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The dangers of high interest rates in Nigeria - Stears Business

By: Bhodemarz on November 22, 2017 / comment : 0 , , ,

The news cycle is still dissecting Nigeria's latest economic data which shows that the economy is on a recovery path after the 2016 recession, and inflation continues to trend downwards. 
In older news, commercial banks in the country are still under fire for failing to lend to many individuals and businesses. 
What ties all these together? Monetary policy. 
In a nutshell, monetary policy describes the activities through which a central bank regulates the financial and economic system, usually by setting interest rates. In Nigeria, this function lies with the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN).

Nigeria’s Monetary Policy
Since July 2016, Nigeria's national interest rate – known as the base rate or monetary policy rate – has been held at 14%. In contrast, the interest rate in South Africa, Nigeria’s perennial economic rival, is currently 6.75%. Unsurprisingly, many groups bemoan the high-interest rate environment, arguing that it restricts bank lending, which, in turn, impedes economic growth. 
Notwithstanding the truth in that statement, high interest rates serve multiple purposes. Primarily, as is the case in Nigeria at present, they are used to tackleinflation.
The national interest rate determines how Nigerians typically spend and consume. On the consumption front, the lower the national interest rate, the more willing people are to borrow money. When people borrow more and pay less interest on their debts, there is more money available for spending and consumption, which influences national output. However, at higher rates, people are unwilling to borrow. When higher interest rates are coupled with asymmetric information, banks provide fewer loans. The tighter lending standards mean that consumers will cut back on spending and consumption, which affect national spending. This has been the situation in Nigeria over the last few years. 
The effects of such a policy decision could be dangerous if not well-managed. A consistent slump in national spending and investment results in a shrinking economy, and ultimately, economic stagnation or a recession. Many economists would point to Nigeria's high interest rate environment as a factor impeding the country's economic recovery. 

Where Commercial Banks Come In
The danger of too-high interest rates does not stop there. When the CBN fixes a high base rate, the rate at which commercial banks lend to and borrow from themselves, the interbank lending rate, also becomes high. This, in turn, pushes up the cost of an individual or business obtaining a loan from a commercial bank (or similar financial institution). Effectively, banks transfer the high cost of borrowing from the CBN unto their retail and institutional customers, making loans expensive and less accessible. 
Furthermore, when interest rates are high, investors and banks are often only willing to invest in government securities which pay high returns – a phenomenon known as crowding out. How come? Well, if I can buy a risk-free 180-day treasury bill that pays me a 20% interest rate, I see little incentive in lending to a risky individual or institution, and if I do, I would definitely charge an exorbitant rate. Similarly, if I could get such a risk-free 20% return in half a year, why should I invest in the stock market or your business? In short, high interest rates on government securities draw investment away from other areas of the economy. 
Interestingly, the government does not particularly like this situation, either. High interest rates make the cost of government borrowing and debt servicing high. Again, Nigeria has experienced this recently – rising interest rates in the country have bloated the country's debt bill to the point that debt repayments now constitute as much as 60% of federal revenues, according to the International Monetary Fund. Unsurprisingly, wary of a debt crisis, Moody's recently reduced Nigeria's credit rating. 
Clearly, the CBN's interest decision has a significant effect on the economy. 

No Cause for Legislative Alarm
So should we be worried about Nigeria's high interest rates? Many key stakeholders believe so, with some calling for a cap on interest rates, similar to what Kenya implemented in 2016. However, this will only worsen the nation’s monetary equilibrium. Although the CBN can alter its base rate, actual interest rates are determined by forces subject to the national and global markets, thus cannot be regulated by fiat. Therefore, there is a need for restraint and an adherence to market principles for the management of the nation’s monetary policy.  
Just a year after the Kenyan parliament enacted its interest rate cap, the Central Bank of Kenya (CBK) is already pushing for a repeal of the law because of the negative effect it has had on the Kenyan economy. Caution must be applied to ensure that mistakes made in other countries are not replicated in Nigeria. 
Moreover, the biggest determinant of interest rates in Nigeria will always be the level of inflation. Until the CBN is able to arrest inflation, perhaps through its interventions in the agriculture sector, high interest rates will be Nigeria's norm. 

Follow this Writer on Twitter @LanreRufai_.


Source: Stears Business

Fed govt to restrict physical movement of dollars, other foreign currencies

By: Bhodemarz on November 05, 2017 / comment : 0 , , ,

The Federal Government is set to begin strict border controls on the physical movement of dollars and other foreign currencies.
This is expected to mitigate foreign exchange scarcity and check money laundering activities, it was learnt.
A draft law to ease dollar shortage by restricting movement of hard currencies in and out of Nigeria has passed its second reading at the National Assembly.
The draft law passed the second reading on Wednesday.
It will ban individuals and companies from exporting more than $50,000 in cash without written approval of the Central Bank of Nigeria, with contraventions punishable by up to two years in prison.
Anyone importing more than $10,000 would have to disclose the source of and use for the funds, according to a copy of the bill seen by Reuters on Wednesday.
The bill, read in the House of Representatives, is designed to replace a law passed in 2004.
A dearth of dollars since crude oil prices slumped in 2014, slashing the Federal Government revenues, prompted a recession in 2016 that the economy exited in the second quarter of this year.
Oil sales contribute over 90 per cent of Nigeria’s foreign exchange earnings.
During the currency crunch, most businesses ought dollars on the black market where the naira, at the start of the year, traded around 30 per cent weaker than on the official market.
To resolve the currency crisis, the CBN had set up at least different six exchange rates.
The bill, which would have to be passed by the upper house to become law, also seeks to extend the time for issuance of capital importation certificates to 72 hours from 48 hours.
Economic and financial experts are divided over the need for the bill.
A professor of Economics at the Olabisi Onabanjo, Sherriffdeen Tella, said the regulation was in order since it had to do with the physical movement of cash.
He said, “Normally, international transactions are meant to be done through the banking system. Physical movement of cash is probed in most countries of the world.
“For anybody to carry $50,000 in cash looks somehow. Payments are done via debit or credit cards now.”
An economic analyst and Chief Executive Officer of Cowry Asset Management Limited, Mr. Johnson Chukwu, said the Money Laundering Act had taken care of most of things the new law was trying to do.
Chukwu said, “To me, the exigencies of business may not make it easy for you to secure CBN approval before carrying $50,000. We already have a law that stipulates that you have to declare anything in excess of $10,000 and that you cannot move more than N10m or its equivalent.
“To declare means you state the source and the use. If it is found suspicious, it will be confiscated.”


