A New Banking Paradigm

I have often wondered about our tendency in Nigeria to forget the essential purpose of things and to carry on activities in a manner that tends to be a corrupted or even perverse version of the original such that at the end of the day we end up with the opposite of what the creators of those activities intended. Nigeria is the country in which risk-takers and entrepreneurial people go into politics rather than business; idealistic and high-minded types who ought to be in politics and government end up in journalism, academics or NGOs and spend all their energies criticizing the actions or inactions of politicians; most of those trained as engineers end up seeking employment in banking (and now telecommunications); and most computer science graduates are hardware or software importers and salesmen rather than software engineers or programmers. And yet everyone wonders why the country in not fulfilling its potential!!!
In the last few years, hundreds of microfinance banks (MFBs) were licensed by the Central Bank of Nigeria (CBN) under its policy requiring erstwhile community banks to be converted to MFBs and new ones given regulatory sanction. What was the fundamental motivation of the promoters of these institutions? Were they like Muhammed Younis of Grameen Bank driven by a concern about poverty alleviation through micro-lending? Prior to their decision to obtain these licenses, had they ever been burdened by the problem of widespread poverty and the denial of access to credit to the seventy percent of our people who live in poverty or semi-poverty? Of course we would not be surprised to find that perhaps only a tiny minority of these people ever reflected on these matters. Instead what you had were MFBs whose promoters and managers thought they were mini-commercial banks and behaved as such, buying jeeps and opening glassy offices in urban high streets, alleviating no poverty and many of them duly failing in short course.
The banking system itself had also shown signs that it forgot its central purpose-economic development. Banks were created in order to mobilise savings and through their intermediation role to channel such savings to investors who required financing for productive activities which would result in economic development. Of course in performing this role, it was inevitable and just that the bank or banker would make a profit, but it would be a perverse outcome if the banker made a profit without generating economic development. Many Nigerians have (especially since the banking liberalisation brought about under the Structural Adjustment Programme (SAP) from 1986 to 1990) viewed banks in this manner, not without some justification.
Which is why I am excited about recent noises emerging from the Bankers’ Committee (the group which brings together the CBN Governor, Deputy Governors and CEOs of Deposit Money Banks) about a new focus on economic development. Apparently the Bankers’ Committee has set up a sub-committee on economic development headed by respected Access Bank CEO Aig Aig-Imoukhuede in furtherance of a desire to provide funding to critical sectors of the economy and ensure sustained economic development in the country. The initiative seeks to encourage focus on power, agriculture, transportation and small and medium scale enterprises. I am usually sceptical about apparently lofty initiatives which emerge from government or quasi-government bodies especially when it culminates in the formation of a committee! But perhaps not surprisingly (given its headship by Aig-Imoukhuede an execution-oriented banking strategist), this committee is turning out to be different.
The committee reportedly organised a three-day retreat focused on the role of the banking system in economic development where all the banks admitted that credit had previously been dominated by financial market operators, importation and oil market traders and affirmed an intent to begin to refocus finance to critical areas of the real sector and SMEs. The banks agreed to channel bonds to these sectors and to package structured infrastructure financing and other activities towards revitalising the productive economy. The banks also decided on some advocacy initiatives targeted towards redirecting pension funds towards these sectors and reducing the cost of incorporation of companies at the Corporate Affairs Commission (CAC). Happily an action plan was developed to ensure implementation of agreed initiatives which the CBN was charged with monitoring.
The sub-committee has followed up on the action plan through interactions with several state governments, the Ministry of Power, National Pension Commission and the Infrastructure Concession and Regulatory Commission. The CBN has supported this new focus with several funds targeted at manufacturing, SMEs, power and aviation and designed new prudential guidelines to encourage real sector and infrastructure lending. I hope these activities represent a sustained commitment to the real sector and recognition of the essential purpose of banking which is to foster economic development. Incidentally the banks will be one of the greatest beneficiaries of a real sector based economy except that then no one could grudge them their benefits.