Financial inclusion agenda is a continuous journey, not a destination -Sanusi


The Central Bank of Nigeria (CBN) has, in the last three years, been at the vanguard of revitalising Nigeria’s Small and Medium Enterprises (MSMEs) through a combination of monetary policy and financing initiatives. Last week, the apex bank took another bold step to lift the enterprises out of financial conundrum by launching the N220bn Micro, Small and Medium Enterprises Development Fund (MSMEDF) which is seen as a timely intervention in the sub-sector. At the forum, the Governor, Mallam Sanusi Lamido Sanusi, interacted with journalists and other stakeholders on the new funding initiative. TOLA AKINMUTIMI was there.

The launching of the N220bn MSMEs Fund today by your bank is seen by stakeholders as another worthy initiative that is expected to help in improving the performance of medium and small enterprises. What is your projection of this fund for micro finance banks, in terms of how would it impact on our economy within the next three to four years?

Well, if you look at the structure of the Nigerian banking industry, you will notice that there is a very big gap in terms of institutions that serve different segments of the economy and the deposit money banks after consolidation became very big banks, focusing on large multinational corporations and investing in government bonds, treasury bills and so on. The small scale enterprises basically did not have banks anymore that will bank them. The micro finance banks can fill potentially that gap along with the original banks but they have substantial constraints.

If you deal with the micro finance banks, you will probably find that the interest rates are too high, that the tenures are very short and the reason is that apart from the capital that the owners put in, the source of finance is very short term and the high interest on inter-bank borrowing. What this Fund hopes to achieve is to provide wholesale finance. Like in Kano, the government has set up 37 micro finance banks. These micro finance banks will be able to access long term, low interest money from this Fund and they are therefore able to lend long term at lower interest. As they lend to their customers and repay and build a track record of performance, they can then access larger and larger amounts at lower rate of interest and for longer tenor. This is the kind of model that works for Peoples’ Bank of China and it worked extremely effectively and this is exactly how we plan to manage this Fund. There is also an interest component rebate for women. So, women businesses who bought from micro finance banks and financial institutions are able to access this Fund for interest rate subsidy to make sure that they do not pay more than 9 per cent interest on their loans.

Given the past experiences on this type of support for MSMEs and considering the fact there have been several efforts to stimulate the MFBs, do you think this new initiative would succeed?

In 2005 or 2006, President Obasanjo had launched what is called the National Microfinance Policy that was the beginning of everything. The Central Bank was the implementing agency of the policy and this was the beginning of the guidelines for setting up of micro finance banks, the regulation of micro finance banks and so on. This fund is actually one of the elements in that policy. This is part of the continuous process of bailing out the finance sub-sector and also developing its achievements. Now, we have got the MFBs, like I said, what is left is to look for a sense of giving them technology and re-strategizing their software. We are looking at certain regulations. We have done competency requirements and we now do tests. If you are the managing director of a micro finance bank, you have to go through a programme, you have to pass the test, if you fail that test twice, you are removed. Through the various policy measures, we will now know that the people who are managing these institutions can be trusted with money. Now, we are bringing the money to put in their hands.

So, the financial inclusion agenda is a continuous journey, it is not a destination, we keep moving from one point to another and what is important is that every time, month, year we come with new initiatives, new products, new services, new channels to bring more people into the financial system. I met some work that has been done by my predecessors, I built on it and the next governor will build on it in say in the next 5 to10 years. This is how every country develops such that in 5 to 20 years, you will look back and you will be surprised at where we are compared to where we started.

Access to market is very crucial. Is it possible to interface with everybody that wants to be a stakeholder and get access to the market?

We worked with the Kano State Ministry of Agriculture on tomato and one of the major challenges we have on tomato production is that 40 per cent to 50 per cent of their output gets lost between the farm and the market because of the lack of access to the markets. The solution that we found was first of all, give them the right seeds and improve their yield. Kano State Government is working on the irrigation but we have also got a processor to come and set up a processing plant on location. When that plant is ready, what happens is you reduce the losses from 40 per cent to less than 10 per cent and you are able to get better prices.

Also, you have got output that is in multiples of what they used to have and the tomato is of a different quality and then you have the kind of tomato that can generate paste and I think what this says is that finance does not work as an island in isolation. If you want to provide finance, you have got to have the ecosystem around it, it is not just providing loans to farmers. If you lend a tomato farmer, you’ve got to address the question of does he produce enough per hectare? Is the tomato suitable for producing paste? Can it be delivered to market without perishing in good time and does he have a price support? Because when you produce off season, if you know tomato, immediately after harvest it is very cheap, because you have to sell because of pressure within but then in the dry season, it is very expensive. Another question to ponder on is, can you have a constant price throughout the year and then have farming and cropping twice a year? If you work with the government, if you work with the Ministry of Agriculture, banks, Central Bank, Ministry of Water Resources, you are able to address those problems.