Source: TodayNG

We won’t obey CBN’s BVN Directive – Bank CEO

By: Bhodemarz on October 25, 2017 / comment : 0 , , ,

The Chief Executive Officer of a commercial bank has said that he and his colleagues will be unable to obey the directive of the Federal Government to forfeit customers funds in accounts that are not linked to Bank Verification Numbers (BVN).
The CEO speaking anonymously to ThisDay said there were huge holes in the legitimacy of the order given by the Federal Government.
According to the CEO, “What of a situation where somebody has died and the matter is in administration, what do you want the bank to do? To give government the money and face litigation?
“What of Nigerians who are abroad and are still struggling to get their BNVs? What if we send the monies to government and we are sued by the customer(s)?
“And the 14-day time frame is very short. Why the rush? Why not give a time frame, maybe till 2018 for people to get their BVNs? These are the type of things that create uncertainty and instability in the market. We are just coming out of a recession and we try to discourage anything that would destabilise the system.
“We are trying to drive financial inclusion, but there are many people who are not in the banking system that may not want to open accounts once they hear of such things happening.”
Human Rights Lawyer, Ebun-Olu Adegboruwa, said the order granting the forfeiture of funds in accounts without BVN was illegal.
“I am very well concerned about how we deploy interim orders for permanent purposes, such as to forfeit valuable assets without any or fair hearing from the person(s) concerned,” the statement read.
“I think it is improper to obtain interim orders to freeze the bank accounts of estates that are in dispute between the beneficiaries, of estates of deceased persons that are still being contested, of profits of companies that are still subject to litigation or other disputes, just to mention a few examples of the arbitrariness of these orders.
“There is nothing in Section 3 of the Money Laundering (Prohibition) Act 2011 that makes BVN a condition precedent for operating a bank account in Nigeria. Nothing at all. What the law requires is verifiable identity of the customer, such as name, address, photographs, identity cards, etc.
“BVN is a policy decision of the Central Bank of Nigeria and a court of law should not base its orders on executive policies that are not backed by law.
“I get truly worried with the way we adopt ex parte applications to determine very serious and weighty issues of law.
“The other point is the bindingness of an ex parte order upon the whole world and upon millions of bank customers in Nigeria, who are not directly parties to the suit.
“How proper is it for a court to seek to determine the rights of parties in their absence, in view of the clear provisions of Section 36(1) of the 1999 Constitution and Article 7 of the African Charter?
“Why this desperation, if one may ask? I support that money suspected to be proceeds of crime should be traced, isolated and forfeited if the owner cannot successfully account for it.
“But to proceed to seek to forfeit all monies in all banks meant for all customers in Nigeria on the grounds of absence of BVN is manifestly illegal.
“I therefore humbly urge the Honourable Attorney-General of the Federation to review this case with a view to tempering the tenor of these rather outlandish orders.
“The quest to scoop revenue for government should not be to the detriment of the constitutional and fundamental rights of the citizens. Which is why I have been praying that these orders are not real, but rather one of the usual social media gimmicks,” he said.

Source: HeraldNG

FG agric job creation programme for 360,000 youths begins soon — Emefiele

By: Bhodemarz on October 09, 2017 / comment : 0 , , , ,

The Federal Government has commenced steps to ensure quick commencement of the Federal Government’s agricultural initiative to provide jobs for 360,000 youths nationwide, the Governor, Central Bank of Nigeria, Mr Godwin Emefiele, has said.
Emefiele made the disclosure in Abuja on Friday at a stakeholders’ meeting on the operational framework for the Accelerated Agricultural Development Scheme (AADS).
He said AADS was targeted primarily at unemployed youths between the ages of 18 and 35.
Emefiele said through the scheme, a minimum of 10,000 youths in each state, willing to engage in sustainable and profitable activities along the agriculture value chain, would be employed and trained. 
“I believe we are on the verge of something very significant with the AADS.
“ This scheme has been designed to create an ecosystem with the active participation of the public sector, state governments and the private sector,’’ he said.
Emefiele said the objectives of AADS included the creation of economy of scale of farming on contiguous land.
“It will also assist famers in embracing modern farming practices, such as use of tractors and irrigation schemes.
“It aims to reduce cost of production with availability of high quality inputs at competitive prices and lowering delivery cost of extension services,’’ he explained.
Emefiele said that state governments were expected to provide contiguous arable land, basic infrastructure, more efficient extension services, training and mentoring of the beneficiaries.
“The CBN on its part will provide financing at single digit interest rates.
“Beneficiaries are not expected to come up with any physical collateral but they must be grouped into formally registered cooperatives and cross-guarantee each other.
“All loan beneficiaries must also have valid Bank Verification Numbers (BVN), which will be registered on the National Collateral Registry and used to track repayments and also blacklist any defaulters.
Emefiele said that with the release of the operational framework for the scheme, engagements with stakeholders would be continuous to ensure that the scheme began during the dry season cultivation of the outgoing year.
Also, the Minister of Agriculture, Chief Audu Ogbeh, said the Federal Ministry of Agriculture and Rural Development would be providing technical support for the project.
“We will be fully involved in the land clearing aspect of the project. In some places we will also be building dams and lakes to ensure all season farming.
“We will also provide advice because we have a team of experts at the ministry on crops, soil testing and the right kind of fertiliser so that when these young people go into agriculture, they won’t lose money,” he said.
The Governor of Kebbi, Mr Atiku Bagudu, thanked the Federal Government for recognising the significance of agriculture in economic development.
“We could not have recovered from recession as early as we did if not for the intense agricultural intervention initiated by President Muhammadu Buhari,’’ he said.
Bagudu also stressed the need to involve financial institutions, which banking models allowed them to support agriculture, for the programme to succeed.


Source: guardian.ng

Buhari appoints 40-year-old Aishah Ahmad as CBN deputy governor

By: Bhodemarz on October 06, 2017 / comment : 0 , , ,

President Muhammadu Buhari has approved the appointment of Aishah Ahmad as the deputy governor of the Central Bank of Nigeria (CBN).
The name of the 40-year-old banker, who will clock 41 on October 26, has been sent to the senate for confirmation.
She is from Niger state in the north-central and replaces Sarah Alade, a deputy governor of the bank, who retired in March after working at the apex for 23 years.
Alade is from Kwara, also in the north-central.
“In accordance with the provisions of section 8(1) (2) of the Central Bank of Nigeria (Establishment) Act 2007, President Buhari urged the Senate President Bukola Saraki, to consider the expeditious confirmation of Mrs Ahmad, who would then resume work immediately,” read a statement signed by Femi Adesina, special adviser to the president on media and publicity.
The president also appointed four new members of the monetary policy committee (MPC), the highest policy-making body of the apex bank.
They are Adeola Adenikinju, Aliyu Sanusi, Robert Asogwa and Asheikh Maidugu. Their names have also been forwarded to the upper legislative chamber of the national assembly for confirmation.
“The four nominees are to replace MPC members, whose tenure expires at the end of this year,” read the statement.
“After senate clearance, the new members of the monetary policy committee are to resume duties next January.”

