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Nigeria opts for single-digit interest loan to spur agriculture, manufacturing

Nigeria has taken a bold step to spur manufacturing and agricultural sectors of the economy as commercial bank have been directed to give single-digit interest rate loans to investors in the sectors.

The Central Bank of Nigeria (CBN) and the Bankers’ Committee agreed to offer single-digit interest rate loans to operators in the sectors from commercial banks’ cash reserve requirement (CRR) with the apex bank.

Data obtained from the CBN website put the total banking industry reserves with the central bank as at June 2018 at $13.4 billion.

The central bank explained that instead of out rightly lowering interest rate, it opted for a system whereby the single-digit interest funds would be implemented to long-term credit at nine per cent and a minimum tenor of seven years.

This was revealed at the end of a Bankers’ Committee meeting that took place in Lagos on August 16, 2018.

CBN Governor, Mr. Godwin Emefiele, had at the last Monetary Policy Committee (MPC) meeting in Abuja last month, said the central bank was working on the modalities for the scheme.

The  Director of Banking Supervision, Mr. Ahmad Abdullahi, said the idea is to enhance job creation.

“Although agriculture and manufacturing are the initial sectors that are being considered, a bank can apply if there is a job creating sector that bank is operating in, it may be considered.

“The idea is that we can refund the CRR of a bank that has engaged in lending in a new project or an existing one in the agriculture or manufacturing sector as a way of utilising the CRR.

“So anytime a bank lends to manufacturing or agric sector operator, at the rate the CBN has prescribed, it would have its CRR refunded up to the amount it has lent. The guidelines are coming up any moment from now.

“It is in two folds, there would be commercial papers (CPs) and corporate bonds. On the other hand, there would be direct lending by the banks to SMEs that are in those sectors.”

“Market expectation was that because of the 17 months of inflation coming down, there would be a reduction in monetary policy rate (MPR). The concern MPC has regarding capital reversals and exchange rate stability that was why we see the MPC holding interest rate.”

He also expressed satisfaction with the performance of the economy.

 “The outlook for the economy in 2018 is much better than 2017. We have seen stability in the exchange rate being sustained, gross domestic product (GDP) growth higher than 2017.

“And although there are capital reversals in our capital market, but the fact is that capital outflow in the Nigerian economy is far less compared to many emerging economies, which is a sign that there is high confidence in the Nigeria economy.”

Also, the Chief Executive Officer of Guaranty Trust Bank Plc, Mr. Segun Agbaje, said the initiative was expected to create jobs and enhance economic growth.

Agbaje said, “The CBN has been very gracious and said on these sectors, if you have companies that are doing new capital expenditures and expansions, you (the banks) would be able to lend using some of your CRR at nine per cent.

“These are not short-term loans; they are long term loans of seven-year loans and two year moratorium on principal.”

He applauded the initiative saying, “It would probably be the first time in the history of this country where manufacturers would be able to take fixed interest rate loans for seven years, which means they would be able to plan.

“The volatility that they fear for all kinds of risks would be taken out and I think these are very laudable steps in improving and growing the economy.”

He added, “So, it would allow people to do capital expenditure, which is more long-term. It would give people single-digit interest rate loans, where bonds could go as far as 10 years.”

Also, the Executive Director, Finance, First City Monument Bank, Mrs. Yemisi Edun, said, “The CRR that is taken from banks would be positively deployed to grow the real sector as well as the agriculture sector.

Edun added, “This is very positive for the economy and also positive for banks because we would be able to access these funds and earn on it. And because it would be coming at single digit rate, it would be positive for the economy.”