December 1, 2021

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How CBN interventions unlock growth paths for more MSMEs

The Small and Medium Enterprise (SME) sector is the backbone of major developed economies, as well as important contributors to employment, economic and export growth.

In South Africa, SMEs account for 91 percent of businesses, 60% of employment and contribute 52% of total GDP. In Nigeria, SMEs contribute 48% of national GDP, account for 96% of businesses and 84% of employment.

Despite the significant contribution of SMEs to the Nigerian economy, challenges still persist that hinder the growth and development of the sector.

According to the Nigeria Bureau of Statistics, small and medium scale enterprises (SMEs) in Nigeria have contributed about 48% of the national GDP in the last five years. With a total number of about 17.4 million, they account for about 50% of industrial jobs and nearly 90% of the manufacturing sector, in terms of number of enterprises.

It is with this realization that financial experts and development economists have continually discussed the need for the fiscal authorities to urgently roll out measures to support the development finance efforts of the central bank so as to stimulate economic activities.

The Central Bank of Nigeria (CBN) recently disclosed that it has disbursed the sum of N253bn have been disbursed under targeted credit facility (TCF) to 548,345 beneficiaries

The funds, which were given out in the first phase of the N150 billion Targeted Credit Facility (TCF), were disbursed through the NIRSAL Microfinance Bank after the beneficiaries met set guidelines for the intervention fund.

CBN Governor Godwin Emefiele, who broke the news at a media interactive programme in Lagos, said the resounding success of the scheme and its positive impact on output growth, has prompted the apex bank to double the fund to N300 billion.

Any Micro Small and Medium Enterprises (MSMEs) interested in the scheme can obtain loans ranging from N3 million to N25 million.

According to the CBN’s circular issued on March 23, 2020, there are two modalities to consider. They apply to either Households/MSMEs or Corporate entities.

For Households/MSMEs, The first step is for an eligible household to submit an application to NIRSAL MFB, which must, among others, contain BVN number, business registration (where applicable) and business plan with clear evidence of the opportunity or adverse impact as a result of COVID-19 pandemic

Similarly, the sum of N111bn has been disbursed under AGSMEIS to 29,023 beneficiaries as at May 28, 2021.

The Agri-Business/Small and Medium Enterprise Investment Scheme is a Federal Government initiative aimed at supporting efforts and policy measures for the promotion of agricultural businesses and small/medium enterprises (SMEs) in Nigeria, with the long-run goal of achieving sustainable economic development and employment generation.

With the CBN AGSMEIS Loan, one can access up to N10m at 5% per year without collateral.

The MSMEs Development Fund

The Micro, Small and Medium Enterprises Development Fund (MSMEDF), the seed capital of N220 billion was launched way back in 2013, more than half of the fund targeted at micro and small businesses is yet to be accessed according to the CBN governor .

The CBN has since addressed the issue of interest rate and collateral.

Speaking recently, Emefiele stressed the need for banks to look at ways of de-risking the sector as well as getting funding across to young graduates who venture into small businesses.

The CBN recently published a revised guideline on the disbursement of the N220 billion MSMEDF which will allow young graduates to access the fund with only their educational certificates.

The revised guideline realised by the apex bank stated that for loans granted to start-up businesses by deposit money banks and development finance institutions will have as collateral “educational certificates such as SSCE, National Diploma (ND), National Certificate of Education (NCE), National Business and Technical Examination Board (NABTEB), Higher National Diploma (HND), University degree (NYSC certificate where applicable) and a guarantor.”

The guideline also states that for the start-ups to access the MSMEDF they must present their Bank Verification Number (BVN) while “Venture Capital Firms (VCFs) that wish to finance start-ups in form of equity participation shall be eligible to access the MSMEDF at two per cent for investment in start-up projects. The collateral for such a facility to the VCF shall be bank guarantee.”

The N220 billion MSMEDF was initiated by the CBN in order to address the financing gap in the Micro Small and Medium Enterprises sector and provide funding at a single digit interest rate in an environment where interest rate has been at around 25 per cent.

The fund was aimed at improving MSMEs’ access to finance, shoring up their potentials for job creation, and enabling them reduce poverty within the country, in addition to the CBN’s endeavour at establishing Entrepreneurship Development Centres (EDCs) in each geopolitical zone to support the mandate of the 23 Industrial Development Centres (IDCs) under the purview of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).

