The Central Bank of Nigeria (CBN) last week issued revised guidelines for the Power and Aviation Intervention Fund (PAIF), introducing sanctions to curb the excesses of banks in the administration of the Fund.
The Fund was part of the N500 billion funding initiative of the CBN unveiled in 2009 to boost lending to the real sector. The operating guideline mandates bank to lend at 7.0 per cent, and disburse the fund to the borrower not less than two days after receiving it from the Bank of Industry (BOI), which is the managing agent. However, the CBN did not specify any sanction against contravention of this provision; hence banks participating in the Fund circumvented the guideline.
Consequently, to guide against future infraction, Section 8.3.2 of the revised guideline states, “Diversion of funds by the participating banks (PBs) shall attract a penalty at the bank’s average lending rate at the time of infraction. In addition, such PBs shall be barred from further participation under the Fund; Non-rendition of returns or the rendition of false returns shall attract the penalty stipulated by BOFIA section 60. Any PB that fails to disburse the Fund within 14 days of receipt to the borrower shall be charged the maximum”.
Furthermore, with respect to interest rate, whereas the old guideline just stated the fund shall be administered at, “an “all-in” Interest rate/ charge of seven percent per annum payable on quarterly basis”, the revised guidelines insisted that all interest rate and charges should not be more than 7.0 percent. It stated, “The Fund shall be administered at an “all-in” Interest rate/ charge of NOT more than seven percent per annum payable on quarterly basis. Specifically, The DMBs’ charge shall NOT exceed seven percent per annum on the Fund facility out of which one percent would be remitted to BOI’s Account with CBN; ii. The DMBs shall remit the amounts due to BOI out of the interest; No upfront fee/charge should be deducted in respect any facility under the Fund”.
On the other hand, the apex bank also introduced penalties for defaulting borrowers. According to Section 8.3.3, “In the event of default in loan repayment (principal and interest), the PBs shall have the right to charge commercial interest rate on the amount of default.”
Furthermore, the apex bank increased the security to be provided by participating banks to include. “Legal agreement between BOI and PB for BOI to have the rights to realise security pledged by project promoters; BOI to have lien on the project cash flows; And A deed of assignment of the assets of the project in favour of BOI.”
As at last December 31st 2011, the CBN had disbursed N144.6 billion of the Fund to banks for on-lending to 10 airline and 21 power projects
The objectives of the PAIF are to fast-track the development of electric power projects, especially in the identified industrial clusters in the country, fast-track the development of the aviation sector of the Nigerian economy by improving the terms of credit to Airlines, serve as a credit enhancement instrument to improve the financial position of the Deposit Money Banks (DMBs), improve power supply, generate employment, and enhance the living standard of the citizens through consistent power supply and to provide leverage for additional private sector investments in the power and aviation sectors”.
The Fund is managed by the BOI, as the managing agent, while the Africa Finance Corporation (AFC) acts as technical adviser.
