This laudable drive took place in Lagos Thursday at the BusinessDay/Lagos Chamber of Commerce and Industry Business Environment Roundtable on the 2011 Economic Roadmap. Small enterprises and agriculture funding stood out in the discussion at the event, with the keynote address by Sanusi Lamido Sanusi, governor, Central Bank of Nigeria (CBN), (delivered by Kinsley Moghalu, CBN’s deputy governor, financial services stability), addressing the issue robustly.
It is on record that the CBN has shown robust interest in the development of the nation’s agric sector as well as in the Small and Medium Enterprises (SMEs). The Nigerian agric sector is dominated by smallholder farmers who qualify as SMEs and share the funding problems that this sector is confronted with.
There were several intervention programmes to assuage the complaints of SMEs in the past, yet the problem still exists. Government came in with Nigerian Agricultural and Rural Development Bank, Agriculture Credit Scheme, among many others. There were also a myriad of foreign funds that came in from the World Bank, IMF, IFC, etc.
There was of course the Small and Medium Enterprises and Equity Investment Scheme (SMEEIs), now moribund, which SMEs enjoyed, courtesy of the Bankers Committee, and very importantly, the monetary policy directive of 1992 of the apex bank which mandated banks to make available to the SMEs and the agric sector 20 percent of their total lending portfolio. This started well in 1992, with the banks achieving 20.8 percent lending for SMEs and the sector, but fell to 0.17 percent in 2008.
Building a synergy between the financial and real sector
In spite of this apparent setback, the CBN is not relenting as revealed at the Lagos event. The CBN’s concern for SMEs and agriculture is part of an overall drive to build a synergy between the financial sector and the real economy in Nigeria.
Sanusi advocated for building a synergy between the financial sector and the real sector of the economy as something that should be pursued. He said: “This is very relevant to us as one of the regulators because we know that when the domestic production capacity for manufactured goods and services is low, the resultant effect is price instability, except the supply gap is bridged by consumer imports which draw down the nations foreign reserves.”
The CBN governor argued that in building the synergy between the real sector and the real economy, the real sector operators must have access to low cost funds to boost their operations and execute new investments. For Sanusi, therefore, the CBN has been concerned at the slow down in bank lending to the private sector since 2010, along with the presence of high interest rate spreads.
He noted: “Private credit has contracted slightly in real terms since the CBN intervened in some banks in 2009, due partly to increased emphasis on credit quality by the banks, but also due to weaker demand for credit. The CBN has expanded its development finance functions to provide direct credit at below-market rates, and to guarantee loans to the preferred sectors and SMEs.”
N200bn commercial agric credit
Sanusi revealed that the CBN created the N200 billion Commercial Agriculture Credit Scheme (CASS) Fund in April 2009, and the funds are being channelled through the deposit money banks (DMBs) to farmers. The loan scheme carries an interest rate not exceeding 9 percent, with maturity of period not more than 7 years.
According to him, under the CASS, the sum of N101.38 billion has been released to finance 109 projects made up of privately-owned projects/promoters, while 19 state governments had received N1 billion each for disbursement to farmers’ cooperatives and unions within their constituencies, at February 2011. This complements other special initiatives of the CBN for agriculture such as the Agricultural Credit Guarantee Scheme and Interest drawback scheme.
N200bn SME loan
Participants were also told that the CBN had initiated a guarantee scheme of N200 billion for new loans to SMEs to be provided at bank’s prime lending rate, and only SMEs with no non-performing existing loan can access the facility. The CBN and the creditor institution split the risk on an 80/20 basis.
N500bn manufacturing/infrastructure fund
The apex bank boss also discussed the N500 billion manufacturing and infrastructure (power and airline) intervention fund in 2010. Out of the N500 billion, according to him, the sum of N300 billion is being applied to power and aviation credit financing, while the sum of N200 billion is being utilised for re-financing and restructuring facility(RRF) of the banks’ loans to manufacturing firms and SMEs. “The RRF is financed through a debenture instrument issued by the Bank of Industry (BOI) and subscribed to 100 percent by the CBN. This facility carries a 7 percent annual interest rate with 15 year maturity”, he said.
He explained that while DMBs are bearing the credit risk, they pay only 1 percent management fee to the BOI. Said he: “Performance under the fund showed that a total of 30 applications valued at N222.50 billion were received while a sum of N185.172 billion had been approved and released as at February 2011 to BOI for onward disbursement to the participating banks. A total of 516 projects, valued at N199.67 billion or 98 percent of the total fund had been utilised by banks through the BoI to finance and restructure their outstanding manufacturing exposures.”
Enterprise development centres; NIRSAL
The audience was also told of CBN’s involvement in the setting up of Enterprise Development Centres (EDCs) and the Nigerian Incentive-based risk Sharing System for Agricultural Lending (NIRSAL). The EDCs are spread across the country and they serve as capacity building centres. NIRSAL is set up to address key gaps in the agricultural sector, Sanusi said.
The CBN designed NIRSAL, which it is believed, will de-risk and consequently expand bank lending to the agricultural sector from the current two percent to at least 10 percent within the next five years. The scheme is expected to leverage N450 billion in bank lending to agriculture, thereby closing 60 percent of the agriculture financing gaps, as well as reducing banks’ perception of agriculture as ‘highly risky’.
NIRSAL is expected to break the age old the tradition in two ways: Firstly, by fixing the agricultural value chains so that banks can lend without much apprehension about performing projects across, commercially healthy agricultural value chains; secondly, the scheme is intended to encourage banks to lend into the agricultural value chains from their balance sheets and without recourse to government funds, by offering them unprecedented incentives and technical assistance.
As a financing mechanism, NIRSAL has the following five solution components - Risk sharing Facility (RSF), Insurance, Technical Assistance Facility (TAF), Bank Incentive Mechanism (BIM) and Agricultural Bank Rating System (ABRS).
NIRSAL was developed with the help of the Alliance of a Green Revolution in Africa (AGRA) in an effort to break the lingering history of stagnation and decline in the Nigerian agriculture setting. Past agricultural schemes have not yielded impressive results, particularly as lending to the sector still remained abysmally low despite various interventions, ranging from regulatory instruments with variants of credit quota and interest rate ceilings to different institutional support. Good as these schemes have been, we are yet to attain the desired level of funding that will take Nigerian agriculture to the crucial threshhold of self- sustaining take-off and growth.
Nigerian farmers have limited access to credit with lending to agriculture, representing a paltry two percent of aggregate lending, far below the six percent in Kenya and 18 percent in Brazil. For the lenders, it has been a nightmare. Farmers cannot be trusted to make money and repay loans.
It is hoped that NIRSAL would strategically correct past ills and particularly spark agricultural industrialisation process through increased production, and processing of the greater part of the commodities produced in the country to boost economic earnings across value chain.
The scheme was formerly launched on July 5, 2011.
All said, it is hoped that the CBN is carrying along, stakeholders in the agriculture sector. It would be recalled that recriminations followed the introduction of the N200 billion Agriculture Fund by the CBN months back. Stakeholders alleged they were not taken along and questioned the status of what CBN referred to as ‘commercial farmers’.
Aruma Oteh, director general of the Securities and Exchange Commission SEC disclosed at the event, that the regulatory agency and the Nigeria Stock Exchange (NSE) were set to embark on strategic plans to encourage SME to invest in the Capital market. Said she: “In the next 12 months, we plan to have SMEs listed on the NSE as SMEs are the drivers of the economy. We must nurture our business to grow the economy just like in most developed countries where SMEs constitute about 90 per cent of their economy.”
