On March 28, 2017, the Development Bank of Nigeria (DBN) Plc got licensed by the Central Bank of Nigeria (CBN) as a wholesale development finance institution with national authorization.
As a wholesale bank, DBN will lend wholesale to Microfinance Banks and deposit money banks which will on-lend medium to long-term loans to micro, small and medium enterprises (MSMEs).
So DBN won’t be lending directly to individuals but it will lend to pre-qualified microfinance banks and deposit money banks that will on-lend to beneficiaries on long term only after carrying out critical know your customer (KYC) due diligence to avoid non-performing loans.
DBN will provide loans to all sectors of the economy, including, manufacturing, services and other industries not currently served by existing development banks, thereby filling an important gap in the provision of finance to Micro, Small and Medium Enterprises (MSMEs). Thus no MSME in any sector is barred from the DBN loans provided it will create wealth and more jobs.
DBN will make facilities of up to 10 years tenor including a moratorium period of 18 months available to MSMEs and entrepreneurs for the first time on an interest rate that will be worked out based on prevailing market conditions at the time the loan was issued. However, the interest rates will still be much lower relative to the conventional lending rates at commercial banks and micro finance banks.
“Interest depends on the risk profile of the institution. It is not flat for everybody as some, based on assessment, may be more risky. 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,” the Managing Director, DBN, Mr. Tony Okpanachi, said recently.
DBN has already approved some participating financial institutions (PFIs) which had applied and have met the relevant conditions.
Recall at the commencement of the disbursement exercise in October 2017 in Abuja, DBN disbursed N5bn to three micro finance banks (LAPO Microfinance bank, Fortis Microfinance Bank, and NPF Microfinance bank). The PFIs were the first set to have met the criteria to access the loan. However, DBN has signed more PFIs. They are: Wema Bank, Eco bank, Sterling Bank, Diamond Bank and Fidelity Bank; These are the commercial banks. For the micro finance banks, the new ones are Microcred Microfinance Bank Nigeria Ltd, AB Microfinance Bank Nigeria Ltd, and Infinity Microfinance Bank Ltd.
In its first full year of operations, the bank targets to lend N5 billion to 20,000 MSMEs on a sustainable basis, Okpanachi, also said.
The most basic criteria to benefit from the DBN loan are: you must apply through your bank; the loan sought for must be long term; you should have reasonable book keeping; and your bank (micro finance or commercial bank) must run a due diligence and qualify you.
So far, the request from the PFIs for MSMEs is beyond 500.
DBN receives the exact loan request through the PFI, checks the tenure and the terms of condition offered before it disburses. That means, DBN would only disburse funds on specific demands which will hit the account of the beneficiary in 72hrs. The PFIs don’t have access to their allocated funds until they submit requests for beneficiaries.
“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 had created more employment, has it increased turn over, has it increased revenue to enable it pay more taxes when necessary and more,” the DBN CEO recently explained at an interactive session with the media.
Is there hope for start-ups?
Yes! Mr. Okpanachi explained that part of what the bank is doing differently is that it is ready to fund start ups, and even share the risks with them.
Simplifying the loan process
For now, the Know Your Client might still be tedious because the PFIs must run adequate background on the loan applicant. The PFI also sets its collateral to guarantee security for the loans. “The PFIs do the credit appraisal which we can’t get involved. But when it gets to the DBN, unlike other institutions, it’s with speed.