Monday, 2nd October 2023

Concerns over displacement effect of a development bank bill

By Chris Nwosu
19 December 2016   |   4:01 am
Indeed, known directly by its numerous beneficiaries, and by reputation, the BoI comes across as a popular brand in Nigeria and overseas.

Many people who hear that the National Development Bank of Nigeria (NDBN) is to be set up to provide low-cost loans to SMEs scratch or shake their heads, wondering what has happened.

Although, some Development Finance Institutions are said to be in the red and are non-performing, some stakeholders go ahead to ask what is wrong with a performing DFI like the Bank of Industry (BoI), which is very popular among small and medium scale entrepreneurs. And they ask, “Why throw away the baby with the bath water?”

For some others, the timing is worrisome. They cite the example of the Speaker of the House of Representatives, Mr. Yakubu Dogara, who, in showing sensitivity to the state of economy, recently cautioned House Committees against encouraging the establishment of new agencies.

Also worrisome to some stakeholders is the fact that the Development Bank of Nigeria (DBN), midwived by the Finance Ministry, has already been registered with the Corporate Affairs Commission and it is set to take off soon. Although the NBDN, yet another development bank, is said to be fashioned to operate at the retail level, the clash of names, is indicative of some confusion.

The shock scenario played out openly at the National Assembly, where a public hearing on bill of the new bank was held. Titled: ‘A Bill for an Act to establish the National Development Bank of Nigeria, 2015’, and sponsored by Senator Ibrahim Gobir, the bill, which has passed second reading, seeks to repeal the BoI, the Nigerian Bank for Commerce and Industry Act and the National Economic Reconstruction Fund Act. The bill further seeks to bring the total assets and liabilities of the organisations under one body to be called the National Development Bank of Nigeria.

At the hearing, one key stakeholder after another from the private sector showed their loss to understand what was happening.

Ajayi Kadir, Acting Director General of the Manufacturers Association of Nigeria said although like SMEs. MAN is concerned about the high cost of funds, they are taken aback by the new bill.

“There is no service said to be offered by the proposed National Development Bank of Nigeria which is not currently being performed very well by the BoI,” he explained.

And there couldn’t have been any problem with the BoI brand. Olanihun Mayowa, Director, Trade and Promotions of the Lagos Chamber of Commerce and Industry, showed how the use of the BoI brand name alone had attracted entrepreneurs for their training and mentoring programme.

He said: “In 2013, we started a mentoring programme for entrepreneurs with 25 people. We needed more entrepreneurs and had to discuss with the BoI our plan to train 100 entrepreneurs in 2014.

“The bank didn’t have to contribute a kobo; all we did was the mention of their name and that year, we had 100 entrepreneurs to train; with the same strategy the following year, we had another 100 entrepreneurs; and in 2016 another 100 eager entrepreneurs.”

Mayowa’s example is a confirmation that the brand has taken years to build and the confidence level it carries cannot be ignored or dismissed with the wave of the hand.

Indeed, known directly by its numerous beneficiaries, and by reputation, the BoI comes across as a popular brand in Nigeria and overseas.

The bank, which is largely self-financing, and does not receive budgetary allocations from the Federal Government budget for its operation, has continuously obtained favourable credit ratings from world class credit rating agencies.

According to records, the bank got a reaffirmation of its AA+ National credit rating accompanied by a stable outlook from Fitch Ratings. This happened in spite of downgrading of some other financial institutions in Nigeria.
Moody’s recently assigned rating to BOI. The rating, which is an improvement over Ba3 that was assigned in 2015, is the second highest of three national scale ratings categories.

Also, Agusto similarly, in 2016, upgraded BOI’s domestic rating to AA- from A+ that was assigned in 2015.

Indeed the BoI pays dividends as well as taxes to the government on an annual basis.

The BOI, a limited liability company, is a product of the 2001 merger of the mandates of Nigerian Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry (NBCI) and National Economic Reconstruction Fund (NERFUND).

