Govt should bear bulk of the risk – NASME
There’s need for regular impact assessment – LCCI
Interventions have been impactful – CBN
By Yinka Kolawole
Low interest income and lopsided credit risk burden may have hampered the disbursement of about N1.75 trillion special intervention funds of the Central Bank of Nigeria, CBN, and the Development Finance Institutions, DFIs.
Sources at the various financial institutions who are supposed to be the disbursement entities estimated the level of disbursement at about 10 per cent of the aggregate funds.
According to them the requirement that makes deposit money banks (DMBs) bear all the credit risks associated with disbursement of the funds has been the major drawback in the banks’ active participation.
But CBN has indicated that its Anchor Borrowers Program, ABP, intervention fund is recording huge disbursements.
Intervention funds are initiatives of the Federal Government aimed at providing subsidized loans, at low interests and long tenor to various sectors of the economy to fast-track private sector-led economic development.
CBN said it has undertaken about 36 such initiatives since 1962, about 25 currently ongoing, covering some major sectors of the economy, with focus on Agriculture, Manufacturing, Small and Medium Enterprises (SMEs) Infrastructure and Health.
The funds are mostly disbursed through commercial banks, but intended beneficiaries especially SMEs, have often complained of the difficulties encountered in accessing the loans.
Findings reveal that most banks are reluctant to play active role in the disbursement of the funds because of what they perceive as unattractive interest rate in addition to the risk burden which is completely on the banks.
Banks charge as high as 25 percent interest rate on commercial loans but they earn as low as one percent from the intervention funds.
Some of the current intervention funds include N220 billion Micro Small and Medium Enterprises Development Fund (MSMEDF); N300 billion Real Sector Support Financing (RSSF); N500 billion Non-Oil Export Simulation Scheme (NESF); N200 billion Intervention Fund for Manufacturing Refinancing and Restructuring Facilities of Banks’ Loans; N300 billion Power and Airline Intervention Fund (PAIF); N250 billion Gas Intervention Fund; Agribusiness Small and Medium Enterprise Investment Scheme (AGSMEIS) and; Anchor Borrowers’ Programme (ABP).
Mr Olusegun Alebiosu, Chief Risk Officer of First Bank of Nigeria Limited, explained the typical concern of the banks: “For our customers to access any of the funds, we have to issue our guarantee to CBN, they have to be our customers in order to access the fund.
“Unfortunately for banks, once we have given out our guarantees to CBN or Bank of Industry (BoI), on due date we must pay either the CBN or BoI. So how do we ensure that customers will pay us back in such a way that we can also repay? It’s important for us, because why should I fund you, give guarantee when CBN or BoI will not lose a dime when you default? What they have just done is to make the funds available, but the credit risks stay with the banks. If you default in paying it is the bank that will refund that money to CBN or BoI. So if I’m the one that will refund the money if you don’t pay, why should I back the person that cannot pay?
“It is not risk-sharing, not that CBN or BoI will pay 50 per cent and I pay 50 per cent, no. I am taking 100 per cent risk on you and what am I getting back, what is the return to shareholders? If I do guarantee to BoI, it’s one per cent. Annually, AMCON (Asset Management Corporation of Nigeria) will take 0.5 per cent of that one percent. So, what comes to me as a bank, with all the risks I take, is 0.5 per cent. If you now default, I will be expected to pay back 100 per cent of that money. Where is the business?
Speaking at a webinar recently organised by CRC Credit Bureau, Alebiosu said that banks are willing to disburse the intervention funds but Nigerian businesses should know that the trust environment must improve.
He added: “The banks will have to devise means to see for themselves that it’s only the best customers that should benefit from such intervention funds. There is no way banks can support if you have not presented yourself in such a way that your business will be viable. Once we do that I think intervention funds will succeed more and Nigeria will grow more.”
Small businesses react
Prince Degun Agboade, President, National Association of Small and Medium Enterprises (NASME) said for the interventions to achieve the intended goals the government should be ready to bear the bulk of associated credit risks.
“The banks are right. The loans should be structured in a way to allow government to bear the bulk of the risk. It appears that the initiatives were designed to fail from the beginning. We, as an association, are not satisfied with the disbursement because majority of our members have not benefited,” he stated.
Also, National President, Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, speaking at a recent event stated: “We have quite a series of government intervention loans fashioned towards the needs and in support of SMEs. It is, however, sad to say that accessing them has been almost impossible even after meeting with all the requirements, with its attendant cost and other resources.
“There was the N220 billion intervention fund announced by CBN for the sector in either 2015 or 2016, but none of our members who applied had been able to benefit from the fund.”
Director-General, Lagos Chamber of commerce and Industry, Dr Muda Yusuf, said there is a need for regular impact assessment studies to ensure that desired outcomes are achieved.
“It is not just enough to just disburse funds and reel out figures, it’s important to measure the outcome so that we know that we are actually achieving results,” he said.
Yusuf also emphasised the need to review the credit risk allocation between CBN and the commercial banks.
He stated: “The commercial banks cannot continue to carry the entire risks, especially if you are pushing them to go to areas which are perceived to be high risk areas. If you want to support businesses, diversify the economy, support the real sector and long term projects, the banks cannot continue to bear the entire credit risks of this lending. If you continue to have that then you will continue to cope with the reluctance of banks to disburse the money.”
Impact of interventions
However, Dr Chinedu Zephaniah of the Development Finance Department in CBN asserted that the various interventions by the apex bank in the nation’s economy have been greatly impactful.
Speaking at a webinar, he reeled out the impact of some of the interventions, noting however that the primary responsibility of granting loans lies with the banks, adding that CBN is only intervening because the banks were not doing this satisfactorily.
He stated: “In the wake of COVID-19, we set aside N100 billion targeted credit facility, and as at today, N73 billion has been disbursed to over 140,000 households and small businesses. We also have N100 billion facility for the healthcare industry, and about N50 billion has been disbursed to both pharmaceuticals and hospital homes. We have also N1 trillion for large agro and manufacturing businesses, and so far we have released about N300 billion to different spheres of manufacturing.
“Under the Anchor Borrowers Program (ABP), we have created well over 5 million jobs properly documented. In this 2020 wet season alone, we have financed more than 1.5 million farmers to cultivate various crops. In the energy sector, we’ve created over 250,000 jobs.
“We have disbursed over N1.56 trillion in terms of facilities and as we speak, N125.8 billion has been repaid under the APB and N1.25 trillion outstanding until the end of the farming season.”