IMPROVING FINANCIAL RESOURCE MOBILIZATION TO MOVE THE POVERTY REDUCTION AGENDA FORWARD

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IMPROVING FINANCIAL RESOURCE MOBILIZATION TO
MOVE THE POVERTY REDUCTION AGENDA
FORWARD Ms EVELYN N. OPUTU MANAGING
DIRECTOR BANK OF INDUSTRY (BOI) LIMITED,
NIGERIA PRESENTATION AT THE HEARING OF THE
BUSINESS SECTOR ON FINANCING FOR DEVELOPMENT,
UNITED NATIONS 18th JUNE 2008.
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INTRODUCTION

• My brief comments will refer to the two chapters
  of the Monterrey Consensus dealing with financial
  resource mobilization, one with domestic and the
  other, international sources. The relevance of
  the two chapters derive from an understanding
  that the Monterrey Consensus is the financial
  impetus of the Millennium Development Goals
• Permit me to start by sharing my experience on
  financing for development I will then review the
  main challenges in mobilising financial resources
  and finally offer possible remedial suggestions.

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• BANK OF INDUSTRY
•  
• The Bank of Industry, Nigerias leading DFI, is
  now a significant contributor to Nigerias
  economic and social development since emerging
  from the reconstruction of its precursor
  institution, the Nigerian Industrial Development
  Bank (NIDB).
• The transition from NIDB to BOI, a testimonial of
  the resourcefulness of home grown development
  effort, the kind which international capital and
  development partners could support much more
• The mandate of the bank is primarily to finance
  and catalyze industrial development. Underlying
  the implementation of this mandate is a vision
  to finance growth that puts people first and
  empower the weaker segments in our society to
  gain access to productive assets and
  opportunities and move the poverty reduction
  agenda forward.

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• PARADIGM SHIFT
• Our effort toward equity and empowerment through
  lending and capacity building for sustainable
  inclusive development has since 2005 underpinned
  a paradigm shift in the banks strategic
  direction, orientation and mode of operation.
• Central to the Banks paradigm shift are
• Structured industrialization of the country
  through the stimulation and development of MSMEs
  which are widely recognised as the engine of
  economic growth, with higher developmental
  impact and multiplier effect per unit of
  investment and consequently
• BOIs commitment of 85 of its resources to MSMEs
  geared toward the attainment of the objectives of
  NEEDS, NEPAD and the IDGs..

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GAINS OF PARADIGM SHIFT

• BY END Q1 2008 BOI HAS RECORDED IMPORTANT
  GAINS
• 290 expansion in investments/loans between
• January 2006 and March 2008
• 83 lending to SMEs.
• 289 increase in number of loans to 342 from 88
• 279 increase in direct/indirect jobs expected
  to be generated by
• BOI assisted companies (530,000 jobs)
• Portfolio at risk dropped from 65 to 10.7
  (Industry average in
• Nigeria is 22)

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GAINS OF PARADIGM SHIFT CONTD FINANCIAL
HIGHLIGHTS

•  
• Dec.
  2007 Dec. 2005
• 
  (audited) (audited)
  Increase
• N N
• Gross Earnings 6.46bn
  1.38bn 368
• Operating Expenses 2.56bn
  1.27bn 102
• Profit Before Tax 2.23bn
  0.105bn 2,024

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GAINS OF PARADIGM SHIFT CONTD INCREASED
PRODUCTIVITY EFFICIENCY
Dec. 2007
Dec. 2005 Operating Expenses/
65 92 Gross
Income Profit Before Tax/
35 8 Gross
Income Very importantly, our financial and
operational performance confirms that enterprise
profitability and development could be
complementary. Through home grown reforms, we
have built a strong, dynamic and flexible DFI
responsive to the needs of our people. There are
replicas of such success stories around the
developing world.
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WHY PARADIGM SHIFT?

• Focused the coverage of our operations on micro,
  small and medium sized borrowers to
• Support a sustainable inclusive development
  process, financing people-based growth with
  emphasis on creating employment, income and
  opportunities for the weaker segments in our
  society (gender loans, microfinance,
  cooperative)
• Promote a strategy flexible and adapted to the
  needs of our people in meeting IDGs, facilitating
  national development and improving living
  conditions and the quality of life
• Expand the formal private sector, bringing to
  bear, the efficiencies and institutional capacity
  of formal sector operations on our large
  informal sector which contributes significantly
  to GDP.
• Challenges are legion but surmountable. The
  bottom line is that we seek, in concert with our
  development partners to provide a coherent
  response to the challenges of sustained and
  equitable development and eradicating poverty in
  our country.

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MAIN CHALLENGES

• TO INCREASE EFFECTIVENESS THROUGH WIDER COVERAGE,
  WE PLAN TO
• Invest up to N250 billion (about US2.2 billion)
  over a 5-year plan period, growing lending by N50
  billion per annum over the next 5 years. Current
  capital under N20 billion.
• Continue to commit 85 of the Banks resources
  to MSMEs to convert our comparative advantages in
  the utilisation of local resources into
  competitive ones
• Commit the balance of 15 to larger enterprises
  which would be leveraged with foreign national
  Development Finance Institutions and
  International Finance Institutions to mobilise
  further N40 billion into the domestic economy.
  Target partners include, but are not limited
  to, the EXIMBANKS of the USA, India, Thailand and
  Korea, the Islamic Development Bank and IDC of
  South Africa.