According to the CBN, the micro-loans will be administered through private or state- owned microfinance institutions, Finance Houses, and Cooperative Finance Agencies, the SME loans will be disbursed through commercial banks.

Emefiele had at the signing of Memorandum of Understanding with participating states noted that the “fund is directly in conformity with my resolve to create a professional and people-centred Central Bank that will act as a financial catalyst for job creation and inclusive economic growth.

The fund is to be disbursed at an interest rate of no more than nine per cent per annum to microfinance banks for on-lending to the micro and small businesses to improve access to affordable and sustainable sources of finance by microfinance institutions and microfinance banks.

Also, to improve access to credit amongst women entrepreneurs, the CBN had dedicated 60 percent of the fund to women.

Although the CBN target is at nine per cent interest rate, SME accessing the fund may be required to pay 15 percent maximum interest rate.

However, prompt repayment would fetch the SME a 40 percent refund on interest rate which would see the total interest drop back to nine percent. This is to encourage small businesses to borrow money from the fund, use it to improve their businesses and repay on time for onward lending to others.

The fund is made accessible through Participating Financial Institutions (PFIS) which include Microfinance Banks (MFBs), Non-Governmental Organization – Microfinance Institutions (NGO-MFIs), Financial Cooperatives and Finance Companies that qualify.

Entrepreneurs in various fields such as Agriculture (farming, agro-processing, etc.); Trading/Commerce; Cottage Industries (local industries); Artisans (hairdressers, mechanics, vulcanizers, welders, etc.); Services (hotels, schools, restaurants, salons, eatery, laundry, etc.) and any other income-generating activities as prescribed by the guidelines are eligible to access the fund through the PFIs

Creative Industry intervention

The Central Bank of Nigeria (CBN), in collaboration with the Bankers’ Committee, developed a Creative Industry Financing Initiative (CIFI) as part of efforts to boost job creation in Nigeria, particularly among youths in the country. The initiative has four pillars which include Fashion, Information Technology, Movie and Music

Although the creative industry boosts all segments of the population, youths constitute major players in the sector. Therefore, to further boost the creative sector’s contribution to the Gross Domestic Product (GDP), the Central Bank of Nigeria (CBN) unveiled plans for development of creative industry parks across three major cities with the youths as main target.

Mr Emefiele, stated at the Creative Nigeria Summit in Lagos that with the support of the Federal and Lagos State Governments, the National Theatre Iganmu in Lagos would serve as the initial pilot for the Creative Industry Park, adding that efforts will be focused on discovering the most innovative young entrepreneurs across the music, movie, fashion and Information Technology (IT) industries.

The bank plans to set up similar parks in Kano, Port Harcourt or Enugu following the deployment of the pilot scheme in Lagos.

“Our goal through the establishment of these parks is to create an environment where start-ups and existing businesses can be incubated and rewarded for their creativity.

“In each of these parks, efforts will be focused on discovering the most innovative young entrepreneurs across the music, movie, fashion and IT industries.

“Each park will be able to support skills acquisition for over 200,000 Nigerians.

“These individuals will be empowered with funds at single digit interest rate, state-of-the-art tools, high level training and networks that will enable them to turn their ideas into a reality.”

The CBN and Bankers Committee believe that the little they can do is to create opportunities for these youths to access credit and bank loans to grow their businesses.

“We cannot afford to let the talents of our youthful population go to waste, as it would portend great dangers for the progress of our nation,” he stated.

According to him, efforts must therefore be made to harness the innovative and creative energy of the youths, towards enabling them to create productive ventures that will support improved wealth and job creation in Nigeria.

“We intend to support the development of over 50 additional cinemas from our current capacity of 48 cinemas nationwide,” he stressed.

Both parties recently outlined how to get the creative sector loans, which was to enable businesses to obtain loans up to the tune of N500 million.

Part of the steps in applying for the loan is to prepare a business plan or statement on how much is needed for the business.

Applicants can get N3 million for a Software Engineering Student, N30 million for a Movie Production business, N500 million for a Movie Distribution business. Cover your rental/service fees for Fashion and Information Technology businesses

So far, the sum of N3.2bn has been disbursed under CIFI to 341 beneficiaries as at May 28, 2021.