Nigeria: Boi and Capacity Trial for SMEs Growth

With the inauguration of his administration on May 29, 2015, President Muhammadu Buhari promised to breathe new life into the industrial sector, which has been declining for decades, as a result of the monolithic nature of the economy.

In 2015, the manufacturing sector witnessed a downturn in capacity utilisation, arising from uncertainties during the elections and policy inertia on the part of the new administration.

Currently, the share of value addition in the country is fairly low, as export of raw produce remains dominant, meaning the manufacturing sector has a lot of opportunities for growth and limited period to become competitive and be relevant in the global value chain.

For instance, while manufacturing continues to provide a pathway from subsistence agriculture to rising incomes and living standards in developing countries, it remains a vital source of innovation and competitiveness, making outsized contributions to research and development, exports, and productivity growth in developed countries.

Manufacturing is very critical to economic growth, prosperity and a higher standard of living. Part of the reason for that is its multiplier effect. More than any other sector in the economy, manufacturing creates the most wealth, pays higher wages and provides greater benefits, on average, than other industries and performs almost two-thirds of private sector research and development, as well as create the highest number of jobs to support the industry, while serving the surrounding communities. It also contributes more to a country's total exports.

While efforts are underway to revive the manufacturing sector, a new strategy, according to a study by Manufacturers Association of Nigeria (MAN), calls for putting people, schools, businesses and the government to work; producing literate career-ready citizens capable of joining the workforce; and enabling manufacturers to once again lead the designing, building and exporting of quality products and services around the globe.

To revive the industrial sector, depending wholly on the deposit money banks for funding may not be sufficient considering their capacity, interest rates and philosophy behind their operations.

With the new wave of financing innovations democratising access to capital, disrupting the financial intermediation landscape with new products, while reviewing processes to aid intervention and impact in the society, has become necessary.

To alleviate poverty and reduce the developmental gap that separated developing economies such as Nigeria from the developed countries, development finance institutions like the Bank of Industry (BoI) are established to intervene in accelerating the pace of growth of productivity and per capita, which is the GDP.

While acknowledging other constraints to industrial growth and entrepreneurial development, the Managing Director, Bank of Industry (BoI), Rasheed Olaoluwa noted that the imbalance caused by commercial banking institutions in the area of financial intermediation for industrial firms and small businesses can be addressed by the Direct Foreign Investment (DFI), even as he restated the bank's commitment to the growth of Small and Medium Enterprises (SMEs).

In his view, the problem of many SMEs is not access to cheap funds, as claimed by small businesses, but the inability of such entrepreneurs to develop and defend bankable projects, adding that social impact is often assessed before funds are made available for industrial projects.

"Nigerian businesses cannot be built on debt alone. It has long been part of the bank's vision to find ways to provide sorely needed equity capital and business advice to promising Nigerian businesses. We assess the social impact of a project by examining the amount of jobs that can be created through an industrial project, as well as the sustainability of such a project", Olaoluwa said.

To ensure that BoI's impact is felt in the economy, Olaoluwa explained that the bank developed a five-year Strategic Plan from 2015 to 2019 under advice from the international consulting firm of 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 per cent to about 4 per cent, 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.

He said the bank is directing attention to specific sectors of the economy in order to ensure that the desired impact of sustainable development is achieved in the real sector, as the sector received an intervention of over N60 billion in 2015 from the bank.

Olaoluwa noted that the bank had staked N4.7 billion on small enterprise within the period under review, adding that the bank's rating among top seven performing development finance institutions under the Association of African Development Finance Institutions' (AADFI), Prudential Standards, Guidelines and Rating System (PSGRS) reaffirms the bank's commitment towards industrialising the nation's real sector.

"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.

"Although we are confident that key shareholders in the NIRP initiative such as the Ministry of Finance Incorporated and the Central Bank of Nigeria (CBN), will continue to support the bank with some equity injection. But considering 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 and long-term loans at very low interest rates from multi-lateral/international development institutions", he added.

With operational efficiency serving as a key benchmark, Olaoluwa said the bank is automating a lot of its processes to give SMEs the opportunity to be served better.

Already in 2015, renowned international rating agency, Fitch, assigned BoI a national long-term rating of 'AA+(nga)' and national short-term rating of 'F1+(nga)', noting that the National Ratings reflect the bank's creditworthiness relative to the best credits in Nigeria.

To further improve access to its facilities, 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, as well as engender wealth creation and accelerated job creation for Nigerians.

He noted that BoI decided to leverage the bank's branch network to further reach its customers, as well as increase its intervention across spheres of small businesses. To do this effectively, its branches have increased from seven to 15 to cater to customers' needs.

Reinforcing the need for stakeholder engagement, the Organisation for Economic Co-operation and Development (OECD) noted that the best way to attract DFIs may be to continue in their catalytic role through better collaborations with private sector investors and stakeholders, to share financial risk, while maintaining their strong commitment to promoting best practice in their invested funds and projects.

"DFIs should not lose sight of their responsibility to expand access to financing through consistently searching out under-invested sectors, while working to maximise the social outcomes of their projects. It is difficult and sometimes contradictory mission, but one which has proved remarkably successful", the OECD added.

Source:TheGuardain