The importance of financing for the growth of the economy cannot be overemphasised and operators in the Organised Private Sector (OPS) in Nigeria say the rate at which they get funding from commercial banks as well as the tenure of such facilities have, over the years, deteriorated resulting in the downturn of the sector and the economy at large.
Data from the from the Central Bank of Nigeria (CBN) Statistical Bulletin shows that the share of commercial loan to the manufacturing sector compared to the aggregate loan to the economy averaged 0.1 per cent from 2017 to 2021. This, no doubt, limits manufacturing activities in the country in terms of investment and production.
Director general of the Nigeria Employers’ Consultative Association (NECA), Adewale Oyerinde, speaking last week, had noted that, limited access to credit facilities especially long-term funding and the high cost of funds have been one of the major hindrances to the growth of the private sector in Nigeria. Consequently, these lead to increase in poverty rate, unemployment, insecurity, and stagnation of the economy.
Data shows that the total sum of commercial bank loan to the economy from 2017 to 2021 is N92.81 trillion, while total commercial bank loan to the manufacturing sector is N93.21 billion for the same period, accounting for 0.1 per cent of the total loan to the economy.
Also, prime lending rate averaged 15.3 per cent and maximum lending, 29.2 per cent from 2017 to 2021. Thus, based on a survey by the Manufacturers Association of Nigeria (MAN), most manufacturers borrow in between prime and maximum lending with the average rate of 21.7 per cent from 2017-2021.
According to Oyerinde, there is no doubt that the current performance of the industrials sector, particularly manufacturing is due to the limited funds available which does not allow for significant investment and expansion in productive activities.
“For instance, the growth of the sector averaged 0.52 per cent from 2020 to 2021 with an averaged contribution to Real Gross Domestic Product of 9.0 per cent just a manufacturing capacity utilization averred 52.7 for the same period. The trends no doubt, show that the sector is facing daunting challenges including high cost and limited funds.
“The rate at which the bank lends to the industry has degenerated over the years just as the tenure has ceased to be appropriate for industrial activities. Lending rate has become unbearably difficult to accommodate by the industry and credit tenure has remained short-term which falls short of business gestation period.
“Based on these gaps, it has become imperative for a new paradigm for the industry-bank relationship that will reflect the contemporariness of challenges and support new and customize procedure for industry-bank synergy.”
To the national president of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ide Udeagbala, the banking industry stands alone as the conduit for storing funds, managing credit and facilitating financial transactions. “This role is critical for capital formation, in other words, channelling funds to productive investment, thereby promoting economic growth.
“However, as the Nigerian banking sector struggles with market, operational, reform and regulatory challenges in a bid to ensure sustainability as profit-making entities; the private sector groans with the perceived difficulty in access to finance.
“The OPS echoes the challenges faced by the private sector in its efforts to access finance; the need for collateral and other forms of security often seen as exorbitant; the bureaucracy and volume of documentation required; and the length of time between application for finance and disbursement,” he stressed.
Stating that an efficient financial system breeds a vibrant economy for sustained inclusive economic growth and development, Udeagbala said: “there is a need for the banking sector to further enhance investments by identifying and funding good business opportunities and facilitating the exchange of goods and services as a means of contributing to the growth of the private sector.”
Oyerinde stated that, it is important that the commercial banks and the industry should come together to chat new ways of supporting each other to the benefit of all.
To him, “industry activities have massively declined showing rising number of moribund industries within the industrial areas across the country and the increasing capital flight that besets the country. There is no doubt that industry needs the bank to increase investment and production while the bank needs the industry for interest payment incomes and equity subscription.”
He, thus, recommended that commercial banks develop corporate patriotism to strengthen the willingness to lend at the interest rate that supports both the industry and banking sector for the sake of growing the economy as well as devise processes for sustaining long term loans to the industry and engaging the private sector with it.
He also called for the need to prioritise attention to industry forex requests, particularly in this period of acute shortage whilst ensuring that government or international industry development fund are well accessed without undue difficult conditionality.
Oyerinde likewise called for the creation of a process that will support equipment acquisition in the industry, funds to support industry-bank joint venture for easy financing of specific industry business, a unit for business support and capacity development for the industry as well as a trade support unit for the industry.
