High default rate threatens govt intervention schemes in entrepreneurship, agric

Adebayo Obajemu

Since coming on board, the administration of President Muhammadu Buhari has come up with a series of measures in form of logistics and loan incentives to boost entrepreneurship and agriculture in the country.

Majority of these intervention schemes have been initiated and championed by the Central Bank of Nigeria, Bank of Industry, and Development Bank of Nigeria unfortunately, some beneficiaries have not been able to pay back, thus creating a burgeoning non-performing loan profile.

In spite of this, the administration has continued to offer support. The Central Bank of Nigeria, CBN, introduced the Rice Anchor Borrowers scheme, and committed about N780 billion with less than 20 percent repaid.

Thus in March, 2021, the Federal Government said that the Bank of Industry (BoI), under the supervision of the Federal Ministry of Industry, Trade and Investment, had secured a $1 billion syndicated loan to support Micro, Small and Medium Enterprises (MSMEs) in the country.

The loan, according to a release by the Federal Ministry of Industry, Trade and Investments, is expected to improve the capacity of the bank to effectively support MSMEs across key sectors of the Nigerian economy.

This disclosure was made then by the Minister for Industry, Trade and Investment, Otunba Adeniyi Adebayo, at the Quantum Mechanics Limited MSMEs Survival Fund capacity building programme in Abuja on Monday, March 22, 2021.

Adebayo said the loan facility, which has some benefits that include long-term tenor and moratorium, is being implemented in collaboration with international partners and is part of the government’s efforts toward economic recovery and sustainable growth.

Adebayo in his statement said, “There is an ongoing discussion with Dunn and Bradstreet to establish an SMEs Ratings Agency of Nigeria (SMERAN) to provide an empirical basis toward analysing the eligibility of SMEs to access credit.’’

He said the initiative, which is part of the Federal Government’s Nigerian Economic Sustainability Plan (NESP), is aimed at protecting MSMEs businesses from the shocks of the pandemic.
The Minister said, “The fund comprises the Payroll Support Scheme which aims at supporting MSMEs in meeting their payroll obligations and safeguard jobs by paying up to N50,000 to a maximum of 10 employees for three months.

“The Artisan and Transport Grant supports self-employed artisans with a one-off payment of N30,000 targeting 333,000 individuals. The General MSMEs Grant will provide 100,000 MSMEs with one-off grants of N50,000 each.

“And the Guaranteed Off-take Scheme aims at engaging approximately, 100,000 businesses nationwide to produce items typically manufactured in their locality, targeting 300,000 beneficiaries. The scheme supports free registration of companies for 250,000 beneficiaries,” he said.

But government and analysts are worried at the high rate of default among beneficiaries in interventions in entrepreneurship and agriculture.

This trend of non-performing loan has been a source of worry to the Bank of Industry, whose managing director was quoted as saying: “People believe that any money from the Bank of Industry that is owned by the government is part of the national cake.”

According to the bank, the nation’s entrepreneurs have not cultivated the habit of repaying loans, saying its non-performing loan portfolio awarded to entrepreneurs ranges between 80 and 100 per cent.

Olukayode Pitan, the bank’s managing director, made this assertion recently at the first edition of the Community engagement development workshop organised by the Arthur Mbanefo Digital Research Centre (AMDRC) of the University of Lagos (UNILAG) Akoka.

The workshop, with the theme; “Building the Nigeria’s Economy for the Immediate Future: The Role of Innovation and Entrepreneurship and Startups Creation,” had in attendance scholars and industry leaders including the director of the university’s Institute of China Development Studies, Olufemi Saibu; head of programme- migration for development at the German Agency for International Cooperation, Sarah Alonge, and the director, entrepreneurship and skills development centre at UNILAG, Sunday Adebisi, among others.

Pitan, in his own submission, listed some of the conditions that make it difficult for Nigerian start-ups to access loans from the bank. He said if proper steps are taken start-ups can get loans of up to N10m to expand their business initiatives.

“You can get the loans without bringing your house as security. All we require are two guarantors and I can tell you, most Nigerians have problems getting two guarantors because they know them.

“We require the BVNs of those guarantors and a few things but they will not give it because they know the people. So we are saying if people that know you do not want to guarantee you why should we?” he said.

He said another thing the bank tried was the introduction of matching grants which he noted that about 20 states are a part of.

Mr. Pitan said; “We go to your state and tell the governor that any amount you give us, we will match it. We will lend the money in your state but I can tell you that the non-performing loan ratio so far is on the average between 80-100 per cent.

“People believe that any money from the Bank of Industry that is owned by the government is part of the national cake. All we ask of you is pay back that money so that we can give you another loan. Nigeria’s brand of entrepreneurship will lead to increased poverty.”

