In line with its mandate to spur inclusive growth through real sector financing, the Bank of Industry (BoI) has so far issued loans totalling N692 billion, even as it has resolved to explore new funding alternatives to aid the realisation of its key mandates, BusinessDay has gathered.
“We take cognisance of the fact that there is a lot of demand on government’s resources. We are confident that our key stakeholders (Ministry of Finance incorporated and the Central Bank of Nigeria) will continue to support us with some equity injection,” said Rasheed Olaoluwa, managing director/chief executive officer, BoI, last Friday in Lagos.
Olaoluwa added that the bank would explore domestic and international bond issuance and other sustainable annuity sources that may become statutorily imperative in the medium to long term.
The BoI is a development bank established to ensure that the finance gap in the real sector, notably agriculture, manufacturing and small and medium-scale enterprises (SMEs), is bridged.
Unlike commercial banks which disburse loans at double-digit rates, BoI ensures real sector access to funding at single-digit interest rates.
In order to ensure financial inclusion among businesses, especially SMEs that often find it hard to have access to loans, due to poor business modelling, the BoI has initiated the Business Support Fund. This initiative tends to eliminate poor rejection of loan applications due to substandard presentations by ensuring that the bank’s resource persons are close to SME operators in all the states, in order to help them write better presentations. Moreover, the bank has created an e-mail address (ideas@boinigeria.com), asking Nigerians with creative business ideas to submit same for the improvement of the institution.
There has been a resounding call to finance the real sector in order to create jobs for about 41 million jobless Nigerians. Most Nigerian commercial banks lend to the real sector at between 20 and 30 percent. Lending rate for South Africa, Africa’s second-largest economy, as at March 2014 was 9 percent. The government also provides grants for key manufacturers, while the Department of Trade and Investment, Khula Enterprise Finance, and South African Micro Finance Apex Fund provide financing for manufacturing.
In Austria, the lending rate was 0.5 percent as at May 2013. Some banks provide loans for manufacturers for up to 20 years and allow up to six months free from repayment.
World Bank data also shows that lending rate in Iran, another GDP laggard when compared to Nigeria, was 12 percent as at 2012.
Incidentally, the contribution of Nigeria’s manufacturing sector to the GDP is 6.81 percent, while Austria’s manufacturing sector contributes 19 percent to the GDP. Thailand’s is 34 percent. For South Africa, it is 12 percent, while Iran’s manufacturing has 13 percent stake in the GDP. Moreover, the Chinese economy, like both developing and developed economies, was spurred by SMEs, including agriculture. But stakeholders see Nigeria as a different ball game.
“Banks’ tolerance of the manufacturing sector continues to decline, perhaps because of the perception of the sector as very risky. Many entrepreneurs cannot meet the banks’ credit requirements, especially for collateral. Cost of fund is still generally between 20 and 30 percent. Not many businesses can generate a return to match this cost,” said Remi Bello, president, Lagos Chamber of Commerce and Industry.
Mohammed Badaru Abubakar, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), said it would be difficult to achieve the desired economic growth and motivate indigenous entrepreneurs to create businesses with the current interest charges by banks, insisting that indigenous businessmen/women cannot compete with their foreign counterparts who obtain funds from their countries at single digit and invest in the Nigerian economy.
ODINAKA ANUDU