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MAIN CHALLENGES (contd)

• KEY CHALLENGES TO REALIZING THESE GOALS REMAIN
  MOBILIZING FINANCIAL RESOURCES IN BOTH THE
  DOMESTIC AND INTERNATIONAL MARKETS.
• Domestic market improving but lacks financial
  resources. Why?
• Structural fiscal rigidities that hamper optimum
  collection of internal public financial resources
• Debatable impact of direct foreign investment
  e.g. private capital flows that repatriate profit
  not counting as finance for development even if
  they bring indirect benefits, Also the adverse
  impact of tax holidays and other fiscal
  incentives to attract direct foreign investments
  on domestic resource mobilization
• Private savings and investment level growing but
  not significant to make a dent on resource gap in
  financing inclusive social and economic
  development
• Inadequate capacity of domestic financial
  institutions to cover the broad waterfront of
  finance for development and capacity building
• Lack of well developed capital market Non-bank
  financial institutions slow to provide
  alternative sources of capital
• Despite groundwork laid with reform, financial
  institutions and financial markets
• still have to develop capacity to respond to
  increasing need for finance for development

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MAIN CHALLENGES (contd)

• The main challenges in mobilizing international
  financial resources for inclusive development
  include
• Slow pace of growth of international development
  assistance especially Official Development
  Assistance (ODA).
• Implementation of 0.7 of GNP contribution (about
  US250 billion) by G8 as ODA does not appear to
  be on course. Reality is that ODA figures for
  development finance are indeed falling, propped
  only by debt relief and rising emergency aid.
  Yet ODA has tremendous potential to catalyze
  mobilization of financial resources by leveraging
  larger amounts of domestic and foreign capital.
• Conditionality and other policy preconditions
  impair availability of limited mobilized
  resources. They serve more to impose political
  conditions on development assistance.
• Lack of financial institutions primarily
  responsible for mobilizing and coordinating
  development resources and with capacity to
  introduce new services and products that unlock
  development aid.
• Limited or no engagement with sub-regional and
  national DFIs instead inclined toward
  non-financial government agencies with vaguely
  defined poverty reduction programmes

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Recommendations (contd)

• The main objective of the chapters of the
  Monterrey Consensus dealing with the
  mobilization and effective use of financial
  resources is to achieve national economic
  conditions needed to fulfill internationally
  agreed development goals as a first step to
  ensuring that the 21st Century is the century of
  development for all. Given that each country is
  ultimately responsible for its own development,
  we recommend the following for better domestic
  resource mobilization
• Step up fiscal reforms that will substantially
  improve the tax base, tax collection and other
  internal financial resources.

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Recommendations (contd)

• Recipient countries in Africa should create
  investment environments that are in themselves
  attractive to business by continuing progress on
  government reforms that have removed many
  obstacles to investment
• Strengthen domestic development financial
  institutions and improve financial sector
  regulation as microfinance institutions assume
  greater role in financing for inclusive
  sustainable growth
• Better management of resource endowment to
  increase investments in income and employment
  creating activities.
• Expand public-private partnerships especially in
  infrastructure projects which require substantial
  financial resources

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Recommendations

• For greater international financial resource
  mobilization, there is need to
• International financial system should identify
  and support national development finance
  institutions that have demonstrated sound
  management and a capacity to mobilize resource.
  Bilateral, multilateral and regional development
  institutions could offer such support through
  investments, loans and/or matching grants that
  increase the opportunities for individuals
• Establish a framework for achieving investment
  effectiveness of Foreign direct investment and
  private capital flows to ensure long term net
  positive contribution to finance for development.
  Such a framework must at the minimum have a
  commitment to a pro-poor agenda and to create
  jobs through inter-linkages with the domestic
  economy

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RECOMMENDATIONS (CONTD)

• International investors and ODA should take a
  long term perspective in developing country DFIs
  that fund MSMEs. International investments in
  local DFIs provide a stamp of approval raising
  the profile of lending to DFIs which in itself
  helps to diversify the DFIs funding base in
  international and domestic markets. In addition,
  international investors bring in a global
  knowledge of best practices and innovation as
  part of the package.
• Build development partnerships that increase the
  volume of ODA while reducing both the suffocating
  influence of donors foreign and economic
  policies and the high costs of development
  assistance administration and technical
  assistance.

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CONCLUSION

• The great challenge of the Monterrey Consensus
  is to address the constraints that limit
  financial and technical cooperation that can help
  people to improve their lives. There is a need
  to build financially robust domestic and
  international institutions as vehicles that
  mobilize and channel finance for development.
  This long term strategic agenda is ambitious. It
  is achievable however when the domestic and
  international environments work together to
  create enabling conditions to increase the
  capacity of developing countries to absorb and
  take advantage of global financial resources.
• 
  

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• Thank you