About six years into its operation, the Development Bank of Nigeria (DBN) has proven its worth and lived up to its mandate of facilitating access to affordable financing to MSMEs, thereby stimulating economic growth and development. The bank’s Managing Director/Chief Executive, Dr. Tony Okpanachi, in this interview with selected journalists, tells the success story and challenges recorded so far in servicing the MSMEs sub-sector. Among other things, he shares the short to long-term plans of the development finance bank; its financial prowess; how the bank has not recorded any case of non-performing loans; why the government must strive to formalise small businesses; plans to raise additional capital as well as his general assessment of the MSMEs space. James Emejo brings the excerpts
How would you evaluate the performance of DBN since its creation?
Since its inception, the institution has fared exceptionally well across various areas and this underscores our drive for Sustainability, which is one of our core values. For us, this means that while we are in business to provide financing support for MSMEs, we strive to be financially sustainable while ensuring we create social impact for MSMEs and the communities around us, and also ensuring our activities do not adversely affect the state of our environment but rather contributing to its resilience and sustainability.
Now, more specifically, in terms of providing financing support for MSMEs, from inception to the end of 2021, DBN disbursed N482 billion to more than 208,000 MSMEs . The Bank’s profitability has also remained resilient despite the challenging environment and the impact of COVID-19. Profit before tax and profit after tax stood at N22.7 billion and N15.7 billion respectively, translating to return on assets and return on equity of 4.8 per cent and 12.8 per cent respectively for 2021 which was our last audited financial period.
Across other metrics such as environmental sustainability, DBN has 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.
How have the distortions in the global and national economy impacted the performance of the facility of the bank given that the CBN had to grant a moratorium for its facilities?
The headwinds from the global and national economy impacted DBN as much as they did to many other organizations within and outside the country. Consequently, these distortions made the pricing of DBN loans less attractive to financial intermediaries. Nevertheless, 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. In addition, 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, etc.
The interventions of the CBN for Nigerian MSMEs did not disrupt the impact of DBN within the MSME space in that the financing needs of MSMEs within the system are enormous. And although DBN is poised and committed to solving these challenges especially as it relates to bridging financing gaps, MSMEs in Nigeria need several players to intervene in alleviating these constraints, which underscores the imperative for the CBN and other financial institutions to play their role in this area.
How would you assess the various intervention within the system, would you rather the DBN becomes the channel for these series of interventions especially those that border on the SMEs?
The challenges within the MSME space are quite substantial, especially as it relates to accessing finance. In light of this, these issues are best addressed when several players can provide support to this space. 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 programs to these institutions to augment their capacity to lend to MSMEs.
What is the bank’s short, medium, and long-term focus?
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.
We also plan to crowd in more social and impact funding to build our balance sheet resilience amidst the challenging macro and business landscape. Finally, to continue providing capacity building for MSMEs and technical assistance to our participating financial institutions to strengthen their lending capacity to MSMEs.
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.
There are all sorts of economic projections by the IMF and the World Bank on the Nigerian Economy. What is your perspective?
The respective economic forecasts by the World Bank and IMF are broadly in line with the economic fundamentals in the country. Notwithstanding, the economy is set for a recovery phase driven by several government policy support programs, reforms and interventions and rising crude prices.
Nigeria exited the pandemic induced recession in the fourth quarter of 2020 and output rose by 4.1 per cent year on year in the third quarter of 2021, with broad-based growth except for the oil and gas sector which has experienced security and technical challenges such as pipeline vandalism, downtime of refineries due to repairs and of course reduced oil production.
The concern I see in terms of the macro-economic environment has to do with the headline inflation which rose sharply during the pandemic peaking at 18.2 per cent year on year but has since declined to 15.6 per cent in December 2021 aided by the new harvest season and re-opening of the land borders.
As you may be aware, the Micro, Small and Medium enterprises have a lower savings propensity, so when there is an economic shock such as the Covid-19 pandemic, players in the MSME ecosystem are the first to be hit hard which then affects household income. The level of unemployment is another critical area of great concern. . Notwithstanding, the fiscal authorities’ proactive approach in containing the COVID-19 infection rates and subsequent fatalities has proven sustainable given the growth levels this far.
There have been suggestions that DBN’s capital should be raised. Do you really need more money? And do you have any plans to raise funding from any source –especially the capital market or get equity investors to expand their investments?
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 require 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.
As Nigeria’s foremost Development Finance Institution, the DBN has received several awards and positive ratings. One of such is the level 5 rating, the highest possible rating in the Sustainability Standards Certification Initiative (SSCI) Project. The rating makes the bank the first DFI in the country to attain such a high-level rating under the Initiative. What does this mean for the DBN and Nigerian economy?
Sustainability is one of our core values at DBN and part of our DNA. As proof, it is the first core value we espouse as an institution; and this is reflected across our structure inclusive of people, process, and technology.
The SSCI rating was an important step in integrating core sustainability principles into our policies, processes, and procedures. We are already seeing the advantages in the refinement of key processes across our general operations, products business model, and technology but allow me to speak about three major areas that stood out for us as an institution.
Immense value from the SSCI process was realized in the creation of DBN’s Purpose Statement and High Impact Goals. These have helped to re-focus our attention on using sustainability as a driver. Secondly, we have a newly created Innovation Framework which has caused a resurgence of creative thinking across our operations. We expect that this new model will help drive improved financial and non-financial performances across our institution. Finally, our newly developed Stakeholders Management Framework has enabled us to think creatively about how best to keep a continuous loop of communication with the individuals and groups that matter to us the most.
