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Nigerian Economic Recovery Fund (NERFUND) may suspend operations soon due to the large volume of non performing loans in its books. Acting Managing Director of the agency Dr. Ezekiel Oseni, at a meeting with the Economic and Financial Crimes Commission (EFCC)  boss Ibrahim Magu, solicited for the anti graft agency’s support as NERFUND was facing difficulty in recovering N17,5 billion in loans it had given.

We can no longer support entrepreneurs owing to the fact that we gave out loans of N17.5bn and they are yet to be paid back. While the small customers who collected between N1m and N2m have started repaying, we are having difficulty in recovering the huge loans from the big customers who took N50m and above.

What went wrong ?

Oseni, blamed the large volume of non performing loans on the absence of collateral on loans taken by people close to politically exposed persons.

Some of these big customers borrowed this money without collateral through the influence of politicians and they don’t want to pay back because they feel its government money.

NERFUND is a classic case of why government should not be in the business of lending money. The mistakes made by the agency would not have occurred in the private sector. Banks usually ask intending clients if they are related to politically exposed persons. Doing so, enables them to apply extra caution. Why did NERFUND grant loans without collateral ? Why did the agency wait till it got to the brink of collapsing, before embarking on an aggressive loan collection drive ?

NERFUND also failed to put in place a proper risk management system, as 80% of its loans were given to a few parties. Commercial institutions usually diversify their loan base across individuals and sectors to lessen the risk of default.

NERFUND was set up in 1989 by the Ibrahim Babangida adminsitration to provide medium and long term financing for Small and Medium Scale Enterprises in the country.

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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