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How high lending rate by microfinance banks stunts small businesses

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It is no secret that the economy is still largely driven by the Small and Medium Enterprises, according to the Gross Domestic Product (GDP) report of the National Bureau of Statistics, revealing that the non-oil sector witnessed the highest positive growth since 2016.

Almost always, small businesses depend on lending from either the Federal Government through the Central Bank of Nigeria (CBN) and Bank of Industry (BOI) or through the commercial banks; requirements and duration to access loans make it difficult for businesses to attain in time, which sometimes forces them to resort to borrowing from microfinance bank.

The high lending rate by the microfinance banks has gradually served to discourage Small and Medium Scale Enterprises from borrowing, in the long run slowing the pace of economic growth.

The Senior Special Assistant, Technical to the Nigerian Association of Small and Medium Enterprises (NASME), Chris John Mamuda, lamented the high rate of lending, he said, “this has forced many small businesses to fold up”. “The microfinance banks are lending to Micro, Small and Medium Enterprises (MSMEs) at very high rates of more than 22% and most of the loans are short-term and micro credits. They cannot lend on working capital issues. Therefore the lending is not substantial,”.

He added that aside the challenge of high interest on lending by micro finance banks, most businesses are small in size and lack good financial management practice.

He expounded that most MSMEs lack business management skills and verifiable business which makes it difficult for them to access loans like the Anchor Borrowers Program by the Federal Government.

The NASME senior special assistant, therefore, urged that development banks and financial institutions create fund that would support microfinance banks, and also build capacity to support MSMEs.

Relevant financial products aimed at supporting MSMEs, should be created by the Micro finance banks, seeing as there is a lack.

NAMB reports CBN’s inadequate funding, crippling its capacity to lend!!

The National Association of Microfinance Banks (NAMB) announces the inability of the Central Bank of Nigeria (CBN) to release funds under the Microfinance Development Fund (MDF). Rogers Nwoke, the President of the association, urges the CBN to provide wholesale liquidity to support micro credit delivery to small and medium scale businesses.

“If the Microfinance Development Fund (MDF) provided for in the National Microfinance Policy, is the same as the Micro Small and Medium Scale Enterprise Development Fund (MSMEDF), how come less than 5% (about N11bn) of the N220bn have been disbursed to less than 20% of the 1,028 microfinance banks in Nigeria? Has the well-desired and well-intended fund provided the needed liquidity to the sector?” he queried.

He advised a creation of friendly policies that would encourage investment in microfinance business by way of incentives, whole fund and capacity building, by the Federal Government and investors.

CBN Analysis’s problem of inadequate fund for Microfinance banks

Acknowledging that Nigeria has about 37 million SMEs that constitute about 60% of the GDP, the CBN concludes that their financing is imperative.

Aisha Ahmad, the Deputy Director of Financial System Stability, said the banks are, however, yet to achieve their needed objectives as they contribute only 1.1% of the total credit by deposit money banks which has occasionally made access to finance difficult.

She added that, “the apex bank is doing everything possible to address the challenges of access to funds by microfinance bank’s across the country through direct intervention and other policies so that there will be room for the SMEs to borrow and further drive economic development.”

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