Nigeria: N220b MSMEs Fund - MfBs, Finance Houses Shun Loan over Collateral

Nov 2014
Nigeria, November, 25 2014 - Microfinance Banks (MfBs), finance houses and Designated Non-Financial Businesses and Professions (DNFBPs) are not drawing from the N220 billion Micro Small and Medium Enterprises (MSMEs) fund because of stringent drawn-down policy of the Central Bank of Nigeria (CBN).

An insider in Finance Houses Association of Nigeria (FHAN) expressed the group’s challenges in drawing from the fund.

The source said CBN’s demand that borrowers provide 100 per cent near-cash cover in treasury bills or fixed deposit has made it difficult for any finance house operator to draw from the fund three months after drawn-down started.

The source said there was no point providing total coverage for loans and still lend according to the CBN’s directive.

“The demand that borrowers provide 100 per cent near-cash cover on loans is unacceptable. As I speak with you, no finance house operator has drawn from the loan because the CBN cannot force people to invest in treasury bills or keep fixed deposits because they want to borrow,” the source said.

The source claimed that as the situation is now, only commercial banks are meeting the drawn-down policy and are accessing the loans, a practice, he said, defeats the objective of setting up the fund.

Part of the CBN’s policy guideline on the loan requires 80:20 ratio for on-lending to micro enterprises and Small and Medium Enterprises (SMEs) and request that 60 per cent of the fund, representing N132 billion, be earmarked for providing financial services to women-owned businesses were said to be reviewed in the final guidelines concluded at last week’s meeting with stakeholders.

There is also a clause that participating financial institutions can only finance agricultural value chain activities, trade and commerce; cottage industries, artisans, among others.

The banking watchdog said to ensure that productive sectors of the economy continued to attract more finance necessary for employment creation and diversification of the country’s economic base, a maximum of 10 per cent of the commercial component of the fund will be channeled to trading and commerce.

CBN Governor, Godwin Emefiele said MSMEs are globally recognised as the critical engines of economic growth due to their potential to create jobs, boost production, generate income and reduce poverty.

In spite of this recognition, MSMEs do not have the adequate financing needed to play this pivotal role in its development trajectory.

A joint report by the International Finance Corporation (IFC) and McKinsey, the financing gap of this critical sub-sector of the country, is about N9.6 trillion as of 2010.

The N220 billion, Emefiele said, is meant to address this gap and unlock the potential of the MSMEs  as an innovative way of improving their access to finance, shoring up their potential for job creation and enabling them reduce poverty within the country.

Emefiele said the CBN would be committing human, material, and financial resources to monitoring both the disbursement and utilisation of the funds by the participating financial institutions. These stakeholders, he said, will be required to submit periodic returns on disbursements as well as an analysis of the social impacts of the Fund adding that the regulator will also undertake regular on and off site checks to ascertain veracity of the reports received.

The CBN chief said while the micro-loans would be administered through private or state owned microfinance institutions, Finance Houses, and Cooperative Finance Agencies, the SME loans would be disbursed through the DMBs. State governments will be able to access up to N2 billion each for lending to eligible beneficiaries through participating financial institutions in their states.

He said the fund is also in conformity with CBN’s resolve to create a professional and people-centred central bank that will act as a financial catalyst for job creation and inclusive economic growth.

“While these are our ultimate goals, our main intermediate objective is to ensure that these funds get to people at the very bottom of our social pyramid at single digit interest rates. Without achieving this objective, I have no doubt that it would be impossible to achieve the ultimate goal of job creation and poverty reduction,” he said.

Source : The Nation

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