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CBN and the resurrection of bankers’ equity fund


Central Bank of Nigeria’s (CBN) governor Godwin Emefiele

A couple of days ago I was pleasantly surprised by the announcement that the Central Bank of Nigeria (CBN), has released the modalities for the operation of the N26.87 billion Agri-Business Small and Medium Enterprises Investment Scheme (AGSMEIS) which was approved by the Bankers’ Committee at their meeting held in February this year ( 2017).

They agreed under the persuasion of the CBN to set aside 5 per cent of their Profit after Tax (PAT) annually to create an equity fund with which they will invest in Agri-Businesses and Small and Medium scale Enterprises (SMEs), including start-ups. So soon N26.87 billion has already been raised and an SPV named Bankers Fund Managers Ltd is up and running, geared to begin investing.
I was excited that the CBN is pushing on all sides to provide investible capital to complement the various intervention development loans it has been pushing to help heal a major disease afflicting Nigeria’s small businesses – poor access to funding.

However, my mind quickly ran back to a similar project and my spirit sank.

The Bankers’ Committee in their 246th meeting held on 21st December 1999, agreed to set up a Small and Medium Enterprises Equity Investment Scheme (SMEEIS). They agreed to contribute 10 per cent of their Profit before Tax (PAT) to set up a fund, which they would use partly as equity investment fund and partly as low priced loans to SMEs involved in several value-adding business, exempting trading and financial services. At this time, we hailed this unique move by banks, mediated by the CBN, but I cannot now say that SMEEIS achieved its lofty objectives.
I was CEO of a manufacturing firm and a leader in the Manufacturing Association of Nigeria (MAN) then and I fully remember what battles we fought with the banks in order for them to fully implement their own initiative and achieve their stated objectives.

One major issue arose, the banks could not fully differentiate between equity investment and loan. Understandably, banks have great competency in granting and managing loans but they lacked the entrepreneurial competency and staying power of investors or venture capitalists. That was why some of the banks who invested their SMEEIS funds in companies demanded guaranteed returns, sometimes in percentage terms.

Investors everywhere know that it is very difficult to guarantee returns in any market, not to talk of the Nigerian market where policies can change overnight or where some government officials out of selfish interest or political partisan interest can renege on any agreement as no contract is seen as sacrosanct by this breed of greedy vampires that parade Nigeria’s public service space.
Thus, many of the companies that received those SMEEIS funds were in constant conflict with the bankers’ representatives who were in their boards.

Sometimes, in an effort to force the achievement of guaranteed returns on bank equity invested, the bank representatives became overbearing, often subverting management.

Many banks eventually ended up converting their equities into loans with fixed interest rates (so as to achieve guaranteed return), and a few others ended in courts with some of the companies resulting in takeover or liquidation of some of them. In all, it was mixed success as it left some of the companies much bitter and not much better.
Looking at the setting up of a special purpose vehicle- Bankers Fund Managers Ltd (BFML) to manage the equity fund this time around, I get the impression that the CBN and the Bankers’ Committee are taking steps to avoid the errors of SMEEIS.

First, instead of allowing each Money Deposit Bank (MDB) to decide its modalities and run its show, they are pulling together and having a purpose built company to manage the fund with an independent board.

My only counsel to them is that they must employ the right people with appropriate  entrepreneurial orientation and experience and those with Venture- capital disposition to run the BFML. I also request that they strengthen the BFML board with seasoned entrepreneurs and also ensure that when they invest in SMEs or start-ups, they nominate board members who truly understand the dynamics of small businesses or start ups. I am making these pleas so that this wonderful idea of AGSMEIS does not end up like SMEEIS.
In the last several years, the CBN has been very active in playing an enviable developmental role in catalyzing the growth of the economy and seems to be intensifying this role in recent times. One cannot fail but appreciate the continuous effort of the CBN, sometimes in concert with the Federal Ministry of Finance to provide lump sums of money dedicated to several sectors of the economy at subsidised interest rates.

Because of the challenges of Nigeria’s commercial banks, they have proven unable, incapable or unwilling to provide funding for the SME sector especially the manufacturing and Agric sub sectors or long term funds for infrastructural development and very often in recent history, the CBN has intervened.
There was the N235 billion (originally N200 billion) CBN intervention fund for the manufacturing, refinancing and restructuring facilities of bank’s loans.

The objectives were to fast-track the development of the manufacturing sector of the economy by improving access to credit to manufacturers; to help improve the financial position of the DMBs and to increase the output, generate employment, drive the revenue base and increase foreign exchange earnings for the industrial sector.

There was the N300 billion CBN Power and Airline Intervention Fund (PAIF), which aimed to fast-track the development of the electric power projects, especially in the identified industrial clusters in the country and fast tracking the development of the aviation sector of the Nigerian economy. 

There was the N220 billion, Micro, Small and Medium Enterprises Development Fund (MSMEDF), launched in August 2013 to enhance the access of MSMEs to financial services and to increase their productivity and capability to create wealth with focus on the Agricultural value chain, services, cottage industries, artisans and trading and commercial services. 

There have been the N200 billion fund for indigenous Pharmaceutical manufacturing companies; N100 billion for Textile Industry Bail out; the N32 billion entertainment intervention fund; the N300 billion Hotel and Leisure sub sector funds.
Recently we now have the Commercial Agriculture Credit Guarantee Scheme (CACGS); Agricultural credit guarantee scheme fund (ACGSF); Nigerian Incentive-based Risk sharing system for Agricultural lending (NIRSAL); Small, Medium Enterprise (SME) Credit Guarantee Scheme (SMECGS); and the CBN Anchor Borrowers Program, all dedicated to unleashing the agricultural potentials of the Country.

With this list, it can be seen by all that the CBN is very determined to end the perennial complaint from entrepreneurs and businessmen in Nigeria- Lack of access and affordability of funding. But certain questions and issues arise.  
First is, how many of the targeted audience are aware of these beautiful interventions? How are CBN and its partners-BOI and DMBs marketing these opportunities? Many operators in the SME sector claim ignorance. Second is, how many operators have applied and how many have been successful.

Many SME operators claim that it is easier for a camel to pass through a needle’s eye than for them to benefit from these laudable programs and facilities. What is the overall impact of all these interventions? The CBN needs to provide regular update of who is getting what and what the impact is on the economy.

Third question is, how many of these programs are still running? Many operators in the SME sector do not know which program is active and which one has been discontinued. 
True the CBN has done well in establishing these schemes and funds but they have not done well enough in monitoring and reporting success. I recommend that the same way they have asked MDBs to publish their utilisation of the forex bought from CBN weekly in national dailies, they need to demand same for the utilisation or disbursement of funds from the several intervention funds.

We need to be assured that the stated objectives are being met and that the right people are accessing the facilities and benefitting from the concessions.

All of us know that in Nigeria, the corrupt elite have perfected ways to grab every benefit and subvert the intended benefactors and at the end frustrate every good effort by government. CBN must stand up against this possibility.
Mazi Ohuabunwa, OFR.

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