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Entrepreneurship: Growing Micro Businesses With Credit Administration – DBN

Entrepreneurship: Growing Micro Businesses With Credit Administration – DBN

Maryesther Ezeadi

By Okuneye Moyosola

Maryesther Ezeadi is the Business Development and Relationship Manager at Development Bank of Nigeria (DBN). During the 3rd edition of the Women in Leadership and Career Empowerment Programme (WILCEP) Africa Mentorship programme, she presented a paper title;“Entrepreneurship: Managing Micro Business to growth with Credit Administration – A DBN Perspective”. She highlighted some of the challenges faced by Micro, Small and Medium-Sized Enterprises (MSMEs) and how they could be addressed. She also revealed how entrepreneurs can make their businesses attractive for funding. Enjoy it:

Why women?

Women are very important and at Development Bank of Nigeria (DBN), we are excited about women. When we wanted to launch or first product, we decided to do something for the women. This shows how close to the hearts women are to us at DBN. Our lives won’t be worth living if women were not in our lives. Women should be celebrated every day.

Why Entrepreneurship?

According to the National Bureau of Statistics, unemployment currently stands at 23. 1% and under employment is about 20.1%. Unemployment is the willingness to work but the absence of job. Under employment is getting a job which is below one’s qualification. Together is about 43%. We are talking about 50million Nigerians that are in this situation with our current population. If you combine the population of Belgium, Israel, Portugal, Switzerland, Libya and Botswana, you wouldn’t have this number. That is our current dilemma. With our population growth, the work bank had said that we are going to approach 300 million by the year 2050. If I was to project based on these ratios, we are talking about 90 million people that will be in this situation.

It may get to a point where if you come out of your house, everybody would be carrying cutlasses because there are no jobs. All the stories you hear in the news about insecurity is as a result of this and the numbers are adding up. Unfortunately, the ratios we want to see go up like the GDP are not increasing, whereas things like unemployment, inflation keeps adding up.  Inflation is in excess of 11.25%. These are not good things. If inflation was like 4%, it means you would go the bank and collect money lesser than that or slightly above that. So these numbers affects you and me.

To give a case for entrepreneurship, according To Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), as at 2017, there were about 41 million Micro, Small and Medium Enterprises (MSMEs). To reiterate the power of entrepreneurship, if everybody employs 4 people, the 50 million that are unemployed would have jobs and the number will disappear. That’s how powerful the entrepreneur is. They contribute over 70% of our GDP. So entrepreneurs are very important. We can’t rely on the government alone. They cannot do it all.

Challenges facing micro businesses in Nigeria

Nigeria is the biggest economy in Africa. We are the giant of Africa. I want to enumerate some of the challenges that micro businesses face.

Access to finance: A lot of business owners complain of lack of access to finance and banks asking for collaterals.

Access to expertise: Sometimes people don’t have the adequate knowledge of the business that they do. You will see someone who is doing a particular business for a long period of time but has done nothing to develop themselves. They don’t go for training or workshops. They still remain on one position.

Capacity building: people don’t invest in their personnel or their entire business.

Infrastructure: we do not have adequate infrastructure for business people to operate. The roads are bad. Imagine if I have a truck of cassava to be delivered in Badagry today, it might not get there today.

There are so many other things around the policies and multiple taxation.

There are the external factors and there are internal factors that affect business. We Nigerians are resilient lot because even though the margins are thin, we buckle our belts, we face it and we make money. This is very commendable.

Access to Finance

I will like to elaborate on access to finance, one of the greatest stumbling block for starting and growing a sustainable business is the lack of adequate finance. It is worse for women I don’t mean to say this anyhow but we are Africans, we are Nigerians and we know the problem. For example, I am an Igbo person. The law does not allow me to own a landed property. So where am I going to get a collateral for my loan in the bank? Some women might say they need to take permission from their husbands before requesting for loan and at the end of the day, the husband might not allow them. These issues happen and they are real.

As entrepreneurs, at any level, we must be open to information. We must have an inquisitive mind and also be open to learning as well as constant development. There are certain opportunities for our businesses that are available but we don’t even know about. There are opportunities like crowd funding, community development. So I would encourage you as a business to always want to know. Attend MSME clinics and events. Don’t be afraid of the internet. It has come to stay and you will be left out if you do not join the train. There are things like venture capitalist, angel investors. There are some funds that have been set aside that can be invested into businesses that are the start up stage. In the past, I thought that the rate was the problem, but the actual access is the problem.

Some people are intimidated to approach the four walls of the bank. The person might not know how to speak English and the cashier will just tell him or her anything. Meanwhile, the person had a viable business. When you say access, it goes beyond pricing because people would pay to the extent that the business can generate the income.

Another challenge is that of the expertise. They say that 50% of startups don’t make it to the first five years and 70% of MSMEs die. However, according to statistics there are over 41 million MSMEs which means that people are still doing businesses and succeeding, so there are opportunities.

In spite of these problems that have been listed, we should always see problems as opportunities. For example, there was flood at a place one time and a man was backing people and he was collecting money from them. The flood was the problem and backing people was the solution. That’s how a business person thinks.

There are things that we must do in order to make our business attractive to funding generally. You must do certain things in order to prepare your business for fund. Prepare your business like a beautiful bride in order to make it attractive to investors. On a typical wedding, everybody is about the bride. There is just something about the bride that draws everybody to her and that is how you must prepare your business to attract attention.

I was at an event and a popular film maker, Mo Abudu was trying to talk about how she was trying to get investment. According to her, by the time the Wedding Party movie was out, so many banks were on her neck asking for when the next movie will be produced. They now know that there is money to be made. She had to prove a point. Unfortunately, she had to source the funds from somewhere else to prove that point. Today, she has made her business attractive.

