By Adedoyin Giwa
Development Bank of Nigeria (DBN), the federal government’s development banking institution with a mandate of addressing the major financing challenges facing micro, small and medium scale enterprises (MSMEs) in Nigeria, has launched three (3) new and innovative products– the DBN Finance to Finance (F2F) Product, the DBN Non-Interest Banking Product and the DBN Long-Term Product – which are expected to provide the much-needed access to financing window to the MSMEs through its participating financial institutions (PFIs). This will further address the existing access to finance challenges facing MSMEs in the country, that have been exacerbated by the effects of the corona virus disease (COVID-19) pandemic.
Prior to the outbreak of the COVID-19 pandemic, the funding gap in the MSMEs sector in Nigeria was a whooping N48 trillion, according to Godwin Emefiele, the Governor of Central Bank of Nigeria (CBN). This frightening reality constantly drives DBN to look for ways to bridge this gap in line with its strategic mandate.
One of these new products, the DBN Finance to Finance (F2F) product, is especially designed for financial institutions (FIs) that lend to MSMEs through the likes of the microfinance banks, microfinance institutions, financial NGOs, cooperatives, fintech companies and other non-bank financial institutions. Through this product, which has a tenor of up to seven years, the DBN makes funds available to FIs who are unable to receive funding directly from DBN to disburse to their MSME customers. This way DBN is able to expand its reach to the MSMEs The FIs who will qualify for this product would be expected to have active MSME portfolios and demonstrate a commitment to lend the funds to the target MSMEs.
The second offering, the Non-Interest Banking product, is developed for applicable participating financial institutions (PFIs) for on-lending to their MSME customers under the non-interest banking window. The fund, which is in support of the PFIs’ funding to their MSME customers, is a demonstration of the DBN’s commitment to increasing the availability of its funding to all MSMEs across the country. The product, which is also aimed at promoting financial inclusion in the country, is available to all non-interest banks as well as other financial institutions who have non-interest banking products and wish to utilize DBN funds to deploy non-interest banking loans to their MSME customers for a tenor of up to five years.
The Long-Term finance product is a loan product provided to PFIs to support their long-term lending to MSMEs for a period of up to ten years. The structure of the fund is flexible and can be easily adapted to suit the PFIs’ peculiar needs and finance structure. Any PFI can request for this facility to cater for the long-term finance needs of its MSME customers where there are tenor mismatches between available funding and customers funding requirements.
It is worthy to note that all these products are meant to cover all aspects of the MSMEs sector irrespective of, location, industry or business cycle. They are, however, meant for those MSMEs with less than 250 employees, asset base of less than N1.125 billion, and an annual turnover of less than N950 million. The maximum loan size disbursable to any of the qualifying MSMEs is N200 million.
These products could not have come at a better time when both the global and local economies have been battered by the effects of the COVID-19 pandemic. Nigeria, just like other countries of the world, has had its fair share of the pandemic and its effects, leading the country into a bad economic depression – the worst since the 1980s and the second since 2015. The lockdown led to the closure of many businesses, mostly the micro, small and medium-scale enterprises (MSMEs), in the country. Those who survived or surviving are struggling to get on their feet once again as they are besieged with challenges of access to finance.
Also, the capacity of the banks and other lending institutions to provide access to financing has been reduced due to the slow-down in economic activities, on the other hand, and the enormity (number and volume) of the demands for financing by MSMEs has also contributed to the development of these three new banking product offerings.
Development Bank of Nigeria, which commenced operations in 2017, has between 2018 and 2020, disbursed N323 billion to over one hundred and thirty-six thousand (136,000) MSMEs across the six geopolitical zones of the country through the PFIs. With the creation of these products, the Bank is poised to increase its impact on the operations of the MSMEs in Nigeria.
*Adedoyin Giwa is the Associate Consultant, PR REDLINE