The Bank of Industry (BOI) is Nigeria’s oldest and largest development bank. Its mandate is to support Nigerian industry and enterprise, especially the MSME segment. Given the perilous situation brought about by the Covid-19 imposed lockdowns and the severe economic attrition that followed, the bank immediately put into place a series of measures to mitigate against the fallout.
BOI also made history by becoming the first African national Development Finance Institution (DFI) to issue a Eurobond. The complexity of this deal was such that it won the African Banker Deal of the Year (Debt) Award for the bank.
Olukayode Pitan, who has led the bank’s impressive performance over the last five years, speaks to us in an exclusive interview.
Congratulations on being appointed by HE Muhammadu Buhari, the President of Nigeria, for another five-year term as head of one of the most important financial institutions in Nigeria. What do you see as your immediate priority in terms of rebooting the economy?
Thank you very much. I am indeed honoured to have been re-appointed for another five-year term by HE President Muhammadu Buhari. Over the past five years, the bank has achieved tremendous progress across its developmental objectives in order to support the sustainable growth of Nigeria’s industrial sector.
While it was a robust bank when I assumed office in 2017, I believe that we have made the bank stronger in terms of developmental impact, technology deployment, human capital and corporate governance, as well as financials.
We intend to build further on all of these parameters. We want to further strengthen our balance sheet, expand the range and depth of support we provide to enterprises, and facilitate the continuous growth and development of priority and emerging sectors that were identified in the President’s National Development Plan.
What has been the impact of the Covid-generated shutdown on your bank’s performance in terms of profitability?
The Covid-19 pandemic had a significant impact on businesses and livelihoods globally, Nigeria inclusive. Many businesses had to deal with reduced revenues and profit margins due to the associated challenges occasioned by lockdown towards managing the spread of the virus. Our customers were not spared this reality.
In response to this situation, the bank immediately implemented various measures – such as the reduction of interest rates, the extension of moratorium, and the restructuring of loans for specific industries – to ensure that our customers were able to keep their businesses afloat.
We introduced a 2% reduction in the interest rate on loans to our customers in April 2020 and have since extended it annually until 31 March 2023. These measures were impactful as they ensured that our customers were able to lower their cost of financing, service their loans and keep their businesses afloat.
We also worked to increase our disbursement to eligible businesses during the period. I am happy to tell you our response allowed us to remain profitable as the bank’s profit increased by 15% from about $93.7m in 2020 to $109.3m in 2021.
Congratulations again on winning the African Banker Deal of the Year (Debt) Award. What were the special challenges you had to overcome to complete this deal?
Thank you. This award was in respect of our debut €750m senior note Eurobond transaction (the first by any African national DFI) in February 2022.
With respect to specific challenges, I would say the most critical challenge we had to overcome was in relation to the novelty of this deal. This deal was the first time we explored the issuance of a Eurobond as a way to raise capital, and as such, some experiences that we had to contend with were new to us.
We had to work through several levels of the Nigerian government, from both the legislative and executive arms of the government, which came with various hurdles and challenges. But I am delighted with the support we received through the process.
With the closure of this transaction, we believe that we are now more experienced and trust in our ability to be more efficient in future transactions of this kind.
Your bank was called upon by the government to initiate several social investment programmes to help the country cope with the effects of the pandemic. Are you scaling these down now or maintaining the momentum?
The Bank of Industry has a long-standing strategic partnership with the Federal Government (FG). We were the implementing agency of the FG’s Government Enterprise Empowerment Programme (GEEP) as well as the N-Power programme – both are social investment programmes that were launched in 2015. They were designed to support different segments at the lower end of Nigerian society, especially women and young people.
On the back of the successes of these social investment programmes, we were subsequently appointed as the managing partner of the FG’s ₦75bn MSME Survival fund, a programme that was introduced in 2020 to assist businesses to mitigate the shocks of the Covid-19 pandemic.
As of June 2022, over 4.5m beneficiaries have been supported through the above programmes. Approximately 60% of the beneficiaries are women.
These social investment programmes are very important in the Federal Government’s quest to empower small businesses, the youth and also to alleviate poverty in our country. Therefore, we are revving the momentum and engaging various agencies and departments of government towards making these initiatives sustainable.
How would you assess your international fundraising programmes as financing needs, especially for SMEs, increase?
I would say that we have been quite successful in our efforts to raise funds from the international capital market, as most of these transactions were over-subscribed – which tells you a lot about how the bank is perceived by international investors. We have been able to raise about $4bn over the last five years.
This notwithstanding, we recognise that MSMEs’ financing needs in Nigeria continue to increase faster than our ability to raise funds. As a result, we are unrelenting in our efforts to raise additional funds to improve our capacity to support MSMEs in the country. As I speak to you, we are currently involved in two separate transactions to raise additional funds from the international capital market.
We are also constantly engaging both Government and private institutions to create various funds such as intervention funds, partnership funds, etc., towards expanding funding opportunities for MSMEs.
A recent study by African Banker magazine and international banking platform Backbase found that digital banking take-up by African SMEs is still lagging far behind. What can be done to rectify this?
Some of the reasons why digital banking take-up is still lagging for African MSMEs include inadequate internet penetration, insufficient understanding of how digital banking services work and the general lack of understanding that digital banking is much cheaper than physical banking.
