Re: Recapitalising the Bank of Industry
In recent times there has been cheering news about the Bank of Industry and its profitable operations. As eagerly anticipated, the government has finally given the nod for the recapitalisation of the bank to the tune of N750bn. Currently, the Development Finance Institution (DFI) manages various intervention funds for the Central Bank and one of its more successful programmes is the states counterpart SME financing scheme in conjunction with about 20 forward-looking states.
Information made publicly available by the bank indicates that in Ondo State, for instance, over N600m has been disbursed to successful beneficiaries. The writer can also confidently attest to the success of the scheme in Ogun State, as the sole consultant contracted by the state to pilot the scheme. To date, the bank has disbursed over N400m in Ogun State to about 40 co-operative societies thereby creating/sustaining over 3,000 jobs.
There is no gainsaying that the under-capitalisation of the BOI has limited the vast potentials of the bank in achieving its mandate and hindered its developmental impacts. This notwithstanding, the performance of the bank under the firm leadership of Evelyn Oputu, its managing director, is nothing short of commendable.
However, while the modalities and the timeframe for release of funds are still being worked out by the Ministry of Finance and the CBN, the writer wishes to suggest to the bank management, government and various other stakeholders to consider a change in its operating model, especially as it concerns financing of co-operatives and micro enterprises. In line with this, I propose that for greater development impact, inclusive job creation, desired industrialisation and economic growth, the BOI should consider spinning off the unit that handles the states counterpart SME financing scheme into a fully-fledged subsidiary.
Taking a cue from the Small Enterprise Finance Agency (SEFA) model, which was established as a result of the merger of the small business activities of the Industrial Development Corporation (IDC) of South Africa, Khula Enterprise Finance and the South African Micro Apex Fund, this newly formed DFI subsidiary of the BOI will handle all financing for co-operatives, survivalists, micro small and medium enterprises nationwide. The financing model will range from a minimum of N10m to a maximum of N100m (which is the current financing range for the states financing scheme) and, more importantly, ensure that the ethos and firm credit principles of the parent bank are sustained. My reasons for advocating the setting up of this subsidiary include the following:
1. There are currently 20 states involved in the states SME financing scheme, which means there is already an existing portfolio/funds available of at least N20bn. While most states contributed N500m as counterpart funding, states like Bayelsa contributed N2.5bn. Furthermore, forward-looking states like Ogun have indicated desire to make available another round of financing based on the success of the current scheme.
2. The new DFI will ensure regular and effective enterprise support and managerial skills training/mentoring for beneficiaries. For instance, the institution could develop a pre-loan support programme for prospective beneficiaries in partnership with SMEDAN. Numerous studies have shown that a dearth of managerial skills by small business owners to operate profitably for long periods was a bigger threat to the survival of the enterprise than a lack of funding. It will be recalled that under the Small and Medium Enterprises Equity Investment Scheme (SMEEIS), over N55bn was set aside, yet only N28bn was disbursed. Undoubtedly, lack of managerial skills and affordable business development services providers were some of the reasons for the failure of the scheme. Aside from financing of the right temperament, small business owners require motivational, entrepreneurial and business skills to survive and operate profitably on the long run.
While providing financial and business support services to small and medium enterprises is already one of the missions of the BOI, it is believed that with a defined division of labour, the fully-fledged subsidiary will be in a better position to offer these services to the survivalists and micro enterprises rather than the bank itself.
3. The subsidiary will also ensure that there is more dedicated and effective monitoring of beneficiaries. It is not unlikely that many of the BOI officers on the states financing scheme also work on other in-house projects, thereby dividing their time, attention and technical skills. There is no gainsaying that it’s more expensive and time-consuming to monitor a loan of N10m than N1bn. Cooperatives and small enterprises in most cases have no structures unlike the well-established SMEs.
4. A dedicated DFI for providing finance with a minimum and maximum range of N10m to N100m, respectively, will definitely be more nimble and ensure swift turnaround times. Loan approvals will go through the institution’s credit processes and not have to wait for the credit committee of the BOI to sit. Small business owners are very particular about timing because of their inability to retain price quotes, especially from suppliers and manufacturers, for too long.
5. The operations of the DFI are in line with the objectives of the BOI and will enable the bank have an even greater development impact with the multiplier effects of poverty alleviation and job creation through a sustained grassroots financing. This will invariably enhance the social and economic conditions of Nigerians on the long run.
6. The ambitious NEDEP programme of the Ministry of Trade and Industry will also be better implemented through the newly established DFI. The subsidiary will be better tuned to work closely with SMEDAN and the ITF to ensure the success of the programme and creation of jobs.
Akande is Partner, Carson Capital Limited.
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