WASHINGTON, Jan. 8, 2004 –
Responding to the government’s request for assistance in sparking greater bottom-up economic growth, the World Bank has approved a US$32 million* credit to Nigeria for micro, small, and medium enterprise development.
The project is the first to be approved under a joint pilot program for African micro/SME development between the World Bank Group's concessionary lending unit, the International Development Association (IDA), and its private sector arm, the International Finance Corporation (IFC), that was announced last June.
In keeping with the pilot program’s operating strategy, Nigeria’s US$32 million in IDA funding announced today will not directly finance firms. Instead, it will be used to strengthen local financial and non-financial institutions that support small business so they can operate effectively and sustainably deliver commercially-based services in the market. IFC is expected to invest in some of the private sector participants in the project.
Although it is Africa’s largest oil producer, Nigeria remains one of the world’s poorest countries, with a manufacturing sector predominantly made up of small businesses whose low productivity and other constraints hinder job creation. Strengthening the non-oil private sector is thus a major priority both for the government and for the World Bank Group’s development assistance strategy for the country.
To meet this goal, the project will focus on the introduction of models designed to strengthen local institutions that help entrepreneurs build viable companies. These efforts will then be complemented by support for targeted reforms in the regulatory and legal environment that affect micro and small businesses. The project will also help selected public sector institutions create effective public-private partnerships for small business development.
“The government of Nigeria has been a strong advocate of the importance of building the micro and small and medium enterprise sector through private sector-led efforts. One of the most important aspects of this first project in the IDA/IFC program is the focus on strengthening Nigerian private financial and nonfinancial service providers that are market driven and pursue commercial sustainability,” said Mark Tomlinson, the World Bank’s Country Director for Nigeria. “This should have many direct benefits in helping Nigeria build its entrepreneurial potential.”
Specific components of this project include:
·
Access to Finance:
The IDA project will provide performance-based grants to build strong private Nigerian institutions in fields such as microfinance, small business lending, leasing, and others. The overall goal is to improve the overall supply of financial services available to local micro/SMEs, which often cite a lack of financing as their single largest problem. Nigerian commercial banks and IFC partner organization ACCION International are considering establishing a new microfinance institution as part of this initiative.
·
Business Services:
A fund will also be established to provide performance-based grants to strengthen local providers of key services such as product and market development, management assistance, and technology information.
As with the financial institutions involved in the project, participating service providers will have to demonstrate clear market demand for their services, meet standards for outreach, commercial viability, and other key indicators of effectiveness, and provide counterpart funding. Related initiatives will also be launched to strengthen important industries such as aquaculture, which has the potential for boosting productivity in a Nigerian fishing sector that is a source of food, income, and employment, especially in poor rural areas.
·
Business Enabling Environment:
To make it easier for smaller firms to register their businesses and gain confidence in entering into contracts, the project will have legal and regulatory reform components focusing on procedural simplification, commercial dispute registration, secured transaction systems, leasing policy, and other issues.
“We are pleased to support this innovative project, whose design draws on local expertise and seeks to create new partnerships with international institutions such as ACCION International and others supported by IFC’s SME Capacity Building Facility. The early collaboration in Nigeria—going back to 2000—between the World Bank, IFC and our Africa Project Development Facility has laid strong foundations on which we have been able to support the government in developing this initiative,” added IFC Africa Director Haydée Celaya. “We are also very willing to consider making related investments in participating institutions.”
The mission of IFC is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY03, IFC has committed more than $37 billion of its own funds and arranged $22 billion in syndications for 2,990 companies in 140 developing countries. IFC's worldwide committed portfolio as of FY02 was $16.7 billion for its own account and $6.6 billion held for participants in loan syndications.
* The credit is on standard International Development Association (IDA) terms, with a commitment fee of 0.5%, a service charge of 0.75%, and a maturity of 40 years, including a 10-year period of grace.