Profile of New CBN Deputy Governor Aishah Ahmad

Aishah Ahmad, 40, has been actively involved in banking at the top level for most part of the last 20 years, either as a banking executive or investment adviser on retail banking, wealth management, consulting and financial advisory.
Born October 26, 1977, Mrs. Ahmad, an indigene of Niger State, was, prior to her appointment, the Executive Director (Retail Banking) at Diamond Bank Plc.
She is the chairperson of the executive council of Women in Management, Business and Public Service, WIMBIZ, a Nigerian non-profit organisation, established in 2001, focused on addressing issues affecting the interest of women professionals in business, with particular attention on promoting leadership development and building capacities to engender growth.
Mrs. Ahmad’s appointment is expected to fill the void created by the exit of the former deputy governor in charge of Economic Policy, Sarah Alade, who retired from the Central Bank in March 2017 as the only woman in the top hierarchy of the apex bank.
Mrs. Ahmad’s professional banking experience traverses the NAL Bank Plc, Stanbic IBTC Bank Plc and Zenith Bank Plc.
A member of the Chartered Financial Analyst, CFA and Chartered Alternative Investment Analyst, CAIA Associations, Mrs. Ahmad was until her appointment in charge of the Consumer Banking Division at Diamond Bank Plc, covering the consumer banking, privilege banking, retail assets chains.
A holder of the Master of Science, MSc in Finance & Management from the Cranfield School of Management in the United Kingdom, Mrs. Ahmad, an accounting graduate from the University of Abuja, also has a Master of Business Administration, MBA in finance from the University of Lagos.
She is married to Abdallah Ahmad, a retired brigadier-general. They have two sons.
https://us-u.openx.net/w/1.0/cm?id=5c627885-3475-4ed8-a54e-8d0222f57cbe&d=MACRO&r=https%3a%2f%2fdis.criteo.com%2frex%2fmatch.aspx%3fc%3d31%26uid%3d
Her appointment was announced by the presidency on Thursday. She is expected to assume duty as CBN deputy governor immediately after her confirmation by the Senate.

Source: thecable.ng , premiumtimesng.com


Nigeria’s central bank is printing money to keep the government afloat and alarms are ringing - Quartz Africa

By: Bhodemarz on October 06, 2017 / comment : 0 , , ,

For a while now, economists and finance types who follow the Central Bank of Nigeria (CBN) have been sounding a low intensity alarm about the CBN’s direct funding of the Nigerian government.
Between December 2013 and April 2017 for instance, the CBN’s “claims on the federal government” went from 678 billion naira to 6.5 trillion naira ($1.8 billion to $17.3 billion)—an almost 10-fold rise. These “claims” are made up of overdrafts, treasury bills, converted bonds and other such lending. For the most part, the issue has remained an obscure one that receives hardly any attention from local media.
But then, a couple of weeks ago, the CBN finallypublished the personal statements of the Monetary Policy Committee (MPC) members from the July meeting [PDF] and suddenly the alarm bells started ringing. The personal statement of Dr. Doyin Salami, a well-regarded member of the MPC noted for his straight talking, said the CBN was providing a “piggy-bank” service to the federal government. Specifically, he said [page 38]:
Perhaps the most challenging of the present characteristics of the economy in Nigeria is the adoption of a quantitative easing stance by the management of the Central Bank. Monetary data shows a sharp rise in the extent of CBN financing of the government deficit.
He quoted statistics that showed much of the rise in the CBN’s financing of the federal government have come since last December with its purchases of government bonds being the worst culprit with a 20-fold rise in 2017 alone. In effect, the CBN has been printing money to fund the government’s spending. The reason for this is, of course, clear—Nigeria’s government has not been able to recover in any meaningful way from the collapse in oil prices that has now entered its fourth year.
Salami goes on to explain a second order effect of increased government lending. To keep a lid on inflation, the CBN has to balance out the increased government lending with a tightening of the amount of cash banks could lend. It does this by raising the cash reserve ratio (CRR) of banks—effectively taking money out of circulation. Thus, the private sector is “crowded out” for the sake of the government.
That is, the government itself is making it practically impossible for the private sector to pay it the taxes it desperately needs by starving it of the credit it needs to grow. Completing the vicious cycle, the government must then borrow more to fund its spending. A few days ago, it announced plans to raise another $5.5 billion in Eurobonds which will inevitably raise its debt servicing costs.
A bigger problem with all of this is that it could very well be illegal. The CBN Act of 2007 in section 38(2) says [pdf]:
The total amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government.
One can thus do a quick check to see if the CBN’s lending has broken the law. In the prospectus to the government’s $300 million DiasporaBond sold in June, it disclosed to the London Stock Exchange that its revenues for 2016 were 5.3 trillion naira [pdf, page 158]. In other words, the CBN could only have legally advanced the government 265 billion naira. The CBN’s figures clearly show it has blown through this limit multiples times over.
But this last week, the CBN governor Godwin Emefiele felt obliged to respond to the controversy, stating “categorically” that the central bank has not over-funded Nigeria’s government. “The government had, on its own, decided that all its funds in banks, both local and foreign currencies, should be moved into the TSA at the CBN,” he said.
Emefiele added: “If a customer of a bank has fixed deposits in an account and needs some spontaneous financing to meet his obligations, his commercial bank can allow him overdraw his account temporarily. That is what is happening.”
Effectively, according to the governor, CBN was lending against the federal government’s deposits in its Treasury Single Account (TSA) with the CBN which currently stand at 5.2 trillion naira. The TSA is a mechanism whereby all cash resources of government ministries, departments and agencies (MDAs) are consolidated in a single account with the CBN. The policy had been half-heartedly implemented for several years but president Buhari finally expanded it to cover the entire government in 2015.
While it will be hard to legally question the CBN Governor’s explanation, it is worth understanding how the TSA works in practice using a personal example.
I recently had to donate to a government owned school in Nigeria for the purchase of some equipment for the students. I asked the school head to send me the school’s bank account details and they replied with a bank account that was clearly the personal bank account of the school’s head. I thought this was a red flag but they then explained why it had to be done that way.
Given that I wanted to make a charitable donation and the school desperately needed the funds, the school head explained that paying it into the school’s official bank account would mean the money was swept by the TSA mechanism to the CBN. The school would then need to go through the considerable bureaucracy of getting the funds back with no guarantee of success. Thus, to avoid this “problem”, they asked that I trust them with the funds by paying it into a private bank account.
This story illustrates the problem with the CBN Governor’s explanation—not all the funds in the TSA belong to the federal government but the CBN has effectively lent against all of it. If I had sent the donation to the school’s official bank account, it would have been counted as part of the balance of funds in the TSA and perhaps the CBN would have increased its funding to the government by a corresponding amount. But the money was only there till the school would have gotten it back for the original purpose for which it was donated.
This is not a distinction that is trivial–many government departments receive foreign funding to carry out projects, for example. The money is swept up into the TSA once received and then drawn down as costs are incurred often several months later. The large TSA balance is thus often subject to sizeable timing differences.
The TSA’s very survival is also threatened by political wrangling every other day. One of the demands by the Academic Staff Union ofUniversities (ASUU) before calling off their recent strike was for Universities to be excluded from the TSA regime. It was also the main reason they went on a warning strike last year. ASUU are by no means the only ones who are sworn enemies of the TSA. So far, the government has admirably stood its ground and refused to trade away TSA compliance. But as elections approach and various groups begin to make louder demands from a desperate government, it is not inconceivable that the TSA will be the sacrificial lamb that buys the government favors from one of its numerous clients.
These illustrate just how precarious Nigeria’s finances have become. The CBN is lending the federal government huge sums of money based on a suspicious interpretation of its banking mandate all constructed on ephemeral deposits.
Unlike Quantitative Easing by Federal Reserve and Bank of England that came with built-in mechanisms for their eventual unwinding, there is no clear-cut mechanism by which the CBN can roll back the expansion of its balance sheet.
Nigeria’s economy is by no means out of the woods. The government has just not been able to come to terms with the adjustments it needs to make in the face of stubbornly low oil prices. It has tried to soldier on, perhaps hoping that oil prices will rebound soon.

