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Financing Options For Micro, Small, And Medium Enterprises



By Bukola Idowu, Lagos

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) will be meeting this week to decide on the policy direction and analysts believe that the benchmark interest rate will be left at 14 per cent, the same level it had been since last year.

This is despite several calls for a cut in benchmark rates which has seen lending rates at the financial market rising up to 30 per cent and above. Asides this, the rising non-performing loan portfolio of banks has them more conservative in their lending.

The calls for a cut in rate had intensified especially as inflation has begun to slow down, dropping to 16.25 per cent in May with indicators pointing to a further decline in the figure when the June inflation is released.

However, analysts believe that a cut in rates now would trigger inflation as the inflation in the country is not demand pull driven.  Asides this, apex bank has maintained that the high interest rate is an effort to lure foreign portfolio investors into the country.

This, according to the governor of the CBN, Godwin Emefiele, will help increase the inflow of foreign exchange which will eventually reduce the pressure on the currency and ultimately consumer prices.

With a higher interest rate, it had become more expensive for operators in the real sector particularly small businesses, have access to affordable finance. As the country is in in a recession, the real sector is needed to grow so as to spur the nation out of its present predicament brought on by low prices of oil at the global market.

With its vast resources and a large market, Nigeria has a great potential to be self sufficient, however, the contrary is the case as the country is heavily reliant on import even for basic items. This had called for an import substitution regime by the federal government as a way to reduce the county’s dependence on imports from developed countries.

The implementation of this policy focuses on protection and incubation of domestic infant industries so that they may emerge to compete with imported goods and make the local economy more self-sufficient.

This has become even more evident in the light of lower foreign exchange revenue of the country which mainly comes from oil. Although the price of crude oil at the global market is expected to get better following agreements among oil producing countries on output, the price is likely to remain around $50 per barrel for months.

This means lower accretion to the external reserves of Nigeria which had depleted to a low of $24 billion before its rise to over $30 billion in recent months. The lower level of the reserves had also affected the value of the naira as the Central Bank of Nigeria (CBN) cut its dollar sales for some imports pushing more demand to the parallel market.

Consequently, the federal government had started a campaign to increase local production to meet local demand. President Muhamadu Buhari had promised to create a more conducive atmosphere for entrepreneurs.

With interest rates at the commercial banks hovering around 30 per cents, special intervention funds have become essential so as to provide cheaper funding for entrepreneurs in the country especially as financing has always been chief on the numerous list of various challenges facing Small and Medium Enterprises (SMEs)

In view of the persistent financing gap for real sector development, the CBN has continued to actively promote the flow of funds to the sector and improve access to finance by micro, small, and medium enterprises (MSMEs).

In recognition of the importance of SMEs in the development of the economy, the CBN is collaborating with other stakeholders to evolve initiatives that would facilitate the development of SMEs. This collaboration is towards ensuring that SMEs in the country have access to the credit that is needed to develop the real sector. Also SMEs access to credit is mostly hindered by procedures and collateral.

In this regard, the apex bank had concluded arrangements on the Secured Transaction and National Collateral Registry, which will facilitate the use of movable assets as collateral for either business or consumer credit. This will substantially enhance access to credit through the diversification of the scope of eligible assets for collateral purposes.

Apart from this, the CBN has introduced various interventions which are aimed at creating credit and encouraging lending to this sector that is crucial to the survival of the country. One of such is the N200 billion SME Restructuring and Refinancing Facility (RRF) which was established to re-finance and restructure banks’ existing loan portfolios to manufacturers at 7.0 per cent per annum.

There is also the N200 billion SMEs Credit Guarantee Scheme (SMECGS) which was established to encourage banks to lend to productive sectors of the economy, by providing 80.0 per cent guarantee on loans granted by banks to SMEs and manufacturers. The CBN shall sustain the scheme in 2014/2015.

Asides this is the N220 billion Micro, Small, and Medium Enterprises Development Fund (MSMEDF) established on August 15, 2013. Disbursement from the Fund is designed to provide wholesale facilities, refinancing and guarantee to MSMEs, and is set to commence in this year. The Fund will also provide liquidity support to microfinance banks/microfinance institutions for on-lending to MSMEs. Sixty per cent of the Fund will be devoted to women entrepreneurs.

In promoting agriculture and agriculture value chains, a sector which contributes a substantial portion of the GDP, the CBN launched the N200 billion Commercial Agriculture Credit Scheme (CACS) focused on the financing of large ticket projects along the agricultural value chain.

The Scheme is administered at 9.0 per cent rate of interest to beneficiaries for a seven year period, beginning 2009. Eligible large scale farmers and state governments including the FCT have continued to access the scheme. The apex bank has reiterated its commitment to continue an intensified monitoring of projects to enhance the funding of agricultural value chain.

Likewise, the Agricultural Credit Guarantee Scheme Fund (ACGSF) has encouraged lending to the agricultural sector by providing guarantee to banks. In 2014/2015, the Bank will continue to sustain the scheme to further boost small-farmer activities. Complementary to the scheme, the CBN said it will continue the operation of the Interest Drawback Programme (IDP) in the payment of interest rebate of 40.0 per cent to farmers that make timely repayment.

The apex bank also noted that credit facilities under the Agricultural Credit Support Scheme (ACSS) will continue to be granted at 14.00 per cent, while beneficiaries who repay their loans on schedule will continue to receive a refund of 6.00 per cent of the interest paid.

The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) was designed by the CBN as a de-risking mechanism to unlock financial resources from the banks for the development of the agricultural value chain.

The initiative is hinged on five pillars, namely: risk sharing, technical assistance, bank incentive mechanism, bank rating system, and insurance facility. The credit risk guarantee (CRG) and IDP (components of the risk sharing facility), and capacity building under the technical assistance facility have commenced and is expected to be sustained in 2014/2015.

The N300 billion Power and Airlines Intervention Fund (PAIF) which is expected to continue to be administered at 7.0 per cent per annum in 2014/2015. In addition, the apex bank said it has concluded work, in collaboration with relevant stakeholders, on the National Infrastructure Finance Policy to leverage private finance for infrastructure development. The policy will become operational in the programme period.

Latest among these funding options is also the Agricultural Small/Medium Enterprises Equity Investment Scheme which is an initiative of the Bankers Committee that pools a percentage of commercial banks profit for on lending to ensure that more funding goes to small businesses particularly in the Agricultural sector.





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