Tackling Extreme Poverty

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As at February 2019, World Poverty Clock, a body that focuses mainly on poverty trends around the world, named Nigeria, the poverty capital of the world, with over 91million people below the poverty line making it almost 50 per cent of Nigeria’s estimated 190 million population, now living in extreme poverty.

To put this grim stat in proper perspective, let us look at the other countries in the top three poverty ranking.

India, which has a population of 1.06 billion people – about seven times the population of Nigeria – has 75.1 million people, about 7.1 percent of its population living in extreme poverty, while the Democratic Republic of Congo, a country that is just coming out of a civil war that lasted for over two decades, has 60.9 million people living in extremely poor conditions.

If we blame the large population and the decades-long civil war for the reasons of the poor stats of India and the DRC respectively, what can we blame that of Nigeria, a country with vast reserves of natural resources – oil and other minerals, arable land and good climatic conditions, on?

We also have a huge population of young, restive and industrious people but this, instead of boosting our stats, further pulls us down. To understand one major reason our population make-up does not boost our poverty rating, let us look at one case.

A young boy, after years of apprenticeship in a poultry farm wants to start up his own farm. He has too little funds to set up and no property to sell or mortgage to achieve his objective of starting a poultry farm.

His friends and relatives are too poor to assist him with funds so, he goes to the commercial bank, he banks with, for financing but they demand for the collaterals that he does not have, and he gets turned down. He then goes to a micro-finance bank in his neighbourhood and the only offer he could get came with too huge an interest rate and a really short tenure, he wouldn’t be able to even break even, talk less of making profit. So, he stays underproductive and poor.

This case would be very familiar to all developmental economic analysts in Nigeria. A greater percentage of our 23.1 percent unemployed, as well as the 20.1 percentage underemployed population are so, because our banks are too reluctant to lend to micro-, small and medium scale enterprises, especially start-ups, and not because our people are lazy or lack the initiatives that could be turned into money.

While the Global Poverty Clock may have awakened some people to the poverty status of the country, the Nigerian government had, for a while, seen the trend and had commenced efforts towards tackling the issue. One of such efforts is the establishment of the Development Bank of Nigeria (DBN).

The bank, established in 2017, by the Federal Republic of Nigeria in collaboration with some international development partners – the World Bank, the African Development Bank (AfDB), KfW Development Bank, French Agency for Development (AFD), European Investment Bank (EIB), is to address the major financing challenges facing the micro, small and medium scale enterprises (MSMEs) in Nigeria.

DBN, set up with the mission of facilitating “sustainable socio-economic development through the provision of finance to Nigeria’s underserved MSMEs through eligible financial intermediaries,” has the objective of alleviating “financing constraints faced by the micro, small and medium enterprises (MSMEs) and small corporates in Nigeria through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.”

With this initiative of the federal government in place, people like the young man mentioned earlier, and in fact any MSME that has financing needs could easily access funds for its infrastructural development as well as its day-to-day running costs on very friendly terms.
The DBN loan may just be the answer to his desires of expanding his business and the loan repayment tenure is flexible (up to 10 years with a moratorium period of up to 18 months) and the interest rates are on a market-conforming and fully financially sustainable basis.

The intention of the federal government in setting up an institution like the Development Bank of Nigeria is not just for improving access to financing. It goes beyond that. It intends to stimulate the economy by empowering MSMEs to grow in size and profitability so they can create more employment as well as provide platforms for wealth creation.

This will reduce the rate of poverty in the country and remove Nigeria from this inglorious list of countries whose large percentage of their populations are living in extreme poverty.
The Development Bank of Nigeria’s approach to promoting economic development through the empowerment of MSMEs is three-prong – increasing access to financing, sharing the risks in lending and building capacities of stakeholders to achieve their desired objectives.
In access to financing, the DBN provides wholesale funding to Participating Financial Institutions (PFIs – eligible retail intermediaries such as commercial banks, microfinance banks, existing retail DFIs and leasing companies) for on-lending to MSMEs.

In this regard, the bank disbursed over N31 billion, last year through the PFIs, as loans to about 35,000 MSMEs. Furthermore, it recently released the sum of N25 billion to Guaranty Trust Bank (GTBank), which stands in record as the single largest disbursement to any financial institution for onward lending to MSMEs. This landmark grant brings the total loans granted to MSMEs by DBN to a whooping N56 billion. This clearly sets DBN as the first amongst its peer development institutions in funds disbursement to the MSME sector.

DBN also provides partial credit guarantees for these retail institutions to encourage them to take the risk of lending to MSMEs. The essence of this is to encourage the PFIs to lend to the MSMEs.

Another approach of DBN to economic development is through building the capacities of the PFIs to enhance their ability and willingness to lend to the MSME segment. They provide technical assistance in terms of know-how, intelligence and personnel to ensure that the profitability and sustainability of the scheme are guaranteed. DBN also extends this technical assistance to end-borrowers to increase their profitability and thus increasing their ability to pay back the loans as at when due.

While it might be too early in the day to expect to see the much needed impact of operations of the Development Bank of Nigeria on the country’s rating in the world’s poverty index, one can comfortably say that the wholesale financial institution is on track to achieving the goals for which it was set up, at least judging from the landmark achievements it has made so far.

Riding on the back of these achievements, and of course, other government interventions, one could only look forward with hope that as Nigeria marches towards the year 2050, when it is expected to become the world’s third most populous country, we will also be attaining the status of the country with the fewest number of people living in extreme poverty.