Bankers’ apathy towards agriculture in Africa is terrible. And the case is worse in Nigeria.
I have an agribusiness project that has cost us over N1 billion without a penny from the Nigerian banks. The promoters of the project are friends who believe in it, while the banks are expecting us to fail.
The problem is a combination of a faulty foundation of the banking system when risks were bored back then by the government; a lack of creativity by the bankers to create wealth through production and a missed matched output for reward. We have a foundation of a banking system where newly hired officials who know nothing about creating wealth through bankable products are put on a salary ten times higher than that of a university professor, who had been teaching for over two decades.
Let me give you an example. Some years back, a friend of mine who is a professor, asked me to assist in getting a job for his daughter. She was able to get a job with a bank. By the end of the month when her salary was paid, her father called me and say “Prof, what are you guys doing to this economy”? How can the salary of a young and fresh graduate be far more than that of a professor who has spent over two decades teaching”? Her salary was far more than her dad’s, for doing nothing. That was the kind of missed matched output for reward the banks adopted. They must earn big just because they are bankers, which made them become arrogant.
Now the time has come for us to reinvent banking. For wealth to be created through agriculture, the African banking system in general, and the Nigerian bank system in particular, is in dire need of people who will think and run things differently, from the current bankers who are arrogant and unwilling to take a risk and are only interested in taking your collaterals.
I hope you know that in Nigeria today, the banks have ethical problems. They are more interested in taking your collaterals than your success. They actually expect and work towards your failures, so that they can take over your collaterals.
So, the entire war strategy is very important if we want a banking system that will increase Africa’s wealth through agriculture. We need to separate the new banking system that we need from the one that we have now. We need people who will do everything and put everything they have got for your business to be a successful and sustainable venture, and their reward will come from your success, rather than taking over your assets.
Most banks in Nigeria appear to have totally alienated themselves from the fact that risk is part and parcel of enduring success and legacy. We are to be able to understand that risks are also important for success and that when you take risks there could be failures.
For instance, there was a bank, Long Term Capital Management (LTCM), I think was the name of the bank, founded by two or three Nobel Prize-winning economists and a famous Wall Street guru. The venture turned to be a remarkable failure. That is why the book on LTCM was called “When Genius Fail”. So, there could be failures. But we must be able to create conditions where people are not so scared of the consequences of failure that they don’t make the efforts to finance projects.
As daunting as these challenges may appear, they are however surmountable, if we have the political will to do it. In finding solutions to these problems, we must as Africans acknowledge that economy is a science of incentive. We therefore should have a banking policy that states that if you do this and that to help agribusiness and startups, you get this and that reward. If we give incentives to banks and say “look if you finance businesses which took about seven years to mature and are now thriving, and in the fourteenth year you will get XY bonuses”, and so on. In the UK there are incentives for financing startups. And those kinds of incentives are to be put to sectors as long-term success stories for production, processing and export.
We also need to provide the opportunity for those who are doing the right thing but failed because of the risk factors, so that they don’t fall flat on their face. These are the kind of things that we should be doing, and it’s possible to do them.
African apex banks also need to do some reforming of itself. In Nigeria for instance, part of the problem of the environment of business in Nigeria is a regulative risk. In a few sectors, the regulative risks are high than in banking.
So, we need new thinking. We need to have a new agency, like in the UK where the Central Bank is not fixing all the challenges. We need to have a new financial agency that can deal with the matter of stimulating growth and all of that. Even when the apex bank claim to be given money for loans people are still crying “we can’t see the money”, which shows the limitation of our approach to banking.
For example, the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc.) was created to address the issues of risks in agriculture credit. But it’s not nearly as aggressive as it should be. If you look at the experience of mortgage financing in America, the creation of Fannie Mae and Freddie Mac; I think we need Fannie Mae in agricultural financing.
And if we study the model of Fannie Mae and Freddie Mae, forget that eventually, at the end of the day, they allowed too much entrepreneurship which led to the financial crises of 2008 that did a lot of damage around the world. But without Fannie Mae, the movie industry will not be what it’s today in America. And the American middle class will not be what it’s today. This is what we need to do, to create a banking system that will add value to the agricultural sector.
A former presidential candidate under the African Democratic Congress (ADC), Mr. Pat Utomi is a Nigerian professor of political economy and management expert. He is a Fellow of the Institute of Management Consultants of Nigeria, and the founder of Centre for Value in Leadership (CVL). He shared his thoughts in this article with NATHANIEL AKHIGBE.