In News by ibukun on the 23rd, June, 2019

VP Osinbajo talks up FG’s proposed “Entrepreneurship Bank”. But is it necessary?

VP Osinbajo talks up FG's proposed "Entrepreneurship Bank". But is it necessary?


At the National Youth Entrepreneurship Empowerment Summit in Abuja, Vice President Yemi Osinbajo reiterated a campaign promise of the Muhammadu Buhari administration, to establish an Entrepreneurship Bank, a dedicated “financial institution” for entrepreneurship development and “to encourage small and medium size enterprises.”

Why create a new bank? According to VP Osinbajo, government’s initiatives to develop entrepreneurship has not been at the scale that it desires. He said that government is looking “to do something that can deal with hundreds of thousands of people as opposed to a few thousands…This is why we are setting up an Entrepreneurship Bank which is one of the key ways by which we can directly finance entrepreneurship.”

It is unclear what the Bank will set out to do but it does appear, given the preliminary information by the VP, that this proposed Bank is indistinguishable from the newly established Development Bank of Nigeria in terms of its core mandate (providing loans, capacity building and guarantees for Micro, Small and Medium scale Enterprises).

The Nigerian government has a history of establishing specialised development banks as a vehicle to directly intervene in critical sectors without much success. In 2011, Nigeria had to merge the National Industrial Development Bank, the Nigerian Bank for Commerce and Industry and the National Economic Reconstruction Bank into the Bank of Industry to create a single and stronger institution. But with the proposed Entrepreneurship Bank, Nigeria might be returning to the 80s era that saw the creation of banks like the NIDB, NBCI and the Peoples Bank of Nigeria.

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Consequently, this proposal would be rejected by free market advocates— who are largely of the view that government has no business creating businesses and would prefer the government to create enabling environment and allow a private sector approach to the problem.  

Bottomline: Ideally, the Nigerian government is within its rights to provide low interest credit and create specialised institutions to spur entrepreneurship and economic growth. However, this current proposal seems to be a duplication of existing government development finance institutions which should rather be strengthened. Likewise, historical data from these existing government DFIs has not shown any attainment of the desired objectives other than constituting more debt that would be shouldered by the government. A vital case in point is the Bank of Agriculture which the government is now trying to restructure and privatise.



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