And of course, the issue of rural roads and packaging and so on but this is one example of how it can work and it is working. Let me give you one result. Before now, bank lending is practically zero to tomato production. Today as I speak to you, we have written commitment from banks for N6 billion that will go to the farmers in Kano subject to certain issues being completed. So, if we get this out, we are looking for banks committed to this project. If we are able to get the processor, the price, the seeds, we will get N6 billion to tomato cooperatives and that basically transforms an entire community and entire labour, we are working together.

How low is the interest rate going to be and how will states have access?

Let me clarify this. The CBN will not be lending directly to say farmers or businesses. What this Fund does is it provides funding to the participating financial institutions. So, if you are a micro finance bank, for example, in Benin, you can come to this Fund, we assess you, give you money at low rate of interest, long term and you undertake that you will lend at low rate of interest. We will work out the dynamics but hopefully today you go to a commercial bank offering 21 per cent and today with MFBs theirs is probably 30 to 40 per cent. You are not going to get anywhere near those interest rates.

Obviously, these small businesses that are highly profitable and highly risky can go to financial banks that charge a little higher, but the greatest challenge is not even the interest rate but the tenor. If you give somebody money for two, three months, how much can he or she remit? You don’t transform economic activities whether it is agriculture or small scale industry if you are not able to provide longer term funding. The way we plan it is you start with a small amount, relatively low rate of interest and relatively longer term, when the MFB repays, and we assess its track record, it is then entitled to move to another level where they can get a larger amount, a lower rate of interest and a longer term. It is a merit-based, incentive based system where the micro finance institution will earn the right by performing to get even better credit terms from the fund.

In China, they have what they call the Bronze Card, Silver Card then the Gold Card and each card gives you an access to a larger amount, lower rate of interest, longer tenures. With the women, the interest rebate will make sure that they do not pay anything more than 10 per cent. So, it is single digit. I don’t want to make a pronouncement to you because I have people who are working on the technical team, and I don’t want to run ahead of myself, they will give you all the details.

If you look at the spread of micro finance banks, we noticed a few years ago that we had concentrations in Lagos and the South West and then say in the North. One of the major constraints was that the host state governments and local governments had not set up micro finance institutions. The reason why Kano has 37 MFBs today is because the government put in the money, because you need to get a private sector to put in the N10 million or N20 million for a licence and if you don’t get them, you simply don’t have an essential development.

Some state governments have to use their balance sheets to set up these institutions and bring development. So, these are the learning points we have taken and the steps we have taken to unlock the market and increase access and distribution. I have the permission of my staff to confirm that the target rate of interest is the maximum of 9 per cent to micro finance banks. I will like to say two things. We have, I think about a thousand MFBs which means there are weaknesses in terms of regulatory capacity because we cannot reach 1000 institutions and because they are not systemically important, our staff tend to be engaged with the large deposit money banks. One of the interesting things we have seen, especially with working with the Kano State Government in setting up micro finance institutions, is that the state government itself can serve a regulatory function. If we give money to MFBs under the state at a certain rate of interest on the condition that this will be on lend at no more than 8 per cent, the supervising ministry in the state will make sure that MFBs do not cheat the citizens, and if they are lending at a high rate, they should report to us. So, with that you will have many eyes on the institution because you now have interest because the state itself is interested in delivering these loans at these rates of interest to the citizens. We will not deny the micro finance banks the healthy margin. So, if we give them money and as they begin to improve by the time they are lending at 13 to 14 per cent, whatever their losses are, the numbers will work out. If we give them money at X rate and say that you cannot charge more than X per cent above that rate and the state or local government knows if there are complaints.

What are the other targets to this fund other than the 9 per cent target rate as regards to job creation and poverty alleviation?

Like I said, finance works with the ecosystem. A lot of what happens when you bring finance depends on what else is on the table. For example, if we bring finance to farmers in Kano, how much they can produce depends on whether the Kano State Government also provides irrigation, whether they get fertilisers, whether they get seeds. So, the idea that finance is the solution to economic solution is always a problem, I think one of the things we have learnt with NIRSAL and with a number of projects is that if we begin to remember that we need everybody on the table. For example, in the CBN we have had dozens of meetings where you have got commissioner for agriculture, minister of water resources, fertiliser, agric businesses and seed producers, processors, bankers, the CBN and said okay, what do you need to fix these problems? Everybody that has a stake in this “problem” is involved. And therefore we can now pronounce that if this works, in three years you are going to move the production of tomato in that area of Kagawa from 300,000 metric tonnes to 1 million metric tonnes and you are going to produce 100,000metric tonnes of paste. Now, 100,000 metric tonnes of paste are today one third of the total tomato paste imported into Nigeria is going to be processed from one location in the country.

So, you can imagine what you can achieve but then you have got to bring stakeholders in irrigation, seeds, fertilisers, processors and finance to the table. This is a key element but it is not the solution. The governors have to work with us, the Federal Government has to work with us, the tariff regime and all of those fiscal policies and incentives have to be in place. We’ve seen with our SMEs financing facility how communities have been able to leverage their operations.

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