How DBN’s N23bn MSMEs Support Bond Will Deepen Access to Finance

Nume Ekeghe writes on recent bond issuance by the Development Bank of Nigeria (DBN) and the pivotal role it would play in fostering SME growth in Nigeria

In Nigeria, Micro, Small, and Medium-Scale Enterprises (MSMEs) have long been recognised as crucial drivers of economic growth, job creation, and poverty reduction. However, accessing adequate and affordable funding has remained a significant challenge for many MSMEs, limiting their ability to expand and contribute fully to the country’s economic development.

Opening up funding channels for MSMEs in the country has continually been a topic for discourse amongst stakeholders in the sector, financial institutions, regulators as well as the government. As a financial institution focused on growth and development, Development Bank of Nigeria Plc (DBN) had to this end opened up lines of funding through a medium term bond programme.

As part of achieving its goal of deepening access to finance and supporting the growth of MSMEs in the country, DBN recently raised N23 billion through local bond issuance which is part of its N100 billion medium-term bond program.

According to DBN, the primary objective of the bond issuance is to expand the bank’s capacity to provide funding to critical sectors of the economy, with a particular focus on MSMEs. Funds realized from the bond issuance is expected to further enhance DBN’s ability to meet the substantial funding needs of the MSME sub-sector, thus promoting job creation and wealth generation in the economy.

Overwhelming Response from Investors

The N20 billion series 1 bond issuance witnessed remarkable demand from investors and was oversubscribed, attesting to the market’s confidence in DBN’s mission and initiatives. With a maturity period of five years, the bond was issued at a competitive 14.40 per cent coupon rate, making it an attractive investment option for both domestic and institutional investors.

The successful N23 billion bond issuance was made possible through the collaborative efforts of various financial entities. DLM Advisory served as the lead issuing house, with Standard Chartered Bank as the joint issuing house. Other parties involved in the transaction included G. Elias, Meristem, First City Monument Bank, Access Bank, Deloitte, Zenith Bank, Agusto & Co., GCR Ratings (an affiliate of Moody’s Investors Service), Olaniwun Ajayi, and ARM Trustees.

At the official signing ceremony held in Lagos recently, the Managing Director/Chief Executive Officer of DBN, Dr. Tony Okpanachi reiterated the bank’s unwavering commitment to supporting MSMEs. He emphasised that the issuance of the N23 billion bond was a pivotal step in deepening DBN’s access to funds, empowering MSMEs, and enabling them to create employment opportunities for the nation’s unemployed youths.

Vice President, Investment Banking at DLM Advisory Limited, Mr. Nwabu Okonkwo, expressed his satisfaction with the bond issuance, noting that it attracted diverse investors, including domestic pension funds, asset managers, and insurance companies. The impressive subscription rate of 1.26 times oversubscription, with total subscriptions of N25.37 billion against the initial target of N20 billion, signifies the market’s enthusiasm for supporting MSMEs through DBN’s initiatives.  The Executive Director of Standard Chartered Capital & Advisory Limited, Amaka Nsofor, hailed the bond issuance as a significant milestone that fosters both diversification and financial inclusion.

Local Capital for Sustainable Growth

For nearly six years since its inception, DBN had sourced its initial funding from development partners outside the country. However, with the successful local bond issuance, DBN has demonstrated its ability to raise capital within the Nigerian economy, signaling a strategic shift towards diversified funding sources. This move not only enhances DBN’s financial sustainability but also fosters financial independence and resilience.

Fostering Inclusive Growth

As a specialised development bank, DBN’s core purpose is to alleviate financing constraints faced by MSMEs and small corporates in Nigeria. Through the provision of financing and partial credit guarantees to eligible financial intermediaries, DBN seeks to bridge the funding gap and create an enabling environment for the growth of MSMEs. By working with partner institutions, DBN ensures that financing reaches the hands of those enterprises that need it most, while adhering to market-conforming principles.

With funding lines now increasing for MSMEs, Okpanachi urged young entrepreneurs to seize the opportunity presented by the bond issuance to upscale their businesses and build sustainable ventures. Stressing the importance of being “bankable,” he emphasized that both the funds provided to MSMEs and those borrowed from development partners are loans that need to be repaid. Hence, being credible borrowers is essential for gaining access to funding and building a track record of successful ventures.

