The federal government yesterday approved $1.3 billion credit facilities to support the Development Bank of Nigeria (DBN).
The bank which received its license recently is being funded by some long term loans from some of Nigeria’s development partners.
This was disclosed by the Minister of Finance, Kemi Adesoun, after the Federal Executive Council (FEC) meeting presided over by President Muhammadu Buhari at the Presidential Villa.
According to her, the money will be sourced from the World Bank, African Development Bank, French Development Agency and a German-owned KFW Development Bank.
She pointed out that, with the approval by FEC, the request will now be forwarded to the National Assembly for final legislative endorsement.
She said, “The other memo was an approval for credit facilities totalling $1.3billion to support the Development Bank of Nigeria. As you know, the Development Bank of Nigeria recently received its licence and is being funded by some long term loans from some of our development partners.
“So, the World Bank had given us $500million repayable over 21 years and all of this is at concessional rate.The African Development Bank is giving us $450million and KFW is giving us $200million and the French Development Agency is giving us $130million.
“To access this money, we are ready to disburse but there were two requirements that we need to make and one of them is the legal opinion by the Attorney General of the Federation and the other is the National Assembly approval.
“Before it goes to the National Assembly, it needs to be approved by FEC and FEC simply approved today that these loan requests should go to the National Assembly for approval so we can access this money and the Development Bank of Nigeria can take off fully as it is expected to transform Financing of our MSME sector”.
Adeosun observed that FEC enthusiastically approved these facilities which are long-tenured, meaning that the Development Bank will be able to lend to the country’s SMEs over much longer periods and at much lower rates, thus making the impact on the SMEs to be quite considerable.
Asked about the rationale behind seeking for a fresh loan when the country debt profile will hit N19 trillion in December, she said Nigeria has no choice but to borrow.
She stressed that the emphasis should be on what the loan would be used for, noting that the federal government must borrow for things that will generate wealth for the economy.
The minister explained: “What is the money being borrowed for? That should be your question. Currently our debt to GDP ratio is just 13%, while many African countries are 60 and in the West, some have 100 per cent and above.
“So, the question is what are the loans being used for and will it actually generate growth in the economy that will therefore create additional taxes which will be used to pay them back? The answer is yes, because we are very specific on what we are borrowing for. We are borrowing for things that will generate wealth in the economy.
“Take this loan today for instance, $1.3billion; 45% of Nigeria’s economy is SMEs and only 10% can get loans at the moment. It is either they don’t have loans and they are asked to go and bring one document and the other that they don’t have or the interest is so high.
“In other countries like Brazil, about 99% of the SMEs have bank loans. Majority of smaller businesses in Nigeria today are undercapitalised. So, they can make much more money if they have long term cheap funding and that will make them profitable and they will then pay more taxes which will be used to service the loans. We have to borrow; we don’t have a choice”.
The minister noted that these are concessional loans with interest of two per cent in some cases for 21 years, adding that it is a good deal because “you can’t get that kind of money anywhere in the world and it is going directly to the people that need it”.
FEC also approved the award for the procurement of project managers and verification consultants at the cost of N550 million to bring 200,000 of the military into the IPSS platform.
To this effect, Adeosun said, “We are hoping to bring in all the military by Q3 of 2017. We have assurances about the savings that we will typically generate when we bring agencies on IPSS.
Generally when we bring agencies onto IPSS, the payroll goes down efforts to sanitize our payroll and make sure that the money we are spending on salaries is very accurate. So bringing the military on boards is a big step in that area.
“The total number for all are drawn from the Army, Navy, Air force and is put at 200,000. So, when we begin to verify them, we will know whether they are more or less.There are three contracts totalling 550million”.