Money may be cheap but that doesn’t make it free!

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The development banking strategy of Mr. Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN), has not been unprecedented in Nigeria, not without hitches and criticisms. Some say the CBN has been instrumental in a number of reforms, particularly in the agricultural sector, which has dominated CBN initiatives for the past seven years. For some, it is simply a misplacement of priorities and a distortion of the market economy, as these experts have accused the CBN of playing the role of lenders, rather than working with relevant stakeholders. to create an enabling environment for a sustainable flow of credit to priority sectors.

Perhaps the most popular CBN development initiative is the Anchor Borrowers program and the Rice Initiative, which earned the CBN governor one of the APC’s presidential nomination forms, according to reports online. . Reports claimed that the CBN had disbursed a total of 1.01 trillion naira to over 4.4 million smallholder farmers for 21 commodities. This is a huge amount, and indeed considerable, compared to the loan portfolio of any Nigerian bank, especially when put into the perspective of a program of just seven years. On average, the CBN gave 230,000 naira each to over 4.4 million farmers; this is more than half of the total number of farmers in Ghana and about 5% of the Nigerian labor force.

Indeed, the CBN is perhaps the largest lender in Nigeria, if we aggregate all the lending initiatives of the apex bank. However, in a test of the model, CBN’s recovery rate was very low, with some using different statistics to measure the default rate in the high double digits.

Unfortunately, one report put the default rate at 76% and many say that if CBN were to be a bank, it would have landed in the hands of AMCON. It’s so sad to see how borrowers, who got different intervention programs from CBN, took it with the mindset of a grant, even when the conditions are as clear as day and the night. They just wouldn’t refund and I heard a few say it was a piece of the national pie. As much as I am not a supporter of intervention funds and as much as I am surprised by the figures that are making the news for a certain number of beneficiaries, I fear that borrowers who have had a good opportunity to borrow at of zero or near-zero interest seek to kill the business with their greed. So how can banks be blamed when they are reluctant to lend to farmers and small businesses, fearing they lack the necessary character and collateral?

However, the Anchor Borrowers program garnered positive reviews last week with the report that beneficiaries of the program had started repaying the loans they had obtained. Since the start of the interventions, many Nigerians had spoken out against what they perceived as another form of free money being thrown at a few operators in the economy. Indeed, many Nigerians, including perhaps even some of the recipients, had viewed the “loans” as the recipients’ share of Nigeria’s proverbial “national cake.”

If you ask me to define the national cake, I would say it is the money that people receive from certain government agencies or departments that do not belong to them. The receivers know they didn’t work for that money. They know they don’t deserve that money. They know they are supposed to refund or return the money, but they don’t and in most cases no one asks them for money. This, for many, is the national cake. It is the impoverishment and perhaps the endemic culture that destroys the fundamentals of the financial services sector, especially the banks, where certain elements borrow money with no intention of repaying and they have become so powerful that they harass bankers and other lenders with their security details, including public officials, when asked to repay their debt.

This is why when the CBN under Emefiele began doling out these intervention funds, with “almost reckless abandon”, some concerned Nigerians became apprehensive. Many wondered why a central bank would embark on such a program whose end they saw ahead was that of the recipients’ pockets. These interventions, which covered key sectors of the economy, from agriculture to manufacturing; from power to mining, were based on the development bank concept, which Emefiele said was central to his tenure in June 2014, when he took office.

Development banking is based on the philosophy that relatively cheap capital is channeled into selected sectors of the economy. The cost of funds for this purpose must be lower than the average cost of funds in the market. As Emefiele noted in his speech, many countries employ this strategy today to stimulate the growth and development of their economies, even though they may not apply the term development bank.

Chief among them is Japan, which is known to have the highest savings rate in the world today. From the 1960s until about the mid-1990s, this rate never fell below 31% of gross domestic product, reaching as high as 35.5% between 1990 and 1994, or about double the 15.4 % of the United States in this period. period. These stories 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 that the Japanese government puts to good use, within the local economy.

This policy of preferential use of savings funds is partly responsible for Japan’s rapid technological and economic growth. It has fostered the emergence and growth of gigantic industrial groups whose products today dominate their markets on a global scale. “It (the pool of funds) gives Japanese industry a tremendous war chest and has enabled Japan to be the world’s largest creditor,” according to Longworth, who has served as business and foreign correspondent, editor and columnist. for the Chicago Tribune for years. .

This should be the goal or purpose of development banking in Nigeria. This should not be another guise of throwing money away by giving it to people who deep in their hearts believe the funds are non-refundable.

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