Sanusi`s' 'Tears' For The Poor

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In the relatively short period during which Sanusi Lamido Sanusi has occupied the critical position of Governor of Central Bank, he has come across as a no-nonsense hardworking, sincere and intelligent gentleman with a social conscience.     Obviously, the Governor's attempt to restore sanity in the banking system is still work-in-progress, as there is not yet a pointer to a clear exit strategy.   Sanusi, himself, may have been increasingly alarmed at the size of the hole in the books of the banks as the initial estimate of bad and non-performing loans initially hovered at just over N1000bn; thus far, CBN has provided over N600bn to supplement another N500bn forcefully recovered by the Economic & Financial Crimes Commission, EFCC.   But the hemorrhage has not healed; CBN's extended discount windows and requirement for a mere 1% cash reserve and liquidity ratio of 25% still have not succeeded in turning clenched credit fists into a supportive handshake to the real sector.   Meanwhile, banks' lending to government for intangible purposes may have doubled to about N200bn every month!  

  So far, probably less than N500bn may have been advanced by CBN to the real sector at what is considered a fair cost of credit of 7%!   The reality that CBN's attempt to stimulate the real sector and arrest the high wave of unemployment in a climate of stable purchasing power and improving social welfare may have failed was admitted by Sanusi, himself, recently at the Annual Microfinance Conference and Entrepreneurship Awards held in Abuja.   The CBN Governor stated with his usual candour on that occasion that 70% (105 million) of Nigerians are now living below the poverty line and that this figure was 'up from 54% a year or two ago'.    In other words, the tide of poverty has not yet been stemmed, but instead, has continued to rise in spite of his best efforts.  

  Sanusi's social awareness and concern is evident in his observation that 'such high incidence of poverty threatened national economic growth and development, especially in the face of the troubling reality that over 12 million youths, mostly educated and potentially productive are unemployed' . He rightly concluded that such a development must be properly recognized as a 'threat to the security and stability of our nation'.  

  This is a selfless assessment of Sanusi's performance at maintaining the prime CBN Agenda of economic price stability and a truthful admission that his policies so far have failed to achieve this objective, which would normally have halted and reversed the negative picture painted by the Governor.  

  Well, if Sanusi is credited with the integrity to admit that our development is still stunted and that unemployment, particularly among the youths, has not been halted by his policy directions, we should expect that he would also be honourable enough to propose and pursue new directions to bring about a salutary economic climate that enhances social welfare.   Regrettably, even if the CBN Governor has a realistic plan 'B', he did not choose the occasion of the Abuja Conference to reveal it.   He simply promised that the 'CBN would collaborate with government and other stakeholders to deliver faster results in improving access to finance and standard of living of Nigerians,' and warned that current government strategies may only continue to widen the gap between a handful of rich and the multitude of poor Nigerians, and oh! he also announced 'approval of three credit bureaus' in the country; these bureaus are expected to promote the setting up of private sector rating agencies. A Microfinance Development Fund will also be established in conjunction with an Apex Association of Microfinance Banks and unlicensed microfinance institutions, which would be instrumental to ensure minimum standards and norms in the subsector.  

  Well, the million dollar question is whether these credit bureaus and other operational templates for the microfinance subsector would arrest the decay in development, and significantly reduce the high percentage of Nigerians living below poverty level or indeed reduce the high level of unemployment, particularly amongst youths.  

  Well, I don't know about you, but nothing from the above gives me any confidence that those indices that would reflect commendable 'price stability' will indeed be stimulated by any of the foregoing proposals by our Governor.   Even if we limit our attention for the moment to the microfinance subsector, we note that there is no clearly defined framework that would ensure that the cost of borrowing for their low income patrons would be kept reasonable at a maximum of, say, 15%, i.e. less than 2% per month in contrast to the prevailing 6 - 10% per month or 72 - 120% per annum that is the prevailing norm in microfinance banking in Nigeria.   Where is the equity in such a business environment, where the priviledged class bemoan suicidal high annual interest rate of over 20%, while the 'poor' is required to pay over 60% for loanable funds; such a scheme in contrast to Sanusi's expectation will only further widen the gap between rich and poor!!    

