Every central governor brings to bear on this office his or her wealth of experience garnered over years in various sectors of the economy including academia and the financial industry. For Emefiele, his experience was not in doubt, having been a key player in Nigeria’s banking sector. To his credit, he employed his toolkit in the last five years to address the challenges of the economy that he inherited.
Expectedly, prominent among the pillars of Emefiele’s new plan is his focus on development finance. In its simplest description, development finance is the approach of allocating a nation’s financial resources without unrestrained reliance to the market mechanism as the sole determinant of where resources are channelled or deployed. In other words, it means a guided approach to the allocation of scarce and therefore costly financial resources to sectors that are regarded, at any given point in time, as the most important in the economy based of course on the needs of the time.
In his first five years, Emefiele made this stance quite clear. In pursuit of this policy approach, the CBN executed numerous intervention programmes, largely funding arrangements with the express purpose of raising domestic production in selected sectors. These have included the highly popular Anchor Borrowers, Micro Small and Medium Enterprise Development Fund (MSMEDF), Commercial Agricultural Credit Scheme, and the Real Sector Support Facility, among others.
The Governor has embarked on what he calls “targeted development finance”, to boost the output of 10 commodities. The focus on these 10 commodities is hinged on the amount that Nigeria spends importing them. If they produced and processed locally as much as 10 million jobs would be generated in five years, reckons the CBN.
Laudable as this approach is, there is an inherent danger. It shifts the focus of the institution from its fundamental role as the regulator of the financial system. It makes the CBN a player instead of a regulator. There is a downside: neglect of macroeconomic stability, its core mandate, which is anchored on price stability.
Before the regulator drifts too far away from its main functions, we do here offer a caution: the CBN should not stretch the development finance model beyond what it has done already. Effective regulation will allows financial institutions play their traditional roles.
By 2023 the CBN governor also wants to expand the number of Nigerians with access to banking services to 95 percent. Yet Nigeria is struggling with the target of 80 percent by 2020. The revised target appears too ambitious. But given the current efforts being made, anchored largely on technology, the target may not be farfetched as it seems. The collaboration among the nation’s banks under the Shared Agent Network Expansion Facility (SANEF) could hasten this process.
Emefiele also struck a pleasant chord in his second-term plan when he announced a plan to recapitalise banks in the coming years, and position them among the top 500 in the world. This is a logical continuation of a process that started with the Charles Soludo era (2004-2009) and continued with Sanusi Lamido Sanusi (2009-2014). One undisputable justification of a recapitalisation of the banking industry now is the depreciation of the naira over the years.
At today’s “official” exchange rate of 306 naira/dollar, the minimum capital base N25b for banks is a paltry $81.699m. As Soludo argued 15 years ago when he raised the capital base from merely two billion naira, the low capital base of Nigerian banks remains a constraint for them to take on significant transactions. Recapitalisation will change this.
