The Federal Executive Council (FEC), presided over by President Muhammadu Buhari, has approved a $1.3 billion capital facility for the takeoff of the Development Bank of Nigeria (DBN).
The Minister of Finance, Kemi Adeosun, who briefed State House correspondents at the end of the meeting, said the loan has repayment period of 20-21 years and will allow the development bank take off fully.
She said that Nigeria’s foreign debt increased to $11.406.28 million in the fourth quarter of 2016 from $11.261.89 million in the third quarter of 2016.
The money, according to the Minister, will allow the DBN to lend to Small and Medium Enterprises (SMEs) for a longer period as they have the capacity to employ more than the big corporations.
Adeosun who briefed alongside the Minister of Budget and National Planning, Udoma Udoma, and the Minister of State for Health, Osagie Ehanire, said the facilities were coming from the World Bank, African Development Bank, and the KfW Development Bank of Germany.
“Council gave the approval for credit facilities totalling $1.3 billion to support the DBN. As you know, the DBN recently received its license and is being funded by some long term loans from some of our development partners.
“So the World Bank had given us $500 million repayable over 21 years and all of this is at a concessional rate. The African Development Bank is giving us $450 million and KfW Development Bank of Germany is giving us $200 million while the French Development Agency is giving us $130 million,” she said.
She explained that two main requirements needed to access the money include, “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 the FEC approved today that these loan requests should go to the National Assembly for approval so we can access this money and the DBN can take off fully as it is expected to transform financing to our MSME sector.
“The council enthusiastically approved these facilities, which are long tenured meaning that the DBN will be able to lend to our MSMEs over much longer periods and at much lower rates. So the impact on the SMEs will be quite considerable.”
On the country’s rising debt profile, Adeosun said Nigeria was still within its limits with a debt to GDP ratio of 13 per cent when compared to other African countries.
“So the question is, what are the loans being used for and will they actually generate growth in the economy that will, therefore, generate 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.”
According to her, 45 per cent of Nigeria’s economy is made up SMEs and only 10 per cent of them can get loans at the moment, adding that this loan will allow the SMEs to 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.
“These are concessional loans with interest of two per cent in some cases for 21 years. You can’t get that kind of money anywhere in the world and it is going directly to the people that need it,” Adeosun said.