The Founder and Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has urged the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, to look into the outrageous collateral being demanded by banks before approving loans. Dr. Yusuf, who made this known in an interview in New Telegraph in Lagos, said that the country’s manufacturing sector could not grow the country’s economy when banks are demanding between 30-35 percent interest rate and CRR at 45 per cent.
According to him, it is time for the organised private sector group to scale up their advocacy for the recapitalisation of Bank of Industry (BoI) and revival of the moribund Bank of Agriculture (BoA) to make sure soft loans are given to investors at single digit rate. He pointed out that the CBN must ensure that banks are created to take risk from entrepreneurs, saying that some banks collect as much as almost 300 per cent of the value of the money as collateral.
He bemoaned that Nigerian banks had deviated from their core value of loaning to the private sector, by placing huge bank guarantees and collateral to scare away investors from borrowing, saying this was not the way to grow the economy. Yusuf said: “You can see that the CRR is 45 per cent and that means, all the monies coming to the banks, 45 per cent is going to the CBN. Also, the liquid ratio is 30 per cent, meaning of all the monies they have, 30 per cent will have to go to renewing assets.
“With this, how can banks support industries? How can banks support entrepreneurs? So we need to deal with the rising MPR, it is a major issue in the economy. “I know it can be a little tricky. If we are able to grow the output, inflation rate will come down. If the goods produce are many, inflation will come down. And we need our entrepreneurs to do that. So that is extremely critical. “We are not seeing enough actions seeking to create a concessionary financing window for the real sector in this new administration. In the previous administration of the CBN, perhaps there were some excesses withholding development finance intervention funds for MSMEs.
“But we cannot afford to throw the baby with the bath water. In the real sector, the entrepreneurs cannot survive with an interest rate of 30-35 per cent, so that is extremely important. So therefore, we need to scale up our advocacy to ensure that we recapitalise our Bank of Industry. “The Bank of Agriculture has been moribund for over five years now. Nobody is even hearing about them. We need to bring them back and make sure they run them professionally. Speaking further, Dr. Yusuf said: “And all these collateral requirements, it’s a big hurdles for investors. You set up a development bank, you approach them for funding, they will tell you to go and bring bank guarantee.
“Bank guarantee as good as having your own money yourself anyway, so it’s a major hurdle. We cannot have a banking system that is not ready to take any risk at all for our entrepreneurs because entrepreneurship by its very nature is a business of taking risk. “I am not saying they should take all the risk, but they should be ready to take parts of the risk. When you go to a bank whether development bank or commercial bank and they are asking of bank guarantee is as good as they are not ready to take any risk at all, you cannot run the economy that way.
“And when they are taking collateral they take take a collateral that is almost 300 per cent of the value with the money you want to collect if anything goes wrong they put you under pressure, you will be running around how to quickly dispose the asset before they take it over. “This is not the way to grow an economy and we really need to look at this going forward.”
