WHEN the immediate past Governor of the Central Bank of Nigeria ,CBN, came into office in 2009, people hoped that funding for agriculture, manufacturing and the real sector will be enhanced and thereby build on the foundations already made by his predecessor in office. But instead he had began by tearing down everything his predecessor built.
People expressed their concerns with his style, but within his first one year in office, he had re-orientated the banking sector, sowed fear for loan transactions within the sector and downplayed venture capital, and funding for the productive sectors from the banking system.
The hope for a re-energising the banking sector for the common man’s economy was dashed to pieces, as the man careered off on a frolic of his own, culminating in his expected sack by his employers early this year.
While we wait to see how the precipitate litigation from all that pans out, the real effect of the period of distraction from driving the economy is that we hear and read a lot about funding for projects, encouraging the development of the small businesses, growth of the manufacturing sector from people in government.
But when a man armed with his feasibility studies, business summary and reports walks into a bank to ask for funding for his project, the response that he receives can be discouraging. He discovers that all he had heard and read about obtaining with ease had no bearing to the reality in these banks. In short, civil servants are doing their jobs, consultants write and defend their reports to government, while nothing moves, in effect.
Our commercial banks are still very much tuned to short term lending for trading and such quick transactions to the neglect of the agriculture, manufacturing and small businesses. First you must produce a one year or six months turn over seven times the amount you are asking for. That is: If you are asking for two million naira for your new project, you must give, for a start, a turn over of over N14 -20 million within the last six months.
How does a new business investor come up with such a turn over ? Second, you will be required to produce collateral in the form of shares certificates, or landed property to support your application of the value of at least three times of the amount you want to borrow, say N6 million.
How does a young graduate from a humble family or new entrepreneur come up with such collateral? Third, they will slam you with an interest rate of between 25 percent and 35 percent per annum, which means that for certain long term businesses, like agriculture and manufacturing, you are already in default of repayment before you kick off !
The prevalent lending rates today only favour importers, traders, and oil bunkering investors, and the rest gamut of quick businesses that will never create the required employment and growth for the economy. The real and productive sectors are suffering, and the worst hit is the agricultural sector, which our commercial banks have categorized as “High Risk Sector”; in other words, a ‘no go’ area for them.
Except the CBN steers the banks away from the old path of focusing only on the service sector, while turning a blind eye to manufacturing and agriculture, we will get nowhere no matter the big grammar they speak about our economy.
Unless CBN devises policies and programmes to create accessible venture capital for manufacturing and agriculture, and provide a level playing field for start-up businesses, it will make little progress.
And until lending by banks to agriculture and manufacturing is on long term basis of not less than five to ten years exit tenures, with single digit interest rates, and generally soft security conditions, we will just continue with the rigmarole and produce reports that are majorly useless to the common man who wants to be productive and make a living through manufacturing or farming.
CBN may have to revisit the policies and programmes in the early 1970s where commercial banks were made to lend not less than 40 percent of their annual profits or turn over to agriculture and the manufacturing sectors, review those policies and attune them to current trends, to reduce the risks in lending to agriculture.
If we have to move into the path of growth as a nation, the CBN should think of a compulsory national lending portfolio of 40:30:30; ie 40 percent to agriculture, 30 percent to manufacturing, and 30 percent to the sundry sectors by commercial banks over a period of not less than ten years to start with.
Our commercial banks should return to helping businesses with good potentials to start up, and to nurture them to become public quoted businesses. They must stop the trend of chasing deposits which drive their workers into compromised morals in their bids to bring in the big deposits. Deposit chasing is tantamount to reaping where one has not sown. It is deceptive, harmful to national growth, and contrary to our spiritual and religious standards since we are mostly Christians and Muslims in this country.
One major assignment before our new CBN Governor is to drive a deliberate change in direction of our banking sector to generously favour lending to agriculture and manufacturing, as a matter of priority. He must refocus the mindset of the average bankers from that of risk aversion to risk containment in lending to the key productive sectors. For example, lending to any big farm project with proven technical management should sail smoothly without asking for their arms and legs.
The trend being observed in manufacturing under the new motor policy, where most of the vehicle manufacturers are rushing to cash-in on the generous import tax regimes by building their factories only on the pages of newspapers, will not help. Nigerians want to see the factories functioning, not plans and forecasts as they are all singing, while price of vehicles is hitting roof tops.
Clement Udegbe , a legal practitioner, wrote from Lagos.