‘Why govt should review intervention funds’ model’
To aid the impact of intervention funds on the beneficiaries and the economy, the Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf has called for a review of the funds’ disbursement model.
According to him, the rate of disbursement has not been satisfactory, because the banks are expected to bear the credit risks of the intervention fund.
In a paper on financing the economy made available to The Guardian, Yusuf said: “A major source of fund for the real sector and other critical sectors of the economy is the intervention funds by the Central Bank of Nigeria (CBN). A good percentage of this is channelled through the Bank of Industry (BOI), and other development finance institutions (DFIs). There are intervention funds for manufacturing, aviation, MSME, fashion, textiles, women, agro-allied industries, and cottage industries etc. Many investors acknowledge the impact of the intervention funds on their business.
“However, because the banks are expected to bear the credit risks of the intervention fund, the rate of disbursement has not been satisfactory. Banks typically are averse to risks exposure of small businesses, and the real sector investors. This makes lending conditions very strict and inaccessible by many investors. This underscores the need to review the entire model of intervention funds so that these objectives can be better achieved”.
He also explained that access to credit by small and medium enterprises (SMEs) is very difficult, because of collateral requirements.
“Many SMEs depend on suppliers’ credit, cooperatives, finance companies, relatives, money lenders and microfinance banks to meet their financing needs. The challenges they face have made it difficult for them to optimise the potential in the sector”, he added.
To optimally finance the economy therefore, he noted that there was need to put in place a framework to expand the scope for the private sector players, the generality of the citizens and diaspora Nigerians to inject more capital into the economy.
“What needs to be done is to ensure the quality of our policies, the quality of our institutions, the review of our debt management policy, the reform of some key sectors such as the Oil and Gas and the reform of our Tax policies to ensure the inflow of more capital in the economy.
“There are a few development finance institutions that have been supporting the economy with funding. They include the Bank of Industry, NEXIM Bank, Infrastructure Bank, Development Bank of Nigeria, and Agricultural Development Bank. The impact of these institutions on the economy has not been as effective as contemplated. Many are not adequately capitalised; some have risk management and governance issues, which have eroded their capital because of huge loan losses. Others have very strict lending conditions, which make access to the facilities difficult.