Transcript IMPROVING FINANCIAL RESOURCE MOBILIZATION TO MOVE THE POVERTY REDUCTION AGENDA FORWARD Ms EVELYN N.

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
th
1
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.
2
BANK OF INDUSTRY
 The Bank of Industry, Nigeria’s leading DFI, is now a significant
contributor to Nigeria’s 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.
3
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 bank’s strategic direction, orientation
and mode of operation.
Central to the Bank’s 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;
BOI’s commitment of 85% of its resources to MSMEs geared
toward the attainment of the objectives of NEEDS, NEPAD and the
IDGs..
4
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%)
5
GAINS OF PARADIGM SHIFT CONT’D
FINANCIAL HIGHLIGHTS
Dec. 2007
(audited)
N
Dec. 2005
(audited)
N
% Increase
Gross Earnings
6.46bn
1.38bn
368%
Operating Expenses
2.56bn
1.27bn
102%
Profit Before Tax
2.23bn
0.105bn
2,024%
6
GAINS OF PARADIGM SHIFT CONT’D
INCREASED PRODUCTIVITY
& EFFICIENCY
Dec. 2007
Dec. 2005
Operating Expenses/
Gross Income
65%
92%
Profit Before Tax/
Gross Income
35%
8%
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.
7
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 8
development and eradicating poverty in our country.
MAIN CHALLENGES
TO INCREASE EFFECTIVENESS THROUGH WIDER COVERAGE, WE PLAN TO:
 Invest up to N250 billion (about US$2.2 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 Bank’s 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.
9
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
10
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 US$250 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
11
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.
12
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
13
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
14
RECOMMENDATIONS (CONT’D)
 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.
15
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
16
financial resources.
Thank you
17