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Central banking beyond the normal

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The Central Bank of Nigeria, CBN, headquarters, Abuja

By Arize Nwobu

IN accordance with how central banks in developing countries should operate, the Central Bank of Nigeria, CBN, is making spirited efforts to promote economic growth through the evolution of various innovative policies spanning various sub-sectors of the economy.

The traditional roles of central banks include acting as bank of issue, banker, agent and advisor to government, custodian of cash reserves and custodian of foreign balances. Others are lender of last resort, clearing house, controller of credit and protection of depositor’s interest.

But central banks in developing countries have wider powers and are expected to operate beyond the normal range to promote economic growth. They are more proactive and frame their policies in such a way that larger quantities of bank credits go to priority areas for the promotion and maintenance of a rising level of production, employment and real income.

This is partly so because of the absence of vibrant capital markets in developing countries as a result of which the monetary transmission mechanism and capital allocation are sub-optimal. Factors for rapid economic growth and transformation are agriculture, industrialisation, infrastructure, technology and education.

Others are vibrant capital market with depth and breadth, venture capitalism to promote and nurture innovative business ideas, commodity exchange to support and boost agriculture and ensure price stability and development financing.

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CBN under its present Governor, Godwin Emefiele, has been aggressive in development financing. Some of the initiatives include the N250 billion stimulus package for gas under a National Gas Expansion Programme which aim at stimulating investment in the gas value chain to encourage its use as an alternative for transportation, the N200 billion social housing loan to support the Federal Government’s Economic Sustainability Programme which is to be implemented in collaboration with Family Homes Fund Limited, FHFL, as the lead developer and with a target to deploy 300,000 homes in 36 states of the federation and FCT.

Others include the Agri-Business/Small and Medium Enterprise Investment Scheme, AGSMEIS, which offers up to N10 million at a single-digit interest rate of nine per cent per annum and with the aim of supporting the Federal Government’s efforts in promoting agricultural businesses an SMEs, the Creative Industry Financing Initiative in collaboration with the Bankers’ Committee which aim at assisting young people in the creative to boost job creation and provide long-term low cost financing for entrepreneurs and investors in the Nigeria creative and information technology, IT, sub-sectors.

There are also the Health Care Research and Development Grant which aim to enhance the public health care system through financing of research and development in new and improved drugs, vaccines and diagnostics of infectious diseases, the Real Sector Support Facility, Anchor Borrowers Programme, ABP, and other stimulus packages.

The vision and mission of CBN is “to be one of the most efficient and effective of the world’s central banks in promoting and sustaining economic development and with transparent implementation of monetary and exchange rate policy and management of the financial system”. It is anticipated that the various initiatives of the bank will begin to create a maximum impact in the long run, ceteris paribus.

But as noted by Kimberly Amadeo, the actions of central banks are often poorly understood, and sometimes the general public and politicians are suspicious of central banks and subject them to scathing criticisms which could explain the recent scathing criticism of CBN by the Nigeria Economic Summit Group, NESG.

The NESG, a private sector-led Think Tank and policy advocacy group had “wrongly” criticised the repealed and reenacted Banks and Other Financial Institutions Act, BOFIA, 2020. But CBN noted that the criticism was borne out of “total ignorance or malicious intent” and proceeded to further enlighten the Group on the Act. And as a fallout, three bank directors alleged “improper corporate governance” against NESG and resigned their membership of NESG.

VANGUARD

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