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500 bn real sector intervention fund: Another white elephant initiative?

By Babajide Komolafe
There are  concerns that the N500 billion real sector intervention fund announced last week the by the Monetary Policy Committee of the Central Bank of Nigeria (CBN) might become a white elephant initiative like similar ones in the past.

The Fund was one of the measures introduced last week by the Committee to unlock credit flow into the economy. In a communiqué issued at the end of its 213th meeting the Committee stated, “To continue with the quantitative easing policy by providing N500

billion facility for investment in debentures issued by the Bank of Industry (BOI) in accordance with Section 31 of the CBN Act 2007, for investment in emergency power projects dedicated to industrial clusters.

The funds are to be channelled through the Bank of Industry for on-lending to the DMBs at a maximum interest rate of 1.0 per cent for disbursement of loans with a tenor of 10 – 15 years at concessionary interest rate of not more than 7.0 per cent.”

Finance sector expert though commended the initiative, however said that it is vulnerable to bureaucratic bottleneck and hence end up like similar past initiative.

Commending the intervention fund, Managing Director/Chief Executive, Bluewall BDC, Mr Lucky Aiyedatiwa said that the, “Be it as it may, it is going to impact the economy even though it is meant for power project, there is a way it is going to triple down to other sector to generate economic activities.

And don’t forget the moment the power sector is fixed, in the long run, the small and medium scale enterprises which are the catalyst for economic growth will begin to find there feet. So if power sector and infrastructure are put in place, then doing business will be easier, the enabling environment will be there and even the security system will improve. So we will be able to operate certain gadget that will create certain security or protection.

The cost of doing business will reduce. If the various sectors are doing well, the banks will be able to lend more money out and that will begin to increase business activities.” He however expressed concern that the implementation is vulnerable to administrative bottlenecks, noting that the fact that a committee of various stakeholders still have to work out the modalities implies that the implementation might not be as soon as expected.

Also  Senior bank treasurer commended the initiative but expressed doubt over its ability to enhance credit flow to the real sector. He noted that the extension of the fund to include refinancing and restructuring existing portfolios
to manufacturers might help in reviving some real sector projects that became prostrate due to lack of refinancing, but said that the fact that the fund would be channelled through  BOI might undermine its effectiveness as the Bank might not have the ability to effectively disburse the fund. Even besides this, the internal bureaucracies of BOI and that of the banks might render the initiative ineffective.

Similarly a former top CBN staff dismiss the initiative saying that with the involvement of BOI which is a government institution, the intervention fund might be engulfed by political intrigues and vested interest.

These pessimism is however not misplaced. The nation’s economy is replete with plethora of similar laudable measures aimed at boosting credit supply to the real sector. Most recently is the N200 billion Commercial Agricultural Credit Scheme (CACS). The scheme was initiated by the Central Bank of Nigeria (CBN) in the first quarter of 2009 in an effort to enhance flow of credit to the agricultural sector. But as at the end of the year,  a single kobo was yet to be  disbursed through the scheme due to official bureaucracy and unresolved technicalities among the parties involved in the management of the scheme.

Also is the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) which after about six years of existence and snail speed implementation, was systematically replaced by the banks with a phantom N50 billion microcredit fund that never saw the light of the day.

A similar fate was suffered by  the Refinancing and Rediscounting Scheme (RRF), which the apex bank introduced in 2002 to encourage long term lending to the real sector.

The refinancing facility  is a special window for banks that are willing to advance loans for medium and long-term investments in agriculture, semi-manufacturing and manufacturing. Eligible projects under the Scheme are those with a tenor of 5 years and above.

The refinancing facility is concessionary and the rate is 2% points below the Minimum Rediscounting Rate (MRR). The window applies to facilities that must have been held for not less than one year and enables banks to access funds up to 60% of qualifying loans. According to the CBN, “An evaluation of the RRF program since its inception in year 2002 has revealed that out of the 89 banks operating in the country then, only four (4) banks sent in applications amounting to N818.59 million.

Two of the four applications were approved for refinancing. One out of the two approved applications was accompanied with a Promissory Note for N49.2 million for refinancing. The two other applications that were unsuccessful did not meet the conditions stipulated in the guidelines. As such, only one bank has so far been successful in accessing funds from the RRF window. This is an indication that the incentives provided by the RRF were not sufficiently attractive to the banks. As a result the scheme is being reviewed to boost its attraction.”


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