The Head of Business Banking, Stanbic IBTC Bank Plc, Remy Osuagwu, in this interview with Oluchi Chibuzor and Hamid Ayodeji, explain the bank’s role in providing financing to micro, small and medium scale enterprises. Excerpts:
Given the pivotal role SMEs play in fostering economic growth, what must the government, regulators and banks do to further drive growth of the sector in Nigeria?
The pivotal role of SMEs in fostering economic growth is not in doubt. This is evident in the importance advanced economies like the United Kingdom, China and the United States of America, place on SMEs. The broad task of all stakeholders is to create an enabling environment for businesses to start, grow and succeed. Nigeria is 146th on the latest “Ease of Doing Business Ranking” of the World Bank. Our collective effort should be geared towards improving on this ranking by improving efficiency in all areas of business interaction and growth.
It is pleasing to note that progress is being made in this respect. The “Doing Business” 2019 report recognised Nigeria’s relative improvement in areas such as making it easier to start a business by reducing the time needed to register a company at the Corporate Affairs Commission; moving the submission and processing of documents for imports online; and making the enforcement of contracts easier by issuing new rules of civil procedure for small claims which limit adjournments to exceptional circumstances.
What this teaches us is that supporting enterprise growth requires a long-term perspective and a consistent, coherent strategic approach. Small, incremental improvements across different ministries, departments and government agencies become visible in the mid to long term. So government and regulatory authorities must continue to aggressively create policies that foster a dynamic business environment, facilitates entrepreneurship and enables firms of all sizes to aim for and reach their full potential.
With respect to banks, they currently sit on a huge trove of wealth. No, I’m not referring to money or profits, I am referring to data. The efficient use of data could enable banks to address previously unmet needs like automatic tax payments, pension remittance, insurance payments etc., proficiently. Banks need to partner with providers of enterprise services to increase the attractiveness of their banking propositions. Further, tailoring products for specific enterprise segments and in line with stages in the growth cycle of the enterprise will better serve SMEs because as an enterprise grows, its needs become more complex thus presenting even more opportunity to the banks, while meeting the SME’s specific needs.
It is also important that banks partner with entrepreneurs from a capacity building perspective. Stanbic IBTC is at the forefront of this via several programs. Finally, ability to source financing at affordable interest rate is another area in which the government can support SMEs. Availability of such intervention funds for on-lending to SMEs ensures they can access financing at affordable rates. Related to this, is the need for efficient administration of existing on-lending schemes, to ensure SMEs feel the positive impact of the schemes.
As government alone is not able to provide the financing and resources to cater for the needs of the citizenry, what kind of role do you see public-private partnerships playing to support economic development, especially in catalyzing financing and growth of small and medium enterprises?
First, I will like to debunk the school of thought that places the burden of providing the financing needed by the citizenry on the government. The merits and demerits of this may be debated on another forum. If resources are spent on digitising and improving the overall efficiency of ministries, departments and agencies which directly interact with business enterprises, it will serve as a huge catalyst in the growth of SMEs. We can already see the impact at the Corporate Affairs Commission and the National Collateral Registry.
The new passport issuance process being rolled out by the Immigration Office will also have a positive impact. Having said that, public-private partnerships, which are mutually beneficial relationships that are formed between the public and private sectors, can play a huge role in stimulating Nigeria’s economic growth. Typically, the private sector partner makes a substantial investment and in return, the public-sector gains access to new and improved services. In Nigeria the perennial complaint of our ‘lack of maintenance culture’ at various government installations can be mitigated with public-private partnerships.
With regards to how the growth of SMEs may be catalysed by public-private partnerships, the power sector comes to mind. The good work being done by the Rural Electrification Agency cannot be overlooked. In collaboration with two renewable energy developers, Ariaria Market Energy Solutions Limited (AMES) and Solad Power Holdings, the partnership has brought consistent and sustainable power to the economic clusters at Ariaria market Aba and Sura Market Lagos based on the idea that providing sustainable electricity increases productivity and stimulates real economic development. The SMEs in these locations have experienced a leap in productivity. So, such partnerships should be encouraged and proliferated.
A fundamental shift has occurred in the manner financial assistance is given to businesses from the traditional criteria for assessing creditworthiness to financing ahead of anticipated growth and development, instead of on growth that has already occurred. Is this model working in the Nigerian space?
There is a parallel paradigm in financial assistance directed at financing anticipated growth but I do not think there is a complete paradigm shift. Venture Capital, as this manner of financing is called, involves providing funds to early-stage firms (startups) that are perceived to have high growth potential. Arthur Rock helped popularise it with his involvement in Fairchild Semiconductor in 1957. However, not all businesses are at an early stage in terms of their growth. A significant number of businesses are not designed to have a high growth rate and the source of an investor’s funds is a key consideration when determining risk appetite.
