Nigeria launches national development bank

26th January 2017 Jack Aldane

Small businesses in Nigeria, Africa’s largest economy, could start to receive critical funding from commercial lenders after five development banks came forward to invest in the country’s new state-backed development bank.

The Development Bank of Nigeria (DBN) has been co-initiated by the World Bank, which provided US$500 million via its International Bank for Reconstruction and Development (IBRD). Other investors include Germany’s KfW, which put up US$200 million, along with US$50 million in equity capital from the African Development Bank, and US$450 million in debt capital from Agence Française de Développement. The new bank is finalising its fifth investment agreement with the European Investment Bank (EIB).

The Development Bank of Nigeria will lend to commercial and microfinance institutions that support micro firms and small-to-medium-sized enterprises (MSMEs), with the specific goal of growing agricultural businesses in Nigeria.

“During the past few years, MSMEs have not had appropriate access to financing, in particular in local currency and also longer-term funding. This is where the newly established development bank of Nigeria comes in,” said Veronika Tscharf, principal project manager at KfW.

According to the World Bank, around only 5 percent of total commercial bank lending went into SMEs in 2011, while in the same year, only 9.5 percent of SMEs in the country were found to have loans on their books.

“The idea behind the bank is that, rather than interact with MSMEs directly, it will interact with commercial banks, who will than interact with these businesses,” Tscharf added.

Around 74.3 percent of Nigeria’s economy is represented by exports of crude petroleum to Europe, followed by petroleum gas exports which account for a further 13.3 percent. Nigeria’s dependence on the oil sector has been “a detriment to the country” said Tscharf, who added that the government’s efforts to diversify the economy mean Nigeria’s new development bank could play a key role in economic reform.

Matthias Adler, head of division of infrastructure and financial sector for West Africa at KfW said: “The overall experience with state-owned development banks in developing countries over the last decades has been rather mixed, but in our view, this is a story which is very promising. It is not easy to set up a project like this in Nigeria, but that is what makes it special.”

 

Leave a Reply

Your email address will not be published. Required fields are marked *

*