By Providence Obuh

LAST week, Women in Successful Carrier (WISCAR) hosted
the Governor of the Central Bank of Nigeria (CBN) Mallam Lamido Sanusi as keynote speaker during their 5th anniversary celebration with the theme: ‘Unlocking the full potential of women in the Nigerian Economy.’Here were his responses to questions on Small Medium Enterprises and gender, filed by the discussants (Mrs. Adenike Ogunlesi, Founder, Ruff n Tumble; Mrs. Ayo Obe, Legal Practitioner and partner Ogunsola Shonibare and Chief Executive Officer, Stanbic IBTC Holdings Plc, Mrs. Sola David-Borha).

EXCERPT:

Most of the world businesses are SMEs. America was built on small businesses; they are the engine of real growth, but in Nigeria, interest rate is killing small businesses. How are you addressing this?

I agree with you. The interest rate can not be looked at in isolation. The argument has to be an economic argument; economic argument says, “What are the alternatives?” I always tell people that delivering low interest rate is the easiest thing for a central bank to do. If I print enough money today, interest rate will come down to three percent, but what will the rate of inflation be, what will the exchange rate be?

Recently, I have been criticized, but at the time I glanced on the 50 percent Cash Reserve Requirement, CRR, on public sector, the Indian rupee lost 20 percent of its value; South Africa rand lost 16 percent of its value, Ghanaian cedi lost 15 percent of its value; Indonesia rupiah lost 18 percent of its value, the Brazilian real lost 12 percent of its value, while the Nigeria Naira lost only 2.3 percent. Where would you have been if the Naira had become N190.00 to the dollar over night? You go to bank and get it at N158 and the banking system is if you buy from other marketer, which is a different matter; if you are a genuine business person, you don’t get it at less than N158 and that is inter bank rate.

The reason with 173 is because there was so much cash dollars being pumped to BBC’s to sell to people who where not doing legitimate transactions, if you are a politician and you want to pay N200 to the dollar, am not going to make the dollar cheap for you, but a genuine business that establishes an outfit, to import goods and services goes and buy at inter bank rate and it is 158, 59.

You have to keep a stable currency at the time when currencies are crashing because you have inflation today.

Before I became governor, the rate of inflation was 15.6 percent, today it is 7.8 percent. You borrow money, but there are a 100 million Nigerians more who do not know the way to a bank. For these people who have no social safety net, bringing down inflation, affects their lives, they don’t want to go the market on their small salary and find that next month they cannot feed their family.

I have to keep inflation down for these people, I have to keep a stable interest rate for you to pay the school fees of those children, you don’t want to pay school fees at N100, and next time is N200. I have to build up the reserve of this country, so that if there is an all price shock, the country can continue going and the debt can be paid.

The high interest rate is the price you pay for this. To talk about the price of interest, is an argument in finance and business is not an argument in economics. The low interest rate itself is not a problem, I can deliver it, you want low interest rate, I can give it to you, but where do you want inflation, 15 percent, exchange rate 180, 190, is simple.  The way interest rates are going to come down are two ways, first, the banking industry;  I have said before, the industry as a whole is a monopoly, if you want finance in this country, you don’t have a venture capital fund, you don’t  have a PE fund, the capital market is not giving it to you, you got $25 billion in pension money that is not going to infrastructure, everybody from the power plant, to the construction company, Mortgage, everybody is going to the bank.

Once you have a monopoly you have a monopoly price, you’ve got to create competition for the bank and the only way to create that competition is  to build a proper financial market where pension funds are players, insurance companies are players, where PE fund are players, venture capital funds are players, then people knows where to go.

Second problem, why you complain of interest rate, it is not the biggest of your problem. If you look at the cost structure of SMEs doing production, power, security, if you want to set up a textile firm today, you are your own power plant, your own security company, you may have to build your own road, by the time you borrow from the bank, you are not borrowing to buy machines or to buy inventory, you are borrowing to buy a power plant and that is enough trouble. If you have electricity, security, good road, well trained staff that will give you value for money, you will pay 26 percent and be profitable. Every time we focus on interest rate we forgot the point, the point is that we are not doing development, it is the role of the state to provide electricity, security.

