February 17, (THEWILL) – With many micro, small and medium enterprises (MSMEs) battling for survival under the worsening economic crisis, there are renewed expectations that the Development Bank of Nigeria (DBN) and the Bank of Industry (BOI) would step up their activities to salvage the crumbling informal sector.
The two development finance institutions, DBN and BOI, have the overall mandate to promote activities that develop indigenous micro, small and medium enterprises towards stimulation of diversified and inclusive growth of the economy.
Specifically, the DBN was conceived to address the major financing challenges facing the MSMEs in Nigeria. Its objective is to alleviate financing constraints faced by MSMEs and small Corporates. This is achieved through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.
The BOI, on its part, exists to facilitate the transformation of Nigeria’s industrial sector by providing financial and advisory support for the establishment of large, medium and small projects/enterprises, and the expansion, diversification, rehabilitation and modernisation of existing enterprises. And they have intensified efforts towards achieving these objectives amid intense environmental and structural challenges
The DBN in 2023 raised N23 billion from its debut local bond issuance, allowing it more money to continue to fund the MSMEs..
The programme’s objective is to expand DBN’s capacity to provide funding for the critical sectors of the economy, especially to spur the growth and development of MSMEs in the country.
With over N734 billion in loans disbursed to more than 405,000 MSMEs, DBN has continued to support smaller businesses to do well and perform their critical role of creating wealth and lifting poverty.
According to official figures, 67 per cent of those loans were disbursed to women-owned businesses, and 24 per cent to enterprises owned by the youth.
Imperative of support
At present, job losses are on the rise as a result of the surge in petrol prices occasioned by the removal of subsidy and the devaluation of the naira mid-2023. Rising inflationary pressures in recent months have weakened the purchasing power of cash-strapped consumers, as businesses grapple with higher operating costs. The worst hit are the MSMEs.
According to Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME), about 10 percent of the 40 MSMEs in the country have shut down since the subsidy removal,
In a statement late last year, Yarima said, “It’s been very tough for our members as we are managing to survive. Some of them are closing shops while others are looking for new business opportunities,” he said.
THEWILL findings revealed that many thriving MSMEs involved in the value chain of major manufacturing companies, under the backward integration policy, have either scaled down their operations or stopped doing business
Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing their own farms to grow produce for their factories.
The consumer goods firms, in particular, keyed into the scheme and have since taken giant strides in its implementation. This is to the benefit of the MSMEs, especially those engaged in the agriculture and transport value chain
For instance, Nestlé Nigeria instituted a project to engage 5,000 smallholder farmers, initially, for the supply of raw materials for its agro-business operations. The initiative, ‘Developing Inclusive Grain Value Chains Project’, was in partnership with IDH — a Sustainable Trade Initiative and TechoServe outfit.
Nigerian Breweries stepped up local production of sorghum and cassava to boost local raw material supply for its plants. The 77-year-old consumer goods firm has made significant strides towards large-scale cultivation of sorghum and industrial application since the 1980s.
The projects are now severely challenged by the myriad of environmental obstacles across the states where the farms are established and the value chain is threatened.
“The companies rely on a strong value chain that involves many micro, small and medium businesses especially in agriculture and agro-business activities. If they are not healthy, they will not feed the manufacturing companies and this will have a far-reaching impact on the economy”, said Julius Abbas, a processing business operator.
Additionally, due to high cost of operations, most of the manufacturing companies recorded huge losses or declined profit in their 2023 FY reports, leading to scaling down in their scope of operations which affect the MSMEs engaged in their value chain.
“It is a bad omen. Their balance sheets have been significantly eroded, their earning power vitiated, and their expansion capacity weakened. Top among the victims are the employees who may be laid off, downgraded or suffer a salary cut.
“Some companies will have to increase the price of their products and reduce the number of their suppliers, including the small businesses,” said Barnabas Ikuru, an investment and financial analyst.
The expectations
“We expect the development finance institutions to step up their support for the MSMEs at this time to prevent the informal sector from crumbling. This is the time DBN and BOI should show they are really cut out for the survival of the MSMEs which are the engine of the economy,” said Mike Abimbola who runs a grains processing factory in Lagos.
The immediate past director-general, Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), and current governor, Katsina State, Dr Dikko Umar Radda, urged the development finance institutions to increase their financial support for the MSMEs.
In a telephone chat with THEWILL, Dr Radda stressed that money is the life wire of every business and that DBN and BOI should raise their financial support to the MSMEs to navigate the challenging economic situation.
In an earlier interview with THEWILL, Dr Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise urged the Federal Government to consider recapitalising DBN to enable it to execute its mandate of developing the MSMEs.
Dr Tony Okpanachi, CEO, DBN, maintains the bank’s commitment to develop the MSMEs to the utmost height of performance, value and impact. Stakeholders look forward to the realisation of this assurance as the small business operators battle the current economic headwinds.
As he said at the launch of the N23 billion bond, “The purpose of this issuance is to locally raise capital to meet the needs of the MSME sub-sector of the economy which is huge and whatever we are trying to raise will boost our funding base for them.”
Stakeholders and industry experts believe that leveraging technology to advance the mandate of the development finance institutions will be of a great advantage. Engaging the Payment Service Banks of the major telecommunication companies and other payment service providers will facilitate the support to the embattled MSMEs.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
