BOI backing youth employment and rural solar power

09 Feb 2017


BOI finances potentially viable businesses that will increase the contribution of the manufacturing sector to Nigeria’s GDP.

Acting Managing Director/CEO, Bank of Industry, Waheed Olagunju

In this interview Waheed Olagunju, Acting Managing Director and CEO, Bank of Industry, provides useful information on the initiatives of the Bank. He spoke to Jide Akintunde, Managing Editor, Financial Nigeria.

Jide Akintunde (JA): There has been a raft of intervention programmes and funding initiatives that Bank of Industry has rolled out in the recent years you have been part of the executive management. In general, what is the common objective of these programmes and initiatives?

Waheed Olagunju (WO): We want to crystalise Nigeria’s industrial development. The level of industrialization is the critical difference between poor and rich countries. Industrialised countries – defined as countries with at least 20% of GDP in manufacturing – are the wealthy countries. Countries with robust manufacturing bases achieve economic development, as they build the value chain of industrial production. The multiplier effects of investment in the industrial sectors are tremendous, including employment creation.
Our responsibility as Bank of Industry is to provide suitable financing to manufacturers, in terms of pricing (single-digit preferably) and long-term tenure. BOI is a development finance institution (DFI). Our approach to risk management is different from those of commercial banks. Our customers need to provide their counterpart funding. Through our qualifying criteria, we try to ensure they don’t lose their own capital. Our processes could be stringent, but they are designed to protect the funds of our customers as well as the Bank’s funds.  We raise resources from within and outside the country. The resources we raise are other people’s savings. We must pay back; like we have a 15-year debenture with the Central Bank of Nigeria – under the CBN’s N535 billion intervention fund – we must pay after 15 years.

In 2016, we approved 800 loans bank-wide, with total value of N150.23 billion. While our total loan approval grew by 9% over the figure for 2015, our NPLs declined to 3.72% (which is below CBN’s threshold of 5%) from 4.51% the previous year. Last year, we increased our State Matching Fund partnership from 18 to 21 states. The additional states are Katsina (N2bn), Sokoto (N2bn) and Benue (N2bn). We also signed a N1 billion Legacy Fund, with the House of Oduduwa, led by the Ooni of Ife, Oba Adeyeye Enitan Ogunwusi Ojaja II. Same year, we signed a Memorandum of Understanding for the establishment of the $100 million Nigerian Content Development Fund with Nigerian Content Monitoring Development Board. BOI’s unaudited operating profit as at November increased by 10% to N15.81bn. All these attest to our commitment to enterprise development and sound risk management.

Our objective is to finance potentially viable businesses that will help increase the contribution of the manufacturing sector to Nigeria’s GDP. We also lend mainly to those who have capacity to earn foreign exchange. To sum it, we pursue three bottomlines: financial viability, developmental impact and social development.

JA: Last year, BOI launched the Youths Entrepreneurship Support (YES) initiative, which seems to support the fiscal policy of the present administration, in terms of supporting MSMEs for employment creation. How has this programme performed, and how can prospective participants become part of the beneficiaries?
WO: As a DFI, Bank of Industry was setup to intervene in the areas of the economy where market-oriented institutions will ordinarily not provide funding support. Therefore, BOI exists to support the nation’s development aspirations, and we support government’s agenda.

Youth unemployment is one of the biggest challenges facing Nigeria. To alleviate the youth unemployment, we designed the GEF scheme (Graduate Entrepreneurship Fund), with the collaboration of the National Youth Service Corps (NYSC) programme. The GEF scheme was targeted at young people between the ages of 18-35.

Prospective participants were expected to submit their business ideas electronically to our portal. We then screened the applications. The owners of the business proposals adjudged to be potentially viable then went through our capacity building programmes. We necessarily build capacity before we make financing available. Most people say the biggest problem facing SMEs is lack of money. But no, the biggest problem facing SMEs is lack of capacity. If you get money and you don’t know what to do with it, you will lose it, including your own capital. We provide the successful applicants skills before we provide them capital.

The programme has been well received. In its Phase 1, we received about 4,000 applications and we organized capacity building programmes in various locations across the country for approximately 1,000 applicants. From that figure, about 500 eventually submitted business plans and we have approved loans worth N439 million, while N212 million has been disbursed to 140 entrepreneurs.

The businesses are doing quite well. Two of them are producing shoes to export-standard; some ladies are producing garments for weddings and special outings; some are running laundry businesses. There is a young man in Kaduna who is producing garments; he says he wants to conquer the African market.

We have a lien on the NYSC discharge certificates of the loan beneficiaries. A borrower’s certificate will not be released until repayment of the loan to BOI. The maximum amount for a beneficiary is N2 million.

