SB 08: National Development Bank of Nigeria (Establishment, etc.) Bill, 2015

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Sponsor:

Sen. Ibrahim Gobir

Bill Status: Awaiting Committee Report

  • First Reading: 12/08/2015
  • Second Reading: 12/10/2016
  • Committee Referred To: Committee on Banking, Insurance and Financial Institutions.
  • Consolidated with:
  • Date Reported out of Committee:
  • Third Reading:

Bill Analysis:

SHORT TITLE

National Development Bank of Nigeria (Est.) Bill, 2015

OBJECTIVE OF THE BILL

The objective of the Bill is to establish a National Development Bank of Nigeria and repeal the Bank of Industry Act, the Bank of Commerce and Industry Act and National Economic Reconstruction Fund Act

NUMBER OF CLAUSES/PARTS

The Bill has 7 parts and 31 clauses, including miscellaneous provisions and schedule

IMPLICATIONS OF THE BILL

If the Bill is signed into law -:

  • a body to be known as the National Development Bank of Nigeria will be established;
  • The Bank of Industry Act, Bank of Commerce & Industry Act and the National Economic Reconstruction Fund Act shall be repealed;
  • The established National Development Bank of Nigeria shall be successor in title to the Bank of Industry, Bank of Commerce & Industry and National Economic Reconstruction Fund

GENERAL PROVISIONS OF THE BILL

  1. Part I – Establishment of the National Development Bank of Nigeria (“the Bank”)

          Part one of the Bill describes the establishment of the National Development Bank as follows -

  • it shall be a body corporate with perpetual succession and a common seal;
  • it shall have a board to be responsible for the policy and general administration of the Bank;
  • it shall consist of 12 members, two from each of the geo-political zones in Nigeria
  • it shall in addition to other functions stated under Clause 2(4)(a) – (c), appoint the management staff of the Bank as it may deem necessary;
  • members of the Board, other than ex-officio shall hold office for a term of 4 years, renewable for another for years only;
  • the office of a Board member may become vacant if the member resigns, is removed from office or the President notifies the member in writing. The grounds for removal are listed under Clauses 4 and 5

     2.  Part II – Aims and Objectives of the Bank

          Clause 6 of the Bill provides for the aims and objectives of the Bank as follows –

  • Provide loans to small, medium and large enterprises especially agro allied, fishing, poultry, livestock, mining, quarrying, manufacturing, etc.;
  • Provide short, medium and long term financing to participating financial institutions for on-leading to small scale, medium and industrial enterprises;
  • Facilitate provision of loans with 5 – 10 year maturity, including a grace period of 1 – 3 years;
  • Provide such loans either in Naira or other foreign currencies or both for the requirements of the eligible enterprise or project;
  • Subject to the approval of the Minister, raise loans from the local and international capital markets from bilateral or multilateral sources as the market situation permits; and
  • Carry out any other activities as may be considered necessary for the attainment of the above stated aims and objectives.

     3.  Part III – Eligibility for Funding by the Bank

        To be eligible for funding, Clause 7 of the Bill provides that –

  • Manufacturing, agro-allied enterprises, mining, quarrying, bonded warehousing, industrial estates and ancillary support services shall be eligible for funding if –
    • The enterprise or project is financially viable and economically desirable;
    • The enterprise has a majority equity holding in Nigeria;
    • At least 60% of its raw materials and other production inputs are derivable from the local economy

      4.   Part IV – Management of the Bank

           Clauses 8 – 10 provide for the appointment of the following staff –

  • Managing Director: On the recommendation of the Minister, the President shall appoint the Managing Director who shall be the Chief Executive of the Bank. The Managing Director shall subject to the control of the Board, be responsible for the management of the Bank in addition to performing duties as the Board may from time to time assign.
  • Management Staff: The Board may from time to time, appoint for the Bank such number of management staff as appears to be expedient and necessary for the proper and efficient performance of functions conferred on the Bank.
  • The secretary shall be appointed by the Board and responsible to the Board through the managing director. The office of the secretary shall be held by a person qualified for admission as solicitor and advocate in Nigeria and qualified for not less than 10years. The functions of the secretary are listed under Clause 10(3)(a) – (g)

     5.   Part V – Operations of The Bank

          Clause 11 provides for the responsibilities of the Bank with respect to loans to eligible enterprises –

  • Provide short, medium and long term financing to eligible enterprises
  • Provide the working capital required by eligible enterprises or projects
  • Appraisal of loan applications to ensure that such loan applications meet the requirements of this Bill (when passed into law)
  • Ensure disbursement to and periodic monitoring of the projects funded by the loan, and recovery of all loans made directly to projects.

