Ebenezer Onyeagwu, the GMD of Zenith Bank Plc, in an interview with Arise TV, explained why small and medium scale enterprises struggle to get low interest loans in Nigeria. I have noted already that Nigerian banks cannot easily lend in single digits due to many factors. Those factors include that the central bank “lends” to them at about 11%, and they have to insure the funds, and by the time they add cost of operation & compliance, with small profit, anything less than 17% may not be possible.

See it this way: the Central Bank of Nigeria (CBN) lends at close to 11% to banks and NDIC, the deposit insurance regulator, asks banks to insure (put another 2%). If you add banking operations costs and need to make small money, no bank can lend below 17% annually in Nigeria.

But some nations lend to their banks at 0.25%: “In December 2020, the Federal Reserve maintained its target for the federal funds rate at a range of 0% to 0.25%.” This cheap money makes it possible for U.S. banks to give cheap loans to their SMEs. Yes, you can get a business loan at 6% or even lower.

But in Nigeria, starting at 11% made it impossible for banks to match that.  Because they have to move above 17%, it creates a vicious circle which makes things harder. See it this way – at that 17%, most SMEs cannot return whatever banks have given them, setting the banks up for losses. Simply, there are few businesses in Nigeria where you can make profits when your cost of capital is 17% before taxes to repay your loans.

According to Mr. Onyeagwu, “if you look at the numbers, you will see that these regulatory costs account for a whopping 28 percent of our overhead.” Yet, it is not only Nigerian banks which are regulated; American banks are regulated and yet they can lend at sub-6%. The most fundamental thing here is the prime rate which in the US tends towards zero while in Nigeria hovers around 11%. Read the full interview here.

Arise TV: So, how can we get interest rates on loans down to single-digit?

Ebenezer Onyeagwu: First of all, if you are looking at interest rate, you have to look at it in terms of the theoretical framework and issues around money supply, demand for money, issues around government borrowing and the fiscal deficits. So, when you put all that together, you will see that you cannot have a situation where you decree interest rate by fiat. Interest rates would always be set by the dynamics and realities in the market. In this case, if you are looking at interest rate in Nigeria, you have to index it to the risk-free rate. One-year risk-free rate in Nigeria is like 10 per cent. So, it will be difficult to have single-digit rate in Nigeria. However, the Central Bank of Nigeria has come up with a number of laudable initiatives to support single-digit lending.

We have intervention funds such as the Creative Industry Financing Initiative, where banks in the country provide long-term single-digit funding for entrepreneurs who are in cinema, movie, ICT and fashion designing. We also have what is called the Agri-Business/Small and Medium Enterprise Investment Scheme. It is also a pool of fund available for businesses in that space. You can as well access these loans. Apart from these ones, the CBN also have different intervention schemes such as the Anchor Borrowers Scheme, the Commercial Agricultural Credit Scheme and others, and all these loans are single-digit and they provide long-term financing. The big problem we have is that when you see an SME approaching you for loan, the SME may not have a track record; he walks up to you and tells you that he needs a single-digit loan and needs N20 million.

But I can’t give you N20 million without looking where you are coming from. So, we cannot decree interest rate by fiat. But the regulators have done a good work by providing funding schemes and whoever is eligible would get such single-digit long term loans once they meet the criteria. So, the funding is there, but the SMEs when they approach the banks don’t often meet the eligibility criteria.

Yet, you cannot ask the Central Bank of Nigeria (CBN) to drop its rate to 1% without thinking of inflationary pressures in the economy. The apex bank at the end has to pick a lesser evil – and today, it is that SMEs cannot get cheap loans. If you want them to get loans at 6%, you may end up messing up the economy. This happens because of the structural nature of our economy. Yes, CBN cannot just wake up and tell banks, from today, you need to lend at 6% because it cannot!

Covid-19 broke industrial sectors, but some sectors, despite the paralysis, captured huge financial values. With people constrained in their homes, talking and using the web became  the few options to keep the hours going: “Adoption of our data and digital services accelerated as lockdowns and gathering restrictions were imposed, and work-from-home became the norm for many”, noted MTN.

