Deconstructing CBN’s Devt Finance Initiatives



By Obinna Chima

In the wake of the 2008-2009 global financial crisis, central banking and monetary policy in many parts of the world came under intense pressure and entered uncharted waters.
Since then, a recent report by the International Monetary Fund titled: “Challenges for Central Banking,” showed that the breadth and scale of central banking operation had been modified or expanded in unprecedented and even unimaginable ways given the circumstances. Specifically, it pointed out that unconventional policy measures and communication strategies has been vigorously pursued to prevent financial sector meltdown, and subsequently to support economic activities given a disappointing recovery and stubbornly high unemployment rates in most countries.

The Central Bank of Nigeria (CBN) has also continued to carry out its developmental finance functions, focused on all the key sectors of the economy, in its quest to support the activities of the fiscal authorities and also boost growth.
Clearly, over the past few years, the central bank has been much involved in intervening in critical sectors across Nigeria. The core function of the CBN is the maintenance of price stability. However, for this to be achieved, there must be monetary stability and sound financial environment with unhindered access to credit by the real sector.
The Bank’s responsibility can be naturally divided into core functions: price and monetary stability, and developmental functions, which include the provision of appropriate enabling environment.

The developmental roles and monetary management functions of the Bank are mutually complementary. The neglect of one would lead to under development.
To stimulate increase in the flow of long-term financial resources to critical sectors that have multiplier effect on the economy. Its focal areas include agriculture; manufacturing; micro, small and medium enterprises (MSMEs); and infrastructure.
The rationale for the intervention by the CBN includes to champion the improvement of financial inclusion level and poverty reduction; quantitative easing measure to stem the impact of the global financial crisis and improve the financial position of banks, promote agricultural value chain development, job and wealth creation and diversification of the economic base.

Central banks in developing economies aim at the promotion and maintenance of a rising level of production, employment and real income in the country. This they do by working in alignment with the fiscal authorities for effective policy transmission.
The CBN recently put the value of its development finance interventions across the country at about N1.36 trillion.
Some of these include the N373.73 billion that had been expended on the Commercial Agriculture Credit Scheme (CACS) as at the end of July 2016; the N381.99 billion that had been deployed into the SME Restructuring and Refinancing Facility (SMERRF);  the N74.797 billion disbursed under the Micro, Small and Medium Enterprises Development Fund (MSMEDF); the N261 billion so far disbursed under the Power and Airline Intervention Fund (PAIF); and the Nigeria Electricity Market Stabilisation Fund (NEMSF) which received N106.64 billion as at July, 2016.

Some other interventions by the central bank included the Agriculture Credit Guarantee Scheme Fund (ACGSF) which has so far received N100.10 billion; the SME Credit Guarantee Scheme (SMECGS) whose intervention was put at N4.219 billion as well as the Anchor Borrowers’ Programme (ABP) through which N15.77 had been deployed.
The ABP launched by President Muhammadu Buhari this year, aims at creating economic linkages between over 600,000 smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilisation of integrated mills. Under the programme, the sum of N40 billion has been set aside from the N 220 billion micro, small and medium enterprises development fund for farmers at a single-digit interest rate of nine per cent.
In addition, the central bank created a N300 Billion Real Sector Support Fund (RSSF) established as part of the efforts to unlock the potential of the real sector to engender output growth, value added productivity and job creation. N152 billion has been approved five projects under the RSSF.

The CBN Governor, Mr. Godwin Emefiele recently emphasised that the central bank’s determination to improve lending to the real sector of the economy would stimulate employment generation and boost accretion to foreign reserves through non-oil exports.
No doubt, the sharp fall in crude oil prices since June 2014, has led to a significant drop in the country’s revenue and as well as the country’s external reserves.

Youth Empowement
The CBN has been acting as a financial catalyst in specific sectors of the economy particularly agriculture, in a bold effort to create jobs on a mass scale, improve local food production, and conserve scarce foreign reserves.
For instance, it has in the past two years introduced the Youth Innovative Entrepreneurship Development Programme (YIEDP). The scheme was launched in March 2016 in furtherance of the CBN’s intervention in the real sector of the economy and job creation effort. The pilot phase of the programme targets 10,000 youths in productive activities within the next four years. Under the scheme, a credit line of up to N3 million would be made available to each eligible youth, while recipients who made good utilisation of the funds would be encouraged to migrate to other CBN intervention schemes that would enable them access more funds

Emefiele had explained that: “The far reaching objectives of the CBN in the implementation of schemes and programmes for real sector development focus on the inherent potential in the sector is-a-vis our conviction that the sector has sufficient employment capabilities, high growth potentials, contributes significantly in accretion to foreign reserves, expands the industrial base and apparently diversifies the growth potentials of the national economy.”