Your business plan must be clear. It must show that the business is profitable and scalable. For example, you have been doing a business for the past 5 years and the business is not improving. If you ask for a loan of 5 million, how would that be possible? If you are given that loan, what would be the first thing that you would do? You don’t have a business plan. Has the business reached it maximum? Can it be scaled up? How much profit do you make from the business?

We have also discovered that there is no evidence of organic growth on the business and even on the personnel. I am every key on the personnel because the wealth of every organization is the employees. A local business called somebody to come and train her staff on customer service and I was so proud. You cannot say that you are running a school or a crèche and I ask for your account and then you bring out an exercise book. It won’t cost you so much to get an accountant that will help you prepare proper books so that at the end of the year, you can properly appraise and evaluate yourself. You must not boycott and endeavor to keep good books of your business. You cannot be making tiger knots with no brand name or NAFDAC number. You can’t get a loan with this because you don’t have any plans.

Sometimes we complain that the papers at the bank are too much but we owe ourselves that duty to ensure that our business is attractive for funding; especially when it involves the factors that you can control. You can’t control the poor infrastructure or lack of electricity but you can control your books, pay your tax, keep good records and know your business plan. These are some of the things that you could address to generally prepare your business and make it attractive for funding.

Why DBN Matters:

For some of you who may not have heard of DBN let me share with you what our mandate is and how you can access financing for your various businesses. The Development Bank of Nigeria was licensed in 2014 and ran its first year of operation in 2017, as a wholesale development financial institution to help close the financing gap for MSMEs in the country. Specifically, we as an institution were set up to aid in de-risking this segment. In a nutshell, we have three mandates,

  1. Provide loans,
  2. Partial Credit Guarantees,
  3. Technical Assistance/Capacity Building.

We are set up to lend to commercial banks, microfinance banks and other licensed financial institutions who now on-lend to the MSME end-borrowers. The key distinguishing feature is that we provide longer tenor funds up to 10 years with an 18 months moratorium. I know what some of you might be thinking, and that is, why don’t you lend directly? The rationale is clear, we are a wholesale bank and we don’t lend directly to end-borrowers. The commercial and microfinance banks are already established with closer ties to you, the customers. Presently, we have partnered with over 25 financial institutions listed on our websites. These include Commercial Banks and Microfinance banks.

DBN loans are not sector specific as such cuts across multiple sectors including: Trade & Commerce, Agriculture, Education, and Real Estate activities Construction etc. As at the end of 2018, DBN disbursed over N31bn and reached 35,000 businesses.

DBN recognized very early on that financing women MSMEs is a critical step in achieving its development impact objectives and has taken deliberate steps in ensuring female entrepreneurs are empowered through available financing.  With over 7 billion naira (24% of total amount disbursed) in loans disbursed to female MSMEs, they accounted for over 73% of the total number of loans granted in 2018. This gives credence to the fact that there is still a significant number of female entrepreneurs in Nigeria, not taking advantage of the financing opportunities that currently exists for women owned businesses.

For DBN, providing financing that not only enables female entrepreneurs successfully scale up their businesses, but accelerates their rate of job creation is critical. We ensure this by identifying key sectors that contribute to rapid economic development and designing financial products and providing capacity building tailored to those sectors. In 2018, DBN loans were disbursed to female entrepreneurs from across 17 sectors with the top 4 sectors being; Trade and Commerce (49%) Manufacturing (16.3%), Accommodation and food services (10%) and Agriculture (9%).

DBN Loan Structure

Intervention funds are good. I like grants and if we get them, we will take them but at the moment, this is how it works. Funds come to us at a cost; we do some due diligence on some group of financial institutions. We lend them the funds and we give them a credit line. They give us a list and they tell us who they intend to give the money to. We find out who they are and we ensure that they are doing well in their business and we disburse the funds. From this explanation, you can see that there is a transfer of credit risk to the financial institution.

The first thing people ask me is if we are giving MSMEs or if it’s single digit money. No, it’s not that type. The Key word there is sustainability. We rely on the Participative Financial Institution (PFI) to do the due diligence. They would typically do the appraisal and tell us. If you have a trading business, where you get money every month there is really no reason to give you an 8 months moratorium. There is a discipline around it. It’s not just some national cake that people come and take anyhow they like. Our mandate is to provide loans, partial credit guarantee, technical assistance and capacity building.  As of now, we have a credit guarantee company called IMPACT. We have just started operations and it’s not fully grown.

Capacity building

 The micro finance bank takes this aspect very seriously because of the level of monitoring that they do. They teach you book keeping and other necessary things so that you become a better business person. We recently opened it on our website for 100 people to register for a programme centered around capacity building. It will be at Lagos Business School this year.

Channels is one of our 5-year strategy. So, we need to open up and explore new channels. We recognize that we cannot reach a large number of people through 25 banks. We recognize that there are NGO’s and MFI. There is currently some work on how to partner with these non-regulated financial intermediaries. The license that we have is wholesale banking and to also deal with the people that are licensed and regulated. We have been taking proposals already. How can we partner with them? Is there a way to package them through one of the people that we can actually deal with? Maybe a bank and bring them to DBN.

Why Women Matter

The International Labor Organization along with other studies revealed that women dis-proportionally make up senior leadership roles in organizations globally. However, it is now empirical knowledge that female board representation is positively related to accounting returns.

To aid in stressing the invaluable importance of women, studies have shown that more female board members translates to high profitability and better stock performance. And last but certainly not the least, female executives are often more cautious than their male counterparts in corporate decision making. So, you see, I have no doubt in my mind that working with and financing women owned businesses is bankable business. So, let me crave your indulgence by making 2019 and beyond a breakthrough for women owned enterprises.

I would like to close by saying thank you for the invitation and opportunity to speak to this group of amazing women.

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