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CBN moves to strengthen DFIs, launches final operating guidelines

By on February 25, 2016

The Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, on Tuesday reiterated the bank’s commitment towards making the Development Finance Institutions (DFIs) in the country more pro-active and better equipped to support the present administration’s economic growth agenda.
He said there was need for a paradigm shift in the funding model for DFIs which had largely performed below standard over time, if they must live up to their mandate of supporting key sectors of the economy amid the current fiscal challenge occasioned by falling price of oil.
Current DFIs include the Bank of Agriculture (BOA) Bank of Industry (BOI), Federal Mortgage Bank of Nigeria (FMBN), Nigeria Export-Import Bank (NEXIM) and the Infrastructure Bank.
Emefiele, particularly expressed dissatisfaction that out of a total credit of N14.7 trillion granted to the economy as at June 30, 2015, the share of DFIs stood at only N760.8 billion or 52 per cent of the entire sum, stressing that DFIs commitment must increase significantly in order to make the needed impact on targeted sectors.
Speaking in Abuja at the opening of the maiden edition of the bi-annual Development Finance Institutions (DFIs) stakeholders’ forum and the launch of the Regulatory and Supervisory Guidelines for Development Finance Institutions in Nigeria, the CBN governor, who was represented by CBN Deputy Governor, Financial System Stability, Mr. Joseph Nnanna, further argued that the current practice whereby government sources had accounted for major long term funds for DFIs was no longer sustainable.
Although the new regulatory guidelines further restricted the DFIs from incursion into the capital market, Emefiele, however, hoped that with time, the institutions would be capable of accessing the capital market for long term funds to finance critical sectors.
He said DFIs needed to operate under a new philosophy underpinned by commercial orientation to guarantee their financial viability as catalysts and agents of economic change.
Nevertheless, he said DFIs must tread carefully to balance and reconcile the contradiction of pursuing the double bottom line of profit and development.
He said the new guidelines have become necessary to address some of the numerous challenges which had constrained their ability to effectively deliver on their mandates.
According to him, these include high levels of non performing loans due to ineffective credit appraisal, analysis and recovery efforts; corporate governance issues; weak risk management; under-capitalization and political interference among others.
He said recent on-site examinations by the apex bank had continued to reveal weaknesses and deterioration by DFIs in critical performance indicators, a situation made worse by the lack of effective board oversight.
Emefiele noted that the regulatory and supervisory guidelines for FDIs which was issued last year, would provide a level playing field for participants in the subsector.
A key provision of the guideline is the introduction of licensing requirement for all DFIs operating in the country in line with international best practice.
Among other things, the guidelines restricted DFIs investments in forex, capital market, pension funds and spelt out sanctions for poor corporate governance.