By Arize Nwobu
DEVELOPMENT financing has been defined as “the use of public sector resources to facilitate private sector investment in low-and middle-income countries where the commercial or political risks are too high to attract purely private capital, and where the investment is expected to have a positive impact”.
It aims at establishing proactive approaches that leverage public resources to solve the need of businesses, industry developers and investors with low interest rate which improves return on project.
Development finance has been noted as a strategic tool to fight poverty and reduce income inequality. According to Adeoye A. Bolaji (PhD), an economist, development financing emphasises the “project approach” which focuses on the viability of the financed project rather than the “collateral approach”.
Developing countries need Development Finance Institutions, DFIs, and vibrant stock exchanges to cater to the long-term development financing requirements. Economies of many Western nations developed on the back of DFIs, stock exchanges, bond markets and commodity exchanges.
In India, DFIs have played a significant role in accelerating industrial development. India has been methodical in driving economic development. After 1991 the country phased out DFIs and established new institutions, including the National Investment and Infrastructure Fund, NIIF, to focus on funding infrastructure.
Central banks in developing countries are expected to fill the funding gap by performing both traditional and non-traditional roles to accelerate economic growth and development. They are expected to perform developmental and promotional activities, especially because developing countries do not have vibrant capital and money markets.
This is the subject of a research paper entitled: “Central Banks as Agents of Economic Development” by Gerald Epstein, a Professor of Economics and Co-Director, Political Economy Research Institute, PERI, University of Massachusetts, Amherst, USA. He noted that the “neo-liberal approach to central banking is dramatically different from the historically dominant theory and practice of central banking, not only in the developing world but notably in the now developed world themselves”.
He further noted that central banks in developing countries have wider powers to promote economic growth by adopting the policy of “controlled expansion” of bank credit to undertake direct financing of development projects by lending liberally to those institutions which provide development finance. Central banks frame their monetary and credit policy in such a way that larger and desired quantities of bank credit go to priority sectors such as agriculture, small industries, export trade, cooperatives, etc.
The Central Bank of Nigeria, CBN, under its present governor, Godwin Emefiele, has been very active in development financing. Emefiele and his team shifted the focus of the Bank from just price, monetary and financial system stability to being a financial catalyst in specific sectors of the economy, particularly agriculture and manufacturing.
The CBN governor started by meeting with several stakeholders in the ailing production sector in a bid to turn around the decline experienced over the past decades in areas such as textiles, palm oil, rice and wheat production.
And since 2014, CBN had dedicated 60 per cent of the Commercial Agricultural Credit Scheme, CACS, funds to six focal commodities, namely: rice, wheat, cotton, sugar, dairy products and fish which have been utilising huge resources from the foreign reserves.
Agriculture is basic and food security is necessary for both national pride and to minimise social disruptions. It is also the starting chain for industrialisation and a source of foreign exchange.
The interventions are yielding positive results. They include the Anchor Borrower’s Programme, ABP; Commercial Agriculture Credit Scheme, CACS; Accelerated Agriculture Development Scheme, AADS; Private Sector-led Accelerated Agricultural Development Scheme, P-AADS; Maize Aggregation Scheme, MAS; Paddy Aggregation Scheme, PAS; and the Rice Distribution Facility, RDF.
They are helping to conserve scarce foreign reserves, improve local food production and reduce food import bill. In a recent report, CBN noted that the food import bill dropped from US$3.40 billion in 2014 to US$0.56 billion, representing a drop of over 80 per cent over a period.
Besides the intervention in the agricultural sector, CBN has also rolled out a massive and innovative plan under “the 100 for 100 PPP- Policy on Production and Productivity”- to offer special funding to 400 selected strategic manufacturing concerns in the country in the next one year.
According to Emefiele, the scheme would “advertise, screen, scrutinise and financially support 100 targeted private sector companies in 100 days, beginning from November 2021, and rolling over every 100 days with new set of 100 companies whose names will be published in national dailies for Nigerians to verify and confirm.”
He added that “after these 100 projects by companies in the first hundred days from November 1, we will take the next 100 companies for another 100 days beginning February 1, 2022 and then another 100 companies for another 100 days beginning from May 1, 2022.”
Nwobu, a chartered stockbroker and business journalist, wrote from Lagos via: [email protected]