In just one year of presiding over the affairs of Nigeria’s foremost development finance institution, Mr. Rasheed Olaoluwa, Managing Director/Chief Executive, Bank of Industry (BoI), like most stakeholders is convinced that all is not well with the nation’s industrial sector, hence his decision to implement some initiatives that will generate the revolution the country needs to compete in the leagues of 20 leading economies by 2020.
Having already identified some of the gaps in structuring development financing for indigenous enterprises, the BoI boss recently told Daily Sun, his mandate is to build a DFI that is institutional and efficient, which will also contribute meaningfully to Nigeria’s industrial development.
He spoke on several other issues frustrating job creation and economic development. Excerpts:
Achievements in first one year
I think one of the key achievements in the last one year has been the ability to refocus the institution. We are now properly and intensely focused on our core mandate. And what is our core mandate? Our core mandate is to support the industrial sector; small, large and medium enterprises. That is one. The other thing we have achieved in the last one year is that the institution has been transformed and strengthened to be able to play its role by adopting global best practices and also in terms of risk management, good corporate governance practices and full compliance with regulations and policies.
The institution is better off for it today. At the moment, we are engineering and automating our processes while ensuring that our credit process turnaround time is shortened because prior to now, turnaround time that used to take five to six months to get a loan is now being reduced to four to six weeks to get approval once complete application is available.
Beyond that, in terms of our risk management, loan monitoring and recovery, we have also done very well. Our low performing loan ratio has reduced significantly such that today, our NPL ratio is less than 5 per cent. And that is really comparable to industry standard.
Attaining low NPL ratio
One of the quick wins we did last year was to set up a Loan Monitoring Department. What that means is that, as loans are granted, we monitor on a weekly basis and get results from our workers on the field. So we know what is going on and detect problems very early and begin to take remedial measures.
We have also set up a Loan Recovery Department. And this department has done a lot of work. It was reported recently that we achieved close to N3 billion in recovery last year. That also helped to reduce our NPL ratio.
Compared with other DFIs
Well we looked at a lot of Development Finance Institutions (DFIs), especially in the emerging markets – India, Malaysia, Indonesia, Brazil and even the Industrial Development Corporation of South Africa. And we were able to distill the things they are doing well that BoI was not doing. And the first was in terms of governance strategy. How does the board relate to management? How does the management relate with workers? How do we ensure full transparency in our operations alongside full disclosure and automation so as to ensure that we are not running a manual process because if one runs a manual process, there won’t be efficiency.
So these are some of the things we are trying to adopt in Nigeria at BoI to make sure that we can run as an efficient development bank.
Why Nigeria remains unindustrialised
Yes, I agree with the fact that it is taking a while for Nigeria to get industrialised. But I know also that the government launched an industrial plan, which itself was based on a report issued by the United Nations Economic Commission for Africa. The report was released in 2013 and what they advocated is commodity-based industrialisation. And that was exactly what the industrial plan that was adopted in 2013 by the current administration is all about.
And what does it say? It says that we produce agricultural product, produce solid minerals, produce oil and gas and the by products from it, such as fertilizer, refined products and petrochemical products. Then we should equally be able to process them locally.
However, I believe that if we stick religiously to this plan, it will really take us to the promise land. But let me also add that it is important to focus on how to develop our own local technology. We have a lot of research institutes that have not really done badly.
We have the likes of Federal Institute of Industrial Research Oshodi (FIIRO), Project Development Institute, Enugu and NASENI in Abuja. These institutes have developed low cost technology that Small and Medium Enterprises (SMEs) can actually adopt to make some manufacturing in Nigeria, either in agro-processing or any other thing. So, I believe we need to support these institutes to begin to expand the technologies they have developed.
Moves to privatise BoI operations
Well, in privatisation, it is natural that the new owners who are private sector minded will bring on board a private sector mindset, which is why in all our activities in the last one year, we have tried to run almost with a private sector mindset so that by the time the new owners take over, they will meet a bank that is nimble, efficient and can stand the test of time.
But let me add that the privatisation of BoI is a partial one, which is not going to be 100 per cent. Government will retain interest. Again, we do not know the attitude of the incoming administration but the policy remains that the bank is about to be privatised.
Change in policies viz-a-viz impact on ongoing initiatives
First, I do not believe we are going to have sweeping changes because what is important are the current policies. How much sense do they make? Do they make sense on an international dimension? I mentioned earlier that the industrial policy we are running now was based on a policy document developed by UN Economic Commission for Africa.
So, it doesn’t really matter which government is in power. What is important is that a reasonable policy document has emerged to drive our industrial sector, and the private sector, in the group of the Manufacturers Association of Nigeria (MAN) and the Nigerian Economic Summit Group (NESG), has been carried along. These are the key stakeholders in the sector. For me, I don’t foresee sweeping changes.
But even in the event that some changes take place, I think part of being a good institution is being adaptable to circumstances that are changing and to see how one can leverage on the new opportunities that emerge.
And like I said, we are here strengthening the institutions regardless of the scenario that will play out; we will continue to play our role.
Funding required for meeting with Ivy League DFIs
We should realise that even DFIs in South Africa and Brazil, that are bigger than what we have in Nigeria, are still battling with the challenges of funding. When it comes to funding, you can never have enough.
