Confounded by the failure of its previous initiatives to deploy cheaper credit to small businesses, the Central Bank of Nigeria is set to compound the problem. A plan unfolded by its Governor, Godwin Emefiele, to set up a “national” microfinance bank “to enhance financial inclusion and credit to the agricultural sector, as well as small and medium scale enterprises” is another desperate lunge towards statism and bureaucratisation. It has never worked. A more realistic approach is a multi-pronged policy of strong regulation, capacity building and improving the operating environment for private capital to thrive.
Emefiele’s plan could beguile the unwary. According to him, the CBN is collaborating with the Bankers’ Committee (a conclave of the CBN executives and CEOs of the deposit money banks) and the Nigerian Postal Service to float a national MFB. The trigger for this hoary scheme is the desire to deploy the N60 billion raised from the mandatory five per cent levied on the banks’ profits and set aside for lending to the SMEs, but which are sitting largely idle in the CBN vaults. Also dear to the bank is the desire to ensure that another N26 billion it set aside to finance small-holder agriculture and other small, informal ventures under the Agribusiness/Small and Medium Enterprises Investment Scheme is properly utilised. To help it along, the MFB will leverage NIPOST’s presence in the country’s 774 local government areas, providing its facilities as equity contribution. This, it believes, has the added advantage of easing access to the Anchor Borrowers’ fund, a concurrent low-interest credit scheme for the agriculture sector.
Planned for launch in January, Emefiele hopes the MFB would lift the rural communities, create jobs, enhance skills acquisition and grow the economy. Alluring as his presentation sounds; this plan has little chance of success. As the CBN chief admitted, previous efforts at such direct intervention have failed woefully in Nigeria.
The intentions may be lofty and the problems of funnelling low interest credit to agriculture and the SMEs are real and urgently in need of solution, yet, direct creation of another bureaucracy, given our reality and past experience, is foolhardy. The problem of fully deploying the CBN’s N220 billion intervention fund for micro, small and medium enterprises cannot be addressed by setting up a “national bank,” just as the failure of the Federal Mortgage Bank of Nigeria, National Housing Fund and primary mortgage institutions to erase the 17 million housing units deficit cannot be resolved by creating a “national PMI.” Its anchor on NIPOST rests on slippery ground: NIPOST is notoriously inefficient and prone to corruption like all other state ventures.
Our national landscape is a vast graveyard of similar institutions that never fulfilled their mandates, but became monuments to waste, corruption, rent-taking and impunity. Examples are NERFUND, NIDB, Nigerian Bank of Commerce and Industry, Peoples Bank and numerous federal and state-owned banks. Nor have intervention funds fared better. The Senate in 2016 determined that N120 billion of the Aviation Intervention Fund vanished into private pockets, while the textile fund has made little headway.
Yes; the SMEs and start-ups are pivotal to the economy, the main drivers of employment, industry, innovation and export diversification. From the emerging economies to the world’s most industrialised, the SMEs are crucial. Brazil’s six million small businesses account for 52 per cent of the country’s formal jobs, creating 47,700 jobs in January 2014 alone and contributing 20 per cent to GDP, says Brazil’s Institute of Geography and Statistics. They are so important that South Korea set up a ministry of SMEs and Start-ups that says the SMEs there account for 99 per cent of all enterprises, 88 per cent of total employment, 38 per cent of exports and 51 per cent of domestic value-added.
Success in deploying low-interest loans in other economies is, however, delivered by favourable macroeconomic operating environment, strong, impartial regulation and robust multi-prong policies. The CBN efforts have not been able to force down lending rates; the naira exchange rate is unfavourable for an import-dependent economy, while enforcement of regulations to keep lenders in line and ensure that intervention funds are scrupulously channelled to the right beneficiaries and repaid is weak. Both the government and the CBN lack the necessary will and commitment to systemic, strong and impartial regulation. Where prevailing exchange rates are between 25 and 40 per cent and enforcement is spotty, as in Nigeria, the temptation to trade with low interest state-provided funds is too strong to resist. A CBN deputy governor, Joseph Nnanna, acknowledges that the easy availability of Treasury bills at 18 per cent interest makes lending at single digit rates for the DMBs very difficult.
There must be a change to lift Nigeria out of the mire through SMEs. They face many other problems, but credit is often the most critical. The 37.1 million micro and SMEs in the country still contribute 47.8 per cent to GDP but only 7.2 per cent to overall exports, according to the Small and Medium Enterprises Development Agency. The federal and state governments should address the issue of multiple taxes and levies, poor access roads and insecurity that hit this sector the hardest. At the heart of the weakness of the SMEs is lack of electricity that makes our products uncompetitive. While India’s SMEs sector today has access to international markets as its major target, Nigeria’s is still grappling with access to electricity, said SMEDAN’s Director-General, Dikko Radda. The European Union Commission emphasises access to finance schemes for the SMEs that constitute 99 per cent of all business in the EU countries.
An MFB is by nature a small, lean outfit; a “national” MFB with 774 outlets is a mega bank, a contradiction that will likely translate to another patronage outlet, cost centre and a parasitic nest of bureaucrats. We urge Emefiele, therefore, to drop the national MFB idea immediately and concentrate on making the operating environment favourable for the MFBs, which should be wholly private sector operated. The CBN should undergo fundamental reforms to update skills, technology and corporate governance. It should guard its independence jealously, stop pandering to the government, enforce the rules and imbibe a culture of zero-tolerance for malfeasance and misuse of special funds. It should review its mop-up policy and disbursement of naira earnings to the three tiers of government and, as Nnanna recommended, government should reduce public borrowing.
