Examining BoI’s innovative financing for sustainable industrial growth
One of the challenges faced by micro-, small-, medium- enterprises (MSMEs) is poor access to finance. Poor finance access has become more pronounced in the industrial sector, where the average lending rate is 23 percent.
To discontinue this worrying trend, the Bank of Industry (BoI) has, within the last 15 months, pumped huge funds into Nigeria’s industrial sector to push the country’s diversification quest and create millions of jobs.
The financing model adopted by the bank is beginning to have a multiplier effect on the economy, alleviating poverty and gradually reducing the developmental gap between Africa’s largest economy and other industrialised nations.
The impact of BoI’s funding model is jump in the manufacturing contribution to the gross domestic product from less than four percent to almost 10 percent in fewer than 24 months.
To implement its development intervention strategy, the bank, within the last one year, re-jigged its board to reflect its agenda. New products were introduced while operational efficiency became a measure of appraising the bank’s performance.
With the wave of financing innovations and democratising access to capital, the bank is disrupting the financial intermediation landscape with new products while also reviewing processes to aid intervention.
Rasheed Olaoluwa, managing director, BoI, on assumption of office on the 19th of May, 2014, leveraged his vast experience in the financial sector to address the imbalance caused by commercial banking institutions in the area of financial intermediation for industrial firms and small businesses by restating the bank’s commitment to the growth of SMEs.
According to Olaoluwa, the problem of many SMEs is not access to cheap funds as claimed by many present and intending small businesses but the inability of such entrepreneurs to develop and defend bankable projects.
Indeed, the financial sector in a typical economy is saddled with the primary responsibility of financial resource mobilisation and intermediation. It engages in the redirection of funds from surplus spending units to deficit spending units.
The impact of the delivery of these financial services in the form of working capital to producers is felt in the short run.
To ensure that BoI’s impact is felt in the economy, Olaoluwa explained that the bank developed a five-year Strategic Plan from 2015-2019 under advice of the international consulting firm, KPMG Professional Services, spanning the bank’s vision, mission, goals and objectives as well as core values.
Indeed, the strategic initiative has seen the bank move from the introduction of a N5 billion Cottage Agro Processing (CAP) Fund and N1 billion Fashion Fund, to the appointment of 122 business development service providers (BDSPs) to facilitate SMEs’ access to loans as well as the reduction of non-performing loans from 12.98 percent to 4.09 percent, while improving its operational efficiency with an upgrade of its system and introduction of mobile applications.
Olaoluwa stressed that these developments imply that Nigeria must join the rest of the world to become a digitalised economy, stating that the bank has repositioned its systems, processes and services to take advantage of the new digital and mobile world to offer its customers the benefits of speed, mobility and convenience that come with it.
According to him, one of the major weaknesses of SMEs is poor record keeping and weak financial management, which makes it difficult to evaluate their financial performance and invariably inhibits their ability to access loans from banks or attract investors.
He said to address this deficiency, Kinesis Consulting Limited in partnership with the bank, has developed an SME Accounting Application (SAAPP), maintaining that the application has been tested to ensure that it enables users to keep proper records of transactions as well as generate requisite financial statements.
“BoI is trying to achieve a balance in its functions as a development finance institution in terms of delivering social impact and maintaining a sustainable loan infrastructure,” he said.
“Although we are confident that key shareholders in the National Industrial Revolution Plan (NIRP) initiative like the Ministry of Finance Incorporated and the Central
Bank of Nigeria CBN, will continue to support the bank with some equity injection, but considering the fact that there is a lot of demand on government’s resources, we are exploring alternative modes of funding such as continuation of sector specific intervention funds by the CBN, Ministry of Agriculture, Solid Minerals and others; managed funds from various state governments and foundations; long-term loans at very low interest rates from multi-lateral/international development institutions”, he added.
Already, a renowned international rating agency, Fitch, has assigned BoI a national long-term rating of ‘AA+(nga)’ and national short-terrating of ‘F1+(nga)’, noting that the National Ratings reflect the bank’s creditworthiness relative to the best credits in Nigeria.
Olaoluwa explained that the synergy between BoI and 10 SME-Friendly Banks, which is unprecedented between a development finance Institution and commercial banks, will undoubtedly foster greater access to finance for SMEs, financial inclusion for Nigerians and also engender wealth creation and accelerated job creation for Nigerians.
He noted that BoI decided to leverage the banks’ branch network to further reach its customers as well as increase its intervention across spheres of small businesses.
For stakeholders, there is no single solution for financing SMEs, but in institutional diversity there will be greater support for innovative firms.
ODINAKA ANUDU