Written by As a developing nation, certain sectors of the Nigerian economy are underdeveloped. It is for this reason that development finance institutions were established.
This detailed post will examine everything you need to know about development finance institutions.
Table of Contents
What is a Development Finance Institution
A development finance institution is a financial institution that is supported by the government to provide financial assistance to specific sectors of the economy to promote economic development.
It may also be defined as any financial institution established primarily to provide infrastructural facilities for the industrial growth of a nation.
Development finance institutions( or development banks) offer medium and long-term credit for the formation, growth, and development of agricultural, industrial, and commercial businesses in developing countries like Nigeria.
In Nigeria, most development finance institutions are mainly set up by the government to meet the development needs of certain vital sectors of the Nigerian economy.
History of Development Finance Institutions in Nigeria
It all started in 1964 when the Nigeria Industrial Development Bank was formed in 1964 through the reconstruction of the Investment Company of Nigeria Limited (ICON), which was initially incorporated in 1959 as an industrial development finance company.
In 1972, the Nigerian Agricultural Bank(NAB) was established to carry out the functions of a Development Finance Institution (DFI) for the Agriculture and Rural Development sector, and it became operational in 1973.
Also, in 1973, the Nigerian Bank for Commerce and Industry (NBCI) was established to provide financial services to the indigenous business community, especially small and medium enterprises (SMEs).
However, in 1978, the Nigerian Agricultural Bank was renamed the Nigerian Agricultural and Cooperative Bank (NACB).
On July 1st, 1991, another development bank the Nigerian Export-Import Bank(NEXIM) was established by Act 38 of 1991 as an Export Credit Agency (ECA) with a share capital of N50, 000,000,000 (Fifty Billion Naira) held equally by the Federal Ministry of Finance Incorporated and the Central Bank of Nigeria.
In 1992, section 92 of the Urban Development Bank of Nigeria Act established the Urban Development Bank of Nigeria.
The bank’s mandate was to promote the rapid development of infrastructure across Nigeria.
The Urban Development Bank is now called the Infrastructural Bank.
However, in 2000, the Nigerian Agricultural Cooperative And Rural Development Bank (NACRDB) was incorporated following the merger of the defunct Nigeria Agricultural and Cooperative Bank, People’s Bank of Nigeria, and risk assets of the Family Economic Advancement Programme (FEAP).
In October 2001, the Bank of Industry was established through the merger of the Nigerian Industrial Development Bank (NIDB), the Nigerian Bank for Commerce and Industry (NBCI), and the National Economic Reconstruction Fund (NERFUND).
The bank took off in 2002 with an initial capital of N50 billion, 40 percent of which was to be contributed by the Central Bank of Nigeria.
In 2010, the Nigerian Agricultural Cooperative And Rural Development Bank (NACRDB) was renamed the Bank of Agriculture Limited as part of efforts to re-position the Bank for better impact.
Development Finance Institutions in Nigeria
According to the Central Bank of Nigeria, there are six development banks in Nigeria. These are the Bank of Agriculture (BOA), Bank of Industry, Development Bank of Nigeria plc, Federal Mortgage Bank of Nigeria, Nigeria Export-Import Bank, and the Infrastructure Bank.
Bank of Agriculture
The Bank of Agriculture is a development finance institution that is sponsored by the government to provide credit facilities to farmers in rural areas.
The Bank of Agriculture was formed in 2000 from the merger of the National Agriculture and Cooperative Bank, the People’s Bank, and the Family Economic Advancement project.
The key mandates of the bank are
- Provision of credit to support Agricultural and Non-Agricultural value chain activities.
- Provision of opportunity for self-employment in rural areas, thereby reducing rural-urban migration.
- Provision of Financial Inclusion services.
- Capacity Development through the promotion of co-operatives, agricultural information systems, and the provision of technical and extension services.
Bank of Industry
The Bank of Industry is the oldest and biggest Development Financial Institution presently operating in Nigeria.
It was established to facilitate the transformation of Nigeria’s industrial sector by providing financial and advisory support for the establishment of large, medium, and small projects/enterprises, and the expansion, diversification, rehabilitation, and modernization of existing enterprises.
The Bank of Industry is 94.80% owned by the Ministry of Finance Incorporated (MOFI) Nigeria, 5.19% owned by the Central Bank of Nigeria (CBN), and 0.01% owned by private shareholders (0.01%).