The Youths Entrepreneurship Support initiative builds on the success of GEF, which was a pilot scheme. We have a maximum of N5 million for any single beneficiary under YES. Under YES 1 and 2, we are going to stimulate more than 70,000 applications. We have gone far with participants under YES 1. Those in the first batch have gone through the eight-week capacity building programme being conducted by the Enterprise Development Centre (EDC) of Pan-Atlantic University and African Management Initiative (AMI), based in Kenya. Those who successfully completed the online programme have also passed through the classroom sessions, which is a five-day programme. This is being conducted by some of Nigeria’s best enterprise development centres including the EDC, Kaduna Business School, FATE Foundation and Afterschool Graduate Development Centre (AGDC), promoted by the chairman of First Bank, Mrs. Ibukun Awosika.

The idea is that we are building the capacity of these youths. We are preparing them and helping to de-risk their businesses. We require them to bring two guarantors. If the guarantors are government’s employees, they should not be less than Level 12. If they are in the banking sector, they shouldn’t be less than Assistant Managers. If they are in a structured private organization, they should be Managers. The important thing is that they should be able to guarantee BOI’s exposure.

The participants have been expressing appreciation for the impact of the programme. A number of them said the programme has empowered them to face various business challenges. We hope to do more, although it is costing us a lot of money. The capacity building programmes are free but we are paying EDC and AMI of Kenya.
JA: BOI has been quite active in the solar energy sector, in conjunction with its partners. What is the promise of solar for Nigeria, where supply of grid-electricity has remained very epileptic?

WO: Power is very crucial, either for households or businesses, not forgetting public infrastructures. It has a huge influence on the quality of life. Solar solutions are faster to deploy, and they are becoming cheaper to acquire. As for the other forms of power, thermal requires gas; and the gas has to be transported – mainly through pipelines – to the generators. Coal has issues beyond cost; its environmental impact is significant. To run on hydro, you need to build the dams.  All these take more time and have high cost to deploy, compared to solar. You can deploy solar solutions in six months. Thereafter, the energy generated is free. You don’t pay for the sun. All you need are the panels to convert the energy and store it in batteries.
We are deploying our solar solutions in collaboration with the United Nations Development Programme (UNDP). In the first phase, we provided solar solutions to six communities, one in each of the geopolitical zones of the country: Onibambu in Osun State, Obayantor in Edo State, Bisanti in Niger State, Charwa community in Kaduna State, Kolwa in Kaltungo LGA in Gombe State, and Onono community in Anambra State.
Based on the success of the pilot projects, we have now embarked on the second phase. We have launched the N1 billion Solar Energy Fund. The Fund is a statement of commitment. It will catalyse more funds from within and outside the country.
The Solar Energy Fund will be provided at single-digit, concessionary rate. We are flexible with the tenure. We understand that the cashflow of rural dwellers cannot support our normal lending rate of 10% and tenure of five years. Over the period of the pilot scheme, we were giving 15-year tenure and 7% interest rate. The loans were securitized by the equipment; we didn’t ask for collateral.
Our role as a DFI is key to the delivery of this innovative solution to rural dwellers. We hope to play at bigger scale in this space, given that the gap to be filled is huge.    

JA: What further details would you like to provide on the Solar Energy Fund. How will this Fund be deployed?

WO: End users and service providers can access the fund. We also lend through some microfinance and commercial banks. We plan that the fund will catalyse more funding. The funding demand for solar power in off-grid rural Nigeria is definitely in multiples of N1 billion. So we are working with our development partners to mobilise more funding from outside the country. We actually need grants, such as green credit that are very concessional.
There are some companies who specialise in deploying solar solutions across the country. They can come to us and we can lend to them – apart from end-users – to deploy solar solutions in homes or businesses. We also lend to service providers.
We are going to be operating through eight of the specialized companies in the time being. We used two service providers in deploying the six projects I talked about earlier. But we needed to increase scale and we advertised for more solution providers; through a competitive selection process, we chose six additional providers.

JA: The recent discussion which sought to repeal the institutional existence of Bank of Industry will not help the quest for building enduring and strong institutions in Nigeria. Beyond this, why should Bank of Industry be preserved?

