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Bank of Industry’s initiatives in creating ecosystem for SMEs, by Olagunju


Olagunju           PHOTOS: SUNDAY AKINLOLU

Olagunju            //PHOTOS: SUNDAY AKINLOLU

The Bank of Industry (BoI) has manifestly emerged the nation’s quintessential development finance institution, with its several initiatives that have enthroned single-digit interest rate regime in for value-added business operators. The bank’s Executive Director, Waheed Olagunju, in this interview with Business Editor, ADE OGIDAN, explained how BoI has strategically promoted the fortunes of Small and Medium Enterprise (SMEs) in the country. Excerpts.

In the last few months, the Bank of Industry has increased its focus on the Micro Small and Medium Enterprises MSMEs sector of the economy. What could have informed this decision on the part of the bank?

For you to fully appreciate what we are now doing at BOI, I would need to put things into proper perspective. Between May and July 2014, BOI witnessed changes in its leadership hierarchy. In May, Rasheed Olaoluwa was appointed the bank’s third Managing Director and Chief Executive Officer, while in July, the Minister of Industry Trade and Investment inaugurated BOI’s fourth Board of Directors under the leadership of Alhaji Abdulsamad Rabiu, who returned as BOI’s third chairman. This was four months after the National Enterprise Development Programme (NEDEP) and the Nigeria Industrial Revolution Plan (NIRP) were both launched by the President in February 2014.

NEDEP, designed to address challenges facing MSMEs and a road map to enable them optimise their full potentials NIRP, is a blue print to drive the manufacturing sector towards growing the contribution of the manufacturing sector to Nigeria’s Gross Domestic Product (GDP) from 6.8 per cent to double digit by the turn of the decade, by focusing on areas where Nigeria has comparative advantages and could either become number one in Africa or be among the top 10 in the world. In answering your question, one needs to also indicate that when the bank’s new management came on board, it was not comfortable with the fact that MSMEs accounted for less than 10 per cent of BOI’s total loans of N823 billion that were approved over a period of 13 years, that is, from 2001 to 2014. Secondly, as a development finance institution, the bank’s leadership felt the need to align the institution’s operations with the nation’s industrial development plan and programme. Hence the Small and Medium Enterprises (SME) Directorate was established to drive NEDEP. I was subsequently appointed to head the new SME Directorate. The Large Enterprises Directorate was assigned the responsibility of implementing NIRP.

Also by way of background, our present operations set up is like what we had in place at BOI’s inception in 2002 when Gbadebo Dallas, then Managing Director of the National Economic Reconstruction Fund (NERFUND), was appointed BOI’s pioneer Executive Director, Small and Medium Enterprises and Ubadigbo Okonkwo, who was then a General Manager with the Nigerian Industrial Development Bank (NIDB) – BOI’s precursor institution, was appointed Executive Director, Large Enterprises. In 2005, the two directorates were, however, merged, based on the recommendations of the African Development Bank appointed Swedish Consultants who felt the young institution was top heavy. As at 2005, BOI’s ratio of operating expenses to income was more than 90 per cent, while its total volume of loans was N9.8 billion. Today, the ratios are much healthier in line with global best practices that we benchmark ourselves against, while our loan size has grown by 8,473 per cent over what it was nine years ago from N9.8 billion as at 2001 to N823 billion by 2014.

Under the present dispensation, we are working vigorously towards ensuring that MSMEs account for at least 30 per cent of BOI’s risk assets by 2019 with a single digit ratio of non-performing loans to total loans. Increasing the bank’s exposure to MSMEs would enable us better achieve our double bottom lines of financial viability and high developmental impact. With total loans of N823 billion to more than 4,000 beneficiaries, we were able to create over 1.8 million jobs between 2001 and 2014. Since less, than 10 per cent of the loans went to MSMEs. We know that the developmental impact and multiplier effects of our interventions, such as job creation, would have been higher if more financial assistance had gone to MSMEs. Hence our strong resolve to rapidly increase the volume of loans to MSMEs with very high viability prospects.

How does the bank actually plan to increase lending to MSMEs?

Since you cannot plan towards achieving your target, goals and objectives without understanding where you are and how you got there, we identified the internal and external constraints that limited BOI’s exposure to the MSMEs sector to less than 10 per cent of its portfolio over a 13 year period. We came to the conclusion that ability to achieve our targets would largely depend on an a number of factors including identifying potentially viable projects; quality of entrepreneurship which also impacts on deal flow generation; mobilisation of financial and non financial resources; as well as the operating environment. Taking all these into consideration, we are continuously doing a lot of thinking outside the box and are evolving innovative solutions and taking unprecedented steps to de-risk MSMEs and also create an ecosystem for them in Nigeria.

But how is the bank strategising against defaults and ‘failed projects’ saga under this strategic funding scheme?