The bank has undergone a number of corporate transformation projects since inception, starting with the diagnostic study of the bank that was carried out in 2004 and 2005 by the Swedish Development Advisers. These consultants were appointed by the African Development Bank and were financed by the Swedish Government.

BOI has been operating profitably since 2004 following its successful restructuring exercise. In 2014 it developed a 5-year strategy, with a strategy revalidation exercise carried out in the third quarter of 2016 in view of the rapidly unfolding developments in the macro-economic environment.

According to the bank, in line with its vision to operate under global best practices, BOI has been benchmarking itself against top-notch DFIs in Africa, Asia, South America and Europe.

In the last 15 years, BOI has been a platform through which successive democratic Federal Governments, and event the Central Bank of Nigeria (CBN), have implemented their various economic and social developmental initiatives such as real sector support programmes, MSME and entrepreneurship development, as well as financial inclusion initiatives.

As good as all that looks, the BoI, however, derives its relevance from how its impact on the economy through its target beneficiaries. According to records:

Bank of Industry Group has approved over N1 trillion, in loans, since its inception about 15 years ago and has disbursed N838.9 Billion out of this amount to 21,816 enterprises.

Through the Bottom of the Pyramid Initiative and its Micro-finance Bank subsidiary, the bank has disbursed N2.08bn to 16,293 micro-enterprises. A further N3.09bn is awaiting disbursement to 10 partner micro-finance banks under the Bottom of the Pyramid Initiative.

An estimated 2,500,000 jobs have been created through the bank’s operations over this period.

In line with the Federal Government’s Economic Agenda to impact the Bottom of the Pyramid through its N500bn Social Intervention Programme (SIP), the Bank is to manage the disbursement of N140bn from the SIP earmarked for the Government Enterprise and Empowerment Scheme. The scheme is dedicated to provide low interest finance to the following segments: market women, traders, artisans, agricultural workers, small businesses and youth. 1.6 Million Nigerians are expected to be empowered through this initiative on an annual basis.

Bold steps have also been taken by BOI towards implementing the economic programmes of the Federal and many State Governments in collaboration with domestic and foreign development partners.

Conscious efforts have continued to be made towards evolving a favourable ecosystem for SMEs in Nigeria and further deepen the bank’s credit delivery process and have it revitalized for speed and efficiency. These include expansion of the bank’s branch network to 17 with the establishment of BOI offices in Katsina and Sokoto States; and by the end of this year, the number will increase to 20, with offices Abia, Benue and Ogun states.

It has deepened its collaboration with new and existing development partners with the launch of N2 billion and N1 billion Micro Small and Medium Enterprises Funds with Benue, Katsina, Sokoto and Abia State Governments respectively as well as participation at the Economic and Investment Summits in Kaduna and Katsina States.

Additionally, the first phase of the implementation of BOI’s partnership with United Nations Development Programme (UNDP) under which solar power solutions were deployed in six off-grid communities located in each of Nigeria’s six geo-political zones at the cost N240 million.

Solar power projects in Gombe, Kaduna, Edo and Anambra States have been comminssioned. The other two locations are Bisanti in Niger State and Idita Oni Bamboo in Osun State.

The successful implementation of this first phase has triggered the envisaged catalytic effect with the signing of a N360 million memorandum of understanding (MOU) with the government of Gombe State for the provision of nine solar power plants in nine local governments in the state.

The bank has signed a UNDP $2 million MoU with the UNDP for the second phase of the solar power partnership. The amount comprises BOI’s $1.4 million debt financing and $600,000 grant provided by UNDP.

Under the programme of sourcing more funds for development, the BOI has also signed an MOU for the establishment of the $100 million Nigerian Content Development Fund with the Nigerian Content Monitoring Development Board.