WO: Why should BOI be preserved? It’s a 58-year-old institution, established in 1959 as ICON Limited; reconstructed into Nigerian Industrial Development Bank (NIDB) Limited in 1964 and further reformed into Bank of Industry in 2001. So far, BOI has done creditably. It has built a healthy track-record. The Bank is respected locally and internationally.
Confidence is the most important asset of a financial institution. BOI commands confidence of the domestic and international community. This has bearing on its ratings by Fitch and Moody’s, the international rating agencies. Fitch assigned AA+ to BOI in 2015 and was reaffirmed in 2016 with a “stable outlook”, in spite of the downgrade of some other financial institutions in the country. Moody’s assigned Ba3 in line with Nigeria’s sovereign rating. But in 2016, Moody’s assigned the second-highest of the three national scale ratings to BOI. Then Agusto upgraded us from A+ to AA.
The case for the preservation of Bank of Industry is eloquently made by this record that we have. Besides, you don’t want to destroy a 58-year old institution and then start again. We are not saying more retail DFIs cannot be established. We have agreed that in Nigeria of today we need to have a two-tier DFI structure: a wholesale DFI and also retail institutions. BOI is a retail institution. There can be more retail banks as we have in China and other parts of the world. I recognize that some countries have single mega DFI. Brazil has BNDES, which is the only DFI the country has. Germany, too, has only KfW Develoment Bank. In Nigeria, we have agreed that there will be a wholesale bank and retail banks. And we are saying the retail bank that has succeeded should be retained.
Experiments have been performed outside NIDB’s repositioning over the years with the formation of NERFUND, MBCI, People’s Bank, Community Bank, FEAP; but they failed. I think we should build on the success of BOI. We have the wealth of experience; we know the industry; and we know the market we are serving. Our institutional knowledge includes awareness of the businesses that failed, those that succeeded, and the reason they did. We are, therefore, able to provide advice to other entrepreneurs against those factors that make some businesses to fail. The lessons of those who succeeded are also very useful.

JA: On the BOI’s website, a disclaimer is made about people who claim to be agents of the bank, selling loan application forms to unsuspecting members of the public. What are the salient points the public should know about applying for BOI’s facilities, including the general requirements?

WO: Good question. We also have on our website a list of our accredited business development service providers (BDSP) or SME consultants. If anybody wants to come to BOI, he or she can go through them. We are not saying you cannot come to us directly; but SMEs have challenges putting together bankable business proposals. Studies conducted by KPMG and EDC have shown that there is 90% rejection rate for Nigerian SMEs when they apply for bank loans. Out of every 10 proposals submitted to Nigerian banks, nine are defective. Our idea of enlisting the BDSPs and SME consultants as go-between for us is in response to that. And with the consultants, we have been able to reduce the turn-around time for processing loan applications and increase the chances for their success. With the guidance of the consultants the project documents are well prepared when they come to us. This increases the chances of approval, reduces the turn-around time, and improves the prospects of success for the businesses. Most of the information that we require are provided. So, people should avoid going to quacks. We offer further concessions to those who pass through accredited BDSPs.

JA: What motivates you in the work you do at BOI?

WO: Like I said, industrialization is what makes the difference between the rich and poor countries. I am committed to the development of the country. I am an incurable optimist when it comes to Nigeria’s prospects – of becoming a bigger economy and an industrialised country. There aren’t as many countries in the world that are blessed as Nigeria.
Nigeria is one of the only 12 countries in the world with a population above 100 million. The youthful Nigerian population also presents demographic advantage. In terms of geography, the location of the country ensures it takes shorter time to ship between Nigeria and the U.S. and between Nigeria and Europe, compared with many other countries of the world’s developing regions of Asia and South America. Like Fela said, Africa is the centre of the world.
Our population also constitutes a huge market. That is why the GSM success in Nigeria is very dramatic, and unprecedented anywhere in the world in terms of timeframe. Moving from less than 500,000 telephone lines in 2001, we had more than 150 million in 2015.  
We have 44 solid materials identified in commercial quantities. You don’t have to dig deep in some areas to access gold and other precious stones. We are also blessed with abundant agricultural resources. Each of the 774 local government areas in Nigeria has agricultural endowments. We can feed Africa. We have oil; we have more of gas than oil. We also have talents. A lot of Nigerians are doing well abroad in ICT. Look at the creative industry, too.
What is driving me is that BOI can help propel Nigeria’s development through industralisation. In truth, there is no other organization that is better positioned than BOI to influence the industrialisation of the country. We have lost many years of development. So, time is not on our side. BOI stands on a tripod; one leg is government, the others are the private sector and the international community. I have been here for 27 years, and I am convinced my experience from being a senior manager, principal manager, AGM, ED, now acting MD will help drive the objectives of the Bank.   
In the 70s and early 80s, we had industrial capacity utilization of about 80%. We had to import labour from other West African countries. We had Ghanaians, Beninese and Togolese working in Nigerian Breweries, AG Leventis and others. Nigeria was the rising industrial powerhouse of West Africa. As we know, we lost the momentum – in large part to influx of foreign manufactures. However, we can still repeat the past feat – and perform better – using our natural resource endowments, through commodity-based industrialization model. This is the aspiration that continues to drive me.