Why CBN ventured into development banking

Over the years, interest rate has been a major issue in the Nigerian banking system. Customers always cry foul concerning high interest rates charged by lenders.

While Nigeria’s official interest rate is currently 14 percent, there are some developed countries in the world that operate zero percent interest rates in countries like Japan, Spain, Italy, and Netherlands among others.

However, some other countries of the world have higher interest rates than Nigeria such as Malawi whose interest rate is 27 percent as at October 2016; Ghana is 26 percent, and Gambia 23 percent among others.

The Central Bank of Nigeria (CBN) had in July 2016 raised its benchmark interest rate by 200 basis point to 14 percent from 12 percent in May 2016.

Consequently, accessing credit from the banks by real sector operators has become cumbersome. Given that most banks have to individually provide security, power, and other infrastructure; some of these costs are passed on to customers in the form of high interest rates.

But the CBN said it will continue to use moral suasion to encourage commercial banks to be more considerate in interest charges on customers.

Nevertheless, one of the reasons the CBN ventured into development banking was to minimise the effects of high interest rates on customers.

According to Godwin Emefiele, CBN governor, the push started in 1977 with the Agricultural Credit Guarantee Scheme, and since then, the Bank has intervened through various developmental programmes, all at single digit interest rates. To date, the CBN has disbursed about N393 billion in 490 projects under the Commercial Agriculture Credit Scheme. CBN has also disbursed N23 billion under the Anchor Borrowers Programme, N79.8 billion under the MSME Scheme, and N236.4 billion under the Power and Aviation Intervention Fund. Put together, these schemes have created over 6.7 million direct jobs and a lot more indirect jobs.

In his response to recent calls by notable persons and groups on the Central Bank to reduce the country’s high lending rates, Emefiele who spoke at the annual bankers’ dinner organised by the Chartered Institute of Nigeria (CIBN) said with inflation at 18.3 percent, one must question the judgment of cutting interest rates at this time.

HOPE MOSES-ASHIKE