With growth in government revenues that can match the scale of the gap the CBN is currently funding all but impossible, it is time to end this CBN financing of the federal government before it drags the whole economy down with it.

Source: Quartz Africa

PREMIUM TIMES EDITORIAL: The Central Bank and Mismanagement of the Nigerian Economy

By: Bhodemarz on September 29, 2017 / comment : 0 , , ,

On Tuesday, last week, the Central Bank of Nigeria (CBN) republished the communiqué of the 114th meeting of its Monetary Policy Committee, which held on July 24 and 25 2017.
Whereas the meeting’s communiqué was released in the evening of July 25, 2017, the CBN only recently released the personal statements of members of the committee. When the CBN took the decision about three years ago, to include members’ comments as part of the communiqué from its policy committee’s meetings, it was a clear nod to the demands of a transparent management of monetary policy. Once the markets understand the thinking behind the MPC’s decisions, it was felt, inflation expectations could be better anchored. It matters, therefore, that members’ comments are available as soon as possible after each meeting. The CBN’s decision to publish the most recent such communiqué on the eve of this week’s meeting of the MPC clearly works against much of these goals.
But that is to cavil. For a careful reading of the MPC members’ comments from their penultimate meeting gives much cause for concern. Anyone who has paid attention to the apex bank’s financial statements of late would not have been surprised to learn that the central bank has become a piggy bank to the Federal Government. Still Adedoyin Salami’s comments put a useful context to this. A senior faculty member of the Lagos Business School, and two-term member of the Monetary Policy Committee, Mr. Salami reports “CBN financing of the Federal Government since December 2016” as follows:
• CBN’s claims on Federal Government (FG) at N814 billion is twentyfold higher while the claims of Commercial Banks rose marginally by 0.4 per cent to N4.6 trillion;
• 30.0 percent increase to N454 billion in CBN’s purchase of government T-Bills;
• 5 percent increase in FG Overdrafts to N2.8 trillion; and
• Increase in the ‘mirror account’ from N3 billion at the end 2016 to N1.5 trillion in April 2017.

Put simply, the Central Bank has been glad-handing money to the Federal Government. When it is remembered that one definition of inflation is “too much money chasing after few goods”, one explanation for why domestic prices have remained stubbornly in the upper teens, even as the economy contracted, is at hand. It would seem, nonetheless, that alive to the outcomes of such free use of money in an economy like this, the apex bank then proceeded to sterilise the excess cash by compelling banks to buy short-term debt instruments from it.
Mr. Salami argues that, “the effect of these auctions is to raise the ‘effective’ Cash Reserve Ratio (CRR) beyond the 22.5 per cent sanctioned by the MPC”.
Beyond these technical details, PREMIUM TIMES is more worried by the effects of the CBN’s policies on domestic lending conditions. The CBN has had to raise domestic lending rates in order that its debt instruments remain attractive. And as evidenced by the undersubscription in August of the Federal Government’s N135 billion bond issue, the markets might be demanding higher coupon rates to hold naira-denominated asset.
Not surprisingly, Abdul-Ganiyu Garba, member of the MPC (and currently the Coordinator, Centre for Growth and Development, a think-tank), in his comments indicts “strong growth in money supply in 2015 and 2016” for the significant distortions in “the forex market, the money market, the stock market and domestic prices”. Useful, too, are his insights of how the apex bank may be helping to support domestic business conditions.
Apparently, in the country, today, “those who borrow above N1 billion account for about 81 per cent of the loan portfolio while those borrowing less than or equal to N1 million account for just about 1.3 per cent”.
If, indeed, as Professor Garba contends, the bulk of “small and medium scale enterprises who have highest employment and output elasticities typically borrow under N1 million”, it is easy to see, how the CBN’s poor policy response may currently be the economy’s biggest bane.
Still, PREMIUM TIMES is persuaded that whereas the CBN’s cack-handed management of monetary policy might owe to collective ignorance of members of the MPC, this same ignorance fails, where the charge bothers on criminality. While the statutes governing the apex bank permits it to “grant temporary advances to the Federal Government in respect of temporary deficiency of budget revenue at such rate of interest as the Bank may determine”, the Central Bank of Nigeria Act 2007 is clear that “the amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government”.
A back-of-the-envelope check of the numbers in question would suggest that the CBN long since crossed the latter line.
We at PREMIUM TIMES believe that in a democracy, especially, one as young as ours, with plenty of centrifugal forces to contend with, it is system-threatening for an institution as important as the Central Bank of Nigeria to so wantonly be in violation of its own enabling statute.

We are constrained, therefore, to call on the governor of the Central Bank to resign, and for the appropriate law enforcement agencies to seek to apply penalties as provided by the law for this gratuitous infringement.

Source: premiumtimesng.com

US dollar: The power and the glory (I)

