nigeria’s leading development finance institution, the Bank of Industry, is on the threshold of becoming a veritable game changer for micro, small and medium enterprises, MSME, across the country. The bank has secured a $750m (N250bn) facility from 16 financial institutions to fund the Micro, Small and Medium Enterprises sector of the economy. The loan is syndicated by the African Export-Import Bank, Afrexim, and will be disbursed at single digit interest rate.
The deal, financed by 16 lenders including the African Export-Import Bank, the ECOWAS Bank for Investment and Development and British Arab Commercial Bank Plc, would buoy the effort of the bank to effectively play its developmental role in the economy. It is in fact the result of a strategic corporate plan to enable the bank meet its obligations and aspirations. The big idea is to raise a N1 trillion loan facility, locally and abroad, to part-finance the industrial component of the federal government’s Economic Recovery and Growth Plan (ERGP).
Indeed, the chairman, BoI board, Mallam Aliyu Dikko, has described the package as a game changer for the bank, which has shown a deep commitment to financing small and medium enterprises across the country. Dikko and other members of the board were quite enthused by the deal sealed at the recent meeting of Afrexim Bank in Abuja, in the presence of President Muhammadu Buhari.
“This event is historical because this is the biggest relationship we have ever had with Afrexim Bank and it is a major milestone towards achieving our mission and vision. This day is one of the most successful days in the history of our bank. We have the capacity to impact on the MSMEs and this facility will go a long way in assisting us to achieve our objectives,” Dikko projected.
The gesture extended to BoI is the single largest syndicated facility to be received by a development finance institution in Nigeria. The bank’s Managing Director, Olukayode Pitan, is confident on the bank’s capacity to effectively utilize the fund for its purpose. Financial life blood awaits local enterprises for a period of between five and seven years as BoI seeks to bridge the funding gap for MSMEs, estimated by Pitan at N704bn.
“The idea is to support industries. This package will enable us loan additional N250bn to willing and able entrepreneurs in the industrial sector’, said Pitan, who also disclosed that the bank will target enterprises in the creative industry, manufacturing and gender-based businesses.
The big idea is to act as a catalyst in creating wealth for small and medium enterprises, create new jobs and thereby drive down unemployment rate in the country. “We are looking at small, medium and large enterprises. We are looking at enterprises or companies that have a focus in using local raw materials, companies that will generate employment and bring down their cost of borrowing.
“We are working with the Central Bank of Nigeria that the loan we will give to Nigerian businesses will attract single digit interest and be a longer term loan of between seven to eight years for the industrial sector,” the bank chief elaborated.
In pursuing this goal, BoI last year entered into partnership with some local financial institutions to make funds available to low capital entrepreneurs with a view to reduce poverty, create jobs and raise Nigeria’s Gross Domestic Product. Through its Bottom of the Pyramid (BOP) scheme, an on-lending package in partnership with Microfinance Banks (MFBs) and other acceptable financial services institutions, the bank recently disbursed N3.1 billion to 14 micro-finance banks for on-lending to MSMEs.
Indeed, the BOP model is in tandem with the operating models of some of the world’s best Development Finance Institutions (DFIs) that deliver their services indirectly through intermediary retail finance with extensive branch network. An example is BNDES, the only DFI in Brazil which is also reputed to be the most impactful DFI in the world in terms of customer base. As at 2015, it had no fewer than a million customers. It achieved this with a product called BNDES Card under which it lends to small traders through commercial banks.
Beneficiaries of the BoI gesture include LAPO Microfinance Bank which got N1 billion, while Fortis Microfinance Bank and Lotus Capital Limited got N500 million each. Earlier, N1.1 billion had been previously disbursed to 11 microfinance institutions under the BOP scheme while the bank did earmark N1.13 billion for disbursement to nine other microfinance banks already captured under the scheme. The objective is to engage the established services of these banks as vehicle for credit delivery to the under-served and under-banked micro-entrepreneurs.
According to BOI, the scheme is essentially aimed at poverty reduction through job and wealth creation focusing on the rural micro-enterprise operators with a view to extending financial inclusion to them.
Bank of Industry leverages on the spread and penetration of the participating MFBs in all parts of the country to stimulate economic activity among the small and micro level entrepreneurs. Credit facilities are continually offered to entrepreneurs based on the comparative advantages of the various states in the country.
Facilities are expected to be injected into business enterprises in agriculture, light manufacturing, food products, beverages, solid minerals, services and artisanal activities; others include tailoring, shoe-making and other value addition business interests. The soaring music and film industries are not left out.
The bank’s mandate is to provide financial assistance for the establishment of large, medium and small projects; expansion, diversification and modernization of existing enterprises; and rehabilitation of ailing industries. BoI’s activities include project identification and selection; resource mobilization and financing on long, short and equity terms. It also includes industrial policy formulation, business development, support and advocacy towards improving the effectiveness and efficiency of the local entrepreneurs through reduction in initial set-up costs, taxation, timing and cost of obtaining consent to mortgage as well as obtaining land for business.
In carrying out these mandates, the bank renders support to business that add value to local raw materials on the concept of value chain development, thereby generating employment for the youths and the unemployed; creating wealth and stimulating export.
Indeed, many of the 36 states in the country have signed up to boost micro, small and medium enterprises by providing matching funds to enable them benefit from the varieties of services available on the BoI template. Available records indicate that Katsina and Sokoto have committed N2 billion each. Abia, Anambra, Delta, Kaduna, Ogun, Oyo and Ondo states allocated N1 billion each.
Taraba has committed N630 million, followed by Niger with N600 million; Cross River, Edo, Gombe, Kano, Kogi, Kwara and Osun have also staked N500 million as matching fund, while Enugu and Ekiti have committed N283.6 million and N200 million respectively.
Analysts have hailed the deal with Afrexim as the culmination of the bank’s commitment to support the ERGP and boost enterprises that would hasten the realization of the global benchmark contained in the Sustainable Development Goals. This fits perfectly into the strategy to shore up the bank’s risk assets next year to N1.2 trillion in line with its revalidated strategic plan (2016-2019). The recapitalization drive by the bank is premised on achieving its developmental agenda and in ensuring that MSMEs account for at least 30 % of the bank’s projected risk assets of N1.2 trillion by 2019.
By this plan, no fewer than five million jobs would be created through businesses being financed under various schemes.
It is pertinent to state that effective collaboration between the Bank of Industry and various governments and institutions is imperative to mitigate the pangs of unemployment and poverty on the Nigerian people sooner than expected.
- Kareem is a public policy analyst.