Money can be cheap but that does not make it free!

The development banking strategy of Mr Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), has been like no other one in Nigeria, albeit not without snags and criticism. Some say the CBN has been instrumental to a number of reforms, especially in the agricultural sector, which has dominated the initiatives of the CBN […]

The development banking strategy of Mr Godwin Emefiele, governor of the Central Bank of Nigeria (CBN), has been like no other one in Nigeria, albeit not without snags and criticism. Some say the CBN has been instrumental to a number of reforms, especially in the agricultural sector, which has dominated the initiatives of the CBN over the past seven years. To some, it has been a sheer misplacement of priorities and distortion of market economics, as these pundits accused the CBN of taking the role of lenders, rather than working with relevant stakeholders to create a conducive environment for sustainable credit flow to the priority sectors.   

Perhaps the most popular of the CBN development initiative is the Anchor Borrowers Programme and the Rice Initiative, which earned the governor of the CBN one of the APC presidential nomination forms, as rumoured by some online news. Reports claimed the CBN has disbursed a total of N1.01 trillion to over 4.4 million smallholder farmers across 21 commodities. That’s a whopping amount, and indeed sizable, compared to any Nigerian bank’s loan book, especially when it is put in the perspective of being a scheme of barely seven years old. On average, the CBN has given N230,000 to each of the over 4.4million farmers; that’s more than half of the total number of farmers in Ghana and about five per cent of Nigeria’s labour force. 

Indeed, the CBN is possibly the biggest lender in Nigeria, if we put together all the credit initiatives of the apex bank. However, in a test of the model, the recovery rate of the CBN has been very low, with some using different statistics to measure default rate in the high double digits. 

Sadly, a report put the default rate at 76 per cent and many say if the CBN were to be a bank, it would have landed in the hands of AMCON. It’s so sad how borrowers, who got different intervention schemes from the CBN, took it with the mindset of a grant, even when the terms are as clear as day and night. They just didn’t want to pay back and I have heard a few say it’s a share of the national cake. As much as I am not an advocate of the intervention funds and I am surprised at the numbers making the news on a number of beneficiaries, I am worried that the borrowers who had a great opportunity to borrow at zero or near zero interest rates seek to kill the business with their greed. So, how do we blame the banks when they hesitate to give loans to farmers and small businesses on concern that they lack the character and collateral required? 

However, the Anchor Borrowers Programme garnered some positive appraisals last week with the report that beneficiaries of the scheme had started repaying the loans they got. Since the start of the interventions, many Nigerians had spoken against what they perceived as another form of free money that was being thrown at a few operators in the economy. Indeed, not a few Nigerians, including perhaps even some of the beneficiaries, had seen the “loans” as the receivers’ share of Nigeria’s proverbial “national cake”. 

If you ask me to define national cake, I would put it as the money that people receive from certain government agencies or departments that do not belong to them. The receivers know they did not work for this money. They know they don’t deserve this money. They know they are supposed to repay or return the money, but they do not do so, and in most cases, nobody asks them for the money. This, to many, is the national cake. This is the poor character and perhaps endemic culture that is destroying the fundamentals of the financial services sector, especially banks, where some elements borrow money without the intention to repay and they have become so powerful that they harass bankers and other lenders with their security details, including public officials, when they are asked to pay back their debt. 

That was why when the CBN under Emefiele began to dish out these intervention funds, with almost “reckless abandon”, some concerned Nigerians became apprehensive. Many wondered why a central bank would embark on such a programme the end which they had seen ahead as being the receivers’ pockets. These interventions, which have covered key sectors of the economy, from agriculture to manufacturing; from power to mining, were hinged on the concept of Development Banking, which Emefiele did declare as the fulcrum of his tenure in June 2014, when he assumed office. 

Development banking is hinged on the philosophy of relatively cheap capital being channelled to selected sectors of the economy. The cost of the funds for this purpose has to be lower than the average cost of funds in the market. As Emefiele noted in his speech, many nations are employing this strategy today to drive growth and development in their economies although they may not apply the term development banking.  

Chief among them is Japan, which is known to have the highest savings rate in the world today.  From the 1960s to about the mid-1990s, this rate never fell below 31 per cent of gross domestic product, reaching as high as 35.5 per cent in the period between1990 and 1994, about two times the 15.4 per cent for the United States within that period. These accounts are well documented by Richard C. Longworth, in his book, Global Squeeze: The Coming Crisis for First-World Nations.  This extremely high savings rate, according to Longworth, provides a massive pool of funds which the Japanese government puts to purposeful uses, within the local economy. 

This policy on preferential use of savings funds is in part responsible for Japan’s meteoric technological and economic rise. It has aided the emergence and growth of gigantic industrial groups whose products today dominate their markets globally.  “It (the pool of funds) gives Japanese industry a terrific war chest and has enabled Japan to be the leading creditor to the world,” according to Longworth, who served as foreign and economics correspondent, editor and columnist for the Chicago Tribune for years. 

This should be the aim or purpose of development banking in Nigeria. It must not be another guise of throwing money away by giving it to people who, deep down in their hearts, believe the funds are nonrefundable.