For the Nigerian economy, this rating means a national DFI is taking conscious decisions today on behalf of the country that will secure lives and livelihoods for the future. This is the essence of sustainability, and we believe DBN has become a custodian of this promise for our country. The future of our country is hinged on being conscious of our environment as well as creating the enabling structure for MSMEs to thrive. DBN will be providing the much-needed support to catalyze the growth of MSMEs and by extension, the country.
The 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 then is your thought on having these huge numbers of MSMEs still operate as informal businesses?
The formalisation of these enterprises is of utmost importance because of the attendant benefit to the economy and the government. The government has done considerable work in promoting the importance of MSMEs however, 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. Given the plethora of challenges and having already a lowered saving propensity lends credence to why formalization is not a priority to them.
So what is the implication of having more MSMEs operate in the informal sector of the economy?
It has been shown that formal businesses have a higher survival rate as well as an enhanced capacity to run profitably and to use debt more efficiently. This boost in financial sustainability has a significant impact on economic activities, employment and government revenues by way of taxes and levies.
How can these businesses be formalised?
Policies that encourage businesses with the ease of registration would go a long way in formalization. As I earlier mentioned, an example could be a time-bound policy that allows free business registration, especially for businesses that make less than predetermined annual revenue. Conversely, stronger enforcement of illegal businesses would deter new entrants into the informal sector.
Despite having an AAA rating why have the activities of the DBN not been felt across the country? We know DBN facilitates credit for SMEs through the banks but your activities have remained largely unknown?
DBN is a wholly wholesale development finance institution. This means our key activity which is providing finance to MSMEs is carried out through financial intermediaries which we refer to as Participating Financial Intermediaries (PFIs). Therefore, one of the major nuances of this model is that the PFIs become the face of DBN since the bank cannot interface directly with the end-borrowers. This, to a great extent, limits the level of knowledge even the end-borrowers have about the institution but not our impact. However, in addition to the information we share from the lending activities through our PFIs, we shall continue with our other strategic initiatives for public engagements not only to create awareness of DBN’s catalytic role but most importantly, to advocate for the MSME segment, the main drivers of the Nigerian economy.
SMEs are complaining that accessing credit from PFIs is cumbersome, made worse by the high-interest rates and hidden charges from banks despite your insistence that there is no hidden charge. What is the DBN doing to ensure credit is accessible to SMEs at affordable rates?
To start with, without a drive on our part to alleviate these highlighted issues of accessing credit within the system, it will be difficult to describe DBN as a development finance institution. We are well aware of the high-interest rate within the environment. Hence, as an institution, we strive to crowd in more social and impact funding to make financing more accessible for MSMEs amidst the challenging macro and business landscape and in line with our overarching mandate to alleviate financing constraints for MSMEs. In addition, DBN has various products and programs targeted at improving accessibility to MSMEs. The issue of high-interest rate reflects the Macroeconomic environment and crowding in several financing sources would lead to competition and ultimately, ensure market-determined pressure to lower interest as we see in other climes.
Many SMEs especially start-ups have the problem of articulating business plans that are acceptable to PFIs. What is the DBN doing to stand in the gap for SME owners with genuine intentions but who lack the know-how of writing business plans?
DBN has three broad mandates which are on-lending, risk-sharing, and technical assistance to the participating financing institutions. However, as a Bank, we observed that there was also a need to ensure that the MSME operators are equipped to manage their business judiciously. As a result, we introduced at the onset of our operations, capacity building to the end-beneficiaries. In this regard, we have trained over 1300 businesses operating in diverse sectors all over the country. We deliver this through partnerships such as collaborations with Google Africa, Enterprise Development Center of the Lagos Business school, and Wider Perspective Limited to train MSMEs on different modules ranging from accounting and record-keeping, marketing, management, and negotiations, to green financing, sustainability, business planning. We have witnessed immense success at these training as the beneficiaries have demonstrated an improved understanding of the industries they operate in, as well as how to develop and implement their business plans.
There is the issue of bookkeeping. Will the DBN consider sponsoring or executing a program designed to educate our SME owners on proper bookkeeping practices?
Yes. As earlier stated, we offer a full range of courses, and accounting and recording keeping is a featured module.
Our bouquet of courses in the Entrepreneurship Programme is tailor-made to meet the needs of the MSMEs in the different aspects of entrepreneurship including finance, operations, marketing/sales and customer service.
We typically do a call for application on our website, social media handles as well as some national newspapers. Afterward, we shortlist the candidates based on set criteria before we implement the training. This year, however, we are launching the DBN Learning Management System which will permit many more MSMEs to access training on our website and our Bizaid app. Once concluded and successful, the Bank issues a certificate that should demonstrate the holder’s competence in the courses taken. At the end of the training, we also provide advisory sessions which take place three months after the training. This is to ensure the learnings are entrenched in their respective businesses.
How much of the credit facilitated by DBN is considered non-performing and what is the DBN doing to recover this credit.
To date, the Bank has not recorded any NPL in its portfolio, which gives credence to our strong risk management system and the great work of the entire team at DBN and our Participating Financial Institutions.