In the business sector women have indeed come a long way. However in spite of the achievements recorded, there are a number of setbacks which has been traced to lack of capital to fund their businesses. Bukola Afolabi takes a look at a fresh financial window for women entrepreneurs by the Central Bank of Nigeria.
To make life better for female entrepreneurs, the apex bank recently announced a nine per cent interest rate on the N220 billion loans for Micro, Small and Medium Enterprises (MSMEs).
Speaking at the formal launch of the MSMEs N220 billion fund at the 7th Annual MSMEs Finance Conference and D-8 Workshop on Micro-finance for SMEs in Abuja, CBN Governor, Mallam Sanusi Lamido Sanusi, also urged the microfinance banks to disburse the funds to individual beneficiaries at a single digit interest rate as this will strengthen the link between entrepreneurship and access to financial services.
Sanusi also announced an interest rebate component for women in the fund to the extent that women entrepreneurs who borrow from MFBs (Micro Finance Banks) are able to access these funds for interest rate subsidy which ensures that they do not pay more than nine per cent interest on loans.
He explained that the CBN would not be lending directly to businesses, but that the loan would be disbursed through the MFBs.
Sanusi stated: “The CBN will not be lending directly to farmers or businesses. What this fund does is a wholesale fund. It provides funding to the participating financial institutions. If you are a microfinance bank in Benin, you can come to this fund. We assess you; we give you the money at low rate of interest long term, and then you undertake that you will lend at low rate of interest. Today, commercial banks charge 21 per cent and MFBs charge 30 to 40 per cent interest rate. We are not going to get anywhere near there”.
Sanusi informed that: “These are small businesses that are highly profitable, highly risky and MFBs tend to charge higher and the greatest challenge is not really the interest rate, but the tenor. If you give someone money for two, three months, how much can he really do in such a short time? The way we plan it is that you start with a small amount, relatively low rates of interest and relatively longer tenor. When the MFB repays and establishes a track record, it is entitled to move to another level where it can get a large amount, lower rate of interest and a longer tenor”.
The fund, announced last year, had been delayed because of the need to accommodate inputs from stakeholders and address key regulatory framework to aid its successful implementation.
Specifically, it targets 60 per cent intervention for women entrepreneurs including insurance, capacity building and interest draw back. The CBN had also unveiled plans to introduce financial literacy in schools curriculum.
Loans and advances sought by Nigerian businesses are largely short term in nature. This, in addition to huge interest rates charged by banks, significantly reduces real economic growth, financial experts have noted.
Based on statistics from the Central Bank of Nigeria (CBN), out of the N8.14 trillion the deposit money banks (DMB) have advanced to businesses and individuals in loans and advances, a huge 97.2 percent of the loans are one year tenor, leaving just 2.8 percent to long term facilities.
Mr. Paul Nduka Eluhaiwe Director, Development Finance Department, CBN, disclosed this in Lagos at the special general meeting of the Nigerian Association of Small and Medium Enterprises (NASME).
Represented at the meeting by Jeremiah Abba, of the Development Finance Department, CBN, the statistics is indeed troubling and something must be done urgently if Nigeria wants to experience real economic growth.
“As at June 2013, total deposits in Nigeria’s deposit money banks stood at N10.3 trillion. The total banking and advances in the economy closed at N8.14 trillion. 97.2 percent of these loans and advances are one year tenor. Only 2.8 percent are long term loans,” he said.
He also noted that there is a huge funding gap for Micro, Small & Medium Enterprises (MSMEs) and a targeted effort must be made to correct the trend as CBN recognises a positive correlation between strong MSMEs improved capacities and economic growth.
As part of effort to encourage MSMEs to access credit, besides the single digit interest rate on most of its intervention funds, it is also lowering conditions on collateral.
Thus, he said the CBN is targeting October 2014 to test-run the registry of movable collateral for credit access.
When that occurs, MSMEs can access finance through the use of movable collateral items such as: jewelleries, collectibles, stock of goods, plant/machinery.
In his comments, the President, NASME, Alhaji Garba Ibrahim lamented that in spite the several financial windows opening up for MSMEs in Nigeria, the MSME operators hardly hear about them or benefit from them.
He urged those opening up funding opportunities for the MSMEs to always carry NASME along so its members can benefit from the interventions.
The Nation learnt that the apex bank will especially consider the financial health of the grassroots banks before they can serve as conduits for the new stimulus package being put together by the regulator to energise the economy through lending to small businesses.
