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CBN’s new lifeline for real sector

A new single digit interest rate regime launched by the Central Bank of Nigeria (CBN), and which promises to be a long expected lifeline for the real sector operators in the economy, has attracted cautious optimism from the beneficiary business interests. Under the CBN’s new credit policy titled Guidelines for Accessing Real Sector Support Facility (RSSF) through Cash Reserve Ratio (CRR) and Corporate Bonds, operators in the real sectors such as agriculture and manufacturing, which are considered as growth and employment stimulating, can borrow for the long term, as much as N10 billion at consolidated nine percent interest rate.

This constitutes a marked departure from the past as loans for such ventures were not always forthcoming since returns from them were considered too distant by the operational circumstances of the commercial banks. And in the absence of several success factors among which is adequate endowment in infrastructure, long term loans especially in the agricultural sector, were seen as very risky by the banks. The consequence was that the real sector business ventures which traditionally faced long term gestation, were starved of vital funds to grow. The CBN gesture therefore seems to provide a new window of opportunities for these ventures to thrive.

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Until the announcement of the policy the lending interest rates for loans to farmers and industrialists was between 25% and 30%. Such a situation made it difficult for the borrowers to fulfil the loan terms and thereby stultified their interest in bank loans. To accentuate the welcome of the gesture by the designated business community, farmers and other agricultural operators have applauded it. For instance, the National President of the Rice Farmers Association of Nigeria (RIFAN), Alhaji Aminu Goronyo hailed it as promising to boost the productivity of members of his association. Citing the improved circumstances of members of RIFAN who as participants in the Anchor Borrowers Scheme (ABS), have been enjoying a nine percent interest rate on loans since 2015, Goronyo sees the new package which is targeted at a wider group of beneficiaries as   increasing productivity for other agricultural products. According to him, the single digit interest rate has boosted rice production on the country from between 2 to 3 million tons annually to the present level of nine million tons annually in recent years. He therefore advised farmers to key into the policy in order to benefit from its dividends.

In another reaction to the CBN the National President of the Women Agro Allied Farmers Association Mrs Lizzy Igbine has called for a further reduction of the interest rate to five percent, and expressed the hope that there will not be any hidden charges to be paid by the beneficiaries. On that note she observed that the apex bank still needs to do more to protect the members of her association. Yet in another reaction the President of the National Cashew Association of Nigeria (NCAN) Mr Tola Faseru hoped that this gesture will not end up as a mere lip service. According to him this is not the first time the CBN has rolled out support facilities for the country’s agricultural sector operators and directed banks to comply with same, while the latter failed to do so.

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With the development the challenge now or the CBN borders on effective implementation as the banks may not easily and immediately fall in line with policy. Expected cases of abuse will be common place, given the sharp difference between the new CBN rate and the subsisting rate in the loans market of the commercial banks.

The CBN needs to see this policy as a sure fire success factor for the government’s Economic Recovery and Growth Policy (ERGP), on which much premium is placed. The apex bank therefore needs to be proactive in ensuring that it comes to terms with any attenuating factor that may detract from the success of the policy including deploying a firmer sanction regime against any erring commercial bank.

 

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