The CBN has used its balance sheet in a way that is unprecedented to provide low interest funding to critical areas.

What are you doing besides throwing money at the problem? 

The reason we are partnering with the government is because we realise that you cannot just solve a problem by just throwing money at it. In fact, it is counter productive; the Memorandum of Understanding with states actually defines the framework within which money is being given. We at the CBN have six entrepreneurship development centre, we train. We’ve had this partnership with Entrepreneurship Development Centre, EDC, for years, and we’ve been producing thousand of people and they need not find it difficult to get job.

What we are doing is that, they come in for longer period, they come in as an economic value chain; before they come in, and before they leave we know exactly what they are going to do and these finance then provide them with the capital to take off.

Is an entire ecosystem where it is like agriculture, industry, money only set within an economic system, what we are doing is to create silos, where the CBN work with the bank and lend money and nothing happens, now working with the government, we say this is development, there is need for education, training, infrastructure and need for finance. We can only provide finance, but we want to make sure you’ve provided other things. Things like collateral, how do you lend money to a woman in the village and then expect her to pay back?

In Kano they set up community orientation council in every local government and in the village, you have the village head, IMAM, elders. You come and you borrow money in front of everyone, everybody knows you have borrowed, no collateral and you are to pay back in 18 months and if you don’t pay back, your brothers and your sisters  won’t get the loan if they come requesting for it. They will pay back and most interesting is the way we structure these microfinance banks, if we lend to people in the state and we get fully paid, the state is able to get twice that amount, at a lower rate of interest. If you think out of the box, you find out that for a woman in a traditional village the humiliation of being seen as responsible for other people not getting the money is more than the fear of losing land and is far more effective collateral and it works, that is basically what we are doing.

You put up policies where you make five banks that are under your supervision to encourage gender in Nigeria initiative, what are you doing to encourage the banks and the big financial institutions to adopt it properly; what are you doing to actualize  this  policy, is CBN going to change the rule or change the policy?

Banks and Other Financial Institutions Act, BOFIA, is very clear; the board of the bank can approve a policy around any bank it chooses. There is confusion in interpretation of bad loan, what BOFIA says is that you can not lend unsecured except you are relying with the created policy approved by the board. In any case, we are not asking the banks to lend unsecured. Land is not the only form of collateral and land is often not the best form of collateral, a lot of the time is just a lazy way of lending people who do not want to follow the cash flow and collect which is easier way you get paid and you can structure these things in such a manner.

Rural land is not a good collateral but we’ve designed methods of 15 value chains, unlocking ourselves into the cash flow chain, we make sure that the money disbursed to purchase seed, fertilizer, that the farmers are supervised when they plant, that the goods are moved to the end buyer and the buyer pays into the bank and we do that with a number of project that we have done, is just about being innovative and there are people that fought for this, institution that fought for this and women who can actually train themselves and design these product everyday.

Basically, the bankers committee has become almost a think tank where we debate things intellectually and buy into it. Every bank CEO bought into this, in fact the bank CEO’s where the one’s that knows these number, the number was initially 40 percent of board seat, what happen at the bankers committee meeting was Bola Adesola who was the Chairman of the committee having done a presentation, then had a large flight on what the future bank board will look like, I thought all female, and you thought of throwing us out, it was 40 and that was the main panic when they saw where the women were actually planning to go and really I’ve got to thank the banks, most of them have done so well, I see them go out to look for women to put on the board, I now see more female Executive Director, representing their MDs.

I see more female in business meetings. Finally, pressure does not come from the committee alone, the market are asking for it, the Nigerian bank that says, I promote gender, I promote sustainable finance, I am interested in the handicap’s, actually gets running point from developmental institutions, donors.