In line with NEDEP and NIRP, the Bank of Industry’s two business directorates are diligently seeking and supporting projects that operate in economic sectors where Nigeria has comparative advantages as also enunciated in the United Nations Economic Commission for Africa’s Commodities Based Industrialisation strategy, which advocates processing of our vast natural agricultural, solid mineral and petroleum resources across their entire value chains. We also finance labour intensive projects in the services sector that can potentially impact on the real sector. In this regard, we are focusing on SMEs in the areas of Information Communication Technology; leisure and tourism; as well as assisting SME projects that have franchises with very high employment generation potentials.

The SME Directorate handles applications for mainly long and medium term loans ranging between N5 million and N500 million. The Large Enterprises Directorate processes those above N500 million. Requests below N5 million are processed under BOI’s Bottom of the Pyramid (BOP) scheme under which we lend to micro enterprises through appointed microfinance banks, known to have specialised skills for handling highly labour intensive micro enterprises, at single digit interest rate. We also lend directly to some micro enterprises at various concessional interest rates under some special funds that BOI manages on behalf of its development partners that include state governments, some federal ministries as well as agencies and the Dangote Foundation. For instance the N10 billion MSME Fund that was jointly floated by the Dangote Foundation and the Bank of Industry attracts an interest rate of five per cent. This was arrived at because Dangote’s fund is at zero per cent while that of BOI is at 10 per cent. So the average between zero per cent and 10 per cent is five per cent. By similar computations and other considerations, the interest rate for other managed funds administered by BOI range between five per cent and per cent.

One of our findings was that in view of the inherent weaknesses of the SME sector, the rejection rate of loan applications that emanate from SMEs is in excess of 90 per cent. We receive poorly prepared applications that do not contain the information required to carry out proper appraisals. It was in order to address this problem that 122 Business Development Service Providers (BDSPs) were appointed through a competitive process in November 2014. They are to help potential beneficiaries package their loan applications and also hand-hold as well as mentor them after their loans have been approved to ensure proper utilisation and repayment. Each BDSP has been mandated to submit 10 successful loan applications to BOI annually. At this rate, we are looking forward to supporting at least 1,220 beneficiaries through our BDSPs annually which amounts to more than 25% of what was achieved in 13 years when we assisted 4,126 beneficiaries. It is envisaged that the operations of the 1,220 potential beneficiaries would lead to the creation of several thousands of direct and indirect jobs especially amongst the suppliers of their input and distributors of their products. Whilst we still receive loan applications directly from prospective customers, we urge soon-to-be beneficiaries to go through any of the 122 BDSPs whose contact details are available on our website: BOI has also published some accredited enterprise development centres (EDCs) on its website as we are now insisting that some would be beneficiaries should attend capacity building programmes of the EDCs before they can access BOI’s facilities.

Our expectations are that through this process those who eventually benefit from BOI’s facilities would be customers with high integrity. As a substantially government owned financial institution most loan applicants approach us with a mind set of coming for their share of the national cake. There is need for a change in attitude to credit offered by DFI. Hence we conduct thorough appraisal of loan requests in line with best practices. Universally, seven out of every ten well appraised loan requests stand very high chances of succeeding. While only three out of every ten unapprised credits might just succeed. We appraise to stop bad projects from being undertaken and also to prevent potentially good ventures from going bad. In the course of the exercise, risks are evaluated and mitigants provided. Also in the process, we take into consideration the “five canons of credit,” namely: capacity, character, condition, collateral and capital. Character of the prospective borrower is the most important of the five Cs. Because where an applicants is able to meet the four requirements and he or she is found wanting character wise the standard practice is to decline. So, the national cake mindset has to do with the borrower’s character.

The issue of small business operators’ access to working capital has been raging over the years.What’s BOI doing about this?

To increase the access of BOI assisted SMEs to working capital loans from commercial banks, we decided to enter into MOUs with 10 SME friendly commercial banks that have now agreed to lend at negotiated interest rate of 6 basis points above the monetary policy rate set by the Central Bank of Nigeria. The commercial banks are: First Bank, United Bank for Africa, Diamond Bank, ECOBANK, Standard Chartered Bank, Fidelity Bank, Stanbic-IBTC, FCMB, Access Bank and Skye Bank. BOI is to have access to the SME data bases of these commercial banks and also leverage their wider branch network across the country to enable BOI reach more SMEs. BOI’s Regional and State Offices are to collaborate with their counterparts from the 10 commercial banks across the country in project promotion and deal flow generation, in jointly appraising SME projects using their respective risk acceptance criteria as well as jointly implementing and monitoring approved projects. BOI’s appointed BDSPs and accredited Enterprise Development Centres are also to be actively involved with these processes in the field.

