The Development Bank of Nigeria (DBN) in a bid to cushion the effects of harsh economic conditions of small businesses, has stepped up fincancing for the Micro, Small and Medium Enterprises (MSMEs) across the country.
The Bank has also taken a lot of effort to ensure that its operations and business processes adhere to generally recognized worldwide standards for environmental sustainability. It will then be well-positioned to serve as a catalyst for the actual sector development and value chain improvement of the economy.
These disclosures were made in a statement by Dr. Tony Okpanachi, Managing Director and Chief Executive Officer of the Bank.
According to the statement, the Bank admitted that MSMEs in Nigeria need multiple players to intervene in alleviating their constraints amid domestic and global challenges.
It stated that “we keep broadening our funding base to make financing more available for MSMEs in line with our overarching mandate to alleviate financing constraints for MSMEs in Nigeria”.
Since its founding in September 2014 and continuing through the end of 2021, the Bank claims to have disbursed N482 billion to more than 208,000 MSMEs and that it has overcome a difficult business environment to establish a track record of sustainable profitability.
DBN noted that despite the challenging environment and the effects of COVID-19, its profitability had remained stable.
The Bank’s profit before tax and profit after tax for the year 2021, which was its last audited financial period, were revealed to be N22.7 billion and N15.7 billion, respectively. These amounts translate to a return on assets and return on equity of 4.8 percent and 12.8 percent, respectively.
The development finance organization outlined how it had gained recognition from important rating agencies thanks to its distinctive products and programs that were designed to address the special needs of MSMEs.
It said, “DBN has various products and programs targeted at meeting the needs of MSMEs. For instance, DBN has an interest drawback program for its PFIs through which they grant rebates on loans to MSMEs playing within sustainability sectors such as renewable energy, waste management, and the others.”
It stated that, across other metrics such as environmental sustainability, DBN had taken major steps to ensure that its processes and operations align with the global standards on environmental sustainability.
“A major feat in this direction is the achievement of the highest global rating of the Sustainability Standards and Certification Initiative (SSCI) by the European Organisation for Sustainable Development in 2021. In the same year, the Bank clinched the highest credit rating, Triple ‘A’ from Agusto & Co, and GCR.”
The Bank stated that it has taken aggressive initiatives to address the significant issues that the MSME sector faces, particularly with regard to access to finance.
It noted that the problems are best solved when numerous players can help this area; as a result, it has intensified its efforts to promote proper player cooperation.
“Therefore, part of our role at DBN is to assess the objectives of these other institutions and collaborate with them to provide financing support to MSMEs. In many cases, DBN also offers technical assistance programmes to these institutions to augment their capacity to lend to MSMEs.
Outlining its sustainability strategic plan, the Bank said, “In the short term, we plan to strengthen our catalytic role in the Nigerian economy by expanding our reach to more MSMEs in underserved regions such as crisis-impacted areas and enhancing development impact in other key areas such as women- and youth-owned enterprises, startups, and first-time borrowers.
“We will also continue to build our internal capacity to drive the growth ambition of the institution. In addition, we plan to amplify our sustainability drive through the implementation of our green finance strategy, leveraging our SSCI certification, and exploring Green Climate Fund (GCF) accreditation as a direct access entity.
“In the medium term, we plan to complete the digital transformation efforts currently underway within the Bank and expand our channels of disbursement to MSMEs, which speaks to our drive for increased collaboration with other players within the space.
“In the long term, our focus is for DBN to be recognized locally and internationally as the foremost institution driving the growth and sustainability of the Nigerian economy through the provision of financing support to MSMEs.
“As a DFI that is not just sustainability-conscious but has it interwoven into the fabric of the organization which is reflected in our core values, it is important we continue to strengthen our capital base.
“Also, this is one of our strategic initiatives which requires our continuous effort to crowd in more investments. To this end, we are on that pathway. We continue to expand our funding base both in terms of capital and debt as may be appropriate to meet the needs of MSMEs.”
DBN emphasized the need for the formalization of the numerous informal businesses in order for them to benefit from the economy of scale in order to achieve sustainability in the MSME ecosystem.
The Bank noted that latest data from the National Bureau of Statistics put the total asset of MSMEs in 2020 at N8.41 trillion, while their total number was 39,654,385. Of this figure, over 34 million enterprises are informal. “What’s then your thought on having these huge number of MSMEs still operate as informal businesses?”
The formalization of these businesses, according to the development finance institution, is crucial due to the benefits it brings to the economy and the government.
It was highlighted that although the government has made great efforts to highlight the significance of MSMEs, more needs to be done for obvious reasons.
“Policies that encourage the informal sector operators to formalize, for example, and of course this should be time-bound but the reduction of fees for business registrations and deferred taxes on all businesses would surely encourage the formalization of some of these businesses.
“MSMEs formal or informal are already having a tough time staying afloat. Some of the most pressing problems they face include obtaining finance, irregular power supply, infrastructure deficit, multiple taxations, rent, cost of capital, and so on.
“Giving the plethora of challenges and having already a lowered saving propensity lends credence to why formalization is not a priority to them”, the Bank stated.
According to DBN, formal businesses have a greater rate of survival as well as improved abilities to generate profits and manage debt more effectively. It was emphasized that this improvement in financial stability has a big impact on economic activity, employment, and tax and levied revenue for the government.