CBN keen on reviving agriculture, manufacturing sectors via credit policy

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To consolidate and maintain the economic recovery, the Central Bank of Nigeria (CBN) recently introduced clear interest loans for operators in the manufacturing and agricultural sectors of the economy. CHIMA NWOKOJI writes about the views of stakeholders and the benefits of affordable, long-term bank loans to sectors that are viewed as employment and growth promotion.

With the resumption of work in 2014, as the new Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emphilel outlined his agenda for economic policy and development in the long term.

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In his inaugural speech, he stressed that the CBN will return to the goal and implement its intervention programs in the agricultural sector to ensure the receipt of high added value from the funds provided.

His words: "Interventions in this sector will now be aimed at increasing labor productivity in areas with high domestic demand, where opportunities exist for improving domestic supplies such as rice, fish, wheat and sugar and preserving foreign exchange. These four products constitute a huge share of our food import bill of 1.3 trillion rubles a year. "

In accordance with the above agenda, the regulator of the banking sector has since systematically monitored the development objectives, stimulating growth in the most important sectors of the economy.

More recently, the CBN at its meeting of the Monetary Policy Committee (MPC) in July 2018 stressed the need to increase the flow of credit into the real economy to consolidate and maintain the economic recovery.

To achieve this goal, the central bank also said that in the future banks will encourage direct, long-term bank loans for production, agriculture, and other sectors that are considered to stimulate employment and stimulate growth.

In different countries there are different approaches to economic development; some focus on economic development through industrialization, while others focus on high-value agricultural production. Several factors determine which model the country should focus on to promote economic growth. However, to achieve growth in both urban and rural areas, it is necessary that growth strategies be emphasized in both models, since the development of the agricultural sector is a necessary precursor to industrialization, and the development of the industrial sector can lead to the development of agriculture,

In the studies of economic growth, there is a general consensus that agriculture promotes economic development, and then how the industry contributes to development. In truth, these two sectors should not be viewed as competitive, but complementary to each other. In practice, futures for agriculture and industry are closely related to each other in the sense that the expansion of agriculture depends on the supply of industrial resources, and the expansion of industry is associated with the development of agricultural activities. JL Nehru noted in 1963 that agriculture is more important than industry, since industry depends on agriculture.

At an interest rate, the Chief Executive Officer of the Financial Derivatives Company (FDC) Limited, Mr. Bismarck Reavan, was one of the most vocal advocates of lowering interest rates. A respected economist has consistently argued that if the base interest rate, the monetary policy rate (MPR), which was held at 14 percent from July 2016, will be reduced, the economy will continue to struggle, and critical problems such as rising unemployment are unlikely Is it possible to effectively solve

According to him, it is necessary to lower interest rates so that operators in key sectors of the economy, such as agriculture and manufacturing, who hire a large number of people, will be able to borrow at interest rates that they can afford.

In a report published by his firm last June, he said: "With the MPR standing at 14 percent, official lending rates for commercial banks vary from 20 to 25 percent per year, and microfinance banks – from 40 to 50 percent .

Thus, CBN recently issued guidelines for access to the Real Sector Support Fund (RSSF) using the requirements for cash reserves (CRR) and corporate bonds (CB).

The new policy marks a big shift from the regime with a high interest rate of 25 to 30 percent, which was accused of strangling agriculture, production and other enterprises in the country.

New rules

In the RSSF, the CBN has clearly indicated that the activities to be covered under the program will be Greenfield (new) and Brownfield projects in manufacturing, agriculture and other related sectors approved by the bank.

Thus, banned operators involved in trade gain access to means of supporting the real sector and warn banks that "try to falsify by submitting projects that do not meet the eligibility criteria / specified conditions and conditions must attract severe penalties."

The facility must have a minimum period of stay of seven years and two years. In addition, credit risk will have a participating financial institution (PFI).

But according to the new guidelines, CBN noted that banks interested in lending to Greenfield (new) and Brownfield (new / expansion) projects in the real sector (agriculture and production) may require the release of funds from their CRR for financing projects , provided that the bank will provide verified evidence that the funds will be directed to projects approved by the CBN.

