CBN DEVELOPMENT FINANCE INITIATIVES A PAPER PRESENTATION AT

CBN DEVELOPMENT FINANCE INITIATIVES A PAPER PRESENTATION AT MASTER CLASS ON CBN DEVELOPMENT FINANCE INITIATIVES FOR EDITORS ORGANISED BY CENTRE FOR FINANCIAL JOURNALISM NOVEMBER 5, 2016 Dr. M. A. Olaitan – Director Development Finance Department, CBN

OUTLINE § Introduction – Central Banks and the Development Debate § CBN Development Finance Initiatives § Objectives § Focal Sectors § The Approach to the Interventions § The Model of Financing the Interventions § The Policy Deliverables of CBN Development Finance Initiatives § Summary of Impact of CBN Development Finance Initiatives § Conclusion

CENTRAL BANKS AND THE DEVELOPMENT DEBATE Developmental Objective conflicts with Stability Objective ? Policy Analyst Legislators Researchers Civil Society

CENTRAL BANKS AND THE DEVELOPMENT DEBATE CONT’D Gerald Epstein (2009) has identified two schools of thought on central banking. The first is the historically dominant theory and practice of central banking which involves The second is the “neoliberal approach. The main components are: q Financing governments q Managing exchange rates, q Supporting economic sectors by using “direct methods” of intervention. q Central Bank independence q Inflation fighting (including adopting Gerald “inflation targeting”) q Use of indirect methods of monetary policy This, according to Gerald Epstein (2009) is the most important tasks of central banking and, among the reasons for their existence. This is called ‘best practices’ and prescribed by The International Financial Institutions such as International Monetary Fund (IMF) and other prominent economists.

CENTRAL BANKS AND THE DEVELOPMENT DEBATE CONT’D The global financial crisis undermined the essence of the orthodox approach promoted by IMF and the multilateral agencies. q The apologists of this school opined that widening the mandates of the central banks will promote sustainable economic development, inclusive growth and greening of the financial system, among others (German Development Institute, 2015). The growth of east Asia economies like Japan, Korea and China has shown that central banks can usefully pursue certain developmental goals. q The Bank of Japan supported government’s industrial policy through credit allocation policies. While the central banks of France, Italy and Belgium have also devised different methods to support desired sectors such as manufacturing.

CENTRAL BANKS AND THE DEVELOPMENT DEBATE CONT’D The Bank’s interventions since 2009 had two major goals Strengthening of the financial system through quantitative easing policy in 2010 to: Direct support to industry that has high job creating capacity and other vital economic agents q address the persisting tight credit conditions and the continuing under-performance of key monetary aggregates q Fast track the development and access to credit facilities by large commercial agricultural enterprises to increase output and create jobs q restructure/refinance DMBs’ exposures to the manufacturing sector and SMEs to ensure the smooth flow of credit to the real sector of the economy q Facilitate access to affordable credit by micro and small businesses, particularly women enterprises. q promote investment in the power sector to achieve sustainable growth,

OBJECTIVES OF CBN DEVELOPMENT FINANCE INITIATIVES The Bank’s interventions initiatives were introduced to: q Increase lending to the critical sectors of the economy; q Provide access to affordable credit; q Diversify the country’s economic base, create jobs and improve macroeconomic stability; q q Boost the capacity of MSMEs; Conserve foreign exchange reserves; Encourage exports; and Expand output of agriculture, manufacturing and services sub-sectors.

FOCAL AREAS OF CBN DEVELOPMENT FINANCE INTERVENTIONS AGRICULTURE MANUFACTURE MSMEs INFRASTRUCTURE These sectors have the potential for job creation, output growth, foreign exchange accretion, and poverty eradication.

CBN DEVELOPMENT FINANCE INTERVENTION - APPROACH PROGRAMMES & SCHEMES CBN DEVELOPMENT FINANCE INITIATIVES PARTICIPATING FINANCIAL INSTITUTIONS INSTITUTIONAL DEVELOPMENT CAPACITY BUILDING POLICY & REGULATION DMBs, MFBs, DFIs FOCAL SECTORS

MODEL FOR FINANACING CBN DEVELOPMENT FINANCE INTERVENTIONS Equity Funding Structure • The CBN partners with the Fiscal Authority (Federal Government of Nigeria) through the Federal Ministry of Finance in contributing capital to fund some of its interventions. Debentures and Bonds • The Central Bank of Nigeria has sourced funds for its interventions through the raising of bonds and buying into debenture papers. Direct Funding by the CBN • In the case of the NIRSAL and NEMSF the Bank is directly funding the interventions.

