Recently, President Goodluck Jonathan established the Development Bank of Nigeria (DBN) to address funds challenges faced by small and medium scale enterprises (SMEs). With a capital base of N320 billion and liberalized loan regime, the development would seem a most auspicious initiative given the hassles the nation’s SMEs contend with in their efforts to access funds from existing banks. Hitherto, the Bank of Industry (BOI) and the Bank of Agriculture (BOA), two specialized banks owned by the Federal Government, have the responsibility to address such challenges. It was also the realization of the neglect of the financial needs of this critical sector that the defunct Peoples’ Bank of Nigeria (PBN) was created in the past. It was also the reason why the government revitalized and reformed the nation’s micro-finance banking sector, even as the conventional deposit banks are expected to operate SME financing schemes.
President Goodluck Jonathan, while launching the bank in Abuja, had said the DBN would provide medium to long term lending to micro, small and medium scale enterprises of up to 10 years tenor and a moratorium period of up to 18 months. The DBN mandate, nonetheless, offers an opportunity for the interrogation of the performance of similar institutions on ground were established to facilitate economic growth and development in the country through nurturing small and medium scale business endeavours in the country. There is no gainsaying the fact that SMEs serve as the engine for driving any economy, Nigeria’s inclusive.
They are critical to the development of any economy because they possess great potential for employment generation, improvement of local technology, product output diversification, development of indigenous entrepreneurship, as well as foreword integration with large-scale industries. As far back as 2010, the Central Bank of Nigeria (CBN), for example, had provided a N500 billion debenture stock and N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECG). The apex bank, in acknowledging the gross underperformance of SMEs in Nigeria, which undermined their contributions to economic growth and development, identified four critical issues as being responsible.
These include the unfriendly business environment in which they operate, poor funding, low management skills and lack of access to modern technology. In CBN’s reckoning, shortage of funds occupies a central position. In Nigeria’s special case, we cannot agree less with the CBN, as commercial banks have been repeatedly indicted of serious reluctance in providing the needed succour to SMEs, purportedly because of inherent high risks and uncertainties.
Despite the promises of commitment by many of the banks to assist SMEs, the latter often encounter monumental and discouraging hurdles in their bid to source funds from banks. Instead of advancing loans to SMEs, most bank prefer granting loan to importers of fastselling products and other crooks who engage in round-tripping with the loans. The genuine entrepreneurs in desperate need of loans to expand the real sector of the economy are left in the lurch as a result. Perhaps more worrisome are the outrageously high interest rates, short and harsh repayment terms attached to the loans when banks decide to be ‘generous’ with giving them, apart from corrupt exploits by bank officials in the process of securing the facility. Indeed, the collapse of many banks in the 1990s is traceable mainly to indiscriminate advancement of credit to bank chiefs and their fronts.
So, what difference is the DBN going to make? The Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo- Iweala says it promises to prove “not just access (to loanable funds), but access in a manner that does not stifle them, but instead, grows them; access that gives them space to afford a decent life; while nursing their businesses; access that will not take substantial portions of their profits away from them; access to the sort of finance that empowers them and their communities”.
However, what guarantees that the FG would superintend the realization of these lofty ideals? We assume the FG factored in the failures and limitations of existing banks, especially their predilections for sharp practices, insincerity and exploitation in the founding of DBN. We make bold to say that bailing out SMEs is not a function of the number of banks established for the purpose, but that of the resolve of appropriate financial monitoring and regulatory agencies to firmly commit banks to the performance of roles that facilitate economic development. Hopefully, the involvement of the United Kingdom’s Department for International Development, World Bank, African Development Bank and Agence France Development in the facilitation of the DBN would ensure it meets national expectations.