Rather, the focus should be how much intervention and development impact one wants to make viz-a-viz the funds that are available. And this is why when we developed our five-year plan; one of our core values that we came up with is resourcefulness. It is no longer a case of how much resources we have but how resourceful we are in making the most of the one we have on ground. So it is about doing more with less. And that is what we focus more on.
Developing SME clusters
As at the last time we counted, over 2,000 SMEs have benefitted from our various intervention funds. Before now, all kinds of SMEs just approach us. But now, we want to be more proactive. We want to actually be the one to go out there and identify the high potential SME clusters and it’s a strategy that is playing out. If we go out there and identify a cluster that is playing out, we will give it all the support such cluster needs.
For instance, the Aba Market shoe making cluster that we have identified, we can go there and find out the common features among the players in that cluster, and we now use those features to develop a programme that will make it efficient for us to serve them in terms of their lending needs.
What we intend to do is to identify hundreds of clusters across Nigeria. The last time I did a check with my risk management team, we have identified over 30 but we need to identity over 500 to make sure we can have a deliberate method of reaching out to SMEs. This is the method that has been identified successfully in India and we believe it is the way to go in Nigeria because we have minimal national characteristic.
India is over one billion people. And by African standard, we are the most populous nation in Africa and the leading nation in Africa as well. So we believe that model has worked and it will also work in Nigeria.
Recall that the most pressing issue of 2014 was the realisation that SMEs have not had so much access to finance in the past. What we have done in this regard is to identify all the factors responsible for the inability of SMEs to have access to finance. We have done that and we are addressing the factors one at a time. Some time last year, we accredited a number of business development service providers. That was done to address the fact that most of the applications we received from SMEs were not bankable.
In order to address the issue of loan applications by SMEs, we employed the business development services providers who will in turn help them repackage their proposals so that they can stand a better chance of success. We are essentially taking steps to de-risk the sector. If an SME goes through the BDSPs, it is hoped that they would have helped to streamline the business proposal of that SME in terms of the supplier, market demand and other requirements. That way, they must have put together a proper business proposal. We are hoping that with this initiative, the risk can be reduced and the operators will stand better chances of accessing funds.
Preventing loan defaults
In addition to the strategies that we have put in place to ensure accountability, we also recently came up with a scheme to applaud those who have been faithful to pay back the loan they collected from the bank.
The BoI Board of Directors approved the establishment of a hall of fame where we celebrate worthy customers who have taken loans not only once but in some cases, five times, and have fully repaid. The inaugural list contained 10 names and those names, pictures and profiles adorn our website. On the other hand, we also established a hall of shame alongside the hall of fame, to expose people who not only failed to pay back the loans they collected but who had collected the loans under fraudulent and dishonest circumstances. A lot of them gave cloned documents and diverted loan proceeds to other ventures not mentioned in their document. Just as the names and citations of the inductees into the hall of fame are published on our website, the names of the inductees to the hall of shame are equally published to serve as deterrent to others. Apart from being exposed in the hall of shame, notices will be sent to banks where the defaulters do business as a warning to the bankers.
Resolving issues around high interest rates
The bank is well aware of this problem. Often, when we ask SMEs to approach commercial banks for working capital, they complain about the high interest rate. Because of this, we had to find out which banks were more SME-friendly. When we engaged an SME group to identify banks that were SME-friendly, the group came up with a number of names. We wrote to the banks and requested an agreement to the effect that while BoI provides long-term loan for plants and machinery, the commercial banks will provide the working capital.
In addition to that, we entered into a long negotiation process that also covered the duration of the loan facility as well as other things that SMEs feel very uncomfortable about. Last year, we signed a Memorandum of Understanding (MoU) with SME-friendly banks. What we did under the MoU was to agree with the SME-friendly banks that they will charge MPR plus six per cent interest for any loan advanced to SMEs. By working with commercial banks, we can arrange proper working capital facility. We have seen instances where BoI gave out a long-term loan and the SME ended up stranded for lack of working capital.
When loans go bad, one needs to understand why the loans have gone bad. What we are also doing is to look at all the reasons why loans go bad and try to address them one at a time. We believe that over time, the incidence of defaults will also reduce. There are genuine businesses that really want to do business but for some reasons, they are hampered by factors beyond their control.
Relationship with SMEs-friendly banks
We are talking about growing our national economy and banks play essential role in the economy. If SMEs grow, they add more value to the economy, they create more jobs. It has a multiplier effect. We all have an interest in ensuring that the SME sector grows. One way for it to grow is have access to funds.
We are in the process of ensuring that we address all the factors that had hitherto militated against SMEs accessing funds. There are lots more to come. In addition to engaging BDSPs and SME-friendly banks, we have a dedicated directory on SMEs and we are also increasing the number of locations where we operate.
I will like to leave behind a bank that is very institutional. In order words, a bank that does not depend on one man or woman for its survival. An institution that is very efficient and has embraced digitalisation to move on with time with the adoption of latest technology that is very responsive to the needs of the industrial sector and the SMEs, contributing significantly to developing Nigeria’s industrial sector. And this, I am very confident of.