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Why financing manufacturing, businesses remains huge problem

Bank of Industry BOI
Bank of Industry BOI

The Bank of Industry (BOI) says Nigeria has a huge manufacturing and enterprise financing problem.

At a forum in Lagos, the Managing Director of BOI, Mr Olukayode Pitan, revealed that the financing gap is about N1 trillion per annum.

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“The country has about N1 trillion funding gap every year. We want to help, but we have challenges with coming up with the funds people want. That is why we are calling on other banks for support,” Mr. Pitan said.

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This was not the first time an expert would point out the financing crisis manufacturers and business owners are facing in the country.

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Recently, the President of Abuja Chamber of Commerce and Industry, Prince Adetokumbo Kayode, called out commercial banks and their high interest rates, which he said were killing enterprises in the country.

Prince Kayode said interest rate must be below inflation rate for manufacturers to access credit and still remain in business.

The National Bureau of Statistics (NBS) reported that Nigeria’s inflation rate rose to 11.40 per cent from the 11.37 per cent recorded in April.

Mr. Pitan corroborated Prince Kayode in Lagos when he said lending at between 20 to 30 per cent interest rates as commercial banks do is not sustainable for business survival.

“If we have an inflation of 11 per cent and loans are given out at 10 per cent, it means that the lending has been subsidised,” he said on the benefits of pegging interest rates below inflation rate.

He said manufacturers and businesses approach the BOI to borrow because the bank gives loans at 10 per cent interest rate.

The development finance expert said commercial banks were making it hard for businesses to thrive due to their 20 per cent to 30 per cent interest rate on loans.

Prince Kayode had called for the discontinuation of the use of commercial banks for the disbursement of development finance-driven interventions of government based on high interest rates.

The Director General of Small and Medium Enterprise Development Authority of Nigeria (SMEDAN), Dr. Dikko Umaru Radda, extended the finger pointing beyond commercial banks to development finance institutions as also being responsible for the poor financing of enterprises in the country.

Radda said development finance institutions in the country that dangle single interest rates at businesses are also deceptive as there are some hidden charges attached to such credits.

At a recent visit to the ACCI President in Abuja, Radda said the worst hit are the 36 million small enterprises in the country that are struggling to remain in business in an environment starved of funding.

An expert in macroeconomic analysis, Mr. Abiola Rasaq, recently told Daily Trust that the manufacturing sector, which is a major contributor to the nation’s Gross Domestic Product (GDP), remains fragile.

Mr. Rasaq said there is need to have renewed fiscal and monetary policy attention to the sector, which has multiplier effect on other sectors of the economy.

The expert recommended that policy efforts be directed at encouraging banks to grow credit through a means that de-risks the manufacturing sector such as guarantees, forbearance, lower funding cost through CRR release and, perhaps, tax incentives.

“The intervention should be such that do not disintermediate financial services operators to achieve a sustainable and impactful positive change in the credit and broader macroeconomic environment,” he said.

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