Assessing BoI’s capacity to implement MoUs for industrial growth

With a huge credit gap unmet by deposit money banks in the country for the real sector, funds from development finance institutions (DFIs) remain the viable alternative for businesses to explore. To meet the real sector demand, DFIs are beginning to explore business agreements with partners that align with their objectives. Can the Bank of Industry (BoI) see through its agreements? FEMI ADEKOYA writes.

Raising capital has always been one of the greatest challenges for the growth and sustainability of small, medium and micro-enterprises, especially in an environment where commercial banks do not see the real sector as providing the quick return on investments they desire.

To bridge the funding gap in the real sector, particularly among small enterprises, there is a need to de-risk the sector by providing financial and business support services needed for growth.

In many climes, DFIs, playing multiple roles, have helped promote, nurture, support and monitor a range of activities, though their most important function remain drivers of industrial development.

To alleviate poverty and reduce the developmental gap that separated developing economies like Nigeria from the developed countries, development finance institutions like the Bank of Industry (BoI) are established to intervene in accelerating the pace of growth of productivity and per capita GDP.

With a capital base of less than N1 trillion amid a funding deficit of $3 trillion for infrastructure needed to drive industrialisation, BoI has within the last one year, embarked on partnerships with state governments, financial institutions and other development agencies to improve enterprises’ access to funds.

As the new wave of financing innovations democratising access to capital, the bank is disrupting the financial intermediation landscape with new products while reviewing processes to aid intervention and impact in the society.

Financing innovations are new avenues beyond the traditional stronghold of bank financing that are removing barriers for small businesses to access much-needed capital.

Although, alternative mechanisms like seed and angel funding, value chain finance, venture capital and crowd funding are not necessarily new, they have evolved to become more powerful mechanisms for financing small enterprises.

While expressing confidence that key shareholders in the NIRP initiative like the Ministry of Finance Incorporated and the Central Bank of Nigeria CBN, will continue to support the bank with some equity injection, BoI noted that the fact that there is a lot of demand on government’s resources, it would be exploring alternative modes of funding such as continuation of sector specific intervention funds by the CBN, Ministry of Agriculture, Solid Minerals and others; managed funds from various state governments and foundations; long-term loans at very low interest rates from multi-lateral/international development institutions.

To ensure that its intervention reaches the right beneficiaries, the Bank of Industry in recent time, has sealed partnership agreements with various stakeholders through matching fund and managed fund schemes.

BoI/State Matching Funds
The State/BoI Funds are matching funds based on partnership between Bank of Industry and some State governments for the promotion of economic and political empowerment, accelerating pace of Industrial development processes in the State, promotion of establishment of micro, small or medium scale
enterprises (MSMEs) in the state as well as value addition and employment generation.

The funds under the agreement can be accessed by cooperatives, enterprises and limited liability companies engaged in manufacturing and agro-processing, with single obligor limit of N50 million, while interest rates range from between five per cent to 10 per cent.

Under this scheme, more than half of the 36 state governments have sealed pact with the bank to achieve their industrialization agenda.
BoI Managed Funds

Managed funds under the portfolio of the Bank of Industry (BoI) has hit N44.6 billion as at end of the 2015 financial year. The funds may have however risen above the figure considering various Memoranda of Understanding sealed with its stakeholders since the beginning of 2016.

Some of the funds managed by the Bank as at December 31, 2015 include the N8.12 billion National Automotive Council Fund, N2.9 billion Dangote Fund, N12.3 billion Rice Processing Fund, N12.5 billion Cement Fund, N1.8 billion National Sugar Industrial Development Fund, N1.48 billion Federal Department of Agriculture (FDA) Cottage Fund as well as other funds managed in partnership with other state governments.

Recently, BoI and Nigerian Content Development and Monitoring Board (NCDMB) signed a Memorandum of Understanding (MoU) to facilitate the disbursement of $100 million to operators in the oil and gas sector for local content development.

Under the agreement, the bank will serve as the custodian and manager of the $100 million Nigerian Content Intervention Fund (NCI Fund) to meet the funding needs of manufacturers, service providers and other key players in the nation’s oil and gas industry.

Does BoI have capacity to implement the agreements?
Acting Managing Director, BoI, Waheed Olagunju noted that bank has been managing some funds for several stakeholders and has always delivered value by ensuring that funds are disbursed to the appropriate beneficiaries so that value-addition can be promoted in the real sector.

Indeed, the Bank had since completed the pilot phase of the off-grid solar pact it signed with the United Nations Development Programme (UNDP) in 2015.

The project which started with the provision of long-term financing for the installation of off-grid solar home systems in six communities including Anambra, Delta, Gombe, Kaduna, Niger and Osun States, has since been completed and commissioned.

Similarly, the bank stated that it disbursed N95 billion to 400 enterprises in the first half of 2016.

Furthermore, the Bank also approved N426 million for on-lending to businesses owned by National Youth Service Corps (NYSC) members under the Graduate Entrepreneurship Fund (GEF).

According to the bank, the move has become necessary considering the double-digit unemployment rate amidst few jobs.

Olagunju stated that as part of measures to rev up its operations, the bank is strengthening its collaboration with its foreign and domestic partners including community-based organisations to deepen the bank’s credit delivery process and financial inclusion initiatives.

According to him, the bank is on course in 2016 to surpassing the N83.5 billion that was disbursed in 2015.

“As at the middle of the current year the bank had approved loans totaling N95 billion to more than 400 enterprises and is working assiduously to approving more loans in the second half of 2016 and ultimately meeting the institution’s disbarment target of N212 billion that could potentially lead to the creation of almost 1 million jobs in addition to the 1.6 million projected under the Government Enterprise and Empowerment Programme”, he said.

Speaking at the signing of $100m pact on local content development with BoI, Acting Executive Secretary, Nigerian Content Development and Monitoring Board (NCDMB), Patrick Daziba Obah, expressed confidence in the bank’s capacity to implement its MoUs, thus necessitating the pact with the bank to manage its fundsto close the financing gap presently being experienced by stakeholders when embarking on projects.

Noting that stakeholders had challenges with the previous model of the NCDF through delays emanating mostly from the processes in the commercial banks and how the companies packaged their proposals, Obah urged BoI management to ensure that such challenges are addressed.