CBN DEVELOPMENT FINANCE INTERVENTION DELIVERABLES The broad policy deliverables of the interventions can be categorized as follows: ACCESS TO FINANCE DIVERSIFY ECONOMY CREATE JOBS INCLUSIVE GROWTH The question is to what extent has these been achieved? Has the interventions delivered on the intended benefits?

SUMMARY OF THE DEVELOPMENT FINANCE INTERVENTIONS Intervention Single Obligor Limit Individual Farmers: Agriculture Credit Guarantee N 5 million Scheme Fund Corporate Famers: (ACGSF) N 50 million Commercial Agriculture Credit Scheme (CACS) Power & Airline Intervention Fund (PAIF) N 2 billion Interest Rates Types Value Sector Cash in lien, Prime Lending physical assets 25% to 100% of Agriculture Rate and other financial loan facility assets 9% ISPO from banks and State government ISPO value equivalent to value of loan facility (100%) 7% Irrevocable Standing Payment Order (ISPO) from banks ISPO value equivalent to value of loan facility (100%) 70% of the total cost of Power Project 100% of loan granted for refinancing of airline projects Collateral Agriculture Power Airline

SUMMARY OF THE DEVELOPMENT FINANCE INTERVENTIONS Single Obligor Limit Intervention Nigeria Electricity Market Stabilization Fund (NEMSF) Interest Rates Collateral Types 10% First line priority charge Step-In rights on on collections by DISCOS in DISCOS collaboration with BPE 9% Financial Assets 120% of the value of (treasury bills) from the loan facility banks. Real Sector Support Facility (RSSF) N 10 billion SME Credit Guarantee Scheme (SMECGS) Adequate Collateral N 100 millio Prime (physical & financial n Lending rate assets) Micro Small and Medium Enterprises Development N 50 million Fund (MSMEDF) Value Financial assets & 3 rd party guarantee 9% ISPO from state government 120% of loan value Sector Power SME/Ma nufacturi ng SME 50% of loan value MSMEs 100% of loan value

CBN INTERVENTIONS IN AGRICULTURE SECTOR AGRICULTURE INTERVENTION MODALITIES FUNDING SOURCE EXIT DATE The scheme which was N 200 billion FGN initially meant to Bond for 7 years terminate in tenor, floated by September, the Debt 2016 was Management extended to Office (DMO) September 2025 N 200 Billion Commercial Agriculture Credit Scheme (CACS) DMBs are granted facilities to be disbursed to clients (both private and State Government) at a maximum interest rate (all inclusive) of 9%. CBN earns 2% as interest from the 9% Nigerian Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) NIRSAL created Guarantee banks’ exposure as a Special to agricultural sector and Purpose Vehicle provide cascaded interest (SPV) fully funded rebates to farmers. by CBN Anchor Borrowers’ Programme (ABP) Administered at 2% per annum to PFIs for onlending to beneficiaries at 9% CBN MSMEDF

CBN INTERVENTIONS IN MANUFACTURING SECTOR MANUFACTURE INTERVENTION N 300 Billion Real Sector Support Fund (RSSF) N 50 Billion Textile Intervention Facility: N 500 Billion Export Stimulation Facility (ESF) N 50 Billion Export Rediscounting and Refinancing Facility (RRF) MODALITIES Interest at 9% (all-inclusive) and CBN to earn 1%. EXIT DATE FUNDING SOURCE Special Intervention Reserve (SIR) of DMBs Long term loans for acquisition of plant CBN. and machinery. To be funded by All-Inclusive rate of 4. 5%; 3. 5% to CBN repayments from and 1. 0% to BOI other Interventions. Fund Management by BOI All-inclusive interest of 7. 5% for facilities ≤ 3 years and 9% for facilities > 3 years: To be funded by (PFI – 4. 5%-6%; NEXIM – 1%; CBN – CBN 2%). Managed by NEXIM All-inclusive rate of a maximum of 6% per annum with the pricing structure as follows; CBN/NEXIM would provide the RRF at a Funded by CBN rate of 3% per annum Participating Banks shall have a maximum spread of 3% per annum NEXIM as the Managing Agent 31 st December, 2025 28 th February, 2026

