FG Tasks DBN On Affordable MSMEs’ Financing

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BY COBHAM NSA – Focused on boosting the robust performance of Micro, Small, and Medium Enterprises (MSMEs), the Federal Government has tasked the Development Bank of Nigeria (DBN) to provide affordable financing to a larger cross-section of the country’s small business operators

This is as the government also assured that the amended Finance Act will ultimately reduce the current tax burden that hampers the growth of small businesses given their criticality to the Gross Domestic Product (GDP) growth in the country.

Speaking at the DBN’s 3rd Annual Lecture Series with the theme: “Thriving in the Face of Domestic and Global Disruptions”, Vice President Yemi Osinbanjo said arising from disruptions due to the COVID-19 pandemic, the amendments were part of measures by the government to reduce MSMEs’ tax burden and also create opportunities for participation in export markets.

The Vice President, who spoke through the Minister of Finance, Budget and Planning, Mrs Zainab Ahmed, said the charge to sustain funding interventions in the real sector of the economy is informed by the fact that DBN’s mission, in collaboration with key development partners, focuses on addressing funding challenges facing the MSMEs nationwide.

He said aside from various measures introduced by the government to support MSMEs’ growth in the country, including fiscal reliefs and incentives provided for in the Finance Act 2021, further policy actions are being considered as work progresses on preparing the Finance Act 2022 for the 2023 fiscal year.

Also giving kudos to the DBN, Prof Osinbajo noted that over the years, the institution has through wholesale funding and risk-sharing facilities to Participating Financial Institutions (PFIs) for on-lending to MSMEs distinguished itself as a key contributor to unlocking the capacity of MSMEs to catalyse economic growth and job creation in the Nigerian economy.

Osinbajo, who cited the latest international and domestic statistical data on MSMEs’ contributions to national economic growth, especially in Nigeria, to justify the call for prioritized funding and other policy measures support for small enterprises, said with a total loan disbursement of N482 billion to about 208,000 MSMEs in 2021, of which 27 percent are youth-owned with 66 percent owned by women, the DBN has remained the major driver of MSME growth in Nigeria.

He said some of the key provisions in the amendment of section 40 of CITA include granting tax exemptions to small businesses and lowering the tax rate on the taxable profits of medium-sized companies to 20% – Section 16 of the 2019 Finance Act; and granting an initial tax holiday of four years to MSMEs engaged in primary agricultural production – Section 23 of the 2020 Finance Act.

Also captured in the amended Act are the provision of tax exemptions on profits of a small company; dividends received from small companies in the manufacturing sector for the first five years; and dividends received from investments in wholly export-oriented businesses among others.

Similarly, Prof Osinbajo listed policies introduced to support small businesses during the COVID-19 pandemic as a N250 billion grant containing a N50 billion MSME de-risking facility component; a payroll support scheme of up to N50,000 in monthly salaries for up to 10 staff of qualifying businesses for a duration of three months; one-off grant of N30,000 for 333,000 self-employed persons working as transporters and artisans under the Artisan and Transport Scheme; a N50,000 grant for 100,000 MSMEs; provision of financial backing up to N191 billion in loans to 34,144 MSMEs; and the capacity building of 125 MSMEs and loan guarantees for 1,748 businesses to the tune of N6.2 billion etc.

Further highlighting the need for DBN and other financial institutions to increase their financing support for small businesses, the Vice President said; “With the disruptive effects of the Russia-Ukraine war on the economy and its consequent impact on the cost of doing business, difficulties facing MSMEs have increased significantly”, adding; “It is important that the DBN step up to the plate and expand its funding windows to provide affordable financing to a wider cross-section of MSMEs.”

For him; “The Federal Ministry of Finance, Budget, and National Planning and all its agencies stand ready to utilise the fiscal policy tools at our disposal to support the DBN and other public and private sector actors working towards the common goal of ensuring MSMEs can become key drivers of economic growth and create sustainable and livelihood- enhancing jobs for segments of the working population prone to vulnerability.”

Also, he said; “According to the International Finance Corporation (IFC), between 70 and 95 percent of new employment opportunities in emerging economies are created by MSMEs. To ensure their effective contribution to the economy, it is imperative to ensure MSMEs are supported in the acquisition of skills and tools to run their businesses efficiently, manage risks and gain access to finance at competitive and affordable rates.

The World Bank Group estimates the finance gap among formal MSMEs in developing economies to be 18 percent of GDP with potential demand for financing among informal MSMEs as high as 11 percent of GDP.”

Prof Osinbajo said the current administration’s deep commitment to funding support for MSMEs is evidenced in the emphasis placed on ensuring their continued operations during the early months of the COVID-19 pandemic which led to the temporary closure of 53.2 percent of SMEs and 37.3 percent of MEs

Delivering his welcome address, the Managing Director and Chief Executive Officer, Development Bank of Nigeria (DBN), Dr Tony Okpanachi said with the global disruptions due to the interconnectedness of economies, there is a compelling need for businesses to continue to innovate, stressing that the theme of this year’s Lecture “speaks directly to our commitment as a financial institution, toward providing a conducive environment for MSMEs to thrive”

He said with the world gradually recovering from the COVID-19 disruptions, it is now facing a new reality as rising inflation, and unstable exchange rates among challenges have impacted adversely on the nation’s MSMEs.

The DBN boss, who noted that the disruptions on a global scale “are now a reality in an increasingly interconnected global economy”, said against the backdrop of this year’s Annual Lecture Series, which marks the Bank’s 5th year in operation, it is instructive to appreciate the strategic role of DBN as reliable builders of MSMEs, “a segment we are mandated to provide funding for”

However, Okpanachi maintained that “there is still a compelling need for businesses to continue to innovate especially, as the world gradually recovers from the disruptions caused by Covid-19 which has affected every part of the value chain, from raw material sourcing to the end customer; to the suffering induced by the humanitarian crisis caused by Russia’s invasion of Ukraine, resulting in slower economic growth and rising inflation across nations”.

On his part, the Chairman of DBN’s Board, Dr Shehu Yahaya, described the Annual Lecture Series as one of the ways the Bank continues to engage with all stakeholders in searching for solutions and influencing policies toward addressing the constraints faced by the MSMEs, especially in relations to accessing finance and building their capacity to upscale sustainably.

Noting that MSMEs occupy a critical part of the Nigerian economy with 48 percent contributions to the nation’s GDP, Dr Yahaya said through the sub-sector activities, Nigeria has the capacity of transforming from a consuming to a producing nation.

He said the strategy is to overcome MSMEs’ major challenges and transform them into a major fulcrum for the transformation of the Nigerian economy.

The Bank Chairman said such move would ensure the MSMEs become the centre of technological innovation and transformation, local value addition, non-oil export drive with dynamic linkages to larger enterprises, and a veritable engine for job generation.

According to him, the focus of this year’s Annual Lecture is combining efforts with all other stakeholders to develop ideas, policies, programs, and projects to boost growth and bolster macroeconomic frameworks.

Others issues include reducing financial vulnerabilities, providing support to vulnerable population groups, and reducing the long-term impacts of the global economic shocks of recent years.

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