In this interview, the Managing Director/CEO, Development Bank of Nigeria, Mr. Anthony Okpanachi is upbeat that with the emergence of the bank, financial institutions can now bridge the gap for long-term financing needed by micro, small and medium enterprises. Ndubuisi Francis provides the excerpts:
To what extent have MSMEs benefited from DBN so far?
You will recall, November last year, we started our lending activities with three microfinance institutions. We have made available to them almost N5 billion. This was supposed to be for several MSMEs. Since we are a wholesale institution we work through financial institutions. So, when they come, we make a line available to them, and as they come with their clients we draw-down on the line. Beyond that, we have started bringing on board some commercial banks which you can see on our website. We have also made credit lines available to them. So as they come, we draw down the line. But I’m glad to tell you that we have nine currently on our list, both commercial and microfinance banks –and between now and the end of June, we expect more commercial banks.
In your maiden interface with the media where you were unveiled, I recall that you said you were targeting 20,000 MSMEs in the first year of operations. You are about a year now; do you think you are meeting that target?
We are working towards meeting the target. Remember, I said our first year of full operations. DBN is a start-up and there is a process to start up. But now we have a full house, so we will start from this year. We now have full operations in place. We were licensed on 29th March, 2017. The process for setting up the structures took some time. Also because we are a wholesale bank, we will partner with financial institutions and that means we will have to bring them onboard to lend to them. I can assure you we are on course.
So far, how many MSMEs have benefited?
So far, the request from the PFIs for MSMEs is beyond 5,000. As they make requests and meet the conditions, we fund them.
How simple is the processes of accessing these loans by the MSMEs?
That is the engagement that is going on with the PFIs (primary financial institutions). The PFIs do the credit appraisal, which we can’t get involved in. But when it gets to the DBN side, unlike other institutions, it is with speed. In terms of interfacing with customers directly, we won’t do that; the banks will do that. We are already thinking of products to address start-ups, to address women and others, with specific features. We will still engage the PFIs to bring their clients to access the products. Ultimately, we want to collaborate with the commercial banks and the micro finance banks so the reach will be everywhere. There would be serious awareness campaigns.
How are you engaging institutions involved in MSMEs’ development?
We are currently working with SMEDAN. We have technical committees from their end and our end. They have clusters around the geopolitical zones. We want to key into those clusters to help build capacity for the MSMEs. We notice the MSMEs lack certain capacities so we want to start teaching the MSMEs on a case-by-case basis. We hope that everyone who is interested in expanding their businesses should learn the basics of doing so. They were here a couple of weeks ago and we have been talking. Beyond SMEDAN, we also know we need to collaborate with a lot of institutions – the National Association of Small and Medium Enterprises (NASME), for instance. We need to engage them. There are so many partnerships we are going into. We have to work in collaboration. Other DFIS (development finance institutions) have been working in silos but that has not worked well, so we are coming with a collaborative approach to ensure that all the institutions playing key roles work together. The idea is to take leadership to ensure that MSMEs have easy access to funds.
Could you provide an update on your recent visit to the UK, where the European Investment Bank and Islamic Development Bank were to take up their investments?
We have equity shareholders coming in; that is the African Development Bank and the European Investment Bank. They have invested $50 million and $20 million respectively. As we speak, effectively they have funded the investment in the DBN. So they are now shareholders in the DBN. The $50 million from AfDB and European Investment Bank are already in the system, so now the bank is owned by the Federal Government of Nigeria, NSIA, AfDB and European Investment Bank.
Of course your facility comes with relatively better incentives than the products the PFIs sell. Do you foresee a situation where the PFIs would be willing to market their products with relatively higher interests than yours?
Every development finance institution, it’s more like a catalyst. You cannot meet all the demands. A typical business comes to a bank; they need working capital, for instance, which is mostly short tenored like 90 days, six months, etc and most banks are willing to take those businesses. But if a guy comes and says he needs to buy an equipment for his factory and he needs four years to pay, the banks run away from that. And that is where development finance institutions come in. Another guy comes and says he needs seven years, usually most banks would run away and that’s where we step it. So it’s not either or, it’s collaboration. That’s the way it works. Some people say why do you guys want to go through banks again? But look at the total balance sheets of banks in Nigeria; which DFI can come near? Look at their branch networks across the country, and the customer history they have. Which DFI can meet that? So, the financial institutions can now give long-term financing to their customers with DBN funds and short term with their own funds, which is why we are having a lot of uptake coming now because the gap was long-term funding.
