Single-digit lending alone can’t make MSMEs’ products competitive, says DBN

Development Bank of Nigeria (DBN), has again said the inability to on-lend to Micro, Small and Medium Enterprises (MSMEs) at a single digit as being clamoured is not solely responsible for their lack of competitiveness in the market.

DBN, the latest development finance institution (DFI) set up in 2017, as wholesale lender, insisted that pricing is about the fifth factor in risk assessment, as some other macro indices, including inflation, availability of infrastructure and a host of others play key roles.

Amid the squabble over the need for another DFI, where there were already six or more others in operation performing similar functions, expectations were that DBN funds would be available for on-lend for as low as five percent, to make the MSMEs sector more competitive in a very harsh economic environment.

The expectation was borne from the fact that since the focus was to grow MSMEs and increase their contribution to Nigeria’s gross domestic product (GDP), while also boosting their job-creation capacity; DBN funds would be available at much cheaper rates.

However, the Managing Director/Chief Exective Officer, Tony Okpanachi, who estimated the funding need of the MSME sector at about N2 trillion or N1.3 trillion in specific need, told select editors in Lagos, yesterday that pricing or rate is not the most important issue in lending, compared to availability, accessibility, and sustainability.

Given the funding need of the sector, he insisted that all funds available in the financial system can barely scratch the surface, as such, the more intervention funds, there are, the better for the MSMEs and the economy at large.

Okpanachi, defending DBN’s inability to get its participating financial institutions (PFIs), which include, deposit money banks, commercial banks and micro-finance Banks (MFBs), to on-lend to MSMEs at single digit rates despite a capacity of up to $1.3 billion, buoyed by international DFIs, insisted that rates are fixed based on the risks assessment.

He argued that availability and accessibility will make long term funds more sustainable than was previously the case, and eventually crash rates due to available choices, which is part of the DBN’s mission.

He said: “I made allusion to the fact that financial stability is one of the key things DBN has to ensure. In our pricing model, we also put that into consideration. We are not an intervention fund; but funding financial institutions to provide longer tenure loans. So the risk of the borrower lies with the PFIs; who also price the risk appropriately to determine at what rate.

“But in our engagement with them, we influence to some extent, how this rate goes; but remember they are the ones taking the credit risk, so we engage them. If you look at in the past, and the difficulty of that segment (MSMEs) assessing fund, the issue then is not only about the pricing, but accessibility and availability. If you talk to most MSMEs, they prefer to have the money, so we want to encourage the PFIs to lend to them, taking into consideration the credit risks to price it appropriately.”

Due to the high risk assessment of the MSMEs, Okpanachi disclosed that DBN is on the verge of creating a Credit Risk Guarantee Company, as its wholly-owned subsidiary to debut before year end, to provide guarantees for credit thereby encouraging more on-lending by financial institutions.

Explaining the rationale for such a subsidiary, he said: “The business of providing guarantee is different from lending. This is the first time a credit guarantee company will be set up in Nigeria, whose job will be to provide guarantees. Being a subsidiary also reflects what DBN is all about, so that we can go on with our lending ability, but also provide guarantees, and its objective is aligned to DBN’s overall objective.”