BY BUKOLA IDOWU, Lagos
The World Bank has accused Nigerian banks of not doing enough to grant micro, small and medium enterprises (MSMEs) access to their credits.
It, however, blamed the Central Bank of Nigeria (CBN) intervention policies amongst others for the banks’ reluctance to lend to the small businesses.
In a blog by a World Bank consultant on financial sector, Michael J. Fuchs and a financial sector specialist at the World Bank’s East Asia and Pacific Finance and Private Sector Development Department, Ahmed Rostom, stressed the need for an action plan to get banks back to the business of lending to MSMEs in order to put Nigeria on the path of sustainable recovery.
Citing recent CBN data which put private sector credit growth at 17.9 per cent as at June 2020, implying real growth of 5.5 per cent, it said, “This increase in private sector credit took place in a situation where the level of credit is well below the expected median for a country with the structural features of Nigeria and below the private credit to Gross Domestic Product (GDP) ratios found in a range of peer countries.
“The combination of structural and sector specific factors call for an action plan to get banks back to the business of lending to MSMEs in order to put Nigeria on the path of sustainable recovery,” it added.
At the last Monetary Policy Committee (MPC) meeting in March, CBN governor, Godwin Emefiele, had said financial industry credit had been on the rise, increasing to N43.67 trillion as at February 2020.
However, the World Bank said most of the lending had been to the government, blue chip companies and a few small businesses along the value chain of the blue chip companies.
Stating that on the average over the past five years, MSMEs account for 50 per cent of industrial jobs and 84 per cent of total employment in Nigeria and on average about 49 per cent of GDP, it added that Nigerian banks had not offered much funding to the MSMEs.
“Banks require a more supportive ecosystem to be able to manage the risks associated with assessing and managing MSMEs’ creditworthiness. In those cases, where banks do lend to smaller enterprises, they most times prefer to lend to enterprises operating within the value chains of their better-known larger corporate borrowers, such as smaller companies that deliver goods and services to ‘blue-chip’ borrowers, as this provides some assurance to banks regarding the MSMEs’ credit-worthiness,” the global bank said.
It noted that, weak credit environment such as insufficiencies in credit information sharing, uncertain and unreliable loan foreclosure processes, as well as not too strong institutional foundations for lending affect banks’ willingness to lend to MSMEs.
It stressed that policy responses implemented by the authorities are among the causes of the banks’ reluctance to engage in lending to MSMEs. The CBN had taken several measures to mitigate the impact of the COVID-19 pandemic on the economy including reducing its policy interest rates.
The MPC in May 2020 reduced benchmark monetary policy interest rate from 13.5 per cent to 12.5 per cent and 11.5 per cent in September 2020. The rate has remained unchanged despite inflation rising to 17.33 per cent. The CBN’s policy interest rates became negative in real terms.