It was established in 2001 through the merger of the Nigerian Industrial Development Bank (NIDB), the Nigerian Bank for Commerce and Industry (NBCI), and, the National Economic Reconstruction Fund (NERFUND).
Nigeria Export-Import Bank
The Nigeria Export-Import Bank(NEXIM) was set up by the NEXIM Act 38 of 1991 as an Export Credit Agency.
It has a share capital of N50, 000,000,000 (Fifty Billion Naira) held equally by the Federal Ministry of Finance Incorporated and the Central Bank of Nigeria.
The Bank was mainly established to provide export credit guarantees to exporters. It also plays an important role in providing short and medium-term loans to Nigerian exporters.
NEXIM has the following statutory functions:
- Provision of export credit guarantee and export credit insurance facilities to its clients.
- Establishment and management of funds connected with exports.
- Provision of credit in local currency to its clients in support of exports.
- Provision of domestic credit insurance where such a facility is likely to assist exports.
- Maintenance of a trade information system in support of export business.
- Maintenance of a foreign exchange revolving fund for lending to exporters who need to import foreign inputs to facilitate export production.
The Infrastructure Bank
The Infrastructure Bank PLC (formerly known as Urban Development Bank of Nigeria Plc) was established in 1992 under Decree 51, as Urban Development Bank Ltd. with the important mandate of fostering the rapid development of infrastructure across the country.
It is a development finance institution dedicated to offering financial solutions to assist crucial long-term in its focus sectors namely: Transportation, Power & Renewable Energy, Mass Housing and District Development, Urban Infrastructure, and Municipal Finance projects.
The ownership structure of the Infrastructure Bank Plc is unique. It is owned majorly by the private sector but in addition has the Federal Government, State Governments and Local Governments as well as the Nigeria Labour Congress as
its shareholders.
Thus, the Bank is a government-sponsored but private sector-led development finance institution.
Federal Mortgage Bank of Nigeria
The Federal Mortgage Bank of Nigeria is the apex mortgage finance institution in Nigeria.
It regulates the activities of primary mortgage loan originators.
The Federal Mortgage Bank of Nigeria (FMBN) was established in 1956.
However, it was known then as the Nigerian Building Society (NBS).
As a result of the introduction of the Indigenization Policy, the Federal Government, by the Indigenization Act of 1973, acquired the NBS and consequently renamed it the Federal Mortgage Bank of Nigeria (FMBN).
The Bank commenced the running and management of the contributory savings scheme, known as the National Housing Fund (NHF) established by Act 3 of 1992.
In 1994, following the promulgation of the FMBN Act 82 of 1993 and the Mortgage Institutions Act 53 of 1989, the Federal Morgage Bank of Nigeria assumed the status of an apex mortgage institution in Nigeria.
The Federal Morgage Bank of Nigeria performs the following statutory functions:
- Provide long-term credit facilities to mortgage institutions in Nigeria.
- Mobilizing both domestic and offshore funds into the housing sector.
- Encourage the emergence and promote the growth of viable primary and secondary mortgage institutions to service the need for housing delivery in all parts of Nigeria.
- Establish and operate a viable secondary mortgage market.
- Collect and administer the National Housing Fund in accordance with the provisions of the NHF Act.
- Link the capital market with the housing industry.
- Do anything and enter into any transaction which in the opinion of the Board is necessary to ensure the proper performance of its functions under the FMBN Act.
The Development Bank of Nigeria PLC
The Development Bank of Nigeria (DBN) was conceived by the Federal Government of Nigeria (FGN) in collaboration with global development partners to address the major financing challenges facing Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria.
It exists to alleviate financing constraints faced by Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria.
The main objective of the bank is to alleviate financing constraints faced by MSMEs and small Corporations in Nigeria through the provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.
Features of Development Finance Institutions
1. Provides specialized financial services: DFIs in Nigeria offer specialized financial services tailored to the needs of specific sectors such as infrastructure development, industrial growth, agriculture, and small and medium enterprises (SMEs).
2. Non-Deposit-taking Institution: Unlike commercial banks, development banks do not accept deposits from the public.
3. Public Interest Focus: The purpose of development banks is to serve the general public interest rather than solely focusing on making profits. They act in the best interest of the nation, supporting economic development and addressing societal needs.
