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Challenges of financing sustainable growth

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sustainable growth

By Abbe El-Josef

BEYOND the entrepreneurial dreams of the founders and sponsors of Small, and Medium Enterprises, SMEs, the role that development banks play in the economies of nations in which they operate is critical.

According to UNCTAD, formal MSMEs contribute 40 per cent of GDP in emerging economies. That figure is most likely to go much higher when the informal players are factored in.

In Nigeria, for instance, the Bureau of Statistics estimates that a whopping 80 per cent of the entire workforce is employed by about 41 million MSMEs, and their contribution to the economy is estimated at 50 per cent.

That was why the government, alongside its development partners, felt the need to come in to ensure that some support is extended to this largely overlooked but very important sector whose inadequate bookkeeping and absence of other business fundamentals usually rendered them unappealing to the risk-averse banking sector.

The Development Bank of Nigeria, DBN, took this challenge in its stride, and in doing this, it has focused on sustainability, not as a buzzword, but as a very practical reality that gives MSMEs more than a passing chance at survival.

The bank has a pay-off that aptly encapsulates its reason for being: Financing Sustainable Growth. Of course, the area of growth is far from mysterious as the bank’s well-defined targets are micro, small, and medium enterprises, MSMEs, that are looking first to survive and then to transition (or scale-up, in industry jargon) to a bigger status.

If one says the bank is founded on the bedrock of sustainability as a concept and practice, they would not be wrong. This accounts for why it has gone all out to say that it cannot adjudge itself successful if operatives in the sector do not imbibe a basic sustainability ethos. Its work with microfinance banks, MFBs, who serve as the critical channels for its lending to MSMEs has led to its reeling out sustainability guidelines to help the MFBs, in their decision as to who to lend to.

Where it used to be that micro finance banks only needed to see the hunger and drive of the MSME operator and his ability to repay the loans availed him or her to advance the loan, the bank is now changing and ensuring that how well MSMEs integrate sustainability into their operations is a key box to tick off for lending decisions.

How do they manage waste, for instance; what is their position on diversity and women empowerment? What markets do they serve? Is their produce critical to underserved or vulnerable communities? Etc.

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

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“This is because most MFBs regard lending as the most essential service to be rendered to end-borrowers. This session is designed to enable microfinance banks affiliated to it to have a more robust proposition about sustainability which will open them up to a myriad of advantages, including external funding, generation of deeper trust with stakeholders, and legitimisation of their operations along the lines of sustainability”.

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

However, it must be said that the bank’s expectation of MFBs is simply reflective of its internal workings with regards to sustainability. It works with a keen eye towards the future, looking to impact its ecosystem with forward-looking initiatives that keep balanced development on the front burner.

Its sustainability strategy pivots on the pillars of environmental sustainability, gender balance and empowerment, youth empowerment, reporting and collaboration, financial inclusion, and risk management.

With a social responsibility antenna that is well-tuned to its community’s concerns and aspirations, DBN was one of the organisations quick to respond to the CACOVID call for donations towards containing COVID-19 when it contributed N100million towards the effort.

This is aside from the commitments its staff make towards their communities: helping to restore classrooms in underserved areas, etc. It’s because of these and many more that the bank recently received an accreditation certificate of acceptance in line with Sustainable Standards and Certification Initiatives, SSCI, by the World Development Finance Forum in Germany.

While appreciating the World Development Finance Forum for the accreditation, Tony Okpanachi assured that the bank will not relent in efforts aimed at deepening its investments in the area of sustainability:

He said: “The award shows that we’re doing something right and the international community has acknowledged that. As part of the strategy to deepen the impact on the Nigerian economy, we have equipped our Bank with additional expertise and structures in the area of sustainability. We recognise the benefits of acceptance into an elite accreditation forum such as the Sustainability Standards and Certification Initiative (SSCI) and we do not take it for granted.”

DBN is clearly on a good path, and it would be a good thing if more Nigerian corporates toed the same path.

The Development Bank of Nigeria was conceived by the Federal Government of Nigeria in collaboration with global development partners to address major financing challenges facing Micro, Small, Medium Enterprises, MSMEs.

Since Inception, DBN, has continued to impact the economy through the provision of access to finance, capacity building initiatives for PFIs, and MSMEs, as well as de-risking facilities through a credit guarantee scheme to facilitate sustainable socio-economic development of the underserved, but critical sub-sector of the Nigerian economy.

El-Josef, a development banker, wrote from Lagos

Vanguard News Nigeria

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