Bad loans or bad banks?

A younger Nigerian with a burning desire for greatness got excited after reading a statement issued by the Central Bank of Nigeria (CBN) in July this year. The sweet-sounding release that arrested the attention of Natty (surname withheld) was entitled “Guidelines for accessing real sector support facility through CRR and corporate bonds”. Agricultural, manufacturing or other employment-generating businesses, it stated, were now free to borrow as much as N10billion at 9% interest rate from any bank.

I didn’t want to dampen Natty’s enthusiasm with tales of similar pronouncements I had read from the 1980s but which turned out to be a fraud. So when he approached me I asked him to “try your luck” as I did sometime in 1994.

After two weeks – and after he had visited three commercial banks as well as the Bank of Industry and Bank of Agriculture – he reported a familiar story: Each bank’s representative was courteous; in the end, they were only happy to hand him A4 envelope filled with forms not for loan application but for opening a new corporate account with their bank. Behind closed doors, however, one confided in him the conditions for obtaining the loan: After opening an account with them, he must submit a brilliant proposal – he would be connected to a consultant for that purpose. He must provide collateral worth at least 120% of any amount he would be seeking, preferably a house in a state capital with a certificate of occupancy. He wasn’t going to see any cash – the bank would send supervisors after him to ensure he didn’t divert any money, and it would pay vendors of tractors, pesticides or other inputs directly. Yes, the 9% interest was real, but he should be ready to start paying back in three years, not seven as advertised.

Natty’s dream of starting a business – as his age mate Mark Zuckerberg of Facebook did, and as Bill Gates and Steve Jobs did while still in their early 20s – has suffered a setback. He has read lots of literature on several inventors and entrepreneurs who eventually established centuries-old ventures. He couldn’t understand why he has failed to “hit it big” in spite of his determination and business acumen.

I told Natty I had walked on the same path 24 years earlier. By 1993 I had worked for more than four years post-graduation and felt I had gathered enough experience to run a business. But I met a brick wall, as Natty has.

Whether it was Steve Jobs who started from his parents’ garage or Zuckerberg who startedFacebook from his dormitory room, each enjoyed the support of venture capitalists that were able to raise millions of dollars. Their banks lent them money at less than 2% interest – or 0% in some cases. Not so for us Nigerians. The difference between us and them is the nation we were born into.

A policy such as the advertised  CBN-funded agric loan – or another the apex bank started five years ago, which purports to let banks disburse N220billion for micro, small and medium-scale enterprises (MSMEs) at 9% — is not meant for the poor. You have to prove that you’re already rich [by having collateral] and therefore don’t even need the loan!  That’s where we are – where businesses are not helped to thrive.

Why, despite all the supposed stringent conditions for obtaining a loan, are Nigerian banks still burdened by bad debts? How are borrowers able to beat all the risk and security checks? The latest statistics from the National Bureau of Statistics show an ugly trend: as at the third quarter of 2018, the value of non-performing loans stood at N2.3trillion – TRILLION, not billion – while the total loans given out by all the banks increased to N15.6trillion.

Persisting bad loans prompted the federal government to set up AMCON (Asset Management Corporation of Nigeria) almost a decade ago. In my view, it was the rich people’s way of protecting their kind. Imagine the public funds spent on Amcon and its employees since then, just to beg debtors to pay up. It’s different from the “failed banks tribunal” set up by the military regime of Gen. Abacha in the mid-1990s which hauled some debtors and bank managers into jail. Seven years ago, the CBN reportedly sent a bill to the National Assembly asking for tribunals or special courts to try cases of loan default. It never happened. Failing banks were, instead, bailed out and their liabilities scooped by Amcon.

I thought Amcon’s life would be short-lived. Now it has become another unproductive agency fed from the public till to solve private individuals’ problems.  Statements alluding to Amcon’s “giant strides” in debt recovery will always be available, if to keep the wheels of bureaucracy running. But I know the corporation is either overwhelmed or engaged in a wild goose chase. Only last week, it held a meeting with “Asset Management Partners”, another creation to help it in chasing bank debtors or recovering a part of   N3.7trillion held by Amcon’s obligors.

Names of some bank debtors have been published a few times in newspapers. “Naming and shaming” them has solved little problem, though it has been instructive. We’ve seen some who owed different banks hundreds of billions! The Nigerians we thought were rich were heavy borrowers after all.

Yet the average Nigerian bank debtor deserves sympathy.  In a nation continually facing economic crunch and naira devaluations, few businesses could yield profits enough to pay for 25—35% interest demanded by banks. Regulation is weak and so some people could gang up to establish a bank and give themselves interest-free and collateral-free loans. After carefully collecting customers’ deposits, the bank is allowed to fail so the founders could make their stay abroad permanent and “live happily ever after”. Or they could return to the country in the fullness of time: in Nigeria, government changes frequently; new actors come with new programmes. No continuity.

Debts are not paid in jail. The better way is for banks or Amcon to help businesses trapped by bad loans to thrive. A large chunk of the debts should be written off. It is the price they should pay for refusing to give loans to those who need them and giving to those who have nothing but beautifully-written proposals to show.

Those in leadership positions who wish to help Nigeria should create conducive environment for investments. Poor infrastructure (especially irregular power supply), high interest rates and political uncertainty are sure harbingers of losses to bad loans as well as weak investor and consumer confidence.

I see no better way for an entrepreneur to make a giant leap forward than taking a loan with low interest rate. If I had got the money I was looking for between 1994 and 1997 (just N50million), perhaps I would have been an employer of at least 5,000 people today. A loan, well managed, could make the big difference between poverty and affluence. When Nigeria gets ready to have its own Bill Gates or Thomas Edison or Henry Ford, it will encourage banks to give grants or loans at 1% interest to deserving seekers like Natty.

Nwamu is the CEO of Eyeway.ng.

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