OPANACHI: NO BANK WILL TAKE CREDIT RISK FOR POLITICAL BORROWERS
of engagement.
Our total disbursement in the first year was N31.364 billion, thus exceeding our year end projection of N30 billion. Total number of end borrowers stood at 35, 000 which also exceeded our year-end target of 20,000 MSMEs. Women accounted for 73 per cent of the end-borrowers of the DBN loans and they received 27 per cent of the total amounts disbursed.
In terms of how much we projected to do this year, we are hoping to do up to N70 billion. In terms of geographical spread, from what we found out, all the six geo- political zones have benefitted. The beauty of our model, because we use financial institutions as intermediaries, they have locations all over the country. But in terms of coverage, some areas are higher. From the first one year, we have seen that all parts of the country are being covered. We are building capacity. For DBN, what we are beginning to do is first access to credit. For example, for start-ups, how do you fund start- ups? They don’t have a track record. So, we are building capacity to learn how to be able to encourage the PFIs begin to lend to start-ups on cash-flow basis and on alternative collateral they can take if there are challenges for MSMEs. That is the area of intervention we want to do in terms of capacity and you know that commercial banks already have several strategies to deal with lending. But were also telling them to go beyond the traditional lending and how to provide that services to MSME.
In your areas of intervention, energy is not included. Also, how are you monitoring to ensure the risks are brought to lowest level?
As I mentioned before, it is not that the energy sector is excluded. The financial institutions bring the request to us, we do not dictate to them which sectors to lend to. What we have reported to you is what they have brought so far. As we go on, those who are in the energy sector will come and out of 35,000 beneficiaries, about 80 per cent of them are micro. As more of them come, those who are comfortable to work in the energy, I am sure we will see them. So, the energy sector was not excluded. We are not sector specific. As long as you have the potential to create employment, potential to empower and contribute to development and growth, DBN will fund you. We also know that some sectors have more growth potential. So as we go along, we encourage such sectors. In terms of monitoring, our model is that, we just give the money to the PFIs. What we do if they bring their transactions, we know who the borrowers are, we have their details, who they are and what they do upfront. So by the time we give the money to financial institutions and they on lend and we go again to monitor. We go directly to the institutions. Before they give the money out we have a service level agreement (SLA) with them and know when the money gets to the borrowers. So, once they get the money, we know when they will disburse. Therefore, the fear of holding funds before they are disbursed will be mitigated because we already know before it gets there and when it gets there, we do our evaluation to find out the purpose for which the funds were taken and it is it really used and if it is really making those impact. The impact will be felt in years to come but we start our evaluation immediately to put discipline to it. Funding from DBN has a purpose and that purpose must be there. We are strictly following that. We have done only one year, but even at that we have started our monitoring and evaluation. Beyond DBN itself, there is an independent consultant handling this and part of what they do is go out and find out from the borrowers how has the money you got impacted livelihood. And some of those findings will help us to fine tune what we are doing to ensure that there are no gaps.
How do you make sure that bank does not charge exorbitant rates?
Well, there is not cap on the interest rates that financial institutions give. But we have a visibility of the rates. Even without any caps, we see banks lend to some companies at 13 per cent. We have seen some lending at 16 per cent and some 18 per cent.
Is there provision for lending to associations such as cooperative societies?
For now, for you to be a PFI, you must be licenced by the Central Bank of Nigeria (CBN) and I don’t think cooperative societies have such registrations to access our funding directly. But as the business unfolds, there is the likelihood that we will expand, based on experience. But for now, the associations and cooperatives have to come through other financial institutions to be able to access the loans. Some of the loans we see through micro finance banks are associations. They come together and the banks do group lending to them.
What about partnership with some foundations? Are you looking at putting funds together to assist some sectors in those areas and can venture capital firms access your funds?
In terms of partnership, it is good a point. But funding to the MSME sector is a different thing. DBN is not providing equity but some of them need to have equity, some of them need to have some angel investors coming into them. Foundations such as Tony Elumelu Foundation among others, can provide seed capital for them to start. But most businesses will also need debt component and the DBN loan will come in form of debt component. So, the advantage of the DBN loan is that it will provide longer tenor which is almost equity because you are going to have it for about 10 years. And in some cases when you have a moratorium of 18 months, effectively you have 12 years’ tenor money. This is as close to tier- 2 capital. So in working with these institutions we are going to see ones that have been provided seed capitals that they have started their business with but now need to expand their business or in addition to the little capital they have, they want to need to take debt to be able to take it to the next level. That is where the DBN funding will come in. In terms of data, we are going to carry out studies, for instance, the monitoring and evaluation we are doing, the information from there will be shared. We are going to carry out specific studies in that segment. Beyond that, we are going to work with other partners, both local and international to help provide data. The idea is to provide enough information to financial institutions to encourage them to be able to lend to the sector.
What are the challenges and what is the level of non-performing loan(NPL)?
Talking about NPL, we have a zero-NPL because of our model. The NPL will come if the PFIs themselves fail or fail in their obligations. And given our strong criteria to be able to access our funds, so far we have not seen any NPL. The challenges in startups and wholesale institutions are obvious and we need partners. So engaging with partners to buy into what we are doing is one of the challenges. Some partners may not believe. The interesting thing is that now that lending has begun and they are seeing, we are getting more enquiries. The second challenge is the expectations on pricing. The single digit rate has been on their minds for some time when they see an institution like this, they expect that come through. Of course, pricing is key in terms of affordability, but accessibility and tenor are equally good and that is the strong point of the DBN. We were established to give long tenured loan. We have to let people know that pricing is not all and that is an initial challenge that we working on. The awareness itself about wholesale lending.