Introduction Perspectives and Importance of Development Financing in Emerging Economies

1. RATIONALISING THE ROLE OF CENTRAL BANKS IN DEVELOPMENT FINANCINGBYMR. JOE ALEGIEUNO,AG. DIRECTOR,DEVELOPMENT FINANCE DEPARTMENT,CENTRAL BANK OF NIGERIAAT THE2ND CENTRAL BANK FORUMHELD IN LUSAKA, ZAMBIA23RD -25TH SEPTEMBER, 2008

2. OUTLINE OF PRESENTATION • Introduction • Perspectives and Importance of Development Financing in Emerging Economies • Central Banks’ Roles in Development Financing. • Development financing roles of the Central Bank of Nigeria. • Lessons Learnt and Rationale for Central Banks’ Involvement in Development Financing • Conclusion and Recommendations.

3. 1. INTRODUCTION • Strategic finance programmes are critical to accelerated growth and development of national economies. • Many countries have their own programmes, schemes and plans to achieve development objectives • Critical success factors include proper identification of : • development priorities, • the financing gaps, • clear vision and commitment to addressing the gaps. • For developing economies such as those of Africa, the central banks play important roles in development financing because of : • capacity for policy drafting, • clout for securing the buy in of government and other stakeholders, • Commitment to ensure conclusive implementation and • Potentials of using it as a means of attaining /maintaining monetary stability and sound financial system.

4. 2. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIES • Development finance: • After the Second World War -Marshal Plan to reconstruct Europe, • 1940s and 1950s- Surplus labor in developing countries; investment to accelerate growth and development. • 1960s and 1970s; quality of the labor force, technological capabilities of firms and conducive governments policies should be necessary complements to finance • Universal Consensus: Growth and development can only occur with conscious, adequate and sustained levels of effort and investment. • Clarion call for development finance interventions occasioned by: • Escalating poverty levels in many countries, • Shortcomings of past development financing strategies, • Urgency of the need for accelerated achievement of the Millennium Development Goals (MDGs) and national governments targets.

5. 2. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIESCONT’D • Obvious realities: • significant gap exist between the perceived demand for investment and the availability of domestic resources owing to: • missing and ineffective institutions, • low per capita income and hence low savings, • limited private capital inflow, • competing needs for government budgetary allocations and • inability of market forces to allocate needed resources. • Reversing the trend requires appropriate conditions and environment through critical reform measures. • Areas of focus: • philosophy, • objectives, • strategies, • institutional policy, • legal environment and • economic agents

6. 2. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIES CONT’D • Some key Sectors to be Focused on are as follows and varies from country to country: • Agricultural production & Value added processing, • Export; manufacturing; • infrastructure development, • micro, small and medium enterprises, • energy; environment • health; and education.

7. 2. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIES • Country choices depend on: • Country circumstances such as: • available local resources, • political will of government, • conduciveness to foreign direct investments and or private investment. • the drive to have competitive edge in global and sub-regional economic dynamics • In the past: • Institutional arrangements (DFIs) • Guarantees, • export finance

8. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIES • Currently: • Development Banks: • Japan, • South Korea, • Singapore, • Malaysia, • China, • Philippines • South Africa, • Zimbabwe, • Mauritius, • Hungary, • Turkey, • Croatia and • Kazakhstan. • Funding Support from International Organizations (see Table 1) • Bilateral Organizations • UN Organizations • International Financial Organizations • International Monetary Funds • Private Sources • International Capital Markets

9. Table 2: Flow of Funds From International Sources

10. 2. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIES • Strategic Steps by International Development Organizations: • United Nations development system: • Created United Nations Development Group to promote greater coherence and cooperation in UN country level operations. • Roles of Resident Coordinators strengthened and appropriate tools employed to clarify and integrate national needs • Allocation of development interventions among the UN agencies on the basis of division of labor.

11. 2. PERSPECTIVES AND IMPORTANCE OF DEVELOPMENT FINANCING IN EMERGING ECONOMIES International financial institutions: • In March, 1997 the World Bank launched its Strategic Compact 1998-2000, • Internal reorganization and restructuring • Decentralization of the modus operandi of the bank along country based lines • harmonization of operations with the other development agencies and bilateral donors. • African Development Bank • Organizational, structural, policy and instrument reforms carried out following poor rating in 1990 • Rating improved to AAA in 2004 • Results in specific countries, particularly in Asia -Brazil, China, South Korea and Turkey show positive response to development finance efforts, it took these countries less number of the years it took UK and USA to attain living standards of industrialized countries • Institutional arrangements weak in Africa on country levels placing a responsibility on the Central Banks to braise the trail.

12. 3. CENTRAL BANK ROLES IN DEVELOPMENT FINANCING • In Europe, as early as the 13th century, government enacted legislation to help rural and urban dwellers combat poverty. • The Bank of England- department or unit that administers its small and medium enterprises financing. • Bank Indonesia – • promoting priority sector lending primarily in favor of MSMEs, • micro-credit project for the poor and near poor persons • self-help group linkage to banks. • information dissemination, promotion/supervision of micro-lending, • technical assistance and • capacity building for micro-finance providers/clients.