CBN INTERVENTIONS IN MSME SUB-SECTOR MSME INTERVENTION N 200 Billion Small and Medium Enterprises Restructuring and Refinancing Facility (SMERRF) Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) N 220 Micro Small and Medium Enterprises Development Fund (MSMEDF) MODALITIES EXIT DATE Administered at 7% per annum payable on quarterly N 200 billion basis. The Managing agent (BOI) is entitled to a 1% debenture issued by management fee and the banks, a spread of 6%. Bank of Industry Loans shall have a maximum tenor of 15 years and (BOI) to fund SMEs or working capital facility of one year. and manufacturing sector Provide guarantee cover of 80% of principal and Contingent liability interest on term loans for SMEs Scheme has been discontinued while repayment is still ongoing. Administered at 2% per annum to PFIs for on. Funded by CBN lending to beneficiaries at 9%. Maximum loan tenor of 1 and 5 years for micro and SMEs respectively. Secured Transaction The NCR is a public data base of ownership of and National Collateral assets, allowing borrowers to prove their Registry (ST&NCR) creditworthiness and potential lenders to assess their ranking priority in potential claims against particular collateral. Youth Empowerment Development Programme (YEDP) FUNDING SOURCE Counterpart funding for the provision Registry on-line platform NYSC Certificate, Tertiary Institution Certificate, 3 rd Funded from CBN Party Guarantor. Registration of collaterals MSMEDF (movables) and financed equipment with the National Collateral Registry. Loan at max 9% interest rate all-inclusive

CBN INTERVENTIONS IN INFRASTRUCTURE INTERVENTION MODALITIES FUNDING SOURCE EXIT DATE Administered at a rate of not more than 7% per annum. The Managing agent N 300 billion Power and Airline (BOI) is entitled to a 1% management debenture Intervention Fund fee and the banks, a spread of 6%. issued by Bank 2025 Effective May 2016, new projects of Industry (PAIF) charged at 9% (BOI at 1%, CBN at 3%, (BOI) DMB at 5%). Funds to be disbursed at 10% per Nigeria Electricity annum with a ten-year tenor. 6% CBN; Market Funded by 2% NESI SS Ltd; 2% Participating Stabilization Fund CBN Mandate Banks (NEMSF):

IMPACT OF CBN DEVELOPMENT FINANCE INTERVENTIONS The impact of the Initiatives can be evaluated on three parameters based on OUTCOMES The achieved shortterm and medium term effects of outputs OUTPUT The changes in products, capital goods and services from the development intervention RESULTS The results of what has been achieved following the provision of the intervention For the purposes of this discourse CBN’s interventions will be evaluated on the results, what we have achieved since the commencement of each of the intervention.

CBN INTERVENTIONS IN AGRICULTURE SECTOR - IMPACT AGRICULTURE INTERVENTION IMPACT/ACHIEVEMENT OCT, 2016 N 200 Billion Commercial Agriculture Credit Scheme (CACS) N 393. 73 billion disbursed in favour of 460 projects. Contributed to the creation of 1, 132, 260 jobs created along the various agricultural value chains. Increased capacity utilization of agro-allied companies. Nigerian Incentive Based Risk Sharing System for Agricultural Lending (NIRSAL) Anchor Borrowers’ Programme (ABP) N 16. 48 bn disbursed to 100, 000 small holder farmers through 22 private anchors in 6 states. 26 States have expressed participation under the wet season farming. Leading to creation of more than 500, 000 jobs

INTERVENTIONS IN AGRICULTURE – IMPACT ON LENDING AGRICULTURE

CBN INTERVENTIONS IN MANUFACTURING SECTOR - IMPACT MANUFACTURE INTERVENTION IMPACT/ACHIEVEMENT as at July, 2016 N 300 Billion Real Sector Support Fund (RSSF) 6 projects valued at N 6. 85 billion disbursed. Contributed to the creation of 17, 000 direct and indirect jobs. N 50 Billion Textile Intervention Facility N 14. 91 billion disbursed 24 projects which boost capacity by 25% and added 7, 000 jobs N 500 Billion Export Applications are being processed. Stimulation Facility (ESF) N 50 Billion Export Rediscounting and Disbursement yet to commence. Refinancing Facility (RRF)

CBN INTERVENTIONS IN MSME SUB-SECTOR - IMPACT MSME INTERVENTION IMPACT/ACHIEVEMENT as at July, 2016 N 200 Billion Small and Medium Enterprises Restructuring and Refinancing Facility (SMERRF) N 381. 99 billion disbursed to 604 projects. Contributed to the creation of 89, 860 direct jobs. Increased productivity and turnover of firms. Restoration of 905 MW of electricity to the National grid. N 6. 9 billion estimated as interest savings to beneficiaries. Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) 87 projects valued at N 4. 21 billion in favour of 9 financial institutions N 220 Micro Small and Medium Enterprises Development Fund (MSMEDF) 478 projects funded by PFIs valued at N 88. 06 billion stimulated the creation of 139, 156 Secured Transaction and National Collateral Registry (ST&NCR) 27 Financial Institutions have registered their administrators on the NCR platform 11, 000 applications received and about 3, 000 Youth Empowerment Development processed by lending bank. 1, 211 prospective Programme (YEDP) entrepreneurs trained nationwide in the 1 st training.