Yes, the telecommunication sector, across the world, saw growth, accelerated by Covid-influenced intervention programs. So, it is not surprising that MTN Nigeria is reporting a record number – a turnover of N1.346 trillion for the financial year 2020! In other words, MTN Nigeria is the largest publicly traded company by revenue in Nigeria. If you have not run the math, that is about 10% of Nigeria’s national budget as turnover!

But earnings were restrained by a rise in direct network operating costs by more than a quarter from N246.604 billion to N310.248 billion, and in discounts and commissions by over one fifth from N56.586 billion to N68.528 billion.

An 18 per cent rise in MTNN finance costs, which represents the cash it spends on interest on short-term loans, from N122.080 billion to N143.687 billion also capped earnings.

Pre-tax profit came to N298.874 billion, up from the N291.277 billion reported for the corresponding period of 2019, according to the telco’s financial statement published by the Nigerian Stock Exchange.

Profit for the year inched up 1 per cent from N203.283 billion to N205.214 billion.

Shareholders fund upped from N145.857 billion to N178.386 billion at the rate of 22 per cent. MTNN shares closed trade on the floor of the NSE on Monday at N174 per unit, posting no movement.

Yes, a South Africa’s DNA’d company is helping us to understand that wealth abounds in Nigeria. Congrats to the home of Y’ello.

Markets cannot advance faster than the legal ordinance in economies. The foundation of all modern economies can be traced to property rights. If you check the gross world product (GWP) – aggregate GDPs of all nations – you will notice that for more than 1,400 years, from AD 1, the GWP was flat, meaning that per capita income was decelerating, across generations, implying that man/woman was getting poorer. 

But around the birth of America, something happened: legal ordinance was put into market systems through property rights. And just like that, the linear GWP began to grow exponentially. In a publication in Harvard, I noted that until nations advance the legal ordinance, by strengthening property rights – intellectual or  otherwise – they will remain largely poor.

The cement for factors of production is legal ordinance. Nigeria will not advance faster than the strength of its property rights. When a cow eats a farmer’s crops, and there is no consequence, Nigeria gets poorer. When a man steals the ideas of his neighbour and there is no consequence, Nigeria misses a pulse. You may think that it does not matter. It does, because the safest abode for capital is an economy, run within a strong rule of law. If you do not have that safe legal destination, capital will disinvite itself! 

Nigeria needs to fix the fundamental things about the nation. Yes, we need to go intellectual. If we do, we will notice one factor: you cannot leapfrog the strength of your legal systems, as you advance as a nation! If you do not know, know it now that the invention of intellectual property rights is the biggest invention in human history.  The ordinance of markets lives on a great legal system – and the biggest magnet for capital is that legal system. As the high priest to the IPRs, the legal system makes markets function and runs. That is the law for economic development.

Intellectual property rights are legal rights that provide creators protection for original works, inventions, or the appearance of products, artistic works, scientific developments, and so on. There are four types of intellectual property rights (IP): patents, trademarks, copyrights, and trade secrets

This week at Tekedia Mini-MBA, we are learning Exponential Technologies and Singularity. The course focuses on the business opportunities, entrepreneurial playbooks, etc, over the core technologies. A US-based think tank, Transdisciplinary Agora for Future Discussions Inc. ( TAFFD’s ), developed the course for us.

• Exponential Technologies and Business Opportunities in the Age of Singularity – Edward Hudgins, PH.D
• Singularities, Transhumanism, and Entrepreneurship – Gennady Stolyarov II
• Singularity, Exponential Growth and Technology – Chogwu Abdul, PhD
• Futurism, Malleability, and Category King Companies – Brent Ellman

More so, Tekedia Live zoom links are in the Board.

• Tue, March 2 | 7pm – 8pm WAT | Digital Transformation of Sectors – Jude Ayoka, Access Bank Plc.
• Thur,  March 4 | 7pm – 8pm WAT | Financial Technologies and Ecosystems – Stanley Jacob, Mastercard.
• Sat, March 6 | 7pm – 8.30pm WAT | General Topic, Building Category-King Companies – Ndubuisi Ekekwe.

Have a great co-learning week at Tekedia Institute.