have Wema Bank Plc, Eco Bank, Sterling Bank, Diamond Bank, and Fidelity Bank. For the micro finance bank we have Micro Credit, Infinity, and Bosack. There was an issue with Fortis. I understand they had issues with accessing the fund. I know they are working towards meeting the conditions that will make them able to access the funds. We have not disbursed to them yet.
Question: What are the mechanisms put in place to ensure that the proposals of banks for funding meet DBN’s criteria and that the funds are not diverted?
Answer: For us, we receive the exact request; check the tenure and the terms of condition offered before we disburse. So we disburse for on-lending not for the banks to hold on to the funds. We have a mechanism within our system that ensures that the funds hit the account of the end borrowers within 72 hours. Beyond that, we follow up on them to see the impact made by the borrowing. For example, we check if it had created more employment; has it increased turnover? Has the loan increased revenue to enable them pay more taxes to government when necessary? So we look out for all of these; we don’t just create the lines for the banks alone.
Question: The issue of interest rate is one of the major factors that make borrowing very challenging; does DBN have uniform interest rates for borrowers?
Answer: No, it depends on the risk profile of the institution. It is not flat for everybody as some based on assessment may be more risky. Knowing that we take the risk of the financial institutions, we assess them and rate them; so that brings about the risk premium for each.
Question: Do you have an upper limit for the loans you give out to these financial institutions?
Answer: The upper limit is tied to the weight we attach to the risk of the rating. There is a minimum criterion you must reach for you to come on the DBN rating depending on the institution risk profile. For our rating we have a model which is a bit complicated due to the many factors in our rating. The difference from our rating may not be more than 100-200 basis points depending on the risk profile. The upper limit is a function of the risk premium.
Question: One of the models upon which DBN is based is risk-sharing; have you started that?
Answer: We have not started that though, we have got the regulatory approval to set it up. It’s going to be a subsidiary of the Development Bank of Nigeria and we have started working with World Bank to get the consultant to put the structure in place. It is our projection that towards the end of the year or early next year the credit guaranty should come on board.
Question: The issue of risk is very vital when giving out loans; to what extent have you gone with de-risking the industry and providing capacity to financial institutions?
Answer: That is also on-going. If you recall, we have a unit with the ministry of finance called the project implementation unit. The idea is to have different unit handling the capacity building issues so that we are not distracted from the core mandate of lending and they have sent out expression of interest for consultants to come in and the process is on-going. Then, the next stage is to ensure that the consultants are short listed and we identify which Primary Financial Institutions that need this capacity building and allocate consultants to them.
In the process of appraising the PFIs, some of them that do not meet our criteria, we identify ways we can help them. That’s where the technical assistant comes in. For example; if it is lack of a strong SME desk that is the problem, we give assistance. The idea is that even if a firm does not qualify today, we work with them to make them qualify. The overall objective is to create more access for the SMEs.
Question: Funding is a major issue when it comes to the development financial institutions. So far, has there been any need for you to go to the market to raise more funds?
Answer: No; from the funding we have now we can still move for the next two years before we can consider going to the market depending on the market situation
Question: Specifically, how much is available to the DBN now to finance SMEs?
Answer: There are some information that we cannot put out there. In terms of the amount, I can assure you that we have enough funding now.
Question: What plan does the bank have to help young graduates who may want to start up a business, knowing that they may not be able to meet up with the bank’s criteria?
Answer: Part of what we are doing differently is capacity building where we tell the financial institution that once a project comes to them and they assess it, we are ready to take up the risk with them to give funding for start-up. Subsequently, we are going to come up with products that we are going to sell through these financial institutions. For now, we want the buy-in of these financial institutions themselves so that we tell them the fund is available for them and we are willing to fund start-ups.
We build that confidence in them and subsequently we go out with our products directly to say help us sell these products to these people but that will be in phases. But we are very much available for start-ups. We will also share risk with them. The overall objective is to make funding easy to them.
Question: During the commencement of the bank’s operation last year, the bank promised to finance 20,000 SMEs within its first year of operation. To what extent have you been able to meet this target?
Answer: We are working towards meeting the target. As I said earlier, we are in our first year of operation. Now DBN is a start-up; there is a process of start-ups. I said first year of full operation and so you are going to start the follow up this year because we now have full operation in place.
We were licensed on 29th of March 2017. We took process of setting up structures that took some time and because we are a wholesale financial institution, we are going to partner with some financial institutions to bring them on board before we can now begin to lend to them. I can assure you that we are on course.
Question: How many SMEs has the bank funded so far?
Answer: So far, the requests from the PFIs for MSMEs are beyond 5,000. But like I told you, as they make requests and meet the conditions, we fund them.
Question: What is the level of collaboration between DBN, SMEDAN and others in reaching out to MSMEs?
Answer: We are currently working with SMEDAN. We have technical committees from their end and our end. They have clusters around the geopolitical zones. We want to key into those clusters to help build capacity for the MSMEs. We notice the MSMEs lack certain capacities so we want to start teaching the MSMEs on a case by case basis. My hope is that everyone who is interested in expanding their businesses should learn the basics of doing so. They were here a couple of weeks ago and we have been talking.
Beyond SMEDAN, we also know we need to collaborate with a lot of institutions – the National Association of Small and Medium Enterprises for instance; we need to engage them. There are so many partnerships we are going into. We have to work in collaboration. Other DFIs have been working in silos but that hasn’t worked well. So we are coming up with a collaborative approach to ensure that all the institutions playing key roles work together. The idea is to take leadership to ensure that MSMEs have easy access to funds.
Question: Going forward, what are some of the areas of focus for the bank to boost the activities of MSMEs?
Answer: We want to have sustainable financing so that in the long run, the institution will still be operational and be able to provide funds on a sustainable basis. A lot of factors are expected to come in here.
The second is awareness of the fact that the funds are available and we want to begin to get the MSMEs to pressure their banks to sign on with DBN so that many MSMEs can begin to have access to these funds.
Thirdly, the ultimate objective is to see the developmental impacts of our intervention fund like in the area of job creation. Lending empowers more people and ensures financial inclusion which is why we are taking time to put in place sustainable structures as it’s done elsewhere.
We also need to make it work. This is the first time all these development partners will be coming together to provide this funding. That means they believe in it and if they do, then why don’t we take advantage of it?