To gauge the impact of funds provided to MSMEs and assess the effectiveness of the financing, DBN has put in place robust monitoring and evaluation mechanisms. These measures will track the utilization of funds by financial institutions and determine how they contribute to the growth and development of the supported businesses. By staying accountable and evaluating outcomes, DBN aims to continuously improve its funding programs and better serve the MSME community.

By enabling MSMEs to access funding and establishing sustainable partnerships, DBN’s efforts are set to accelerate the growth and success of these enterprises in Nigeria. As more MSMEs gain access to the necessary capital, they will be better equipped to drive economic growth, create jobs, and contribute to the nation’s overall prosperity.

Transformative moment for MSMEs

The successful N23 billion bond issuance by the Development Bank of Nigeria marks a transformative moment for MSMEs in Nigeria. With increased access to finance, these enterprises are poised to thrive, unlocking their potential to create jobs and stimulate economic growth. DBN’s unwavering commitment to fostering financial inclusion and supporting the growth of MSMEs serves as a testament to the bank’s dedication to the nation’s economic development. As the bonds’ proceeds are directed towards empowering entrepreneurs and advancing economic prosperity, Nigeria is well-positioned to witness a flourishing landscape of thriving small businesses, shaping a brighter and more inclusive future for all.

The Managing Director and Chief Executive of the bank, Dr Tony Okpanachi, at a media parley in Lagos recently noted that DBN plans to continue to leverage its strengths, whilst building viable partnerships and exploring new opportunities for impact to ensure that it remains a catalyst for sustainable development.

According to him, the drive to provide funding for MSMEs in the country had seen the DBN providing financing support to its participating financial institutions to the tune of N631 billion as of December 2022. “Over 313,000 MSMEs have benefited from this support, leading to the creation of more than 900,000 jobs. These numbers signify hope and prosperity for countless individuals and families across the nation.”

Supporting Micro, Small Businesses

Okpanachi noted that the support for SMEs in the country had become expedient as more than 80 per cent of the entire population of Nigeria, “which is more than 160 million Nigerians, depends on the informal economy. This means that the Trade and Commerce sector is the hope of daily survival and livelihood for most Nigerian families and entrepreneurs. DBN recognizes this critical need. As such, more than N230 billion have been channelled to support small businesses in the Trade and Commerce sector over the past five years leading up to December 2022.”

Aside from this, Okpanachi said in addressing the food challenge in the country, the DBN had provided facilities towards the agricultural sector. The DBN CEO quoting the Food and Agriculture Organisation of the United Nations (FAO), noted that Nigeria is at the cusp of a food crisis and millions of Nigerians will likely experience acute hunger in 2023 as climate adversely affects the production of food crops.

“Indeed, supporting small businesses in the agriculture sector is crucial for improving food security in Nigeria. The Development Bank of Nigeria (DBN) recognizes the significance of agriculture in the country’s economy and has allocated substantial funding to agro-MSMEs. As of December 2022, the Bank has provided N27 billion to Agro-MSMEs.

“This funding has played a vital role in supporting agricultural activities, empowering farmers, and promoting agro-entrepreneurship. The financial support provided by DBN has helped agro-MSMEs to enhance their operations, invest in modern farming techniques, acquire machinery and equipment, expand their production capacity, and access new markets. The Development Bank of Nigeria (DBN) has extended its financing support beyond just agriculture to various other sectors, recognizing their importance in the overall development and prosperity of the Nigerian economy, “he said.

“DBN has provided N13 billion in financing support to MSMEs operating in the hospitality and tourism sector. This funding has helped these businesses to expand their operations, improve infrastructure, enhance service quality, and contribute to the growth of Nigeria’s tourism industry. We have also allocated N12 billion in financing to support quality education in Nigeria. This funding has been instrumental in improving educational facilities, promoting skill development programs, and enhancing access to education across the country.

“DBN has channeled N11.5 billion in financing support to the health sector, aiming to improve access to healthcare services and enhance the health conditions of the Nigerian populace. This funding has supported the development and expansion of healthcare facilities, the procurement of medical equipment, and the training of healthcare professionals, “he added.

Okpanachi furthered that “DBN recognizes the immense potential of technology and innovation in driving development and digital transformation across sectors. Therefore, it has allocated N11 billion to the technology sector, supporting businesses involved in technology and innovation initiatives. This funding aims to foster increased efficiency, productivity, and expanded market access for Nigerian businesses.”