In addition, he stressed that the refinancing of existing loans is prohibited for financing under the program, saying that any attempt to falsify information will also attract serious sanctions.

The guidelines state: "This program involves investing CBN and the general public in corporate bonds (CB) issued by companies that are subject to increased transparency requirements for companies rated Triple A.

"Such requirements include publication through the publication of an Information Memorandum that outlines the details of projects for which funds are required, as well as conditions that show that these are long-term projects that stimulate employment and stimulate growth."

The new guidelines emphasized that priority would be given to projects with high local content, import substitution, foreign exchange earnings and job creation potential.

According to the CBN, this initiative also aims to stimulate growth in the employment and elasticity sectors. By providing information on the differentiated CRR system (DCRR), the guidelines state: "It should include loans for Greenfield projects or extensions using CRR. Nevertheless, the focus will be on new projects. "

In terms of securities that are financial instruments issued by corporations that meet the eligibility criteria, as defined by the CBN, the tenor should be listed in the prospectus, but not less than seven years. In addition, a moratorium on such securities should be indicated in the prospectus of issuance by the issuing corporation.

He specified: "The maximum size of the facility should be N10 billion for the project. The funds must be managed at a mandatory rate of 9% per annum. The Bank's clients are advised to report any bank to the CBN Banking Supervisor, where such a DMB may charge interest rates above a set maximum of nine percent per year.

"Repayments are amortized and transferred quarterly to the CBN.

"Only DMRs participating in the CRR can participate in DCRR. For the Central Bank, all financial institutions and the general public have the right to participate in investing in the Central Bank. "

Stakeholders' views on politics

A herd of farmers welcomed a nine per cent interest rate credit policy, but called for prompt monitoring of commercial banks to ensure effective implementation.

The National Presidential Association of Rice Farmers of Nigeria (RIFAN) Alhaji Aminu Goronjo said that rice farmers in the CBN (ABP) borrower support program have been using a nine percent interest rate since 2015.

Goronjo expressed optimism that the policy will help improve the production of other agricultural products in this sector.

He believes that as the 9 percent rate on loans within the ABP helped increase rice production from two million to 3.5 million tons to nine million tons a year, it will be replicated in other crops.

"Prior to the unambiguous CBN interest rate, our products were no more than 2 million and 3.5 million tons per year, but today we produce almost nine million tons because of this intervention.

"I'm sure it will be the same for other products that will use this intervention," said Goronjo.

In an interview conducted by the National President of the Nigerian Information Agency (NAN), the Agro Allied Women's Agriculture Association, Ms. Lizzie Igbine, said that although the interest rate of nine percent would encourage farmers to increase production, it is necessary to reduce it to five percent,

"We only ask for five percent, CBN still needs to do more.

"We have a long way to go to help us, but we hope that there will be no hidden rates or fees that farmers will pay after receiving loans," she said.

The National Secretary for Advertising of the National Fish Association of Nigeria, Mr. Chidike Uko, said that the expectation of farmers for CBN continues to reduce lending rates by about five per cent.

"When you have a mass production of food, industry will have raw materials, and the level of productivity will bring the total income in the economy.

"The gross domestic product (GDP) will be largely such a volume of production. We are doing business at five percent.

"If commercial banks observe a single figure, it will be very good. This development, which we need to observe, "- said the secretary for advertising.

At the Consultative Association of Employers of Nigeria (NECA), this initiative will contribute to the development of the real sector.

NECA's CEO, Mr. Olusegun Oznano, welcomed the scheme and said: "Although this scheme starts with production and agriculture, it should also be extended to other sectors of the economy, especially the sectors that will create jobs for abounding unemployed in the country.

"We believe that the focus is on ensuring economic growth, especially now that we have emerged from the recession and have achieved some stability."

Osnovano also said: "Thanks to transparency, correct structure and implementation, this scheme will promote economic growth, create new jobs, reduce crime and restore youth. This will also improve the ease of doing business in Nigeria. "

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