By: Bhodemarz on September 26, 2017 / comment : 0 , ,

Before delving into the substantive issue this week and the next couple of weeks, let me first of all let you, the reader, into one of the columnist’s closely guarded secrets. It is that much of the ideas and inspiration generated for this weekly column derive from casual conversations with people; I mean just about any bunch of people. How I wish I could claim it is all due to my own brilliance, but I regret to say that it is not. The most fertile venues for pinching ideas are inside taxis, airport lounges and beer/“suya” joints.  Others are social gathering with friends, relatives and colleagues. Sure as daylight, I have picked up an idea from such a gathering, from a 15-year-old, to generate a topic on financial law for this column in the recent past. Thus, it is from a similar gathering that the inspiration for this three-part essay came into being. Writers do not generally acknowledge the sources of these ideas because it is unnecessary. And in case you are wondering, it is not plagiarism either. Ideas are free. The way and manner in (including the context within) which an idea is used, however, are usually peculiar to the author/writer and, as such, should not be copied without due acknowledgment.  Anyway, that aside.
At a cosy gathering of friends in a neighbour’s yard a couple of days ago, a bright, tall and lanky teenage schoolboy was handed a $100 bill by his uncle as a gift for clearing his exams. I listened attentively as the overjoyed boy was bouncing around, soliciting for a good naira rate from amongst the relaxed evening guests. He plans to go to university next year to study law and was boasting about his desire to charge his fees in dollars, in future, like Aare Afe Babalola (SAN) does. Babalola, of course, is an advocate par excellence, who rose from nothing to the pinnacle of the legal practice in this country. The boy had read a passage in his memoire: “Impossibility made possible”, where he talked about charging in dollars. Babalola also cited in the book an incident that happened at his former client’s, President Olusegun Obasanjo’s private residence. He had gone to see him for instructions on a pending case, and as he and the coterie of SANs Babalola had assembled in Obasanjo’s defence were trooping in one after the other to take their seats, the former President exclaimed in awe of the battle-hardened wigs: “Ah, Chief, no wonder you charge in dollars!” This passage made quite an impression on the young man, whose uncontrolled enthusiasm in turn, spurred me to write this essay.
Since Aare Babalola and his ilk appear to have turned charging in dollars into a cause célèbre; the surest indication that one has ‘arrived’ at the dizzy height of stupendous wealth, it was completely lost on the little boy, indeed a young man, that the $100 bill dangling in his hand, not that long ago, used to be the exact equivalent of N100 note used for buying a pack of “pure water” today. Yes, one dollar used to exchange for one naira; even for less than that at times, in this same country of ours, and in so many people’s lifetime. At the material time though, simply being a Nigerian carried with it a lot of pride. We were constantly dubbed the “Giant of Africa” then. That sounds pretty outlandish now, of course, but it did not quite fall out of place at the time. Judging by how much of our wealth has since been squandered, and is still being squandered, it would be hard to quibble about being dubbed the sleeping giant of Africa now.
How is it, then that one dollar is now exchanged for N380 in today’s market? How come, then, that the Ministry of Finance in this country offers the incentive of remuneration in dollars for investors instead of the naira; a de facto “dollarisation” of the country’s economy (albeit by the back door)? It has even become cool amongst the flamboyant and the well-heeled, to “spray” in dollars at high-society parties instead of the naira.  How come then that the dollar has become such a reified commodity, almost as important as the air we breathe in, in this country? Fixated by the daily bulletin on the Central Bank of Nigeria’s latest moves to pomp more dollar into the market, most people under the age of 30 in this country see the ubiquitous presence of the dollar in our everyday life as a given; a fait accompli. That is, it is just what it is, but my contention is that it is what it is not because it was inevitable, but because of the choices we have made as a country. It is not by accident that the dollar has come to be seen by Nigerian citizens as a better store of value than the naira. That state of affairs did not happen overnight, our erstwhile leaders created the foundation for it over a period of time.
It is thus vitally important for the young man aspiring to earn his legal fees in dollars (no blame), and the vast majority of Nigerian youths to understand the trajectory of the dollar as the dominant force that it has become in our economy, and for that matter, in the overall global trade.  As we chart the debate henceforth, I would urge the reader to contemplate how, if ever, we are likely to witness a return to the dollar-naira parity again in our country, or, whether that is even desirable any longer. More alarmingly, could the steady growth of the dollar transactions (aided and abetted by the Ministry of Finance) in this country see the eventual death of the naira as a legal tender in favour of the dollar? Would Nigeria become, in effect, a mere appendage of the United States’ global economy for all practical purposes? It happened most recently in Zimbabwe, under the “Marxist revolutionary”, “President-for-life”, Robert Mugabe. How can we avoid the slippery slope in this country?


You can reach Tayo Oke via drtayooke@gmail.com

FACT CHECK: Do Sukuk bonds lead to Islamisation? by Chinedu Asadu

By: Bhodemarz on September 26, 2017 / comment : 0 , , , , ,

Last week, the federal government issued a seven-year N100 billion Sukuk bond. Patience Oniha, director general of the Debt Management Office (DMO), said proceeds from the bonds would be used to finance the construction of 25 major roads across the six geopolitical zones in the country.
Nigerians were still trying to study and understand the concept when the Christian Association of Nigeria (CAN) announced its opposition to it. The religious pressure group said the introduction of the bond was “a violation of the constitution”.
But the Muslim Rights Concern (MURIC) accused CAN of playing up sentiments, saying Sukuk is purely for business purposes. The Nigeria Supreme Council for Islamic Affairs (NSCIA) also faulted the claims made by CAN.

FIRST, WHAT IS SUKUK?
Sukuk is an Arabic term which simply means “certificates”. According to the rules and regulations of the Securities and Exchange Commission, 2013, it refers to “investment certificates or notes of equal value which evidences undivided interest/ownership of tangible assets, usufructs and services or investment in the assets of particular projects or special investment activity using Shariah principles and concepts and approved by the SEC”.
It is a form of Islamic banking and its securities are structured to comply with Sharia by paying profit — not interest — generally by involving a tangible asset such as land in the investment.

CLAIM NO. 1: SUKUK VIOLATES THE CONSTITUTION
According to CAN, “by promoting a sectional religious financial policy (in the name of Sukuk), the government is violating both the spirit and the letter of section 10 of the constitution.”
Section 10 of the 1999 constitution simply states thus: “The government of the federation or of a state shall not adopt any religion as state religion.”
While the constitution was not specific on what constitutes a state religion, it also did not exclude the option of the federal government taking up a form of Islamic financing in its financial operation.
The section 313(6) of the Investments and Securities Act 2007, however, gives room for a new provision to be made which may in effect accommodate the introduction of Sukuk.
The section states that “notwithstanding the provisions of subsection (1) of this section, the commission may, from time to time, amend or revoke rules or regulations for purposes of giving effect to the provisions of this Bill and the rules and regulations made thereunder”.
The subsection 1 in question states that SEC “may, from time to time, make rules and regulations for the purpose of giving effect to the provisions of this Act and may in particular and without prejudice to the generality of the foregoing provisions, make rules and regulations; to alter or modify, from time to time, in consultation with the minister, the provisions of the Second Schedule to this Act [among other provisions]).”
However, CAN is seeking that this section of the act be repealed.

CLAIM NO. 2: SUKUK VIOLATES IMF RULES
There is also the question of the backing of the International Monetary Fund (IMF) on the operational basis of Sukuk in non-Islamic states/countries.
CAN quoted the IMF as saying the issuance of Sukuk by non-Islamic states/countries violates the country’s religiosity and as such “a breach of the religious neutrality of the government of such state”.
CAN did not make reference to where it got its information from but on the IMF website, the organisation said the global issuance of Sukuk is “expanding with remarkable international reach of issuers and investors and that the trend is expected to continue, driven, in particular, by strong economic growth countries with large and relatively unbanked, Muslim populations”.
The financial body also said “Sukuk resembles public-private partnership financing whereby investors finance the assets and then own them which leads to real securitisation (a process of pooling/repackaging the non-marketable assets into tradable certificates of investment) after which they transfer them at maturity to the government”.
The question then is: are there implications of Islamic financing of these roads and their subsequent ownership by the Sukuk holders? CAN fears that the Islamic financial institutions will own the 25 major roads after construction. There is yet no answer to that fear.
A study carried out by a team of IMF staff on Islamic financing showed that issuance of Sukuk around the world has increased significantly in Africa, East Asia and Europe – and several non-Muslim countries.

