Finance & Services

The African industrialisation narrative is unique, says BOI’s Olukayode Pitan

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.

Finance & Services

Nigeria’s Bank of Industry stays afloat on stormy seas

The Bank of Industry (BOI) is Nigeria’s oldest and largest development institution. Although it is owned by the government, it was set up and is run like a private sector bank. It is a limited liability company with strong corporate governance. Its mandate is to support Nigeria’s real sector, especially the MSME segment

The economic, health and social impact of Covid-19 has stretched the bank’s capacity to fulfil its mandate to the limit. However, as this interview shows, the bank did not back down from responding robustly to these challenges. 

The bank’s contribution in the battle to support these enterprises on a sustainable basis during such a tough phase was underscored when it won the 2021 African Banker Award for Innovation in Financial Services to add to other awards it won from various institutions in 2020 including the ‘African SME Bank of the Year’, ‘African Deal of the Year’ and ‘Best Bank in Support of Manufacturing 2020’.

African Banker Editor Anver Versi is in conversation with the bank’s MD/CEO, Olukayode Pitan. 

African Banker: The Covid-19 pandemic has wreaked havoc on economies across the globe; what has its impact been on Nigeria?

Olukayode Pitan: On 27 February 2020, Nigeria confirmed its first case of Covid-19. In response, to curb the spread, the Federal Government of Nigeria (FGN) introduced a number of initiatives, including a lockdown which resulted in the closure of schools, workplaces and businesses, and restrictions on movement across the country. 

As happened in other economies, the implementation of the lockdown across the country resulted in a material decline in the country’s economic activity (with sectors such as hospitality, tourism, entertainment, education, and transportation being affected). 

It also exerted significant pressure on food prices, with food inflation and headline inflation increasing to 16.17% and 15.8% respectively, as of 31 December 2020. Microenterprises were more impacted by the lockdown than their SME and larger counterparts as they depend heavily on daily income for survival.

Not surprisingly, the Nigerian economy went into a recession during the third quarter of the year (its second in the last five years) as GDP contracted by 1.92% in 2020. 

However, Nigeria was able to exit the recession in the first quarter of 2021 as GDP grew by 0.51% (year-on-year) in real terms. This was achieved by various expansionary policies implemented by the government as well as the strong collaboration of private sector players working with the government on various initiatives.

Development banks such as yours have been called upon to mitigate the negative impact of the pandemic, especially on SMEs, which form the core of the country’s economic structure. What steps have you taken to do this?

In response to the pandemic, we undertook certain actions to ease the burden on our customers, including the following:

  • Reduced interest rates on all BOI-funded projects by 2% with effect from 1 April 2020, for a period of one year. This palliative has been extended by an additional year.
  • Extended an additional moratorium of three months on principal repayment, granted to all beneficiaries of BOI funds between 1 April and 31 June 2020.
  • Worked with our funding partners to implement interest rate reductions on some of the funds that we manage.
  • Reviewed all ongoing projects to ascertain the risk exposure, and to support customers operating in sectors most affected by the pandemic through loan restructurings. 

Support was also extended to those customers in sectors that were favourably impacted by the pandemic or demonstrated opportunities for growth like the ICT, agro and health sectors.

Being a socially responsible organisation, the bank donated the sum of ₦962m ($2.34m) towards the Coalition Against Covid-19 (CACOVID) and other initiatives at the federal and state levels to address the negative impact of the pandemic.

In addition, we improved our capacity to support Nigerian enterprises by raising about $2.1bn from the international debt capital market in 2020. We also partnered with the Federal Government to help manage the Nigerian Economic Sustainability Plan (NESP) ₦75bn ($180m) MSME Survival Fund and the ₦50bn ($120m) Export Expansion Facility. 

We also partnered with various state governments to launch the State Enterprise Empowerment Programme (SEEP), designed to support MSMEs from their respective states. 

In 2020, you won the African Banker Deal of the Year award. Could you kindly expand on this?

In March 2020, BOI successfully closed a €1bn syndicated guaranteed loan facility. This deal was originally launched at €750m, but later upsized to €1bn due to oversubscription.

