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Proposed Development Bank opens floodgate of DFIs into Nigeria

By on October 20, 2014

Strong indications emerged at the weekend that the proposed Development Bank of Nigeria, a financial institution designed to fill the lending gap in the country, has triggered a fresh scramble for Nigeria by Development Finance Institutions (DFIs) with a correspondent inflow of new direct foreign investment into the country.

DFIs are financial institutions, which provide finance to the private sector for investments that promote development. They focus on developing countries and regions where access to private sector funding is limited. They are usually owned or backed by the governments of one or more developed countries.

A source close to the Federal Ministry of Finance at the weekend told THISDAY that over $1billion direct foreign investment has been pledged so far as the interest of development institutions in the proposed bank swells.
He disclosed that the ministry has been discussing with some of these development partners who have pledged their commitment to get the bank off the ground.

Accordingly, a commitment of $500 million is said to have been received from the World Bank, which was said to have also pledged to offer any other assistance to the federal government to get the proposed Development Bank of Nigeria going.
The list of the investment flows includes that of the African Development Bank, which has committed $450 million, and another $50 million as equity.

The breakdown of the foreign investment inflow also showed that support for the Nigerian Development bank is also coming from Germany. This is coming in form of a $200 million commitment of KfW of Germany to the proposed bank.
Also from Germany is a commitment of $100 million from AfD, a leading development institution. The Federal Government, as a mark of its commitment is also pumping $200 million in form of equity into the bank.

The Coordinating Minister of the Economy and Finance Minister, Dr. Ngozi Okonjo-Iweala, who unveiled government’s plan on the bank at the recent IMF/World Bank meeting in Washington DC, described the proposed bank as a key part of the President’s vision for the country to realise the great potential of the economy.

She said, “We want to create an institution that can make wholesale long term finance available to our young entrepreneurs, our businessmen, our industrialists so they can grow their businesses sustainably, create jobs and contribute to the economic development of the country.”

According to the minister, “We don’t have it now. Brazil has it and it worked for them, even Germany, KfW in Germany does that, BNDS in Brazil does that, we don’t have it so if we create it and can get its own credit rating, they can wholesale finance to these other specialised institutions in a way that they are not able to get now so that’s what we are trying to do and we hope to be able to create that.”
Okonjo-Iweala said: “It’s very difficult for business people, especially those in small and medium-sized enterprises to find any money for five years, seven years.

“Mostly they can borrow for a year to three years. If you want to build a business sustainably and you want your economy to have sustained growth, you’ve got to fix access to finance.”
According to her, the bank would initially be capitalised with $2 billion, and might later rise to as much as $10billion.
In its determination to get the buying of a wide spectrum of members of the global finance community, the federal government is also wooing the European Union (EU) to invest in the proposed Wholesale Development bank through the union’s development financing outfit, the European Development Bank (EIB).

The Minister of State for Finance, Bashir Yuguda, who addressed a delegation of the European Union led by the EU Ambassador to Nigeria, Michel Arrion, recently had disclosed that the bid to set up a Wholesale Development bank has raised significant interest among global funding agencies.

The minister explained that the aim was to boost the growth of the real sector by ensuring long term financing and drastically cutting down interest rate, adding that the federal government would soon be embarking on a road-show to some specific countries to raise more capital.

“We are developing a whole sale development bank in Nigeria,” he said. “The idea of the bank is to give long term financing to SMEs and increase their source of borrowing. We did a study of the informal sector, which showed that the sector constituted 45 per cent of our gross domestic product (GDP).

The federal government, he said, had a firm belief that if it was able to increase their access to funds, especially long term, that would go a long way in increasing the GDP of this country and integrating them into the formal sector of the economy.
The EU envoy had earlier hinted that EIB was already well established in Cote d’Ivoire and Senegal as a development financier, and  would like to boost their activities in Nigeria by funding long term projects.

 

[This Day]