Having this in mind, it becomes obvious that there will always be a place for financial intermediation or traditional banking as we know it. Businesses further along on the growth curve will need debt for expansion projects, or as working capital, or to acquire assets, and the provision of this debt will rely heavily on assessing the creditworthiness of such enterprises. Businesses with a much slower growth rate will need well structured finance that accommodates consideration for their peculiar cash flows patterns – businesses like farming/agriculture, small businesses like salons, businesses critical to society like traditional brick and mortar schools, all fall in this category. But to the point, the Venture Capital model works. Some of the biggest firms in the world today grew with the support of VCs. I spoke of Fairchild Semiconductor earlier, that company started the microchip revolution that was the precursor to the personal computer revolution in the 80s. In Nigeria, the payment industry is replete with several existing and thriving examples of companies borne on the auspices of this mode of financing. The future will see even more of these investments in Nigeria but the opportunities available are large enough to accommodate both forms of financing.
Would you say policies and regulations are fashioned in a manner to provide necessary support to operators in the Nigerian SME segments, as well as attract new players?
As I indicated in response to your first question, policies and regulations which influence the growth of enterprises are interconnected and often cut across the boundaries of different ministries, agencies, levels of government and administration. With this as a backdrop, we have recorded significant progress. Good examples to highlight include: The collaborative effort between the CBN and the Nigeria Inter-Bank Settlement System (NIBSS) to create a regulatory sandbox, to nurture the development of innovative financial services; the memorandum of understanding between the CBN and the Nigerian Communications Commission on the development of digital payment systems; the CBN supervised partnership between the committee of bank CEOs and other private sector players to roll out a massive network of 500,000 agents nationwide; and the establishment and support given to the Small & Medium Enterprises Development Agency of Nigeria (SMEDAN) with a mandate to stimulate, monitor and coordinate the development of the MSME sector.
Are they perfect or sufficient in and of themselves? Perhaps not, but they are the right steps in the right direction and they provide hard evidence that attempts are being made to fashion policies that support operators in the Nigerian SME segment. This is just the beginning, bearing in mind that the benefits will become clearer in the mid to long term.
The large share of agriculture in Nigeria’s GDP suggests that strong growth in agriculture is necessary for overall economic growth. What kind of opportunities exists for investment that will help to unlock the potential of agriculture and to derive optimal benefits from the country’s natural resources?
The potential of agriculture in Nigeria is yet to be fully tapped and this is responsible for the country’s inability to meet the ever-increasing demand for agricultural produce. According to a World Bank report, the agricultural sector remains a dominant employer of labour in Nigeria and investment opportunities abound across the following areas to enhance production and increase Agriculture contribution to the country’s GDP. Crop production to achieve food security and to provide industrial raw materials. Potentials exist for the following crops: cereals (Rice, Maize, Sorghum, Millet and Wheat); legumes (Soya Beans, Groundnuts, Cowpeas); vegetables (Cabbage, Green Pepper, Carrots, Lettuce, Spice, Onions, Melons, Tomatoes – these are focus crops for Greenhouse farming, with significant and growing offtake from large retail stores across the country); root crops (Cassava, Yam, Ginger, Potato); Fruits (Mango, Banana, Oranges, Guava, Pawpaw, Pineapple); tree crops (Oil Palm, Cocoa, Rubber, Coconut, Kola Nut, Coffee, Shea Nuts, Beni Seed, Cotton, Cashew Nut, Sugar Cane). Mechanisation, to enhance commercial agriculture practices. Nigeria currently has one of the lowest densities of tractor per hectare of land in the world (currently estimated at 4 by 1,000 Hectare). Agricultural inputs supplies (i.e. fertilisers, seeds, agrochemicals). Irrigation facilities to support opportunities for all-year-round crop production and flood control infrastructure.
Food processing and preservation: this will involve industries that will use agricultural produce as raw materials. Development and fabrication of appropriate small-scale mechanised technologies for on-farm processing and secondary processing of agricultural produce (e.g. Cassava). Livestock and fisheries production which possess great potentials for development. Grazing lands are abundant, facilities for animal feed production are plentiful, and the in-land rivers, lakes and coastal creeks are sufficient to augment ocean fishery resources. Commodity trading and transportation.
Non-performing loans remain a major challenge for commercial banks in Nigeria. How do you reconcile this with your commitment to supporting businesses with the much needed funding and how are you navigating this challenge?
In banking, especially in lending, risk can only be mitigated, not eliminated. We recognise the clear and present danger that non-performing loans pose to our ability to continue supporting businesses. In this regard, we have ensured we factor learnings into our risk appetite and also put in place a rigorous credit evaluation process that ensures we lend only to genuine borrowers. We have also enhanced our monitoring as well as collections capabilities. Additionally, we have introduced loan management modules into our capacity building sessions for SMEs, aimed at inculcating the right behavior in entrepreneurs towards facilities they access. Sometimes, it is the unfamiliarity with consequences of delinquent loans that causes business owners not to give priority to avoiding defaulting on their obligations.
