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Effects and consequences of FG joint account for MDAs.

There is no policy without its pros and cons, and this is applicable to the recent policy made by President Muhammadu Buhari to all government Ministries, Departments and Agencies (MDAs) to open Single Treasury Account (STA) with the Central Bank of Nigeria (CBN). One side of the policy is that it is capable of shooting up inter-bank rates and causing systemic backlash or collapse. Although, the new policy was necessitated by the need to check the total abuse of the funds for personal gain by banks and government officials. Finance professionals have warned that the immediate consequence of the policy would be illiquidity in the system that would increase the cost of funds and lending rate. Inter-bank rates that have been up to 50 percent in the last few days may hit the roof, as borrowing rates would also triple. My little experience in Microfinance and investment banking can permit me to say that the benefits might outweigh the challenges if properly handled. Small business will eventually benefit as banks become more innovative and seek new ways of doing business. I see banks going after micro-entrepreneurs and small businesses aggressively. Public sector funds have made the banks so lazy that some of them do not want to touch budding enterprises and start-ups. Small businesses are the growth engine of any economy and should be accorded a priority of place. Most SME products created by Banks are untested and do not meet the requirements of the buyers.As a matter of facts, some of the products are so unfriendly that small businesses cannot use them either because the pricing is unaffordable or the conditions for accessing the loans cannot be met. Bankers would have to get their hands dirtier if they want to keep their jobs and remain in business. Kudos to President Buhari! Banks should get down to their real banking job, develop the economy by provide services that will encourage growth of SMEs and not by just making profits from COT off Govt accounts! On the other hand which is more important, the immediate consequence of the policy would be illiquidity in the system that would increase the cost of funds and lending rate. Inter-bank rates that have been up to 50 percent in the last few days may hit the roof, as borrowing rates would also triple. A financial expert explained; “Traditionally, pooling is used to get higher returns on interest rates, reduce borrowing costs, and build confidence to lenders. Pooling also gives a total position picture on the funds owned line of the balance sheet. “However, pooling or STA would throw up reconciliation issues, if not handled well. It is also short in terms of letting the stars take care of the dogs, in other words, great performance being masked by poor performance in the consolidation process. Other challenges include giving an opaque view and queuing issues in orderly disbursement. To overcome this, let the CBN use the advised account only as a control account but open subsidiary accounts for all individual MDAs both for performance review and funds administration. Ayo Abiona is a social commentator. Special thanks: vanguard News Grooming Microfinance Mr maaz Denga Bola Sasona.

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