Still thinking out of the box, BoI has concluded partnership with the Nigeria Incentive – Based Risk-Sharing System for Agricultural Lending (NIRSAL) under which NIRSAL is to guarantee 75 per cent of BOI’s lending to enterprises operating along the agricultural value chain; and has also sealed a partnership pact with Ecobank Transnational Incorporated (ETI) for deepening BOI’s credit delivery services across Nigeria under ETI’s Africa-wide Financial Inclusion Initiative. All these initiatives have engendered considerable job creation opportunities.

In order to address the prevailing high level of unemployment in the country, BOI in March, 2016 launched the Youth Entrepreneurship Support (YES) Programme and accentuated the implementation of the Graduate Entrepreneurship Fund (GEF) for serving youth corps members with the disbursement of N428.7mn to 254 pioneer beneficiaries and the launch, in October 2016, of the second round of the GEF programme.

And with the enthusiasm generated by the YES Programme, a total of 71,778 entries were received in the first and second rounds of the online application between March and August 2016. The 10,000 youths who successfully concluded the eight-week online training session coordinated by the Enterprise Development Centre of the Pan Atlantic University are now undergoing the final classroom stage of the programme in 20 locations across the country after which they would be granted loans up to N5 million to implement their bankable business plans.

Position of stakeholders
These achievements must have obviously informed the unanimity of stakeholders at the public hearing that a winning team or strategy must not be changed for the love of novelty. Below are some stakeholders’ perspectives.

Comrade Issa Aremu, Vice President, Nigeria Labour Congress: “In principle, anything put together to drive development is worthwhile. However, the BoI is tested, and despite its limitations, it is performing well. It has been thinking outside the box to support industries, even in the critical issue of textile industry funding.

“Through its collaboration with its partners some 10,000 jobs have been saved, and several thousand new ones created.

“In conclusion, let’s strengthen institutions performing well, and remodel moribund ones. Let BoI stay, all we need to do is to strengthen it.

Comrade Olusoji Salako, Vice President. Trade Union Congress, said rather than scrapping the BoI for a new bank, we should be considering how to strengthen the former because of its many achievements.“We don’t have to change the winning team,” he added, and then asked: Is there anything wrong in allowing BOI to continue with the good job that it is doing while the NDBN is established to co- exist along with BOI? .He also asked the Senators how they would want to be remembered in history by scrapping a thriving BOI.

Dr Uche Olowu, 1st Vice President of The Chartered Institute of Bankers of Nigeria: “We have reviewed that act and our position is that like in a football game, you don’t change the winning team or strategy. BoI as a DFI is quite doing well at the retail level. BoI, in particular has been tested and found to be useful in, at least the retail space. The BoI’s rating by various international and domestic agencies is high and that will also help in the intellectual space.

Ike Ubiji, National Association of Small Medium Enterprises: “We must be concerned about the nitty-gritty of the operation of the new bank, which is the main issue, and not its novelty. BoI is doing well, and our appeal is that let high-performing DFIs like BoI remains to continue the good work it is doing for small business.”

On her part, Dr. Nike Akande, President Lagos Chamber of Commerce and Industry, LCCI, said: “LCCI has strong reservations on the proposition in the Bill seeking to establish the National Development Bank of Nigeria. Our position is anchored on the following premises:

“The Bank of Industry was a product of merger of the defunct Nigeria Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry (NBCI) and the Nigerian Economic Reconstruction Fund (NERFUND) in 2001. For all practical purposes, this merger has been effected, and the BoI has been delivering on its mandate to the satisfaction of key stakeholders, including the business community ever since.

“This bill seeks to do exactly the same thing. We submit that it will be a waste of legislative time and a distraction to all stakeholders for the process to continue. If the BoI Act has not been regularised, then that should be done urgently. The value of legislation lies in the spirit that drives it. The spirit of this bill is to consolidate a number of institutions into one entity for the purpose of delivering a development finance function more effectively. This has already been done as embodied in the current operations of the Bank of Industry.