To rectify this issue, financial institutions must begin to view MSMEs as a viable business segment that can offer them profitability in the medium to long term.
Currently, most financial institutions prioritise their retail customers for the provision of digital banking services and pay very little attention to MSMEs. Financial institutions must realise that MSMEs represent the future of businesses and economic growth (especially in Africa), and must be willing to tackle some of the critical challenges associated with doing business with them.
To ensure this, financial institutions must be more creative, innovative and willing to be disruptive in solving problems associated with providing financial services to MSMEs.
Over the years you have been leading BOI, do you feel that Nigeria – and if we can broaden the scope, Africa – is moving in the right direction in regard to broad industrialisation of economies?
Yes. I believe that Nigeria and other African economies are making progress in their industrialisation efforts. The African industrialisation narrative is a unique one as it is quite different from the more recent manufacturing-centric East Asian industrialisation narrative.
A review of the economies of Nigeria and other African countries has shown that while the manufacturing sector (and the continent’s recent efforts to have a single market through the AfCFTA) continues to play a role in spurring industrialisation and liberalisation of trade, the services sector has become an equally important driver of industrialisation across the continent.
To put this in context, besides contributing 14% to Nigeria’s GDP, the technology sector is also the biggest job creator in the country, with no signs of slowing down.
As the country continues to deepen its investment in technology infrastructure (e.g. telecommunications, broadband technology, etc.), and the services sector continues to contribute significantly to economic growth, the tech sector is poised to become a vehicle for economic transformation in Nigeria.
The ongoing conflict in Ukraine has underlined the importance of self-sufficiency in food and agricultural products. You have been championing this sector for a long time. Are you satisfied with the status now or do you think more effort is required to modernise Nigerian agriculture?
Yes, you are quite right. The conflict in Ukraine has put the spotlight on some of the weaknesses we face, especially with the importation of wheat, corn and other agricultural products.
Attaining self-sufficiency in food production is extremely important for any economy that intends to develop and transform. Most of the farming done in Nigeria is still largely subsistence in nature.
Through the efforts of the Federal Government and key agencies of government, such as the Central Bank of Nigeria, a lot of progress has been achieved in the agriculture sector.
The government is also working assiduously to enhance the export of value-added agricultural products from Nigeria, rather than primary produce.
Towards supporting smallholder farming in Nigeria, we launched a product – Agriculture Value Chain Financing (AVCF) – based on the outgrower model to support smallholder farmers in Nigeria. Our activities within this product allowed us to support over 70,000 smallholder farmers to harvest about 198,000 MT of maize and rice grains.
To demonstrate our seriousness with respect to agriculture, especially the processing section of the value chain, 20-25% of our loan book is constituted of food and non-food agricultural projects.
Speaking of modernisation, Nigeria (and Africa) still suffer from capacity constraints. What are you doing to reverse this?
The fundamental focus of the bank is to support the growth and expansion of enterprises in Nigeria. We therefore support enterprises in acquiring equipment and machinery that is required to help them start up or expand their production capacity, output and efficiency. Through this understanding, over 90% of the financial support we provide to our customers is targeted at equipment finance.
We however also understand that there is a dearth of business management capacity amongst potential entrepreneurs, especially MSMEs.
To address this, we partnered with over 300 Business Development Service Providers to help in building the capacity of MSMEs in not only developing bankable business plans, but also to help in enhancing business growth and survival.
What does the Africa Continental Free Trade Area (AfCFTA) mean to your organisation in terms of scope and expansion?
The AfCFTA is a great initiative for Nigerian businesses, the Nigerian economy as well as the African economy. It is quite ironic that African economies do more business with other countries outside Africa than within.
By signing up to the agreement, African businesses will have access to a 1.3bn population market across the African continent, without undue restrictions and bureaucracy.
This significantly increases the potential for growth and expansion among African manufacturing and services companies. It will also foster competition, and consequently, the quality of goods and services provided by Nigerian businesses.
To cater to such increased demand, most Nigerian manufacturers will require access to affordable long-term finance, which is where I believe the Bank of Industry has a huge role to play.
For the bank, the launch and take-off of the AfCFTA implies increased opportunities to provide financial support to enterprises, increased opportunities to drive productivity and facilitate the creation of sustainable jobs, as well as increased opportunity to improve the quality of goods produced in the Nigerian market, hence improved socio-developmental impact in Nigeria.
Finally, Mr Pitan, what do you hope to achieve by the end of your new five-year mandate?
I believe we have achieved a lot over the past five years. As an institution, we were able to raise over $4bn, which has significantly improved our capacity to support enterprises in Nigeria. We established new, and strengthened existing, strategic partnerships, both locally and internationally. We were able to disburse over N1trn to over 4m enterprises in the last five years, which has also led to the creation of about 8m direct and indirect
Over the next five years, we want to build on these successes, which translates into raising much cheaper funds from external sources than previous transactions. We aim to further grow and strengthen our balance sheet to enable us to continue to support Nigerian enterprises with affordable long-term financing in a sustainable manner.
We also hope to consolidate our brand in the marketplace as Nigeria’s foremost development finance institution – and one that is committed to providing financial services and business advisory support to both MSMEs and large enterprises operating in various key sectors of the Nigerian economy.
Finally, I would like to leave behind a much bigger and better bank than I inherited in the hands of younger, professional, competent and well-motivated staff.