The deal marked the second major international credit facility that had been successfully concluded by BOI within the last two years. About 24 international banks subscribed to the offer, which had African Export-Import Bank, Credit Suisse, Rand Merchant Bank, and Sumitomo Mitsui Banking Corporation, as joint mandated lead arrangers, underwriters and bookrunners of the syndicated medium-term facility.

The deal was made possible by a guarantee provided by the Central Bank of Nigeria (CBN) and a currency swap arrangement to hedge the foreign exchange risk. 

The purpose of the deal has been to enhance the capacity of BOI to effectively support micro, small, medium, and large enterprises across key sectors of the Nigerian economy with affordable loans of medium to long-term tenor, alongside moratorium benefits. It is expected that this support will help revitalise Nigeria’s industrial sector. 

You entered a number of programmes with the Federal Government, such as the social investment programme, to help the country adapt and cope with the effects of the pandemic. Could you outline these programmes and their aims?

As the pandemic began to take its toll on the Nigerian economy, the bank sought partnerships with the Federal Government to manage programmes that would alleviate its negative effects. Some of these programmes included:

The ₦75bn MSME Survival Fund: The bank is currently managing the execution of the Nigeria Economic Sustainability Plan MSME Fund (NESP-F) aimed at reviving and re-establishing MSMEs in Nigeria in the wake of the Covid-19 pandemic. 

A component of the NESP-F is the ₦75bn MSME Survival Fund, which comprises a ₦60bn payroll support programme and Artisan Transport Grant, and a ₦15bn Guaranteed Off-take Scheme. 

The fund is to be disbursed as grants to support vulnerable micro and small enterprises in meeting their staff obligations and to secure jobs within the MSME space from the adverse effects of the pandemic. The scheme is aimed at securing over 1.7m jobs.

The ₦50bn Export Expansion Fund: The bank was also selected to manage the ₦50bn export expansion fund, which is expected to develop and promote export initiatives.

This includes providing financial support to organisations in the non-oil export value chain negatively affected by the Covid-19 pandemic, as well as developing export opportunities and programmes that the Nigerian Export Promotion Council (NEPC) may identify. 

The fund also serves as a source of supplementary funding for dealing with high costs of production, marketing and distribution, arising mainly from infrastructure deficiencies and other ancillary factors beyond the control of exporters. 

You are also engaged with the World Bank in an economic recovery programme. How does this work and what has been the impact?

The World Bank’s Nigeria Covid-19 Action Recovery and Economic Stimulus (NG-CARES) programme is intended to help increase access to social transfers and basic services, as well as provide grants to poor and vulnerable households. It will also strengthen food supply chains for poor households while facilitating recovery and enhancing the capabilities of MSMEs.

The World Bank conducted a thorough assessment of BOI’s proprietary micro-credit platform and certified it credible to be used for the delivery of the MSME component of the CARES programme. As a result of this recommendation, 26 states have elected to use the BOI-GEEP (Government Enterprise Empowerment Programme) infrastructure as their preferred delivery platform. 

In addition to our role as state programme execution partners, the Federal Technical Committee on CARES has requested that BOI provide technical support to the committee to promote its national effort to deliver CARES by building institutional capacity to oversee programme delivery, as well as providing a centralised structure for monitoring and reporting across all CARES result areas. 

Although you are a public institution, you work like a private bank and have posted healthy profits in the past. How was the past year in this regard?

Despite being a public institution, BOI is a limited liability company, guided by the Nigerian Company and Allied Matters Act. This is because the government understands that the only way that we can effectively achieve our mandate to support enterprises in Nigeria is by being managed as a private institution, and being financially sustainable, with a strong enough balance sheet to attract the required funding to be able to continuously support MSMEs and large corporates in the country.

2020 was actually a good year for the bank in spite of the impact of the pandemic. As I mentioned earlier, we were able to raise about $2.1bn from two syndicated lending transactions in the year, which solidified our ability to continuously support Nigerian enterprises with innovative financing solutions. 

We closed the year with total assets of ₦1.86trn ($4.5bn), a 79% growth over the previous year. Total equity and profit before tax were ₦336.48bn ($820m)and ₦35.5bn ($86m)respectively. 

