March 10, (THEWILL)- Going by available data, over N5 trillion intervention projects birthed by the Central Bank of Nigeria (CBN), through its development finance department, are now in limbo. This followed the policy shift by the new leadership of the bank to “slow down” on the 47-year-old scheme introduced in 1977.
During his screening by the Senate last September, the new CBN Governor, Dr Olayemi Cardoso, said the apex bank under his watch would play down on its role in the development finance space. He later reiterated the decision to restrategise the development finance roles of the institution at the Bankers’ Committee meeting in Lagos in November.
The development was received with mixed feelings among the stakeholders and other members of the public. While some viewed the policy from the prism of a move towards “sanitizing the system”, others urged the CBN to tread ‘softly’ considering the strategic role of the bank’s development finance in driving the nation’s economic development.
Intervention philosophy
The CBN had explained that its intervention in the critical sectors of the economy aimed to enhance the transmission mechanism of monetary policy actions, as well as facilitate the development of financial markets through the creation of easy access to credit for investment and production.
It maintained that the idea was to indirectly influence cost of production for firms and affect prices positively by improving the flow of credit. The apex bank also said that due to the limited fiscal space as a result of the significant drop in government revenue, it had to intervene with development finance tools and some monetary policy innovations to aid recovery without jeopardising price stability.
Success stories
The bank effectively played this role not too long ago when it introduced some intervention programmes in the wake of the outbreak of the COVID-19 pandemic. This helped to mitigate the impact on businesses and households which helped to sustain the economy and quickened the exit from recession in 2021. .
Over the years, the CBN has, through its interventions, improved access to affordable and long-term finance to the real sector, de-risked these priority sectors by incentivising banks and other financial institutions to lend, and stimulated investments in the productive base of the economy.
Evidently, the interventions of the bank are targeted at priority sectors of the economy that have the potential to transform the productive base of the economy to facilitate growth, stimulate sustainable jobs, expand the non-oil export basket to enhance the foreign exchange earning capability of the economy, and facilitate financial inclusion.
The numbers
The emphasis of these interventions is to stimulate the flow of affordable credit to targeted priority sectors with high growth impact and employment elastic potential, such as agriculture, manufacturing, energy/infrastructure, healthcare, MSMEs and exports.
The intervention funds include the Agricultural Credit Guarantee Scheme (ACGS); Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and the Commercial Agriculture Credit Scheme (CACS).
Others are the N220 billion Micro, Small and Medium Enterprises (MSME) Fund; the Anchor Borrowers’ Programme, and the Small Medium Enterprise Credit Guarantee Scheme (SMECGS), among others.
In a bid to ensure that businesses across all sectors of the economy sustained their operations after the COVID-19 pandemic, CBN introduced several loan opportunities under its intervention arrangement in favour of agriculture.
These include the AGSMEIS Loan for SMEs And Agricultural Businesses Without Collateral; Anchor Borrowers Programme (ABP) Intervention For Agriculture; Accelerated Agricultural Development Scheme (AADS) Loan; MSMEDF Loan – Micro, Small and Medium Enterprises Development Fund.
The famed Anchor Borrowers’ Programme (ABP) was aimed to bring unusual reform to Nigeria’s agricultural sector. Under the scheme, the bank granted N756.51 billion to 3,734,938 small holder farmers cultivating 4.6 million hectares of land, of which N120.24 billion was extended for the 2021 Wet Season to 627,051 farmers for 847,484 hectares of land.
There have been severe criticisms against the implementation of the ABP which reportedly saw the farmers, the millers, the off-takers and others actively involved in the value chain advancement, leading to the creation of over 3.5 million jobs. Some stakeholders have urged the CBN to review the scheme and address all the identified obstacles to its effective implementation.
“If there are issues that negate the purpose of the scheme, let the government identify and address them, including finding a way to recover outstanding facilities even if it means restructuring the loans,” said Umar Abdulahi, an Abuja-based agribusiness operator.
The CBN also created the Agribusiness/Small and Medium Enterprise Investment Scheme (AGSMEIS), and the Targeted Credit Facility (TCF) through which the sum of N121.57 billion was disbursed to 32,617 beneficiaries; while N318.17 billion was released to 679,422 beneficiaries, comprising 572,189 households and 107,233 Small and Medium Enterprises (SMEs) respectively.
Backward integration
Some of the beneficiaries of the scheme are involved in the strategic backward integration scheme — a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing farms to grow produce for their factories. Though conceived in the 80’s, the policy gained momentum in the country following the crash in crude oil prices which started in the fourth quarter of 2014
The government put the scheme in place to save foreign exchange, create jobs, boost domestic productivity and grow the GDP. On a positive note, the initiative was well received in the real sector.
The consumer goods firms keyed into the scheme and have since taken giant strides in its implementation. This is to the benefit of the small and medium enterprises (SME), especially those engaged in the agriculture value chain and transport.
The CBN policy shift on its development finance activities will pave way for the Bank of Industry (BOI) and the Development Bank of Nigeria (DBN) to expand their support for the micro, small and medium enterprises (MSMEs) towards advancing the nation’s economic development as the apex bank has hinted.
Experts have observed that the CBN’s involvement in development financing is driven by the need to address market failures resulting from the apathy of banks to lend to critical sectors/segments of the economy due to perceived risks.
With the beneficiary businesses now appearing stranded, it is important for the CBN to mobilise the necessary tools towards refocusing its development finance goals through the development finance institutions. This is to salvage the crumbling informal sector under the current economic crisis as majority of them fall under the MSME category.
“The companies rely on a strong value chain that involves many micro, small and medium businesses especially in agriculture and agro-business activities. If they are not healthy, they will not feed the manufacturing companies and this will have a far-reaching impact on the economy”, said Julius Abbas, a processing business operator.
The CEO, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, applauds the role of the institutions in developing the MSMEs which constitute the engine of the economy. He urged them to do more at this time and suggested that the development banks be recapitalised, if it is necessary, to enable them to play a bigger role in providing financing and capacity building to the MSMEs.
The immediate past director-general, Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) now governor, Katsina State, Dr Dikko Umar Radda, urged the development finance institutions to increase their financial support for the MSMEs.
In a recent telephone chat with THEWILL, Dr Radda stressed that money is the life wire of every business and that DBN and BOI should raise their financial support to the MSMEs to navigate the challenging economic situation.
This suggests the need for the CBN to address the needs of the intervention projects frontally and lift them from their state of limbo.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