“We submit that since its consolidation into BoI, the bank has been delivering significant value to the operators in the real sector, within the limits of the resources available to it. And unlike other Development Finance Institutions, the BoI does not have sustainability challenges. Indeed, it should be the model to replicate for other DFIs in the economy.”

The Dogara Option
Some stakeholders are even concerned about the timing. They ask whether a time when the citizenry is in much economic pain, putting pressure of an government that has almost done some two years of its tenure is right for a new bank that is going to require much time to solve its teething problems to stablise before winning back the confidence of so many dislocated entrepreneurs in a country where there is so much downtime in bureaucratic bottlenecks.

Speaker Dogara said in his remarks at the launch of a public hearing organised by the House Committee on Information and National Orientation, Ethics and values: “As a parliament, we must weigh very carefully the cost of setting up new Government Agencies especially during this period of economic recession. Sometimes instead of establishing new agencies we may just amend the laws setting up similar existing agencies by incorporating the mandate of the new agencies in the old one. This is because to set up a new bureaucracy with complement of Directors, offices, equipment may be unnecessary.”

BoI’s Position
In his presentation at the hearing, the Acting Managing Director, BoI, Mr. Waheed Olagunju who is endowed with considerable institutional memory and is unarguably of Nigeria’s leading authority on the evolution and performance of development finance institutions said “The BoI, as presently constituted, is fulfilling the mandate envisaged in the proposed legislation by supporting genuine entrepreneurs. Therefore, it should be left to continue its operations as it is. The merger envisaged in the proposed bill took place fifteen years with the merger of the mandates of NIDB, NBCI and NERFUND.

According to him, “the fifty-seven (57) year old institution that metamorphosed into BoI 15 years ago should be provided with more suitable capital to be able to further support the real sector instead of duplicating functions by creating new development finance institutions, bearing in mind the failure of similar DFIs in the past, such as the NBCI, NERFUND, People’s Bank, Community Banks, etc.”

He recalled that the Ahmed Joda Committee that was set up by President Obasanjo during his first term was mandated to rationalize the multitude of federal government agencies performing identical functions. The merger of NIDB, NBCI and NERFUND to form the Bank of Industry as well as the merger of the Nigerian Agricultural and Cooperative Bank with the Peoples Bank of Nigeria to form Bank of Agriculture were amongst the Committee’s major recommendations stated Mr. Olagunju.

He added that because the recommendations of the Joda Committee were not fully implemented the Jonathan Administration set up another Presidential Committee on the Rationalisation of Federal Government Parastatals, Commissions and Agencies headed by Mr. Steve Orosanye.

Mr. Olagunju concluded by advising that ”the National Assembly should support industrialisation by enacting legislation that will help create an enabling environment for business to thrive, such as an amendment to the Land Use Act, tax incentives for SMEs and establishment of industrial parks.

“This will substantially address the demand side challenges of finance for SMEs in Nigeria, as vagaries of the business environment have been making the sector unattractive to private and public lenders.”

The two-level option
This option was aptly captured at the Committee hearing by the CEO of the Nigeria Economic Summit Group, Loaye Jayiola. He said:

“I believe what we are trying to do is to raise much more funds for our people. In doing that we have to be careful! In March 2015, an event on a Development Bank of Nigeria took place in Abuja, and it was applauded because it was said the Bank was to raise big-ticket funds.

“The understanding was that the Development Bank was to operate at the wholesale level, while BoI, the Bank of Agriculture and the Federal Mortgage Bank operate at the retail level. So, if we are considering development banks in Nigeria, we need to recognise these two levels: wholesale banks to attract big-ticket funds for the retailers to disburse the funds to entrepreneurs.”

While strongly agreeing with Labour and the OPS that BOI should not be scrapped, the NESG CEO was emphatic that we don’t have to throw away the baby with the bath water.

Then he warns: We don’t have to use legislation to stop the flow of funds to entrepreneurs; we don’t have to kill ourselves. Rather, let’s build a bigger cake.”

Nwosu is a writer and public affairs analyst based in Abuja