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Home Editorial

Agenda for Development Bank of Nigeria

25th April 2017
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GOOD news came the way of Micro, Small and Medium-scale Enterprises (MSMEs) last week following the approval of a $1.3 billion credit facility for the take-off of the Development Bank of Nigeria (DBN) by the Federal Government.  The bank was last year granted a licence by the Central Bank of Nigeria (CBN) as a financial institution that will bridge the gap between the Bank of Industry (BoI) and other commercial banks that could not satisfy the funding needs of (MSMEs) in the country.

The $1.3bn credit facility comes just as the CBN announced that it would open a special foreign exchange window for Small and Medium-scale Enterprises (SMEs) to enable the eligible ones among them to import finished and semi-finished items not exceeding $20,000 per quarter. The apex bank said in a statement that the intervention had become necessary because its findings showed that a large number of SMEs are being crowded out of the forex market by the large-scale firms.                            

Finance Minister, Mrs. Kemi Adeosun, who confirmed the FEC approval, said the loan has a repayment period of 20 years. She explained that the fund will enable the bank to give loans to MSMEs for a longer period and at much lower interest rates, adding that small businesses are engines for faster economic development and employment opportunities than big organisations.   Out of the $1.3bn facility, $500 million is said to have come from the World Bank, $450m from the African Development Bank (AfDB), $200m from the Development Bank of Germany and $130m from the French Development Agency.                                              

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But, beyond this good news is the need for the leadership of the DBN to exercise extreme circumspection in granting the loans. It must be careful to ensure collateral security for all loans, low interest rates (if possible, not more than five per cent) and the capacity of the MSMEs to repay, before loans are granted. 

Meanwhile, government says about 20,000 applicants will benefit from the bank’s credit in its first year of operation. This is a far cry from the over 17.28 million registered MSMEs in Nigeria. These MSMEs employ more than 32.41 million people, according to a research by the National Bureau of Statistics (NBS) and the Small and Medium Enterprise Agency of Nigeria (SMEDAN).

Nonetheless, it is heartening that the bank’s MD/CEO, Mr. Tony Okpanachi. has assured Nigerians of the readiness of the institution to provide long-term funding to small businesses across different sectors of the economy at low interest rates. Understanding the unstructured nature of small businesses in Nigeria will be key in meeting their needs. The bank should not lose focus of its mandate, one of which is to promote financial inclusion by providing access to credit finance to small businesses in the country. No doubt, the important role of MSMEs in the economy cannot be overemphasised. They are in the forefront of output expansion, employment generation, income redistribution, promotion of indigenous entrepreneurship and production of primary goods to strengthen industrial linkages.    

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Besides, the sector is responsible for about 70 percent of the total industrial employment in our country, and between 10 and 15 percent of the total manufacturing output. As a result, small businesses have been aptly described as the “strongest premise we have for industrial growth”.  We agree with this summation because the promotion of medium and small businesses in an economy such as ours will bring about better distribution of income and wealth, economic independence of the people and entrepreneurial   development.      

However, while SMEs make up about 45 per cent of our economy, and 47 percent of the nation’s Gross Domestic Product (GDP), according to Enterprise Baseline Survey conducted in 2012, the downside is that only about 10 percent of them has access to credit facilities. Many of them die within the first few years of existence due to a combination of factors such as irregular power supply; infrastructural inadequacies such as poor water supply systems and bad roads; inadequate market research; poor record keeping; low capacity utilisation; multiple taxation; difficulties in sourcing raw materials; policy inconsistencies and harsh regulatory requirements.    

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Overall, considering the fact that small businesses are the backbone of the economy and have the potentials to provide 80 percent of new jobs and improve per capita income, we urge the DBN to clearly articulate the needs of the businesses and design methods that will enable the small businesses to repay the loans promptly. In the same vein, we advise the small business operators to avail themselves of this credit facility by conducting credible feasibility studies of the businesses they want to engage in, in order to avoid the rejection of their applications.

So much is at stake as the DBN is set to open its doors to customers. It should not make access to the loans too stringent or impossible to attain by the intended beneficiaries.

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