Barring unforeseen circumstances, Micro, Small and Medium Enterprises (MSMEs) in the country are set to receive a N100 billion lifeline from the Development Bank of Nigeria before the year ends.
The assurance came from the bank’s Chief Economist, Prof. Joseph Nnanna during the latest edition of the Refined Economic Development quarterly lecture held at the University of Abuja.
What you should know: MSMEs are the mainstay of the Nigerian economy, constituting over 90% of all the businesses in the country. It is said to employ between 60 to 70% of the national workforce while contributing approximately 50% to Nigeria’s Gross Domestic Product (GDP).
Why this matters: The major impediment to the growth of MSMEs in Nigeria remains access to finance. For this reason, quite a number of such ventures have closed shop while several others are struggling for survival.
“in 2018, 22.74 percent of total credit was allocated to the oil and gas sector and 13.75 percent was allocated to the manufacturing sector. Conversely, sectors where the MSME participants operate include agriculture which total credit allocated was a paltry 3.16 percent, general/trade and commerce 6.89 percent and education which credit to this sector remains subdued, received 0.41 percent (NBS, 2018).”
The DBN intervention is, therefore, a welcome development, expected to breathe the breath of life to businesses in this category that have long been stunted by poor funding.
Prof Nnanna identified the key factors hindering most MSMEs from accessing credit facilities as bad credit history, lack of collateral and inability of applicants to meet other conditions set by the lender.
According to him, just 31% of the MSMEs in the country have ever accessed loans going by a 2018 survey conducted by International France Corporation.
DBN guarantees to benefit MSMEs: Apart from the N100 billion funding, DBN is also ready to provide credit guarantee in order to mitigate risks associated with MSMEs. Prof Nnanna noted that “DBN offered partial risk sharing (credit guarantees) with prospective financial institutions granting credit to the operators in the segment.”
How DBN operates: The DBN is a wholesale development finance institution that lends credit to financial institutions for onward disbursal to MSMEs. The idea is to provide long term financing to MSMEs through financial institutions that are easily accessible to such businesses.