DBN to support MSMEs with N100 billion
A 2018 survey by the International Finance Corporation (IFC) has showed that only 31 per cent of MSME in Nigeria have ever obtained a loan from a financial institution, commercial or micro finance bank, hence Development Bank of Nigeria (DBN) indicated its commitment to supporting the Micro Small and Medium Enterprises (MSME) segment with N100 billion before the end of 2019.
DBN Chief Economist, Prof. Joseph Nnanna, said this recently at the Fifth edition of the Refined Economic Development (RED) quarterly lecture held at the University of Abuja.
While presenting a paper on ‘Contemporary Strategies for Financial Inclusion and Prosperity in Nigeria,’ Nnanna said MSME are the backbone of any economy, considering that the segment makes up over 90 per cent of all firms and accounts for an average of 60 to 70 per cent of total employment and roughly 50 per cent of Gross Domestic Product (GDP) of Nigeria.
The reason for the low percentage in obtaining loans, Nnanna said, was due to high or lack of collateral, problems with credit history, and unfavourable worthiness of the prospective borrowers.
She stated: “For Nigeria as a whole, we are trying to achieve more access to finance for the MSME because we believe they are the engine that grows any economy in any part of the world.
“This year alone, the DBN plans to disburse N100 billion to MSME and we are quite on track as it is already. We are very confident that we will achieve that this year and beyond.”
To help reduce the risk associated with the MSME segment, Nnanna advised, “DBN offers partial risk sharing (Credit Guarantees) with prospective financial institutions granting credit to the operators in the segment.
“In 2018, 22.74 per cent of total credit was allocated to the oil and gas sector and 13.75 per cent was allocated to the manufacturing sector. Conversely, sectors where the MSME participants operate include Agriculture which total credit allocated was a paltry 3.16 per cent, General/Trade and Commerce 6.89 per cent and Education which credit to this sector remains subdued, received 0.41 per cent (NBS, 2018).”
According to her, limited access to finance for the MSME segment severely constrained opportunities for economic diversification in Nigeria, noting that from a macro-economic examination, there is “a crowding out effect,” due to government borrowing.
“As a result, over a period of one year, we witnessed an increase in treasury bill rates peaking at 18 per cent in 2017. At the same time banks facing a challenging external environment worked to reduce risks, crowding out liquidity to real sector including MSMEs.
“Presently, treasury bill rates have declined to 12.7 per cent. However, yields on government bonds are around 14.5 per cent making it still very attractive to lend to the government. Typically, Nigerian banks observe a value chain business model that deals with already established firms with a track record of success.
“Consequently, banks tend to ignore MSMEs because of poor or no credit history, insufficient collateral to name a few reasons. To that effect, Nigerian banks resort back to what they understand to be a sale investment choice which is competing for larger firms and accepting lower margins only to exploit the higher yields earned from credit and perhaps other fees earned through product offerings as part of the loan agreements,” he said.
It will be recalled that DBN recently partnered with GTbank to disburse N25 billion to SMEs in the country.
In its first full year of operations, DBN disbursed over N30 billion to over 35,000 end-borrowers in the MSME segment, while also collaborating with other development finance institutions to remove some of the barriers to access to finance in the segment.
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