13. 3. CENTRAL BANK ROLES IN DEVELOPMENT FINANCING • The Philippines Central Bank, • enacts specific regulatory guidelines for rural /microfinance banks. • promotes appropriate financial market policies, • implements specialized microfinance promotion schemes (rediscounting facility, Credit Bureau, rating agencies). • Carries out intensive training and capacity building for its core group of micro-finance bank examiners and managers of microfinance oriented institutions

14. 3. CENTRAL BANK ROLES IN DEVELOPMENT FINANCING • African Central Banks with Development Finance Oriented activities: • Central Bank of Mauritius -sponsors credit scheme for sugar farmers. • Bank of Uganda- Development Finance Department (DFD) • Central Bank of The Gambia-microfinance supervisory unit. • The National Bank of Ethiopia- technical assistance and investment in micro financing businesses. • The Bank of Ghana-rural credit support through rural banking. • The Bank of Sierra Leone-rural banking and rural export credit guarantee scheme of the country, • Bank of Liberia- rural financing and other development finance functions. • In the late 1980s and early 1990s, some countries attempted to play down on their developmental responsibilities but had to reverse such decisions • This situation informed the repositioning of the former Agricultural Finance Department of the Central Bank of Nigeria (CBN) to Development Finance Department and with wider mandates.

15. 4. THE DEVELOPMENT FINANCING ROLES OF THE CENTRAL BANK OF NIGERIA • Creation of specialized Department • Implementation of specialized Programmes and schemes • Schemes for Financing of Primary Production • Agricultural credit guarantee scheme • Agricultural credit support scheme • Interest Draw-Back Programme • Small and Medium Enterprises Equity Investment Scheme (SMEEIS) • Micro Credit Fund

16. Schemes/Policies for Micro, Small and Medium Enterprises Financing • Microfinance Policy • Capacity Building of Institutions and Entrepreneurs • Training for Microfinance Banks Operators and Regulators • Entrepreneurship Development Centres

17. 4. THE DEVELOPMENT FINANCING ROLES OF THE CENTRAL BANK OF NIGERIA • Establishment of Institutions in Partnership with Government: • Nigerian Agricultural Cooperative and Rural Development Banks (NACRDB) • Bank of Industry (BOI) • Nigeria Export Import Bank (NEXIM) • Federal Mortgage Bank (FMBN) • Nigerian Agricultural Insurance Corporation (NAIC) • Nigerian Deposit Insurance Corporation (NDIC) • Financial sector reforms: • Consolidation of banks • Financial System Strategy

18. Intervention Performance • Agricultural Finance: • ACGSF: 569, 940 valued N22.5 billion granted from inception to August, 2008 • ACSS: 109 valued N17.20 billion as at August, 2008 • SMEEIS: • 332 projects worth N26.0 billion financed as at August, 2008 • Microfinance Policy • MFBs: Over 770 licensed as at August, 2008 • Universal Banks With Subsidiary MFBs plans: 3 as at August, 2008 • Universal Banks With Linkage Arrangements: 3 as at August, 2008 • Total assets/liabilities of the MFBs rose by 37.0% to N75.6 billion in 2007 • Paid up capital of the MFBs increased by 35% to N11.2 billion in 2007 • Shareholders funds increased by 70% to N21.8 billion in 2007

19. Intervention Performance • Banking Sector Consolidation • No of Banks: 24 as at December, 2007 • Number of branches increased from 3,468 in 2006 to 4,579 in 2007 (32% increase) • Aggregate financial savings rose from N1,867.8 billion in 2006 to N2,949.8 billion (57%) in 2007 • Ratio of total assets of banks to GDP increased from 71.7% in 2006 to 82.3% in 2007 • The DMBs total liabilities to GDP rose from 15.4% in 2006 to 17.6% in 2007

20. Intervention PerformanceBanks’ Credit to the Private Sector Source : Central Bank of Nigeria

21. Intervention Performance • Banking Sector Consolidation • Year Total Capitalization Banking Sector % Trillion ^ Trillion ^ • 2003: 1.3 0.4 26.7 • 2004 1.9 0.7 32.4 • 2005 2.9 1.2 41.4 • 2006 5.1 2.1 41.2 • 2007 13.3 6.4 48.1 • Banking Sector contributed 66.3% of new issues in 2007 • Capacity Building • EDCs: over 1000 university graduates and secondary school leavers trained • Interim Capacity Building: over 3,200 MFB staff trained • Training of Regulators: 60 already trained and another 60 to complete their training in September, 2008.

22. Future Thinking • Focus in creating enabling environment for increased private sector participation in the funding of development projects. • Policies and programmes that support public private partnerships particularly in the area of infrastructure financing and diaspora mobilization and value addition in agro-businesses will be of immense benefit to Africa.

23. 5. RATIONALE FOR CONTINUED CENTRAL BANKS’ INVOLVEMENT IN DEVELOPMENT FINANCING • Dearth of requisite Institutional arrangements • Challenge of Monitoring and creating appropriate Rural, Micro and Agricultural Finance Markets • Need for Appropriate Intervention Mechanisms that are Properly Integrated with National Financial Systems that would ensure an inclusive financial system. • Need to compliment Government Programmes through necessary advise • Experience From other Countries

24. 6. RECOMMENDATIONS AND CONCLUSIONS In order for African central banks to effectively intervene in development, the following are recommended: • Creations of Specialized Departments in Central Banks in Africa • Properly trained staff with specialization in rural, micro, small, medium enterprises finance, agricultural finance and project management to man the development finance department • Targeting of globally integrated and focused policies, programme and schemes that are seamlessly adapted to local environments.

25. 6. RECOMMENDATIONS AND CONCLUSIONS Cont.. • Promotion of support institutions for enabling the private sector to deliver financial services • Strategic collaboration with relevant stakeholders in the drafting and implementation of relevant policies and programme • Adoption of sector based strategies • Re-engineering and restructuring of existing development finance institutions to meet current needs and challenges.

26. THANK YOU FOR YOUR VERY KIND ATTENTION