CBN INTERVENTIONS IN INFRASTRUCTURE - IMPACT INFRASTRUCTURE INTERVENTION IMPACT/ACHIEVEMENT as at July, 2016 Power and Airline Intervention Fund (PAIF) 40 power projects valued at N 140. 442 bn; 16 airline projects valued at N 120. 762 bn. 840 MW of power generated and 120 km of gas pipeline constructed. Resuscitation of fleet of aircrafts, captive and embedded power projects to complement the national grid Nigeria Electricity Market Stabilization Fund (NEMSF): N 106. 64 bn disbursed to 23 market participants. N 8. 67 billion earned by beneficiaries as interest savings on funds received.

SUMARRY OF IMPACT OF THE INTERVENTIONS – END OCT, 2016 Intervention Amt Disbursed No. Of Beneficiaries CACS (2009) N 393. 46 Bn 460 projects 1, 152, 260 604 projects Direct employment increased from a pre-intervention average of 73, 015 to 89, 860 jobs post– intervention (23% increase) SMERRF (2010) MSMEDF (2013) RSSF (2010) N 381. 99 bn N 88. 06 bn N 6. 85 bn Direct Jobs Created Other Remarks Increase in operating capacity to 980, 424 metric tons of rice • • • Increase turn-over from N 504. 832 billion to N 661. 867 billion Restoration of 905 MW of power to National grid N 6. 9 bn interest saving 478 projects under PFIs 139, 156 Financial Cooperative –N 29. 7 m; MFBs - N 4. 16 b; NGO-MFIs – N 111 m; State Governments – N 42. 652 b and DMBs – N 3. 693 b 6 projects 19, 000 jobs Direct & indirect jobs -

SUMARRY OF IMPACT OF THE INTERVENTIONS – END OCT, 2016 Intervention TSIF (2015) PAIF (2010) NEMSF (2014) Amt Disbursed N 14. 91 bn N 271. 19 bn (59 projects) N 114. 75 bn No. Of Beneficiaries Direct Jobs Created Other Remarks 24 projects Saved 3, 000 jobs Direct & indirect jobs - 43 power projects N 150. 43 bn - 940 MW generated & 120 km of gas pipeline constructed. 16 airline projects N 120. 762 bn - N 42. 54 bn in interest saving To be determined N 8. 67 bn interest saving N 2. 151 bn have been fully repaid 29 market participants

SUMMARY OF IMPACT OF THE INTERVENTIONS – END OCT, 2016 Intervention Amt Disbursed No. Of Beneficiaries Direct Jobs Created Other Remarks To be determined Settled 11 interested drawbacks valued N 332. 52 m NIRSAL (2010) N/A 255 credit guarantees ACGSF (1978) N 100. 10 bn 1, 029, 884 5, 045, 900 jobs created N 70. 38 has been fully repaid sinception SMECGS (2010) N 4. 219 bn 87 projects Do -

SUMMARY OF IMPACT OF CBN INTERVENTIONS – END OCT, 2016 Intervention Amt Disbursed No. Of Beneficiaries ABP (2015) 16. 48 bn 100, 000 small holder farms via 22 private anchors in 6 tates Non-Oil Export Stimulation Facility (2016) Not yet New YEDP (2016) Not yet New 11, 000 applications were received and about 3, 000 of them were processed Direct Jobs Created Other Remarks More than 500, 000 indirect jobs created 26 State Governments (72%) have expressed interest To be determined - Do To create 1 million jobs from 10, 000 youths of 18 -35 yrs. TOTAL JOBS CREATED 6, 851, 133. 00 direct and indirect jobs

CONCLUSION § The Bank still has a major role to play in the socio- economic development of the country, though there could be conflict between price stability objectives and policies that promote sustainable development. § However, it should be conducted under the larger framework of enhancing growth and development with more intensive study done as to when, how and the quantum of resources to be dedicated to such interventions. § It is also imperative that continuous performance tracking and intensive periodic impact assessment should be undertaken in order to institute a clear exit strategy to know when it has outlive its usefulness.

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