The Difficulties of Financing sustainable Growth

BEYOND the entrepreneurial aspirations of SMEs’ founders and sponsors, the role of development banks in the economy of the countries in which they operate is essential.

According to UNCTAD, formal MSMEs account for 40% of GDP in emerging economies. When the informal participants are included, that amount is sure to skyrocket.

In Nigeria, for example, the Bureau of Statistics estimates that over 41 million MSMEs employ a staggering 80% of the total workforce, while their contribution to the economy is estimated to be 50%.

That is why the government, in collaboration with its development partners, felt compelled to intervene to ensure that some assistance is extended to this largely unnoticed but vital sector, whose inadequate bookkeeping and lack of other business fundamentals usually made them unappealing to the risk-averse banking sector.

The Development Bank of Nigeria, DBN, rose to the occasion, focusing on sustainability not as a term, but as a very practical reality that provides MSMEs with more than a passing chance of survival.

The bank’s pay-off appropriately reflects its raison d’être: Financing Sustainable Growth. Of fact, the growth area is far from mysterious, as the bank’s well-defined objectives are micro, small, and medium companies, or MSMEs, that are trying to survive first and then transfer (or scale-up, in industry lingo) to a larger status.

One would not be mistaken if they said the bank was established on the foundations of sustainability as a concept and practice. This is why it has gone so far as to suggest that it cannot consider itself successful if sector workers do not adopt a fundamental sustainability mindset. Its collaboration with microfinance banks, MFBs, which serve as important channels for its lending to MSMEs, has resulted in the development of sustainability criteria to assist MFBs in deciding who to lend to.

Whereas previously, microfinance banks only needed to see the MSME operator’s hunger and drive, as well as his or her ability to repay the loans made available to him or her, the bank is now changing and ensuring that how well MSMEs integrate sustainability into their operations is a key box to check for lending decisions.

For example, how do they handle waste? What is their attitude on diversity and women’s empowerment? What are the markets they serve? Is their product necessary for underprivileged or disadvantaged communities? Etc.

In a recent webinar for microfinance banks titled “Creating a Sustainability Community of Practice for Nigerian Microfinance Banks,” the bank’s managing director, Tony Okpanachi, stated: “Currently, the overall awareness of sustainability and its transitions for the microfinance ecosystem has not been clearly articulated in Nigeria.”

“This is because the majority of MFBs view lending as the most important service to provide to end-borrowers. This session is intended to provide microfinance banks affiliated with it with a more robust sustainability proposition, which will open them up to a plethora of benefits such as external funding, the development of deeper trust with stakeholders, and the legitimization of their operations along the lines of sustainability.”

Lolade Awogbade, DBN’s Sustainability Specialist, added that the bank would “assist MFBs in implementing their initiatives with increased knowledge on internal and external sustainability strategies,” with internal strategies guided by strategic development goals that “embrace strategies inclusive of waste management, energy, gender and diversity policies, and the likes.” The external will be corporate methods aimed at achieving social and developmental goals such as women’s empowerment, poverty eradication, and financial inclusion.”

However, it should be noted that the bank’s expectations of MFBs are just a reflection of its internal sustainable workings. It works with an eye on the future, aiming to influence its ecosystem through forward-thinking projects that prioritize balanced growth.

Its sustainability approach is based on the following pillars: environmental sustainability, gender balance and empowerment, youth empowerment, reporting and collaboration, financial inclusion, and risk management.

DBN, with a social responsibility antenna tuned to its community’s problems and ambitions, was one of the first organizations to react to the CACOVID appeal for donations towards controlling COVID-19, contributing N100 million to the cause.

This is in addition to the obligations its employees make to their communities, such as assisting in the restoration of classrooms in underprivileged regions. Because of these and other factors, the World Development Finance Forum in Germany recently granted the bank an accreditation certificate of acceptance in accordance with Sustainable Standards and Certification Initiatives, SSCI.

DBN, with a social responsibility antenna tuned to its community’s problems and ambitions, was one of the first organizations to react to the CACOVID appeal for donations towards controlling COVID-19, contributing N100 million to the cause.

This is in addition to the obligations its employees make to their communities, such as assisting in the restoration of classrooms in underprivileged regions. Because of these and other factors, the World Development Finance Forum in Germany recently granted the bank an accreditation certificate of acceptance in accordance with Sustainable Standards and Certification Initiatives, SSCI.

DBN, with a social responsibility antenna tuned to its community’s problems and ambitions, was one of the first organizations to react to the CACOVID appeal for donations towards controlling COVID-19, contributing N100 million to the cause.

This is in addition to the obligations its employees make to their communities, such as assisting in the restoration of classrooms in underprivileged regions. Because of these and other factors, the World Development Finance Forum in Germany recently granted the bank an accreditation certificate of acceptance in accordance with Sustainable Standards and Certification Initiatives, SSCI.

DBN is definitely on the right track, and it would be beneficial if other Nigerian corporations followed suit.

The Federal Government of Nigeria established the Development Bank of Nigeria in partnership with global development partners to solve key financing issues confronting Micro, Small, and Medium Enterprises (MSMEs).

Since its inception, the DBN has continued to have an impact on the economy by providing access to finance, capacity-building initiatives for PFIs and MSMEs, and de-risking facilities through a credit guarantee scheme to facilitate sustainable socio-economic development of the Nigerian economy’s underserved but critical sub-sector.

El-Josef, a development banker, wrote from Lagos