Given the additional responsibilities placed on the bank during this difficult period, are you satisfied that your fund-raising efforts will be sufficient?

Based on our mandate and corporate objectives, we need to continually seek additional funding to ensure our ability to keep providing affordable loans to Nigerian enterprises.

According to existing research from PwC, the financing gap for Nigerian MSMEs is about ₦617.3bn ($1.5bn) annually. So, for MSMEs
in Nigeria to survive and thrive, a minimum of $1.5bn must be injected into that segment on an annual basis.

While the Bank of Industry was able to raise more than that amount last year, I am sure you realise that the probability of one institution raising such a value on a continuous basis is low. 

We are however undeterred in our ambition to provide continuous support to MSMEs. Thus, in pursuit of such ambition, we are already back in the capital market looking to raise another €750m through the Eurobond route.  

How have you managed internally to adapt to the needs imposed by the pandemic? Have you had to retrain your staff?

In 2019, before the pandemic began, we had kicked off a process re-engineering and IT Infrastructure project to overhaul our systems, to enable us to be more efficient and better serve our customers in the future.

Who could have known that that future was already around the corner? I am thrilled that this re-engineering project came at the right time as we were able to create a technology-enabled environment that has allowed staff to work remotely since March 2020.

Our business continuity plan was also successfully deployed to ensure continued service to our customers without interruptions. 

We also supported this effort with regular cyber- security trainings and awareness. Due to the quality of staff at BOI, it was not shocking to see our staff easily transition into a work-from-home model. 

As a matter of fact, we held a competition in October 2020 to determine the staff with the Most Creative Home ‘Workstation’ and it was interesting to see how our people had creatively re-organised their homes to better meet their work needs. 

We have also transitioned our regular staff training from in-person to online sessions.

I believe your mandate goes beyond core banking functions and includes capacity building. What are your priorities in this regard?

That is correct. At BOI, we have seen that business survival goes beyond improving the access to affordable finance. Our customers’ future, particularly the MSMEs’ ability to survive and remain sustainable, relies heavily on the provision of capacity building programmes. 

Our intervention in this space cuts across youth, MSMEs, and women businesses. For instance, all our youth programmes include free capacity building in business management modules to ensure that they are adequately equipped to successfully run their businesses. We have trained about 10,000 youths through these programmes.

Also, as part of the North-East Rehabilitation Fund (NERF) programme, we were able to train over 6,000 female beneficiaries through NGOs, on skills acquisition and financial literacy information, to allow them to efficiently utilise this facility.

We have also partnered with the University of Lagos to set up an incubation centre to provide students with practical tech start-up skills given by mentors and coaches, as well as to support the development of viable solutions from ideas to enterprises. 

This same partnership has been replicated with Vatebra (in Lagos State) and Bayelsa, Kaduna and Kebbi State governments. This is our very own way of supporting technology entrepreneurship and digital skills capacity building within Nigeria.

I believe that is why you won the 2021 African Banker Award for Innovation for Financial Services. Congratulations. Finally, Mr Pitan, please summarise the past year and your plans for the coming year.

2020 was a year of learning for us. But more importantly, it was a wake-up call for BOI and all organisations in general to think about their businesses in a different light. 

The onset of the Covid-19 pandemic year brought its own set of challenges for governments, financial institutions and MSMEs globally. 

Our focus at BOI is to continue to support the sustainable growth of Nigerian industries as well as support the Federal Government’s efforts at all levels. 

We are aware of the difficulties that MSMEs have experienced during this period and recognise that their ability to survive and thrive will largely depend on the support we provide. 

We have a lot of work on our hands, this year and in the future. We have about $2bn we need to aggressively disburse to help revitalise the Nigerian industrial sector.

There is also the €750m Eurobond facility, which shall hopefully be concluded shortly and deployed towards key initiatives in our economy. 

Additionally, with trade under the African Continental Free Trade Agreement (AfCFTA) now active, we have a huge role to play to adequately support Nigerian enterprises and drive free trade on the continent. 

I am quite confident that we will be up to the task, as we have used this time to further strengthen our processes, and build our capacity to deal effectively and efficiently with the work that lies ahead.