Broad Street, Lagos
The failure of Finance Houses to effectively play their financial intermediation role in the economy has been blamed on their inability to secure long-term and cost-effective funds.
Speaking at a forum organised by the Finance Houses Association of Nigeria (FHAN) in Lagos, former Managing Director of First Funds Limited, Mrs. Yemisi Tayo-Aboaba, expressed concern that most companies source short –term funds to finance long-term businesses, which she described as asset-liability mismatch.
According to her, adequately funded finance companies would contribute to the growth and development of the economy. .
“High cost of funds leads to riskier investments and makes finance companies less attractive to other institutional financiers,” she explained.
This limitation, according to her, means that finance companies can only source funds from shareholders, private equity companies, development finance institutions and other institutional investors.
Tayo-Aboaba, whose speech was titled: “Finance Houses and funding challenges – Any silver Bullet?” however, explained that unlike banks, finance companies are not allowed to accept deposits.
She explained that finance companies exist to bridge the gap between the commercial banks and the microfinance banks.
“Finance companies exist to bridge the gap between the big commercial banks and the microfinance banks. To be relevant, finance companies need to concentrate on under-served segments of the market and develop products to serve these segments efficiently.
“Arguably, the small and medium enterprises (SMEs) segment of the economy is a natural focus. The retail segment may also offer significant opportunities. In addition, finance companies as a group may be able to collaborate with government in providing funding and capacity building that is critical for growing the SME segment,” she added.
According to her, the subs-sector offers a variety of services such as funds management, equipment leasing, project financing, local purchase order (LPO) financing, debts factoring, and financial consultancy among others.
Finance companies provide financial services for consumer industrial, commercial, or agricultural enterprises.
Also speaking, the Director and Head Project and Structured Finance, FBN Capital Limited, Mr. Patrick Mgbenwelu, who spoke on Public-Private Partnership (PPP), said that most PPPs deals require debt maturities above eight years.
“Pool of existing and projected local bank debt funding insufficient to meet Nigerian infrastructure investment requirements of planned projects across all sectors as the size of domestic banking system is insufficient to finance existing pipeline of deals.
“Financing projects in local currency has historically proven to be quite challenging on cash flows given the levels and volatility of local interest rates. Borrowing in foreign currency exposes project to additional risks which could prove expensive to hedge,” he said.