Godwin Emefiele’s term as governor of the Central Bank of Nigeria (CBN) officially ends on 2 June. His dual exchange rate structure, which the IMF has long urged Nigeria to scrap, may not last much longer.
PEOPLE | Anthony Okpanachi: opening the door to smes
Should Anthony Okpanachi, the first chief executive of the Development Bank of Nigeria (DBN), live up to his promise to make 20,000 new loans to small businesses within the bank’s first year, he may trigger an economic revolution. At least he could lay claim to having helped solve one of the country’s most intractable conundrums: the lack of affordable finance for the small-scale companies that power the economy.
Although these small enterprises – in farming, services, mining and light manufacturing – produce some 60% of Nigeria’s national income, according to the World Bank, they get less than 6% of commercial bank lending. Most of their loans are short-term and demand usurious rates of interest.
Okpanachi says his bank will change that. “We are going to create financial inclusion,” he said at the DBN’s launch in Abuja in April. Firstly, its loans will have a 12-year maturity, specifically designed to fund projects that need a longer gestation period. And the cost of borrowing will be critical, Okpanachi says: “We talked about pricing […]. The kind of competition we are going to create within the participating finance institutions is to ensure that the eventual price they create is beneficial and it is going to be very competitive for the micro, small and medium-scale enterprises.”
The DBN is starting out with a capital base of $1.3bn: $450m from the African Development Bank, $500m from the World Bank, and $200m and $130m respectively from Germany’s and France’s aid agencies. Essentially, the DBN will operate as a wholesale bank, on-lending to microfinance institutions and commercial banks. Aware of microfinance’s chequered history in Nigeria, Okpanachi said the DBN will work closely with its partners to build capacity to operate more effectively with small companies.
Initially, the bank will concentrate its loans on agriculture and small industries – areas reckoned to generate jobs quickly. Okpanachi has a good track record with small-scale companies and financing agencies. Previously, he was deputy managing director of Ecobank Nigeria and has worked in financial institutions around Africa for the past 26 years. His experience as managing director for Ecobank’s operations in East Africa may prove critical, given that region’s record of innovation on microfinance and building up small companies.
As the government tries to steer Nigeria out of its first recession for two decades, Okpanachi faces a paradox. The crashing oil prices and production that triggered the chronic foreign-exchange shortage have pushed people into growing more food, both for local consumption and export. A new breed of investors, many of whom made money from trading oil and commodities, are investing in projects to grow rice and sugar locally.
But the recession has put new pressures on the big financial institutions, making them still more reluctant to lend to small companies without collateral – even when those companies have put together credible business plans. Some small businesses in the fast-growing agricultural sector are being crowded out of finance by oil barons trying to diversify.
The business model that had delivered mega-profits for the big banks – recycling oil naira, trading in treasury bonds and financing stratospheric property deals – does not work in the downturn. Banks prefer to finance short-term trade deals and are chary of any long-term finance for small companies.
In response, Okpanachi promises more innovative thinking to cut financial risk. He plans a scheme under which the DBN will guarantee up to 50% of a loan, sharing the risk with the financial institution that is on-lending. Okpanachi may have the capital and fresh ideas to shake up the sector, but he will be critically dependent on finding kindred spirits in Nigeria’s highly conservative banks nervously watching their balance sheets.
From the September 2017 print edition