CLAIM NO. 3: SUKUK WILL LEAD TO ISLAMISATION
CAN also raised the alarm that Sukuk will bring about “two laws for one nation as it shall also be construed in accordance with the Islamic law of Mu’amalatmaliyyah in addition to the established laws of Nigeria”.
However, looking at the non-Muslim countries that have issued sovereign Sukuk after Britain became the first country outside the Islamic world to do so in 2014, CAN might find it difficult to make a strong case. These countries are Hong Kong, Kenya, Germany, Luxembourg, South Africa, Italy, Tanzania, Russia, China, Singapore, France, Japan, South Korea, among others. They operate the bond with their official laws intact – they have not been Islamised.
The problem, however, is that some of these non-Muslim countries practising Islamic financing do not have Islamic securitisation law and there is a world of difference between Islamic and conventional securitisation concepts.
A study carried out by a team of economic experts on “legal and regulatory issues in issuing Sukuk in Muslim-minority countries” in Hamad Bin Khalifa University, Qatar, showed that there are existing conflicts in the application of Islamic securitisation
Another issue that needs to be taken into cognisance is the fact that the funds raised from Sukuk issuance must be used ONLY for ethical purposes, according to information on the DBO website.
That is to say that whatever projects the government intends to use funds generated from Sukuk for must be ethical.
But then, is there really a clear definition of the adjective “ethical”?


CONCLUSION: CAN has strong claims on keeping Nigeria’s secular nature intact, especially as the controversy over Nigeria’s membership of the Organisation of Islamic Conference (OIC) in 1986 remains a sore point. Nevertheless, there is no conclusive evidence that Sukuk will lead to the Islamisation of Nigeria — or that it violates the constitution. One question needs to be answered though: will the Islamic financial institutions control the roads to be constructed with the bond in order to recover their money under the PPP-like arrangement?

Source: www.thecable.ng

Unintended Result of Nigerian Dollar Hunt Is Naira Shortage By Emele Onu

By: Bhodemarz on September 21, 2017 / comment : 0 , , ,


  • Currency regulations threaten to curb economic growth
  • May & Baker is cutting production to cope with rising costs
First Nigerian businesses were hit by a dollar shortage. Now there aren’t enough naira.
A central bank requirement that companies back forward dollar purchases with naira is drying up supplies, helping to underpin a 2.1 percent gain since the local currency fell to a record low against the greenback on Aug. 9. At the same time, an increase in government borrowing is spurring banks to invest in the safety of sovereign debt rather than lending to businesses or consumers, also draining cash out of the system.
Some banks demand naira deposits of as much as 1.5 times the amount of dollars sought in the 60-day forwards market to guard against fluctuations in the currency, said Ayodeji Aboderin, chief financial officer for May & Baker Nigeria Plc, a Lagos-based pharmaceutical and food processing company. That is pressuring the company’s own cash flow, he said. The difference is returned to the company on the delivery of the contracts, with the amount depending on how the currencies have moved.
“Money you would have used as working capital will be taken upfront by the bank,’’ Aboderin said. “Last year, it was more of dollar illiquidity. This year, it is naira illiquidity.”
May & Baker, which is building the country’s first vaccine plant, is responding by cutting production at its water-bottling and instant-noodle units, and focusing on more profitable pharmaceutical lines, Aboderin said. Interest rates on loans have also soared to as high as 25 percent, more than double the rate May & Baker is comfortable paying, he said. Nigerian inflation eased to 16.05 percent last month after reaching a record 18.7 percent in January.
Within Limits
The currency rule, introduced in January, is one of a series of measures aimed at managing dollar flows after a decline in the price and output of crude oil, which accounts for about two-thirds of government revenue. The regulator sells dollars directly to lenders on an almost weekly basis, which then supply these to their customers.
By depositing cash with lenders, companies are able to assure the regulator that they have the money to buy the foreign currency, said Yinka Sanni, chief executive officer for Stanbic IBTC Holdings Plc. The amount of naira required depends on the customer’s balance sheet strength, he said. 
“It is within the rules. It is a product that is acceptable and endorsed by the regulator,” Sanni said. “No bank is doing anything outside the rules. If they were, the CEO would have been cautioned by the central bank.’’
A spokesman for the central bank didn’t respond to calls and emailed messages seeking comment. The naira was down 1.25% at 361.5 per dollar in the interbank market as of 16.13 p.m. in Lagos on Thursday.
Limiting Access
Special auctions that are being used by the central bank to make “massive injections of cash” to the government, effectively raised banks’ cash-reserve requirements beyond the stipulated 22.5 percent, said Monetary Policy Committee Doyin Salami, who has previously been critical of the policies of Governor Godwin Emefiele.
“We thus find ourselves at a point where government borrowing from the central bank is neutralized by raising the cash-reserve ratio of banks, thereby limiting private-sector access to credit,” Salami said after the monetary policy committee’s July 24-25 meeting, according to a central bank statement published Tuesday.
Nigeria sold 364-day bills at a yield of 17 percent and 182-day securities at 16.8 percent at an auction on Wednesday, according to the regulator.
“The Central Bank of Nigeria’s efforts have in many ways helped stabilize the foreign-exchange market,” said Omotola Abimbola, a banking analyst at Afrinvest West Africa Ltd. in Lagos. “But the unintended consequence has been that banks have restricted credit extension to the private sector due to the high yields on government securities as well as low risk appetite.”
Growth in credit extended to the private sector slowed to 0.9 percent this year through July, compared with 19.8 percent in 2016, according to central bank data. Policy makers need to tackle a lot more than dollar liquidity to bolster economic growth and reduce the country’s dependence on oil, Abimbola said. This would include easing monetary policy by lowering interest rates from a record high, addressing infrastructural shortcomings, such as road, rail and power, and improving the productivity of state institutions, he said.
Nigeria’s economy expanded 0.55 percent in the three months through June, ending five straight quarters of contractions that saw gross domestic product shrink 1.6 percent in 2016, the first drop since 1991. The improvement came after oil output increased and authorities boosted the supply of foreign currency needed by manufacturers to import supplies.
Flour Mills of Nigeria Plc, the country’s biggest miller by market value, is planning to issue as much as 40 billion naira in bonds next year and is also considering a rights issue to enable it to deal with funding challenges arising from a scarcity of naira and high interest rates, Managing Director Paul Gbededo said.