You ran a testimonial campaign a while ago of select customers in various businesses across the country. They all had one thing in common, which is, they do business with Stanbic IBTC Bank and benefited from banking and partnering with you. What would you say sets you apart from other banks in respect to business or enterprise banking?
Simply put, our unwavering commitment to having an in-depth understanding of our clients’ businesses and their plans; our ability to genuinely partner and grow with our clients; our simple but effective means of providing solutions for the needs identified through having a thorough understanding of our clients’ businesses, our dedication to ensuring the best experience for our clients in interfacing with us; our ability to put at the clients’ disposal our recognized broad expertise and the end-to-end capabilities of our Group; our clients’ trust in the fact that we maintain the highest level of integrity in our dealings with them; are defining factors that differentiate us.
Can you provide us with details of major signature projects in the enterprise segment financed by Stanbic IBTC Bank?
There are a number of on-going projects in the enterprise space driven by Stanbic IBTC Bank. But just to mention a few, I had alluded to Stanbic IBTC being at the forefront of capacity building for SMEs in response to an earlier question. The Capacity Building sessions we organise annually for SMEs recognises the need for enterprises to be trained on formal business structures and financial practices in Nigeria. The event is usually organised in partnership with reputable leaders in business education with the aim of upskilling our SME clients. Speaking further to capacity building, we are in partnership with Lagos Business School to provide entrepreneurial training to our customers as a prerequisite to benefiting from the Agri-business Small and Medium Enterprises Investment Scheme (AGSMEIS), driven by the CBN.
Our Africa-China Banking Centre facilitates business interactions between our clients and their Chinese suppliers. It also caters to the needs of Chinese businesses established in Nigeria. Our Enterprise Direct initiative houses a dedicated team of Business Bankers committed to helping enterprises avoid visiting the branches for basic banking needs. This affords the entrepreneur more time to spend on their businesses. In partnership with the Kaduna State Government, we established the Kaduna State Incubator where selected entrepreneurs are trained. The project aims to address identified challenges faced by entrepreneurs – access to markets, access to funding and access to resources.
We also have the Blue Lab, an innovation lab purpose built by Stanbic IBTC in Yaba area with a focus on co-creating with entrepreneurs in the Fintech and startups. Stanbic IBTC Bank also deliberately facilitates connecting our clients to opportunities both within and outside Africa. Our mode of achieving this includes our annual Trans Regional Conference which brings together businesses across Africa. Through our strong links with Industrial and Commercial Bank of China (ICBC), we sponsor clients to China annually, where they can establish new trade networks with their Chinese counterparts.
A growing trend we’ve witnessed is that banks are offering products to support traders and their businesses. Given the homogeneity of many banking products and services, what differentiates Stanbic IBTC Bank business banking offering from the competition?
There is a term of purpose which we use in Stanbic IBTC – Universal Financial Service Organization (UFSO). As a holding company, we have the benefit of access to financial experts in diverse areas of financial needs, some of which you are probably very familiar with like pension management, asset management, insurance brokerage, stockbroking, trusteeship, custodial services, corporate and investment banking, and retail banking where the Enterprise Banking business sits. The UFSO concept enhances our ability to uniquely provide solutions for our clients’ needs holistically by introducing our other areas of financial expertise, as the complexity of their businesses increase with growth. This differentiates us.
Stanbic IBTC Bank noticeably has since the start of the year aggressively increased its push and efforts in business banking, is that a sign of your renewed commitment to sector?
Our dedication to the business banking sector has actually been unflagging over the years. The increased push that you have noticed reflects our recognition of the strategic importance of this sector, as well as our decision to fully embrace the inherent potential in it. We know that we can add much more value to the overall economy by focusing on serving this sector and we expect to be rewarded handsomely in doing so.
Stanbic IBTC Bank and the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) in 2017 signed a N50billion agriculture financing partnership deal for the 2017 and 2018 dry and wet farming seasons. Stanbic IBTC committed an initial N10billion for the take-off of the scheme, with a plan to expand gradually as milestones are achieved. Did agric based businesses that fall under the enterprise banking segment benefit from this deal and what’s the thrust of your involvement?
The NIRSAL-Stanbic IBTC Agribusiness Finance scheme did commence with a portfolio cap of N10billion, but this was increased to N15billion in 2018. Currently, value of facilities we have approved stands at N13.7billion, with a utilization level of N10.67billion. The difference of N3.01billion is for transactions that are either undergoing NIRSAL approval process, or awaiting clients’ payment on NIRSAL CRG invoices issued. Categories of Agric based businesses under the Enterprise Banking segment that have benefited from this scheme include input supplies (i.e. fertilizer distributors); processing; and anchor borrowers (under the NIRSAL Anchor Borrower Program – ABP). The thrust of our involvement is primarily to support government’s objective of enhancing lending to the Agric sector by financial institutions.