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‘Why banks can’t lend on single-digit to SMEs’

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Managing Director, DBN, Tony Okpanachi


Despite efforts by financial services regulators to make funds available for small business at single-digit interest rates, banks have said this may not be possible until such facilities are made available to them by the promoters at such low rates.

Speaking specifically on the partnership by the Development Bank of Nigeria (DBN), with five commercial banks for the disbursement of loans to small and medium enterprises (SMEs), Head, Emerging Businesses, Diamond Bank Plc, Ayo Olojede, said single-digit on-lending is not feasible unless banks want to indulge in charity.
Olojede, who spoke to a select group of journalists in Lagos, on extending loans to smaller businesses including micro, small and medium enterprises (MSMEs), said: “their (DBN) pricing is not single digit, so to the extent that your pricing is not single digit, I cannot also on-lend at single digit.”

In response to The Guardian enquiry on loan pricing, the Managing Director, DBN, Tony Okpanachi, simply said: “Our pricing model is benchmarked to macro-economic rates.” He added that rates could become lower in the near future if “inflation rates fall.”The Development Bank is expected to contribute to mobilising significant long-term financing to small businesses that are largely underserved, yet with high development potential.

Notwithstanding the prevailing rates, Olojede said Diamond Bank, one of the five banks involved in the lending scheme, has challenged DBN on the high loan pricing, given the amount of enquiry from customers on the interest rate.She however added: “we are at a stage in our negotiation where I am still able to considerably reduce my interest rate because they (DBN) have also buckled to allow me some leg run. So we are also putting the pressure on them to really come down to fulfil that mandate of developing the SME market through pricing, and not just on tenure.”

She recalled that when the Central Bank of Nigeria (CBN) floated a similar facility for the manufacturing and service sectors, loans were extended on a single digit rate. “They prioritised high growth sectors like manufacturing, service sectors and their likes, and the momentum was quite encouraging. So where we have these opportunities we would continue to take advantage, and optimise that relationship to support that sector. But it would depend on the supply of what I have and at what cost and how much of it can I consider to be some cost.”

While negotiations with DBN are ongoing to cut down rates, Olojede revealed that Diamond Bank had extended close to N20billion in loans to about 500 MSME customers, in addition to its enterprise development programme,Building Entrepreneurs Today (BET), through which it successfully trained 350 SMEs.

“We have been able to provide grants of over N100million for entrepreneurs to be able to progress their aspirations to be able to grow their businesses,” added.
Furthermore, she said the bank has had over four seminars this year, where it train about 16,000 customers on various topical issues that impact their businesses.
“We have clinics that are able to help you meet with the consultant one on one. We have workshops where we invite experts to come and talk about these issues, and how we can do them better. This year alone, we probably would have had 50 events that we have planned. We have done about 30, and on the average a minimum of three to four a month, and we want to be able to expand our reach through digitisation.

I don’t know if you are aware that just two weeks ago, we introduced the Diamond Bank SME Zone, the first of its kind in the industry. A type of platform where customers can have access to the type of information that would enable them to run their business, information that would enable them to expand their sales with our technology offering finance issues, and there are videos with experts who address these issues.

“This is a best in class financial service and is something that we really want to be able to put out in the market for customers to know that when they deal with Diamond Bank, we don’t even pitch to you to open an account with us, we talk to you to be able to understand your business, to understand the areas where you are struggling with and immediately we are able to proffer the solution that will help you. Then if you are interested and want to be able to access those opportunities then you can have an account with us.”


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