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CBN and MSME Funding: So Much Motion, So Little Movement

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The Central Bank of Nigeria (CBN), in pursuit of its objective of promoting economic development, in recognition of the significant contributions that Micro, Small and Medium Enterprises (MSMEs) are making to the growth of the economy, has been launching a growing range of initiatives aimed at addressing the financing gap in this sub-sector.

The CBN, in line with its pivotal role in the nation’s financial ecosystem, launched the Micro, Small and Medium Enterprises Development Fund (MSMEDF) on August 15, 2013 with a share capital of N220 billion. The Fund aims to enhance the access of MSMEs to financial services, by channelling single-digit loans at Nine percent interest rate to them, through the Primary Finance Institutions (PFIs).

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Amidst cries that end users are finding it impossible to access this facility, one reason being the shortage of collateral among Small Business Owners, the CBN introduced the National Collateral Registry (NCR), to ease delivery of affordable loans to small businesses. Initiated in 2015, a movable asset in this register, with the Bank Verification Number (BVN) of the potential borrower, is expected to stand as collateral for a loan to a Small Business Owner.

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Granted that bank executives and fund managers would rather not lend to Micro, Small and Medium Enterprises, because they are high-risk borrowers, this CBN-inspired NCR scheme provides a window for mitigating the risks of lending to them.

In yet another initiative, announced in December 2018, the CBN decided to transform the tottering Nigerian Postal Service (NIPOST) into a National Microfinance Bank.

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Reasons: Non-disbursement of intervention funds to MSMEs, and high and “outrageous” interest rates charged by existing microfinance banks.

Under the plan, the Bankers’ Committee will invest N5 billion in equity from its N60 billion Agricultural Small and Medium Enterprises Investment Scheme (AGSMEIS) Fund and NIPOST will contribute its offices in the 774 local governments across Nigeria.

This plan by the CBN to transform NIPOST into a microfinance bank received a new spin on March 6, 2019 when CBN Governor, Godwin Emefiele, at the Gwagwalada Post Office in Abuja, announced that NIRSAL (working with the CBN, Bankers’ Committee and NIPOST) will establish a N5 billion microfinance bank that will have branches in the 774 Local Government Areas in Nigeria, and will offer collateral-free loans with seven-year tenor and two-year moratorium at five percent interest rate.

According to Emefiele, NIRSAL Microfinance Bank now has seven branches, and plans to open 50 in the next phase. “Before the end of this year, we would have moved substantially in making sure that they are set up and able to provide finance to small businesses,” Emefiele said.

NIRSAL, launched in 2011 and incorporated in 2013, by the Central Bank of Nigeria (CBN), the Bankers Committee and the Federal Ministry of Agriculture and Rural Development, is the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending. It de-risks the agriculture value chain, and enables banks to lend to the sector at rates of between 7.5 to 10.5 percent.

Sadly, in spite of this flurry of initiatives, despite these and other interventions by the Central Bank of Nigeria, the funding of MSMEs remains an issue. In fact, the CBN Governor recently estimated the financing gap for MSMEs at N48.3 trillion!

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According to estimates, less than five percent of the 37.07 million Micro, Small and Medium Enterprises (MSME) in Nigeria have been able to access loans or overdrafts from financial institutions.

Furthermore, Central Bank of Nigeria figures show that out of aggregate loans of N135.9 trillion disbursed to the economy between 2011 and 2015, only N159.75 billion, representing 0.1 percent, went to SMEs.

Ironically, these are happening at a time when the widening basket of funds earmarked for Micro, Small and Medium Enterprises, across various segments, currently amount to N3 trillion.

Even more worrisome is the case of the N220 billion MSME Fund. This scheme, designed by the CBN to assist MSMEs does not seem to be working as planned. Instead, it has become a subject of altercation.

While a recent CBN count indicates that the MSME Fund, heading into its sixth year, has disbursed N170 billion, leaving N50 billion on the table, the supposed end users dispute the claim, and are demanding for publication of the list of MSMEs that have benefitted from the Fund to date.

With the myriad of complaints coming from the target beneficiaries of the Fund, it is clear that its objectives are far from being achieved, and the expected benefits are dreams deferred.

The plain truth is that the funds already set aside and/or said to be available are not translating to their being accessible to the target end users, and MSMEs continue to face the challenges of poor access to finance and high cost of borrowing.

One thinks that getting current schemes to deliver on their mandates should be the focus of the CBN, not the introduction of new schemes that may suffer the fate of earlier ones that were either badly planned or being implemented poorly.

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