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How bank credit can drive economic growth – Experts

by Agric  |  in business at  04:51


CBN Governor, Mr. Godwin Emefiele
Financial and economic experts at the Institute Credit Administration Nigeria say credit availability in monetary and trade terms will drive economy growth by boosting wealth and job creation.
They also said Nigeria must engage free market economy in order to achieve a remarkable resilience in economic activity, employment and fiscal performance.
The experts spoke during the inauguration of the third Governing Council of the institute in Lagos.
“Abundance of credit availability in monetary and trade terms to fuel exports of made-in-Nigeria goods must become the major driver of our economic activity; oil must be de-emphasised, agriculture must become a major backbone of the nation’s economic growth,” the ICA council members said.
The President, ICA, Mr. Tunji Oyebanji, said the well-functioning of credit in any economy was a pre-condition for enterprise and trade to develop and thrive.
He, however, said that for credit to grease the economy it had to be sustainable and responsible.
He explained that “the granting and state of credit in any economy has important implications for both financial stability and private sector sustainability.
“In times of an economic recovery which is still susceptible to external shocks, the well-functioning of credit is crucial for our economy.
The poor attitude to credit, especially to public loans provided by government’s development finance institutions, and lack of a robust regulatory regime for the development finance institution sector to operate is a fundamental threat to the health of any credit economy. Government must be committed to enhancing the regulatory regime; government must enhance credit regulations by providing more protection for the DFIs.”
Oyebanji however, said regulation alone was not enough.
According to him, in granting credit, both parties to the transaction need to be guided by a sense of values and ethics in their business dealings.
He said, “The present situation of credit lax has evidenced the gaping hole that should be occupied by values. Integrity and honesty need to be the guiding principles in all business decisions.
It is this responsibility towards the other party which will determine the well-functioning of credit in any economy.”
The expert said the need to advance credit to businesses and individuals, as well managing credit risk, had taken a much bigger dimension.
In spite of this, the business community still lack proper commitment towards the culture of honoring credit obligations.
The ICA leader observed that in an environment of persistent national deficits and borrowings, inflationary pressures were bound to surface and negatively impact the available money supply which otherwise would have been deployed for productive investment and consumption.
As a result, he said the cash shortage had amplified the demand on banks to create more money through loans and advances.
He said, “As this demand for credit has increased, businesses are being expected to participate in the credit creation mechanism through deferred payments and credit terms granted to their customers.
Under these economic and financial realities, competition has also driven businesses to improve and compete not only on quality and price, but more significantly so on the credit terms they provide.
“Businesses today are using generous credit terms as an effective tool to gain a competitive advantage. This is so only if they are managed effectively, if poorly managed, credit terms could lead to a disaster. These considerations amply demonstrate that credit management cannot be more relevant than it is today.”
Oyebanji said the prevailing economic conditions had also made the institute to focus on strengthening and sustaining the Federal Government’s economic development efforts.
He said the ICA was assisting its members to mitigate the credit difficulties caused by the ever-increasing cash flow deficiency.
The expert, however, noted that “the idea of an effective credit management function should not be solely limited to the private sector remit.
“As a general rule, it should equally apply to the public sector as well especially when the public sector is the debtor. In its efforts to improve local business practices and ethics, the ICA has continuously persisted in developing its education and research initiatives.
“It has progressively grown its capacity building and market intelligence, and has continued to provide excellent guidelines and advice to its members. The institute, highly supported by its international network, has definitely made a positive difference on credit management issues in Nigeria.”

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