   Under Clause 12, the Bank shall be a successor in title to the:

  1. National Economic Recovery Fund;
  2. Bank of Industry Limited;
  3. Nigerian Bank of Commerce and Industry

In the exercise of the power conferred by this provision, the Bank shall manage the enterprises listed above, discharging all existing financial commitments of the development financial institutions. In addition, the Bank shall –

  • Enter into agreements with the project promoters, other financial institutions concerned, vesting the projects and all the collateral & securities pledged to the Bank for direct supervision and monitoring of the loans;
  • Have power to institute in its name any legal action before any court of law or tribunal and shall have recourse to all remedies available under the law to recover all outstanding loans or investments in enterprise or projects funded by any of the financial institutions listed above.
  • With the prior approval of the Board, syndicate loans for projects that are economically desirable but which may be outside the eligibility conditions under this Bill (when passed into law).

        6.   Part VI – Financial Provisions: -

        Clause 13 through Clause 17 provide for the Bank’s financial management processes –

  • The Bank shall be self-financing and responsible for servicing all of its loan portfolio;
  • The management shall be responsible for procuring foreign currency and to hold foreign exchange so acquired in income-bearing securities or deposits;
  • The Bank shall be entitled to participate in foreign debt auction conducted by the Central Bank
  • The Bank shall have the status of an authorized foreign exchange dealer and shall accordingly be entitled to participate directly in any approved FOREX market scheme
  • The Naira interest rate chargeable by the Bank shall be 3% re-discount rate
  • The Naira interest rate shall be fixed for the duration of the loan;
  • Interest rates chargeable by the Bank on foreign currency loans shall differ from currency to currency, depending on the rates charged by the source;
  • Interest rate in foreign currency shall be two and a half percent above cost of borrowing;
  • Profits made by the Bank shall be applied towards enabling the Bank to meet its future obligations, enhance its resource base and scope of operation;
  • The Bank shall operate with capital funding provided by the Central Bank, the Federal Government, Bankers Committee and Manufacturers Association of Nigeria (MAN) and any other acceptable funding source;
  • The Board shall produce different guidelines for the utilization of the funds made available by the above stated sources; based on individual peculiarities of the sources of funding;
  • The Bank shall be audited not later than 2 months after the end of each financial year by an auditor appointed by the Board from the list submitted by the Attorney-General of Federation;

       7.   Part VII -Miscellaneous Provisions

           The provisions from Clauses 18 – 20 are of a general nature. They refer to reporting and board activities. Clauses 21 – 23 are the interpretation provisions and the remaining Clauses make up the    Schedule.

  • The reports of the Bank shall be submitted annually every December 31 to the government through the Minister (Clause 18);
  • The Board shall meet at least 4 times in a year (Clause 19)
  • The Board may co-opt a person to join their meeting where necessary. Though the person shall have all the privileges accorded to members, the person shall not be entitled to vote

CONCLUDING ISSUES

The National Development Bank of Nigeria (Est.) Bill, 2015 is one of the priority reform Bills that the Senate has resolved to fast track consideration and passage of. The priority Bills are expected to revive the economy and enhance the ease of doing business in Nigeria. However, this analysis shows that this Bank (when established) will not depart from the status quo. In other words, the Bank will be able to provide loans to enterprises as the Bank of Industry is currently doing. The only change will be that it shall replace three financial bodies already existing in Nigeria – BOI, NERFUND and Bank of Commerce & Industry; once the Bill is passed into law.

While some Clauses are similar in the Bill - Clause 6(a) & (b) are similar to Clause 11(1); some others raise questions. Clause 15(1) provides that the Naira interest chargeable shall be 3% and 15(2) provides that the interest rate shall be fixed for the duration of the loan. The assumption here is that the 3% interest rate is permanently fixed and shall not change for all Naira loans. As these are provisions of the Bill, if it is passed into law, an amendment shall be needed to increase or decrease the Naira interest rate, if necessary in the future.

Owing to the fact that the National Assembly identified this Bill as a “priority reform” Bill, its provisions do not clearly illustrate the reform that will revive the economy. A review of the provisions of the Bill is clearly required before the passage of the Bill. 

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