  In countries like India and Pakistan where microfinance schemes have been fairly successful in alleviating mass poverty, operating overheads are kept low by choice of office locations and modest business styles; these institutions do not commence operations with expensive fancy addresses and a fleet of state of the art cars with employees emoluments that are not in keeping with the spirit of a 'poor peoples' bank.   Nigerians have witnessed the serial failures in this financial subsector, right from the Tai Solarin (God bless his soul) headship of the now defunct People's Bank to the various transmutations that have evolved to the current structure over which Sanusi now presides.  

  The above discussion indicates that in spite of Sanusi's expectations, he has failed to define a clear plausible strategy that would 'develop a financial sector that is inclusive, or geared to empower potential investors, big and small, so as to improve people's lives,' and the 46.3% of Nigerians whom he recognises to be financially excluded due to low banking penetration, especially in the rural areas, may remain in the same harsh economic wilderness for some time to come!   To be clear, Sanusi recognizes that the empowerment of this disadvantaged segment of the population is a 'sine qua non' to robust and inclusive economic growth and development' and identifies the members of this group to consist of marginal and landless farmers, women, self-employed, unemployed school leavers, urban slum dwellers and aged citizens, who are considered by banks to be high risk, unviable and costly to serve'.   The magic wand that Sanusi hopes to wave to make them attractive brides to microfinance institutions remains to be seen!  

  So, the overt sympathy for the plight of the poor may just remain that, if they cannot access credit at minimal cost and if the value of the little income they eke out daily become eroded by the equally divesting plague of inflation.   Certainly, official inflation rates remain in double digits and show no sign of recovery to beneficent lower single digit level, while food inflation remains unrestrained and poverty inducing at around 14% per annum; a sure recipe for deepening poverty, particularly for the urban and rural poor.  

  In the light of the likely failure of the empowerment strategies to alleviate poverty, analysts continue to advocate for CBN to restructure its monetary framework so that cost of lending to the real sector, consisting of both Small and Medium Industries, which have more coherent structures than personal empowerment strategies to generate more jobs can access bank loans at 5 - 7% per annum.  

  Attractive incentives should also be put in place to seduce industrialists to urban ghettoes and rural areas so they can contribute to mopping up the huge pockets of unemployed that exist in these areas.   Besides, a more appropriate monetary framework should also bring down the rate of inflation to 2 - 3% and thereby reduce the cost of fuel and transportation drastically, so that even meager quantum incomes will have greater purchasing values.   This approach would certainly be a much more realistic strategy to remedy Sanusi's depressive observations on the economy.  

  I recall an article of 13/08/2007 in this column; it was titled 'Soludo's Dynasty of the Poor'.   In like manner as Sanusi, Soludo, the former CBN Governor had decried the increasing rate of p in the land and warned of the horrible consequences of neglect of the education sector.   Soludo's lamentations were described as crocodile tears in that article, since he had, in his power as CBN Governor, the instrument to make a real difference in social welfare.   The solution proposed then remains eternally valid and I will end this week's essay with a short excerpt from that article; kindly read on:    

'At the graduation ceremony of War College Course 15 in Abuja recently, Soludo lamented: '…   The tragic thing is that if we are not careful, poverty is becoming a dynasty and that is because of the collapse of the public education system.   Education used to be a leveler.   Today, there is a breakdown of the system.   Being children of the poor, they end up being poor, and then you begin to have a dynasty of the poor….     

'The Nigerian economy can never become benevolent to the masses so long as the CBN continues to substitute our export dollar revenue with naira before sharing to the three tiers of government.   This is a self-destruct system and will continue to ensure that we cannot invest more of our legitimate export revenue to improve our welfare for fear of instigating inflation!   This means that we have to pray ' NOT' to earn more dollars, as its primitive and idle accumulation continues to embarrass us; more so, when we still beg foreigners to come and invest the same dollars at a higher cost to the nation.   CBN's self acclaimed 'bureau de change' toga will continue to depreciate the value of the naira as the substitution of increasing quantum of naira for distributable dollar revenue will chase the intermittent limited supply of same dollars by the CBN to the money market.   A worsening exchange rate can only lead to further collapse of the public education system, and a dynasty of the poor will truly endure; and in spite of his charge, Prof. Soludo may have been consciously instrumental in removing the ladder to success for millions of kids from poor homes, after he has safely arrived at the top, and his lamentations at the War College may just be crocodile tears!'  

  In the same manner, Lamido Sanusi has at his disposal the same instrument that will be a positive game changer to our economic growth and development, but does he have the courage to use them?  

By: Les Leba