What are the mechanisms in place to ensure that proposals of microfinance banks meet set out criteria?
For us, we receive the exact request, check the tenor and the terms and conditions offered before we disburse. We disburse for on-lending not for the banks to hold on to. We have a mechanism within our system that ensures that the funds hit the account of the end-borrowers within 72 hours. Beyond that, we follow up on them to see the impact made by the borrowing. For example, we check if it has created more employment, has it increased turnover, has it increased revenue or enabled them pay more taxes when necessary? We look out for all of these. We don’t just create the lines for the banks alone.
Do you have uniform interest for borrowers?
No, it depends on the risk profile of the institution. It is not flat for everybody. It is based on assessment. Knowing that we take the risk of the financial institutions, we assess them and rate them, so that brings about the risk premium for each of them.
Is there an upper limit?
The upper limit is tied to the weight we attach to the risk of the rating. There is a minimum criteria you must reach for you to come on the DBN rating. It depends on the institution’s risk profile. For our rating, we have a model which is a bit complicated due to the many factors in our rating. The difference from our rating may not be more than 100-200 basis points depending on the risk profile. The upper limit is a function of the risk premium
In your model, you talked about risk-sharing, have you started that?
We have not started that, though we have obtained the regulatory approval to set it up. It is going to be a subsidiary of the DBN, and we have started working with the World Bank to get the consultant to put the structure in place. It is our projection that towards the end of this year or early next year, the credit guaranty should come on board.
How far have you gone with de-risking the industry and providing capacity to PFIs?
That is also on-going. If you recall that we have a unit with the ministry called the project implementation unit, the idea is to have a different unit handling the capacity building issues so that we are not distracted from the core mandate of lending and they have sent out RFPs expression of interest for consultants to come in and the process is on-going. The next stage is to ensure that the consultants are short-listed and we identify which PFIs need this capacity building and allocate consultants to them. In the process of appraising the PFIs, some of them that do not meet our criteria, we identify ways we can help them, that’s where the technical assistance comes in. For example, if it is lack of a strong SME desk that is the problem, we give assistance. The idea is that even if a firm does not qualify today, we work with them to make them qualify. The overall objective is to create more access to credit for the SMEs.
Are you thinking of helping young graduates who may want to start up, knowing that they may not be able to meet the collateral criteria of banks?
Part of what we are doing differently is that we are ready to help start-ups. This capacity building we are telling the financial institution that once a project comes and they assess it to be bankable, we are ready to take up the risk with them to give funding for start-ups. Subsequently, we are going to come up with products that we are going to sell through these financial institutions for such institutions that will, again, sell them down the line. For now, we want the buy-in of the financial institutions themselves so that we tell them the fund is available for them and we are willing to fund start-ups. We build that confidence in them and subsequently we go out with our products directly to say help us sell these products to these people. But that will be in phases. We are very much available to help start-ups. We will also share risks with them. The overall objective is to make funding easy to them.
You also signed an agreement with NIRSAL. Could you tell us more about it?
The objective is to finance the agriculture value-chain. Our objective in that respect is how to make it easy for PFIs to fund the agric segment because it is a priority sector for the economy. How do we unleash the potentials in the agric space and get the PFIs interested? How do we make it easier for PFIs to get the comfort to lend to agriculture and we also have the comfort to on-lend to them for agric businesses
How much is available to you now?*
There are information that we cannot put out there. But so far, for all the development partners we have taken first or second tranche of draw down, we have been able to meet. In terms of the amount I can assure you that we have enough funding now to disburse to customers.
Have you seen any reason to go to the market to raise some funds?
No, from the funding we have now, we can still move for the next two years before we can consider going to the market depending on the market situation, but where we are now with the unbundling of the PFIs, we are not going to see an uptake of the loans. So, it is at that point that we will. But I think we have a funding that will take us in the one to two years.