By Babajide Komolafe
The Central Bank of Nigeria (CBN) last week issued a revised guidelines for the Power and Aviation Intervention Fund (PAIF) introducing sanctions to curb the excesses of banks in the administration of the Fund.
The Fund was part of the N500 billion funding initiative of the CBN unveiled in 2009 to boost lending to the real sector. The operating guideline mandates banks to lend at 7.0 per cent, and disburse the fund to the borrower not less than two days after receiving it from the Bank of Industry (BOI), which is the managing agent. However the CBN did not specify any sanction against contravention of these provisions, hence banks participating in the Fund circumvented the guideline.
Consequently, to guide against future infraction, Section 8.3.2 of the revised guideline states, “Diversion of funds by the participating banks (PBs) shall attract a penalty at the bank’s average lending rate at the time of infraction. In addition, such PBs shall be barred from further participation under the Fund; Non-rendition of returns or the rendition of false returns shall attract the penalty stipulated by BOFIA section 60; Any PB that fails to disburse the Fund within 14 days of receipt to the borrower shall be charged the maximum”.
Furthermore, with respect to interest rate, whereas the old guideline just stated the fund shall be administered at, “an “all-in” Interest rate/ charge of 7 percent per annum payable on quarterly basis”, the revised guidelines insisted that all interest rate and charges should not be more than 7.0 per cent.
It stated, “The Fund shall be administered at an “all-in” Interest rate/ charge of NOT more than 7percent per annum payable on quarterly basis. Specifically, The DMBs’ charge charge NOT exceed 7% per annum on the Fund facility out of which 1% would be remitted to BOI’s Account with CBN; The DMBs shall remit the amounts due to BOI out of the interest; No upfront fee/charge should be deducted in respect of any facility under the Fund”.
commercial interest rate on the amount of default”
Furthermore, the apex bank increased the security to be provided by participating banks to include. “Legal agreement between BOI and PB for BOI to have the rights to realize security pledged by project promoters; BOI to have lien on the project cash flows; And a deed of assignment of the assets of the project in favour of BOI.”
As at last December 31st 2011, the CBN had disbursed N144.6 billion of the Fund through banks for on-lending to 10 airline and 21 power projects
The objectives of the PAIF are to: Fast-track the development of electric power projects, especially in the identified industrial clusters in the country; Fast-track the development of the aviation sector of the Nigerian economy by improving the terms of credit to Airlines; Serve as a credit enhancement instrument to improve the financial position of the Deposit Money Banks (DMBs); Improve power supply, generate employment, and enhance the living standard of the citizens through consistent power supply; And to provide leverage for additional private sector investments in the power and aviation sectors”.
The Fund is managed by the BOI, as the managing agent, while the Africa Finance Corporation (AFC) acts as technical adviser.
As the managing agent, the BOI is required to: Issue debenture covering the Funds to be invested by CBN; Put in place appropriate institutional arrangements for disbursing, monitoring and recovering the amount obtained under the Fund; and render periodic returns on the performance of the Fund as may be specified by CBN.
The responsibilities of AFC are to provide technical support to the Programme, review projects to confirm eligibility and viability, and build capacity of stakeholders.
Participating banks on the other hand are to grant credit facilities to eligible companies at mandated inerest rate and present requests under the Fund based on normal business consideration exercising due diligence. They are also to Ensure timely disbursement of funds to approved projects; Render periodic returns under the Fund as may be specified by the CBN and BOI from time to time; Monitor the projects during the loan period; and comply with the guidelines of the Fund.
Borrowers under their part are expected to: Utilise the funds for the purpose for which it was granted; Insure the project being financed; Adhere strictly to the terms and conditions of the loan; Make the project and records available for inspection/verification by the CBN and BOI; And comply with the guidelines of the Fund.