Meanwhile, the director of the University of Lagos’ Institute of China Development Studies, Mr. Saibu has said the way Nigeria is pursuing its entrepreneurship programme will only lead to an increased number of people living in poverty in the country.
He said an entrepreneur is expected to identify a problem, look critically at the problem, and come up with a solution that is treatable and can be exchanged with a buyer but that what Nigerian entrepreneurs are doing was merely to create applications for Nigerians to access products overseas.
“If you create a product that nobody can buy, that is not a solution,” he said.

According to him, an entrepreneur does three things including bringing up a completely new product or facilitating product getting to the buyer or creating access to that product.
“Our focus so far has been creating platforms for people to have access to products and that has been creating problems for our supply side. We are not creating entrepreneurs who are creating products, we only create entrepreneurs who facilitate the trading of a product produced in other countries,” he said.

He said creating platforms and apps that make people buy oversea only adds problems to Nigeria’s foreign exchange.
“The start-ups may earn billions of dollars but they are adding to the problem of our country because the products and apps they created are promoting businesses overseas.

“They make it easier for people to buy in Amazon and China but they have not made people buy from Nigeria. Therefore, we need to have a rethink that the entrepreneurs that we want to produce will be people who create products that we can sell outside Nigeria,” he said.

It is not only in the area of entrepreneurship that we have witnessed high rate of non-performing loan, but also in the area of government’s intervention in agriculture.

According to data from the CBN Economic Report for April, farmers who subscribed to the CBN’s Anchor Borrowers’ Programme owed the apex bank N463bn as of the end of March 2021.

The ABP was launched on November 17, 2015, by the President, Major General Muhammadu Buhari (retd.), to reverse the country’s negative balance of payments, especially in the area of food.

Beneficiaries of the programme include farmers cultivating cereals (rice, maize, wheat, etc.), cotton, roots and tubers, sugarcane, tree crops, legumes, tomato and livestock.
Loans are disbursed to the beneficiaries through deposit money banks, development finance institutions and microfinance banks, which the programme recognises as participating financial institutions.

The CBN report revealed that from the inception of the ABP in November 2015 to March 31 this year, the sum of N492bn had been disbursed to 3.04 million farmers.

The report, however, showed that only N152.3bn had been repaid by the beneficiaries while the outstanding loans stood at N463bn.
“For the Anchor Borrowers’ Programme, the sum of N615.4bn had been disbursed to 3,038,899 beneficiaries, out of which N152.3bn was repaid,” it said. As at August it was learnt that the CBN’s unpaid loan as of November 2020 stood at N378.5bn.
As of the period, the apex bank had disbursed a total of N788.2bn to finance 2.3 million projects under the programme, but received only N118.7bn in repayment.

According to the CBN’s guidelines for the ABP, the broad objective of the programme is to create economic linkage between smallholder farmers and reputable large-scale processors with a view to increasing agricultural output and significantly improving capacity utilisation of agricultural firms.
Economic experts, who reviewed loan repayments under the programme, linked rising default rate to rising insecurity in certain parts of the country, especially the food-producing states.
Dr. Olufemi Omoyele, director of Entrepreneurship at Redeemers University told Business Hallmark that, “While the initiative of loans to entrepreneurs and farmers was commendable, its success, which could be measured by the repayment rate, was being hampered by the security problems in the country.

“What are we saying, everyone knows the high level of insecurity in the country, most especially in the northern part where farmers cannot go to farms; so tell him how they will get money to pay back when their farmlands have been ravaged by cattle of the herdsmen.”

Dr. Adeniyi Oshatomi, an economist agreed with Omoyele’s submission, saying the programme’s effectiveness was limited by the rising wave of insecurity in the country.

Meanwhile, the CBN says it has disbursed a total of N788.035bn to four million farmers in the country through the ABP.
The CBN Governor, Godwin Emefiele, disclosed this recently in Jos at an event to begin the Nigeria Brown Revolution programme aimed at boosting wheat production in the country. Emefiele, who was represented by the CBN Deputy Governor, Corporate Services, Edward Adamu, said, “The Anchor Borrowers’ Programme has recorded successes in supporting smallholder farmers to increase the cultivation of different commodities across the 36 states of the federation and the Federal Capital Territory.

“Through the programme, N788.035bn has been disbursed to about 4.0 million farmers through 23 participating financial institutions. So far, 4.796 million hectares of farmlands have been cultivated under the programme covering 21 commodities.”

According to the CBN, wheat is the third most widely consumed grain in Nigeria after maize and rice, with the country producing only about one per cent (63,000 metric tonnes) of the five to six million metric tonnes of the commodity consumed annually in Nigeria.

He said, “This enormous demand-supply gap is bridged with over $2bn spent annually on wheat importation. This has made wheat the second highest contributor to the country’s food import bill.

“Given the high growth rate of the country’s population and the demographic structure, the demand for wheat is projected to continue to rise. This can only intensify pressure on the country’s reserves unless we take a decisive step to grow wheat locally.” So the Bank has banned funding wheat import from December.