N220b Fund: Providing Financial Lifeline for SMEs

One move by the Central Bank of Nigeria (CBN), among its others, to address small and medium-sized firms’ financial predicament, is the creation of the Micro Small and Medium Enterprises Development Fund (MSMEDF), which is gradually, but steadily turning the fortunes of these categories of businesses around and helping to create jobs.

Among the several intervention schemes introduced by the Central Bank of Nigeria (CBN), none has come close to addressing the critical fund needs of the medium and lower levels of businesses, as the Micro, Small, and Medium Enterprises Development Fund (MSMEDF).

The Fund, packaged by the banking and financial sector services regulator,  is intended to provide subsidised loans to Micro, Small and Medium Enterprises (MSME) at a single digit (Nine per cent) yearly all-inclusive interest rate. It’s borne out of the desire to address the MSMEs’ liquidity needs, both as capital injection and working capital. It is also expected to cater for applications received from other related government agencies, such as the Small and Medium Enterprises Development Agency (SMEDAN) under the National Enterprise Development Programme (NEDEP) scheme.

This financial initiative could not have come at a better time, as most of the businesses across this spectrum, or level of business operations, including artisans, cottage industries and others in the agricultural value chain, services providers, renewable energy and energy-efficient products, as well as technologies, trade and commerce, were already on the verge of collapse and in some cases had already gone under.

These businesses, or most of them, represent the core but challenged enterprises that incorporate the burgeoning and youthful zest and enterprise of the young-at-heart, and the daring and risk-bearing ones in the population matrix that the CBN intends to reach out to and engage by this funding arrangement.

Also, in efforts to ensure no sector is overlooked or ignored, the apex bank has adopted an elastic and flexible framework that allows it the leverage to incorporate other economic activities, from time to time so as to derive the maximum benefits imaginable in the fullness of time when this programme will be evaluated.

Rules of engagement

To ensure adequate and efficient deployment of the facility and avoid diversion or misapplication of the Fund to unintended businesses, the CBN laid out clear-cut guidelines that must be met and complied with. Among the provisions, is that prospective borrowers shall provide adequate and requisite documents, including collateral for the loans, in addition to the Participating Financial Institutions (PFIs) appraising loan applications, giving approvals and forwarding approved loan requests of borrowers to the CBN for the release of funds. As indicated, intervention from the MSMEDF can only be accessed by borrowers through the PFIs.

The accounts of benefitting borrower’s, according to the guidelines. shall be credited by the PFIs within five working days upon the release of funds by MSMEDF to the PFI. Accessing the MSME Development Fund has been streamlined to ease access by prospective loan takers.

All that is required is for prospective borrowers to approach any PFI of their choice and simply apply for the required fund. As structured, those seeking amounts not exceeding N500,000, are required to approach any of the four designated microfinance banks and institutions, including Financial Cooperatives, as well as Finance Companies.

There are others whose financial requirements lie within the N0.5 million – N50 million loan bracket. These Small and Medium Enterprises (SMEs) and prospective borrowers of the above-mentioned loan brackets are by the loan structure required to be serviced by the Deposit Money Banks (DMBs) and other Development Finance Institutions (DFIs), such as the Bank of Industry (BoI) and Bank of Agriculture (BoA). The ease and speed with which funds are released to end-users after the conditions precedent complies with underscores the CBN’s underlying objective of this scheme.

Firstly, it dovetails into part of CBN’s developmental functions and mandate of promoting a sound financial system in Nigeria, and two, it validates the recognition the apex bank places on the significant contributions of the MSME sub-sector.

By streamlining the protocols that govern the administration and implementation of this scheme, the apex bank, has eliminated nearly all of the complaints and roadblocks normally associated with operators in this bracket whenever they approach the DMBs for credit, amount notwithstanding. Clearly, the question of high interest rate (usually above 20 per cent) which has been a recurring decimal associated with credit and most loan transactions in nearly all the commercial banks and other financial institutions, is eliminated and resolved.

At a nine per cent interest rate per annum, the MSMEs’ operators and businesses are the winners this time with the CBN’s MSMEDF financial lifeline and funding initiative.

CBN urges access to Fund

Investors within the micro-to-medium categories are been urged to take advantage of the N220 billion facility for the development of MSMEs.CBN Consultant and Managing Director, Kajaura International Consult Limited, Dr Yakub Abdalla, made the call in Gombe, Gome State as part of a campaign on the Fund.

He said farmers, artisans, market men and women and any entrepreneur that is either financially excluded or under-served is entitled to the fund. As intended, Abdalla said the fund would also trigger job creation for the private non-formal sector, adding that lending would be to only members of cooperative societies. He said qualified Micro Finance Banks (MfBs) could also participate by borrowing for onward lending to others. He said other higher bodies would serve as vehicles for the evaluation and monitoring of the funds.

The CBN Governor, Godwin Emefiele, has also called out to those for whom the MSMEDF is intended, to come out and engage so they could benefit from the initiative. Although the programme has seen the better part of seven years, Emefiele is concerned that the majority of the people are yet to be acquainted with, or aware of its existence and, therefore, called for proper sensitisation of the fund. “People need to understand that the fund is available to qualified entrepreneurs and that there is an easy way to access the fund,” he said.

The Fund

The MSMEDF shall have a take-off seed capital of N220 billion with the broad objective to channel and avail low-interest funds to the MSME sub-sector of the economy through PFIs to enhance access by MSMEs to financial services, increase productivity and output of microenterprises, as well as increase employment, create wealth and engender inclusive growth.

Components of the Fund

The MSMEDF  has Commercial and Developmental components. As clearly structured, the Commercial Component constitutes 90 per cent of the Fund that is disbursed in the form of Wholesale Funding to PFIs viz: 60 per cent of the Fund goes to women, while 40 per cent of the Fund is assigned to others.

Specifically, the Fund provides facilities to qualified and eligible PFIs for on-lending to MSMEs, improve the capacity of the PFIs to meet credit needs of MSMEs and help reduce the cost of funds of the PFIs and ensure that this translates into reduced borrowing costs for the borrowers.

There’s a 9.75 per cent Grant Component of the Fund that is meant to support the general development of the MSME sub-sector. It also serves to incentivise targeted institutions that demonstrate good loan repayment culture and enable them to attain more capacity for expansion and growth trajectory.

To qualify for the grant component, CBN explained, PFIs will be assessed based on their performance rating in poverty reduction, job creation and financial inclusion. For institutions to benefit, they must submit clearly defined projects and provide counterpart funding expected to be matched by the MSMEDF grant support.

Among its other provisions is that institution will access the Fund, or enjoy the grant once in three years up to a maximum of 25 per cent of the project cost and subject to the discretion of the CBN. A maximum of 10 per cent of the commercial component of the Fund is to be channelled to trade and commerce. This is to ensure that productive sectors of the economy continue to attract more financing necessary for employment creation and diversification of the country’s economic base.

Loan Tenor

The facility has a maximum tenor of one year for micro-enterprises and up to five years for SMEs with an option of the moratorium. PFIs shall access the fund as many times as possible upon full repayment.