The Bank of Industry is gradually but steadily supporting small and medium enterprises in an overall move to boost the economy, BAYO AMODU reports.
At a time that economic activities seem to have taken a deep slumber, resulting from lack of liquidity at the grassroots, economic watchers have persistently asked the federal government to inject funds into the system as a catalyst for stimulating the economy. In fact, experts have consistently advocated that massive injection of funds into small and medium scale enterprises remained the surest and fastest way to reduce the pains of ordinary citizens in the face of biting recession. Needless to say that government had initiated moves to pacify various classes of suffering citizens, mostly those at the bottom ladder; its social investment plans are seen by critics as free meals, often derided as unsustainable in the face of receding earnings and increasing demand for foreign exchange. It is imperative therefore, that available resources are channelled through effective and tested platforms, through which the hardship in the land can be mitigated by boosting business activities and creating jobs. Fitting into that mandate are the nation’s many micro-finance banks, a segment of financial institutions independently established by law through which sundry funds are released to the grassroots for micro enterprises. This mandate notwithstanding, the existing grassroots banks require the assistance of a more stabilized institution like the Bank of Industry to realize their dreams in view of their limited capital base.
Micro-finance banks are established to be pro-poor, independent as non-governmental bodies but today regulated by the Central Bank of Nigeria for compliance with best practices and depositors’ guarantee. Through their flexible banking operations, these banks are expected to support the development of entrepreneurial efforts and empowerment of financially disadvantaged Micro, Small and Medium scale enterprises. In pursuing this goal, BOI recently entered into partnership with selected financial institutions to make funds available to low capital entrepreneurs with a view to reduce poverty, create jobs and raise Nigeria’s Gross Domestic Product. Through its Bottom of the Pyramid (BOP) scheme, an on-lending package in partnership with Microfinance Banks (MFBs) and other acceptable financial services institutions, BOI recently disbursed N3.1 billion to 14 micro-finance banks for on-lending to MSMEs. For clarification, the bank explained that its BOP model is in tandem with the operating models of some of the world’s best Development Finance Institutions that deliver their services indirectly through intermediary retail finance that have extensive branch network. An example is BNDES of Brazil, the only DFI in that country. It is the most impactful DFI in the world in terms of customer base. As at 2015 it had no fewer than a million customers. It achieved this with a product called BNDES Card under which it lends to small traders through commercial banks.
Beneficiaries of the BOI gesture include LAPO Microfinance Bank which got N1 billion, while Fortis Microfinance Bank and Lotus Capital Limited were presented with cheques of N500 million each. According to the Acting Managing Director of the Bank of Industry, Mr. Waheed Olagunju, N1.1billion had been previously disbursed to 11 Microfinance institutions under the BOP scheme while the bank has set aside N1.13 billion for disbursement to nine other microfinance banks presently captured under the scheme.
The objective is to engage the established services of these banks as vehicle for credit delivery to the under-served and under-banked micro-entrepreneurs. “We decided to work with microfinance banks because lending to micro enterprises requires special skills that they (MFBs) have acquired,” Olagunju explained.
According to BOI, the scheme is essentially aimed at poverty reduction through job and wealth creation focusing on the rural micro-enterprise operators with a view to extending financial inclusion to them. Bank of Industry leverages on the spread and penetration of the participating MFBs in all parts of the country to stimulate economic activity among the small and micro level entrepreneurs.
Credit facilities are being offered to entrepreneurs based on the comparative advantages of the various states, including Abuja. Facilities are expected to be injected into business enterprises in agriculture, light manufacturing, food products, beverages, solid minerals, services and artisanal activities; others include tailoring, shoe making and other value addition business interests. Indeed, a survey of few enterprises Kaduna, Ondo and Anambra states to ascertain the impact of the BOI initiative from microfinance beneficiaries was revealing. The leader of one of the groups accessing loan from LAPO micro-finance bank in Kaduna South Council, Kaduna, Mrs. Janet Oladeji said close to eight years she has been accessing loan from the bank. The bank gives loan to business men or women in groups rather than individuals. “We are 10 in my group and I am the group leader. Before the bank started giving us loan, it gave us some weeks of orientation on its operations and the available products; afterwards we were given loans according to the capacity and size of business of individuals in the group. While some went for the regular loan under which the client repays back on a weekly basis; some opted for special loan which is paid back on a monthly basis. We also have festive loan, which is targeted at festive periods.”
Mrs. Oladej isaid the bank does not tolerate defaulters who are often denied further facility. “For those of us in a group, when any member of the group finds it difficult to pay back, we come together to contribute the money and pay to the bank pending the time the person is able to pay us back. The bank has been a source of help to many and the reason why some businesses still exist,” she added. Another beneficiary, Madam Halima Saleh of Sabon Tasha in Chikun Council of Kaduna said her business would have crumbled if not for the loan facility she has been getting from the micro-finance bank.
“I started with petty trading, selling provision and food stuff in small quantity in front of my house, butnow, I have a shop of my own and my business has expanded’’, she enthused. LAPO has a well-structured pattern of operation, with branches spread across the 36 states of the federation including Abuja. For instance, it has over 23 branches across the 18 LGAs of Ondo State and seven branches in the Akure metropolis.
Janet Olaniyi, a staff of LAPO said the MFI only gives soft loans to SMEs indifferent stages; the first stage gets a maximum of N60, 000 and a maximum ofN150, 000 with interest rates that varies from 2.8 percent to “five percent on reducing balances according to payment plan eight months or 30 weeks.” A seamstressin Akure metropolis, Aanu Adesida, recounted her experience with the microfinance institution since she started taking loans from it to expand her business for the past five years. “
That is how it is with LAPO, you cannot divert their money for other things,” she said. Adesida ,along others who gathered at one of the LAPO branches either to get a loan or redeem their payment plan, noted that there were instances when there was no much money available for loans due to the increasing number of people patronizing the institution for loans. “You cannot compare LAPO loans with the loans from banks. The interest rates and conditions are favourable, without breaking ones back or putting one through unnecessary hurdles,” they agreed. Chukwudi Nonso, who runs a grocery store, also in Akure, reaffirmed that over 78 per cent of people who are into SMEs prefer to patronize the micro-finance institutions rather than going to commercial banks owing to alarming interest rates.
They urged government at all levels to intervene by collaborating with the microfinance institutions and expand their finance base in the country so as to help the businesses of the local people, who have unhindered access to such financial institutions.