“Continued tightness in the market will keep interest rates high,” said Pabina Yinkere, an analyst at Vetiva Capital Management in Lagos. “High interest rates increase the probability of default and make banks cautious in growing loans, particularly to SMEs. If banks do not lend it affects overall economic activity and stalls growth.’’

Source: www.bloomberg.com

How CBN stabilised sinking naira, raised reserves to $33bn

By: Bhodemarz on September 18, 2017 / comment : 0 , , ,

CENTRAL Bank of Nigeria (CBN) has revealed how it arrested the freefall of the naira when it appeared that all was lost early in 2017 with the currency dropping to as low as 500 units to the United States dollar in February.
Director, Monetary Policy Department of the bank, Mr Moses Tule said at a seminar for finance correspondents and business editors in Awka, Anambra State that the bank provided official sources of funding for foreign exchange users and removed room for speculation.
Naira, which exchanged for over N500/USD in February is presently hovering around N360/US$.
According to him, “to boost liquidity, accommodate all forex obligations, and deepen foreign exchange market, CBN made provision for funding of invisible transactions for a fair and veritable exchange rate;
“Intervention in various sectors of the market through forward sales of tenors; sale of $20,000 foreign exchange to bureau-de-change twice weekly”.
In addition, the bank also approved payment of $20,000 per quarter as payment for small scale importation and established investors and exporters’ window for them to meet their invisibles obligations, bills for collection and other trade related activities.
As a result, the apex bank was able to defray all its outstanding forex demand of $4.14 billion as at June 2016 while front loading forex demand and inventory disappeared.
The declaration of scores of items as ineligible for import finance through CBN sourced forex ensured “import substitution and export switching with positive effects on domestic production”, he disclosed.
Some calculations suggested that through the interventions, the bank sold $9 billion to forex dealers through the interbank market between February and August 2017.
Before commencements of the interventions last February, Nigeria’s external reserve had dropped to $28bn and the CBN couldn’t meet most of the forex demands including repatriation of funds by the airlines.
In the seven months, CBN had intervened in the forex market to the tune of $8,908,860,000 in all segments of the market, which saw the naira appreciating from N520/$1 to N365 to the dollar at the parallel market.
Despite these interventions however, the country’s external reserves grew from $28.7 billion to $33 billion as at last week Thursday.
Acting Director of Corporate Communications at the CBN, Mr Isaac Okorofor made the disclosure amidst rising oil prices at the international market.
 Source: www.tribuneonlineng.com

