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Driving Sustainable Devt through Creative Financing

Crusoe OsagiIMG_0906e writes on the innovative ways BOI is advancing industrial development through value-added financing. In Nigeria, most of the factors that make for efficient production are in place most of the time. From human capital to land, skilled labour to entrepreneurship, and even the factor of time, all these are in considerable supply making may Nigerians and Nigerian companies ready to blossom in business but for the challenge of raising capital, which often stops good ideas in the tracks. Raising capital has always been one of the greatest challenges for the growth and promotion of small, medium and micro-enterprises (SMMEs). With a huge credit gap unmet by deposit money banks in the country, the Bank of Industry (BoI) has within the last 15 months, disrupted the landscape for financing industrial firms, especially at the SMMEs’ level with innovative technologies and products. Among the institutions whose role in the development of a growing nation’s economy is well recognised but inadequately emphasised are the development banks. Playing multiple roles, these institutions have helped promote, nurture, support and monitor a range of activities, though their most important function has been as drivers of industrial development.

To alleviate poverty and reduce the developmental gap that separated developing economies like Nigeria from the developed countries, development finance institutions like the Bank of Industry (BoI) are established to intervene in accelerating the pace of growth of productivity and per capita GDP. To implement its development intervention strategy, the Bank of Industry within the last one year, re-jigged its board to reflect the agenda; new products were introduced while operational efficiency became a measure of appraising the bank’s performance. With the new wave of financing innovations democratising access to capital, the bank is disrupting the financial intermediation landscape with new products while reviewing processes to aid intervention and impact in the society. Financing innovations are new avenues beyond the traditional stronghold of bank financing that are removing barriers for small businesses to access much-needed capital. Alternative mechanisms like seed and angel funding, value chain finance, venture capital and crowd funding are not necessarily new, but they have evolved to become more powerful mechanisms for SMME financing. Managing Director of the Bank of Industry (BoI), Rasheed Olaoluwa, on assumption of office leveraged his versed experience in the financial sector to address the imbalance caused by commercial banking institutions in the area of financial intermediation for industrial firms and small businesses by restating the bank’s commitment to the growth of SMEs.

According to him, the problem of many SMEs is not access to cheap funds as claimed by many present and intending small businesses but the inability of such entrepreneurs to develop and defend bankable projects. Indeed, the financial sector in a typical economy is saddled with the primary responsibility of financial resource mobilisation and intermediation. It engages in the redirection of funds from surplus spending units to deficit spending units. The impact of the delivery of these financial services in the form of working capital to producers is felt in the short run. To ensure that BoI’s impact is felt in the economy, Olaoluwa explained that the bank developed a five-year Strategic Plan from 2015-2019 under advice from the international consulting firm of KPMG Professional Services spanning the bank’s vision, mission, goals and objectives as well as core values. Indeed, the strategic initiative has seen the bank move from the introduction of a N5 billion Cottage Agro Processing (CAP) Fund and N1 billion Fashion Fund, to the appointment of 122 business development service providers (BDSPs) to facilitate SMEs’ access to loans as well as the reduction of non-performing loans from 12.98 per cent to 4.09 per cent, while improving its operational efficiency with an upgrade of its system and introduction of mobile applications.

Olaoluwa stressed that ‎these developments imply that Nigeria must join the rest of the world to become a digitalised economy, stating that the bank ‎has repositioned its systems, processes and services to take advantage of the new digital and mobile world to offer its customers the benefits of speed, mobility and convenience that come with it. According to him, one of the major weaknesses of SMEs is poor record keeping and weak financial management, which makes it difficult to evaluate their financial performance and invariably inhibits their ability to access loans from banks or attract investors. He said to address this deficiency, Kinesis Consulting Limited in partnership with BOI, has developed an SME Accounting Application (SAAPP), maintaining that the application has been tested to ensure that it enables users to keep proper records of transactions as well as generate requisite financial statements. “BoI is trying to achieve a balance in its functions as a development finance institution in terms of delivering social impact and maintaining a sustainable loan infrastructure.

“Although we are confident that key shareholders in the NIRP initiative like the Ministry of Finance Incorporated and the Central Bank of Nigeria CBN, will continue to support the bank with some equity injection, but considering the fact that there is a lot of demand on government’s resources, we are exploring alternative modes of funding such as continuation of sector specific intervention funds by the CBN, Ministry of Agriculture, Solid Minerals and others; managed funds from various state governments and foundations; long-term loans at very low interest rates from multi-lateral/international development institutions”, he added. With operational efficiency serving as a key benchmark, Olaoluwa said bank is automating a lot of its processes to give SMEs the opportunity to be served better. Already, renowned international rating agency, Fitch, has assigned BoI a national long-term rating of ‘AA+(nga)’ and national short-term rating of ‘F1+(nga)’, noting that the National Ratings  reflect the bank’s creditworthiness relative to the best credits in Nigeria. To further improve access to its facilities, Olaoluwa explained that the synergy between BoI and 10 SME-Friendly Banks, which is unprecedented between a Development Finance Institution and commercial banks, will undoubtedly foster greater access to finance for SMEs, financial inclusion for Nigerians and also engender wealth creation and accelerated job creation for Nigerians. He noted that BoI decided to leverage the banks’ branch network to further reach its customers as well as increase its intervention across spheres of small businesses. For stakeholders, there is no single solution for financing SMMEs, but in institutional diversity there will be greater support for innovative firms.



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