Non-oil Export Stimulation Facility

In addition, as part of efforts to boost activities in the non-oil sector of the economy, the CBN recently unveiled a N500 billion low interest rate non-oil export facility.
The banking sector regulator had explained that the fund was established to support the diversification of the economy away from oil and to expedite the growth and development of the non-oil export sector. According to the guidelines for operating the fund, the CBN will invest in a N500 billion debenture to be issued by Nigerian Export-Import Bank (NEXIM) in line with section 31 of CBN Act.
It further stated that the facility was essentially designed to redress the declining export credit and reposition the sector to increase its contribution to revenue generation and economic development. It will improve export financing, increase access of exporters to low interest credit and offer additional opportunities for them to upscale and expand their businesses in addition to improving their competiveness.

The Nigerian Export – Import Bank (NEXIM) shall be the Managing Agent of the Non-Oil Export Stimulation Facility (ESF). It shall be responsible for the day-to-day administration of the Facility and rendition of periodic reports on the performance of ESF to CBN.
“Facilities with a tenor of up to three (3) years, would be granted at a maximum all-in interest rate of seven and half percent (7.5%) per annum; Facilities with tenor of over three (3) years, would be granted at a maximum all-in interest rate of nine percent (9%) per annum.

Also, the central bank recently revealed that in order to ensure continuous flow of credit to the export sector at competitive rates, especially against the background of declining export loans and the need to promote sustainable non-oil exports, it decided to expand the Export Credit Rediscounting and Refinancing Facilities (RRF) by N50 billion to support banks in the provision of pre- and post-shipment finance to exporters to undertake export transactions.

Support for CBN
A coalition of Civil Society Groups, under the auspices of Vanguard for Social Justice (VSJ), last week supported the policies of the CBN as well as the federal government to revive the Nigerian economy.

Speaking in Abuja, the convener, Etuk Bassey William, commended the policies of the CBN, particularly the blockage of leakages to the country’s foreign reserves as well as the injection of funds into the real sector, with a view to revamping the ailing economy.
William, who noted that the current economic challenges and recession were the culmination of many years of financial imprudence on the part of government at different levels, noted that the CBN had shown leadership by daring to plug loopholes in Nigeria’s foreign reserves.

“By restricting FX allocation to 41 items in which Nigeria has comparative advantage, the CBN has given new lease of life to many companies that were hitherto suffering from strangulation brought about by the importation of items that can be produced in the country, ” a statement yesterday quoted him to have noted.
“Instead of condemning the difficult decisions taken by the Management of the CBN to ensure there is no total collapse in the economy, stakeholders should commend the CBN for its positive move of digging Nigeria out of recession,” William added.

The coalition group also faulted calls for the resignation of the CBN Governor over the current exchange rate of the Naira, stressing that the value of the Naira would only witness an upward spike when the country exports goods and services to earn foreign exchange.
While urging the federal government to make good its promise of diversifying the economy, he charged Nigerians to re-enact their patriotic zeal by patronising made in Nigeria goods and services in order to achieve a more diversified economic system.
On the other hand, the central bank has said no amount of blackmail and intimidation would deter it from carrying out its monetary policy objectives.

The acting Director, Corporate Communications, CBN, Mr. Isaac Okoroafor, who said this while reacting to a protest that took place at the central bank’s head office in Abuja last Tuesday, urged Nigerians to partner with the fiscal and monetary authorities in order to take the economy out of  a recession.
He said the present state of the economy was as a result of “our collective failure to make the right choices over the years, to plan and to develop our economy, as well as the development in the oil industry which saw the drop in crude oil price.”
“We are not joining issues with anybody and the CBN is not going to yield to any kind of blackmail. Whereby you block avenues through which people were doing round tripping and they go, organise some innocent women, print T-shirts for them to say they are protesting, we would not be deterred by such actions and blackmail.

“All we know is that our economy is facing very serious situation and both the monetary and fiscal authorities are putting their heads together to find solutions. Already, some of the solutions can be found in what we are already doing at the CBN. This includes to make sure that we make judicious use of the forex that come in and direct it to the most important sectors, to stimulate the economy and create jobs.

“We are also doing a lot in trying to diversify the economy, by funding agriculture to at least provide food for our people and to provide alternative for some of the imported items.
“So, this situation was not caused by Emefiele and I want to assure you that Emefiele is working to ensure that this economy survives. We would continue to ensure price stability is achieved,” Okoroafor said.