CBN rolls out new rules to boost Agric Finanacing by CollinsNweze

By: Bhodemarz on August 24, 2017 / comment : 0 , , ,


The amendment of the Commercial Agriculture Credit Scheme (CACS) and the pegging of the maximum loan intake for any project under the scheme at N2 billion are some of reforms being introduced by the Central Bank of Nigeria (CBN) to stimulate activities in the agricultural sector. More commercial banks are also being encouraged by the apex bank to lend to farmers at single digit interest rate. COLLINS NWEZE writes on the renewed drive by the financial institutions and its implication on the economy.
In times past, any credit facility granted to a farmer was considered lost from the date of approval. Ten years ago, no lender would give depositors’ funds to farmers as loans. But, things are changing. Today, the lenders scramble for agribusinesses, having seen the potential, and knowing how much a well-priced loan can add to their profitability. Many lenders are buying into the agriculture financing scheme.
To make this happen, the Central Bank of Nigeria (CBN) has amended the Commercial Agriculture Credit Scheme (CACS). The apex bank has pegged the maximum loan intake for any project under the scheme at N2 billion. It has equally pegged the maximum interest rate to the borrower under the scheme at not more than nine per cent, inclusive of all charges.
Besides, the apex bank has approved the participation of all Deposit Money Banks (DMBs) under the scheme. The banks have a mandate to sponsor projects from any of the target areas indicated in the guidelines and bear all the credit risk of the loans they grant.
The CACS is being financed from the proceeds of the N200 billion three-year bond raised by the Debt Management Office (DMO).  The fund will be given to the participating bank to finance commercial enterprises agriculture.
“The single obligor for any project from a participating bank under the Scheme shall be N2 billion while for state governments shall be N1 billion. However, for special schemes and programmes for agricultural development, state governments may be granted concessionary approval for more than N1 billion”, the CBN said.
The scheme is expected to help  fast-track  growth in the  agricultural  sector  of  the  economy  by  providing  credit  facilities  to  farmers at a single digit interest rate; enhance  national  food  security  by  increasing  food supply;  and effecting  lower  agricultural  produce  and  product  prices,  thereby promoting low food inflation.
CBN Governor Godwin Emefiele, said that agric financing is the way forward for the economy. He explained that the CBN has, as part  of  its  developmental  role and in collaboration with the Federal Government of Nigeria, represented by the Federal    Ministry of Agriculture    and    Rural Development established  the  CACS for  promoting local commercial agricultural enterprises, which is a sub–component of the Federal Government’ Commercial Agriculture Development  Programme (CADP).
The fund, Emefiele added, will complement other special initiatives of the CBN in providing concessionary funding for agriculture such as the Agricultural Credit Guarantee Scheme (ACGS),   which  is   mostly   for   small   scale farmers, Interest Draw-back Scheme (IDS), Agricultural Credit    Support    Scheme  (ACSS)  and    other    similar developmental initiatives.
The CBN chief said: “It makes no sense to allocate scarce forex to rice importers when vast amounts of paddy rice of comparable quality locally produced by hardworking farmers across the rice belts of Nigeria are wasted, and the farmers are falling deeper into poverty while we export their jobs and income to rice producing countries abroad?
“Few decades ago, Nigeria was one of the world’s largest producers of palm oil, but today, we import nearly 600,000 metric tonnes while Indonesia and Malaysia combine to export over 90 per cent of global demand.
“Under these circumstances, I believe it is appropriate, and in fact, expected, that the CBN contributes to protecting the jobs and incomes of local farmers, using some of the same principles Western Economies use to justify the protection of their farmers through huge subsidies.”
“Agriculture remains the largest employer of labour in Nigeria and it contributes about 24.2 per cent of our GDP (Gross Domestic Product). In addition, a good share of the demand for forex today go directly to importing agricultural produce.
“So, the CBN has both a direct and indirect rationale to ensure that this sector is revived in a significant way. In this regard, we are gratified that the CBN’s Anchor Borrowers’ Programme, together with other initiatives like the CACS and NIRSAL, are proving to be successful in several states.”
He explained that in Kebbi State alone, over 78,000 smallholder farmers cultivate about 100,000 hectares of rice farms. It is expected that over one million metric tonnes of rice would be produced in that state alone this year.
Emefiele said: “This is the bedrock of the recently-launched Lake Rice, which is an innovative partnership between the governments of Lagos and Kebbi states. The CBN remains committed to do more in the identified crops such as rice, maize, sorghum, tomatoes, cassava, cocoa, cotton, dairy, and groundnut.
“We also need to find ways to make land tilling much easier especially for smallholder farmers. In this regard, the Nigeria Incentive-based Risk Sharing System for Agricultural lending (NIRSAL) can assist with technical knowledge and deployment of relevant GIS and Satellite imaging that will realise this within a short period of time.”
Speaking in Lagos at a workshop on innovative agricultural insurance products, he said that the agricultural sector provides up to 70 per cent of employment in Nigeria and accounts for about 42 per cent of the country’s GDP.
Emefiele said the large import of food products, include: wheat, rice, flour, fish, tomato paste, textile and sugar.
He said: “We are confronted, as a nation with a wide range of development challenges especially with the dwindling global crude oil prices and the nation’s dependence on it as its major source of revenue.
“There is the need to diversify the mono-cultural tendencies of the economy by developing other sectors of the economy especially agriculture.”
Nigeria’s formal financial system according to Emefiele, was lending about four per cent of all formal credit to the agricultural sector compared to three years ago, when only about one per cent of all credit went to agriculture. He insisted that lending remained low given the lingering perception by banks that agriculture is highly risky. Emefiele said the development and expansion of the agricultural insurance sub-sector would go a long way in mitigating against natural disasters and eventually encouraging banks to lend to agriculture.
Bankers’ Committee
The CBN and DMBs, under the aegis of the Bankers’ Committee, also restated its commitment to expanding bank lending in agro-business in order to discourage importation of goods that can be produced locally.
The bankers stated their resolve to explore large corporate bodies as anchors to lend to participants across the value chain to improve Nigeria’s agro-businesses capacity so as to create sustainable jobs and inclusive growth.
The bankers also affirmed their commitment to financial deepening of the economy, improving financial access to key sectors of the economy, innovative solutions for the critical finance of generation, provide finance for small and medium enterprises, among others.
The committee said: “We note that four basic commodities that are consumed by Nigerians – rice, wheat, fish and sugar jointly account for a significant amount of the country’s annual import bill. We are convinced that the nation has the capacity to produce these consumables in required amounts to meet our domestic consumption needs. With its attendant impact on Gross Domestic Product (GDP) and job creation, agriculture remains a critical focus sector of the financial system.”
Apex bank’s roles
The CBN set the tone with its introduction of NIRSAL to the banks. By that single policy, commercial banks can lend to the agricultural sector and its value chains without fear of losing such funds.
The NIRSAL, expected to drive agricultural revolution in the country, is already being implemented by the banks. The CBN explained that NIRSAL, unlike previous schemes which encouraged banks to lend without clear strategy to the entire spectrum of the agricultural value chain, emphasises lending to the value chain and to all sizes of producers.
The Federal Government plans to double agriculture’s share of banks’ credit to 10 per cent in two years. It has made a fundamental shift that agriculture is not a developmental activity, but a business.
“The CBN has changed the banks’ mindset. It’s a new agriculture sector in which they can actually invest money and make money”, the bank said.
The agric potential
Already, banks and the CBN are discussing how to increase lending to the sector. To the apex bank, the government needed to pay more attention to agriculture, which still has one of the greatest potentials to grow the economy.
The CBN said that one way of achieving this, is by collaborating with the banking system to fix the value-chain problems in the agricultural sector.
It said the economic development was about enhancing the productive capacity of an economy by using available resources to reduce risks, remove impediments, which otherwise could hinder investment.
NIRSAL performance
According to the CBN, NIRSAL will be the catalyst for innovative risk management strategies, long-term financing for agribusiness and significant job creation by new entrepreneurs.
It said: “The mandate of NIRSAL is to act as the custodian of all credit guarantee schemes, interest draw back schemes, and commercialisation initiatives related to an integrated value chain approach to agriculture and agribusiness in Nigeria.”
Under NIRSAL, there are five pillars to be addressed by an estimated $500 million investment by the CBN, according to the programme document.
There is also a risk-sharing facility of $300 million, planned to address banks’ perception of high-risks in the sector by sharing losses on agricultural loans.
It also has an insurance facility of $30 million intended to expand insurance products for agricultural lending from the current coverage to new products, such as weather index insurance, new variants of pest and disease insurance.
Besides, there is also a technical assistance facility amounting of $60 million meant to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better quality agricultural products, among others.
The improvement in the sector has been linked to access to credit through the new policy on increasing Private Sector Participation (PSP) with emphasis on the entire agriculture value chain and using agriculture to boost employment, wealth creation and food security.
Analysts have commended the performance by the banks as a demonstrating of their belief in the ability of agriculture to transform the economy.
The CBN said that with the credit trend in the banks, Nigeria may be close to realising its economic diversification objectives that will lead to less dependence on oil.
Stakeholders speak
Chairman, the Tractor Owners & Hiring Facilities Association of Nigeria (TOHFAN), Danladi Garba, said Nigeria could produce food, noting the profitability of agribusiness. He said the era when borrowers beg banks for loans to the agricultural sector was gone for good. “Today, the tides have turned. The buzz for agric financing is on, and no lender wants to be left behind”, he said.
Some banks have also bought into agriculture. For instance, Sterling Bank Plc has financed the purchase of tractors by TOHFAN members. The bank noted that its involvement in the agricultural sector was based on the need to reposition the sector as the main stay of the economy given the dwindling oil revenue.
The bank’s Managing Director, Yemi Adeola, said it finances the purchase/acquisition of tractors from reputable manufacturers such as Massey Ferguson, Mahindra, New Holland, John Deere and Tak Tractors, who will also provide basic training on utilisation and offer after-sales maintenance services.
The tractors, which have been distributed to members of the association following the first disbursement, would promote mechanised agriculture, leading to additional hectare coverage, higher yields and enhance food security in the country.
Adeola said: “Sterling Bank Plc has continually restated its commitment to the strategic growth of the agricultural sector by providing adequate funding in alignment with the ongoing reforms in the sector aimed at repositioning it as an attractive business proposition, an input provider for the manufacturing sector and a key foreign exchange earner.
“The best bank in Agric Award was conferred on the bank in recognition of its critical role in the dispensing of financial services to actors in the agricultural value chain. This we have demonstrated again with the financing of the tractors which will add value to the sector.”
First City Monument Bank has also renewed its pledge to intensify support to the agricultural sector and its value chain, including lending more to the subsector in the interest of the economy.
It said: “We note that four basic commodities that are consumed by Nigerians – rice, wheat, fish and sugar jointly account for a significant amount of the country’s annual import bill.
“We are convinced that the nation has the capacity to produce these consumables in required amounts to meet our domestic consumption needs. With its attendant impact on GDP and job creation, agriculture remains a critical focus sector of the financial system.”
The bank said it remained is focused on being a strategic partner to the government and other stakeholders in the agricultural sector to ensure food sufficiency, employment and revenue generation.

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