Besides, to enhance the access of MSMEs to low cost, labour intensive, efficient and effective local technology, BOI is partnering with research and innovation centres thereby having the products of their research and development endeavours commercialized and linking them with industry. They include the Federal Institute for Industrial Research Oshodi (FIIRO), Project Research Institute (PRODA) Enugu and the National Agency for Science and Engineering Infrastructure (NASENI). Also in this regard, we have on our website a list of accredited equipment and machinery suppliers to ensure that the Bank’s customers are supplied high quality equipment with adequate warranties, spares and after sales maintenance support. This arrangement will reduce down time associated with breakdowns and increase the durability of their plant and machinery beyond the tenor of their loans to ensure their repayment.

All these initiatives have been embarked upon by BOI to derisk the SME sector that is generally perceived to be highly risky by most lenders who say that SMEs account for significant percentages of their NPLs. We are pleased to report that the steps being taken BOI and its partners in the banking system are already increasing the access of SMEs to suitable finance.

How about the capacity of BOI in achieving its mandate to these MSMEs?

Internally, BOI is being transformed and re-engineered, with the support of KPMG International, to enable it proactively meet current and future challenges that are being posed and would continue to arise as we implement, especially, our new pro SME agenda. The bank’s seven regional offices have been reorganized and strengthened with the relocation of some of them to the region’s growth poles to enable them better impact the economic development of the regions and the appointment of very senior management staff on grades ranging from Senior Manger to Assistant General Manager as Regional Heads. For example the regional office for South-South has been moved to Port Harcourt from Asaba while that of South West has similarly been relocated to Ibadan from Akure. The five other Regional Offices are: North East coordinated from Bauchi, North Central based in Abuja, North West over seen from Kaduna, South East located in Enugu and Lagos Region.

Also, BOI’s state offices are being opened across the country to bring the bank’s services closer to its current as well as potential customers and deepen its impact on the critical mass of entrepreneurs at the grass roots and also to reduce turn around time. Hitherto BOI’s seven zonal offices were not able to efficiently and effectively meet the needs of entrepreneurs in the five to six states that the erstwhile zonal offices were mandated to serve. Under the first phase, we have so far established offices in the following 13 states and the Federal Capital Territory (FCT): Kano, Niger, Gombe, Kaduna, Bauchi, FCT, Anambra, Enugu, Rivers, Delta, Osun, Lagos, Oyo and Ondo. BOI manages MSME Funds for seventeen state governments and we are currently intensifying our discussions with the other nineteen state governments and the FCT with a view to having them join the matching fund scheme.

To address the infrastructure challenges facing MSMEs the Bank is impressing on its partner state governments the absolute necessity for them to establish industrial parks in each of the three senatorial districts in their respective states. The parks are to be provided with basic facilities like electricity, water, access roads and security. The industrial parks would reduce the start up costs and operating expenses of MSMEs thereby enhancing their viability and capacity to honour their obligations including debt service.

Our regional and state offices are developing cluster-based product programmes, targeting the comparative advantages of the natural agricultural and solid mineral resources in their respective areas as prescribed under NEDEP with a view to creating jobs and wealth. It was in this spirit that our first product programme, the N5 billion Cottage Agro Processing Fund (CAPFUND) was launched late last year. The fund was designed to support enterprises that process agricultural products into food or input for agro industries thereby increasing Nigeria’s agro processing capacity that would ultimately address the problems of post harvest losses. More funds targeted at some sectors of the economy and segments of Nigeria’s demographic composition are being finalised and would soon be launched.

With the rising profile of MSMEs, the current sources of funding, despite their respective depths, may be insufficient in the nearest future.Is the bank planning to diversify its funding sources’ base?

Yes, that has always been on our operational agenda. In diversifying BOI’s sources of finance, we are already mobilising more funds from the private sector and foreign development finance institutions to finance our robust MSMEs’ initiatives. We are on the verge of drawing down on a $100 million line of credit dedicated to financing mainly export based SMEs. In the course of the year we plan to co launch MSME dedicated funds in collaboration with our potential legacy development partners. The Dangote Foundation was BOI’s first legacy development partner. As earlier stated, the two development partners in 2010 jointly launched a N10 billion MSME Development Fund that attracts a highly subsidised interest rate of five per cent per annum. So, we are in the process of replicating this model in conjunction with public-spirited high networth individuals who are committed to supporting developmental schemes with high employment generation potentials.

How do you plan to further stimulate high quality deal flows that could also reduce turnaround period for small businesses’ finacing programme?
Towards stimulating high quality deal flows, we have stepped up our interaction with such customer and organized private sector groups as the Manufacturers Association of Nigeria (MAN), National Association of Small and Medium Enterprises (NASME) and National Association of Small Scale Industrialists (NASSI) at all levels across the country. Similarly we have intensified our communication campaign to market BOI’s products and services using the mass media and some select social media platforms. They include radio stations that have wider reach and web broadcasts.

