In support of the Nigerian government’s effort to stimulate economic growth and create jobs for its citizens, the World Bank Group has approved a $500 million International Bank for Reconstruction and Development (IBRD) credit to fund the Development Finance Project. The project will help facilitate increased access and availability of financing for Micro, Medium and Small-Scale Enterprises (MSME) in agriculture, trade, light-manufacturing, services, and other areas.

The Development Finance Project will also provide a stable and predictable funding source through the establishment of a Development Finance Institution (DFI). The DFI will provide funding to eligible financial institutions to finance long-term lending to MSMEs, as well as funding to Micro-Finance Banks for on-lending and to expand their outreach.

“The proposed operation addresses the provision of finance, including long-term finance, through eligible Participating Financial Institutions to expand outreach to urban and rural Micro, Small and Medium Enterprises,” said Arnaud Dornel, Team leader for the Development Finance Project.

Following a period of turbulence, the Nigerian banking system is now well capitalized, liquid and profitable, according to financial soundness indicators. However, the banks are not in a position to give long-term loans, creating a major obstacle for Nigeria’s micro, small and medium-sized business owners. According to a 2014 survey, 6.7% of enterprises in Nigeria had a loan or active line of credit, compared to the Global Enterprise Survey average of 36.5%, showing that Nigeria is lagging far behind other countries. 

Not only will the new DFI support the country’s dual objectives of stimulating more diversified and inclusive growth, it will also help alleviate the current financing constraints that have hampered the growth of domestic production and commerce by filling the current financing gaps.

“The project is fully in line the priorities set out in the new Country Partnership Strategy which calls for focusing on increasing access to finance, including long-term financing for key sectors such as housing, SMEs, agriculture, and infrastructure, through various mechanisms involving both private sector and public sector partnerships,” said Marie Francoise Marie-Nelly, World Bank Country Director for Nigeria.

The Development Finance Project comprises four components, including technical assistance and capacity building ($12 million), line of credit facility ($445 million), credit guarantee facility ($35 million), and project management ($6.75 million.) A front-end fee of $1.25 million will be financed out of the proceeds of the loan. Project beneficiaries include private sector MSMEs and Participating Financial Institutions (PFI’s). MSMEs will benefit from improved access to term finance for investment and working capital loans, while PFIs will benefit from technical assistance, term funding, and partial credit guarantees aimed at enhancing their ability to serve MSME’s.

The project is a joint effort between the World Bank Group, African Development Bank (AfDB), German Development Bank (KFW), French Agency For Development (AFD) and the United kingdom’s Department for International Development (DFID), and will be implemented by the Federal Ministry of Finance (FMOF) for seven years.