Appreciating that all the bold initiatives that are being embarked upon have resulted in raising volume of business, the bank has upgraded its information technology system as well as commenced the automation of its operations and processes. It is now possible to apply for loans online. An SME application is also being developed. We are committed to reduction in turnaround time in all our operations. In this vein, we have committed to a two to four week turn around time for well prepared loan applications that contain all the information required for us to carry out thorough appraisal. Our internal processes –from end to end- have similarly been reduced in terms of the time it takes to disburse approved loans. The lender and borrower have roles to pay in this process. For aspects that fall under BOI’s purview we have put in place internal service level agreements under which some process have been reduced from 90 to 19 days. We are actually putting in place a Quality Management System that is consistent with the requirements of the ISO 9001:2008 Quality Management System. The Bank looks forward to being ISO certified shortly. This would be coming after our recent highly impressive A- rating by Agusto and Co.

You can see that from all indications. BOI is taking all necessary steps to rapidly step up its lending and advisory services to MSMEs across the country through its corporate transformation programme and increased collaboration with its domestic and foreign development partners with the ultimate objective of creating more jobs for Nigerians and deepening the Bank’s developmental impact on the whole nation.
We cannot conclude this interview without discussing “Waheed Olagunju” which is a household name in Nigeria and even beyond our shores. This is because of your antecedents as a television personality. How did you make the successful switch from broadcasting to banking ?
One must certainly give glory to God for many reasons. Ranging from family background and upbringing, to the quality of education received all in Nigeria up to masters degree level at the University of Lagos, on the job training and retraining received since graduation in 1981 as well as capacity building programmes attended within and outside Nigeria in addition to considerable international exposure opportunities offered by broadcasting and development banking.

In the two callings, I was able to successfully take on additional and higher responsibilities due to divine preparation for those challenges by preceding assignments.

For instance, the switch from broadcasting to banking. That journey actually started in 1985 with my reassignment from NTA Sports as Head of the Communications Desk in the course of which I met Mallam Ibrahim Aliyu who was then the Permanent Secretary, Ministry of Communications when Colonel Tank Ayuba was Communications Minister. I got along quite well with both of them because they felt I was very hard working and displayed insatiable quest for knowledge.

I was later appointed Head of the Economy Desk in 1989 at a time when Nigeria’s economy was being deregulated and liberalized. Because the transition from a controlled economy to an open one required a lot of public enlightenment, I had to educate myself extensively as well as interact and consult with relevant Ministers and high ranking officials in the public and private sectors including the international development community even beyond the shores of Nigeria. In that capacity i again worked with Mallam Ibrahim Aliyu who as Permanent Secretary, Economic Affairs in the Presidency was member of the Technical Committee on Privatisation and Commerialisation headed by the late Dr Hamza Zayyad with Dr Shamsuddeen Usman as Director General. I similarly worked very well with the trio as they felt I handled quite well the public communication campaign of Nigeria’s Privatisation and Commercialisation programme.

Mallam Ibrahim Aliyu was later appointed Managing Director of the Nigerian Industrial Development Bank (NIDB). Soon after which I met him in Washington during the 1989 Annual Meetings of the World Bank and the IMF that I went to cover for NTA News. That was when Mallam Aliyu offered me the NIDB job as he felt they could not successfully undertake the Bank’s developmental mandate without effective communication. Incidentally Chief Rasheed Gbadamosi who was a regular guest on my NTA Business News segment was NIDB’s Chairman at the time. Hence I joined BOI’s precursor institution, NIDB in August 1990.

Prior to joining NIDB, without knowing what the future had in stock for me, I undertook crash programmes in development banking between 1989 and 1990. As Head of Economy desk at NTA News, I conducted a lot research particularly in the area of development financing during which I undertook study tours of the International Finance Corporation while Sir William Ryrie was Chief Executive, the World Bank then headed by Barber Conable and the International Monetary Fund under the leadership of Michel Camdessus. I then crossed over to the African Development Bank in Abidjan when Babacar N’diaye was the President. The interviews i had with the four CEOs and their very senior management staff gave me considerable insights into the workings of the four international development finance institutions and how they assist member countries including Nigeria. I was also opportuned to cover the implementation of the Lome Convention that governed the economic corporation between the European Union and the African Caribbean Pacific countries. I also understudied the operations of the European Investment Bank that happens to be one of the instruments of corporation.

With all these exposure, when I joined NIDB in August 1990 I hit the ground running knowing how DFIs functioned at national, continental and global levels. These antecedents explain the apparent seamless switch from broadcasting to banking and the circumstances under which I embarked on my 25 year career at NIDB/BOI in the course of which successive Managements and Board of Directors assigned me higher responsibilities rising from Senior Manager in 1990 to Executive Director in 2012.

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