Investigations show that some operators are anxious over their eligibility for the scheme since it was launched by the CBN, and have commenced redeployment and realignments of resources and processes.
Tunde Lemo, Deputy Governor, CBN, who could not admit that most of the banks were weak and likely to close shop, said the regulator “will look at the track record and financial health before we allow participation. They will only act as conduits as the funds will be channelled to the eligible micro small and medium enterprises (MSMEs).”
Onoja Usman, managing director, Lovonus Microfinance Bank Limited, said “most MFBs would not be able to access the fund because of the stringent criteria the CBN is using for the loan. We understand that rating agencies are being used to determine those that merit accessing the fund.”
According to Usman, the fund will only serve few MFBs, as MFBs that are units may not access the fund because of impaired shareholders funds, which is ditto for those already struggling to operate as result of lack of operational capital.
Mathias Omeh, former president, National Association of Microfinance Banks (NAMB), expressed happiness that government had recognised them at last, saying “it is encouraging that government is remembering microfinance banks. We have been longing for it.”
The implication, according to investigations, is that the banks, which are currently undergoing routine examinations by the CBN and NDIC, may have to face the challenge of being certified fit to participate by scaling through the routine examination.
The guidelines for participation by the banks and finance companies include compliance with regulatory capital, prevailing prudential ratios, average deposit growth rate of 20 percent per annum (for institutions operating for over two years), and average clientele base growth rate of 20 percent per annum (for institutions operating for over two years).
The guidelines also include risk management framework and corporate governance culture acceptable to the regulators, degree of separation of ownership from control/management, and number of non-performing insider related facilities, among others.
According to details released by the CBN, the participating financial institutions (PFIs) will include non-governmental organisations (NGOs) and micro-finance institutions, which will be able to access funding at an interest rate of 9 percent per annum, and lend it to other entities with a spread of up to six percentage points per annum.
The scheme is expected to provide liquidity to PFIs on a maximum three-year tenor, with most institutions limited to N5 million or N10 million, but national microfinance institutions will be able to access N1 billion.
There will also be a credit guarantee scheme, covering up to 80 percent of any default under the scheme, which will also be available to other ‘deposit money banks.’ The guarantee will also have a maximum tenor of three years, and attracts a fee of 1 percent of the guarantee’s face value, payable back to the CBN administered fund.
The CBN shall appoint managing agent to manage the MSMEs fund and its day-to-day operations. It shall have a steering committee constituted in line with its approved shareholding structure and chaired by the governor of the CBN.
The bank further said that a combination of the following collaterals shall be accepted by the managing agent as security for the exposure to PFIs; legal mortgage over acceptable and appropriately valued assets including undeveloped land, guarantees from promoters of PFIs and their partners that is acceptable to the managing agent, and any other collateral acceptable by the managing agent from time to time. 32 of such microfinance banks have already been selected.
Sanusi said CBN had also established six Entrepreneurial Development Centers (EDCs) across the country to encourage and build capacity for business minded youths.
He said: “Through the EDCs, we equipped them with requisite entrepreneurial skills to develop their concepts into businesses and effectively manage such businesses. Our financial inclusion strategy also provided for youth empowerment and access to financial services.”
“This is because we see the link between entrepreneurship accesses to financial services. Towards this the bank launched its MSMEs Fund on Aug. 15, 2013.”
The guidelines published on the apex bank’s website defines micro enterprise as sole proprietorships with less than 10 employees and total assets of N5 million excluding land and buildings; while SMEs are those with asset base of between N5 and N500 million and 11 and 200 employees. It also defines women-owned enterprises as those belonging to Nigerian women groups or individuals, or enterprises that are at least 75 per cent owned or operated by female Nigerians.
Another N22 billion or 10 per cent of the fund is earmarked for social and developmental objectives, with N11 billion to be used as grants to develop the MSME sub-sector; another N6.6 billion as interest drawback programme (to settle rebates to customers of participating financial institutions who repay their loans as and when due); and N4.4 billion or 2 per cent for the managing agent’s operations (take-off) expenses.
Afterwards, the CBN expects the managing agent to “to generate income from its operational activities to fund its future expenses on a sustainable basis.”The remaining N198 billion or 90 per cent of the fund, according to the CBN, will be used for the provision of direct on-lending facilities to participating financial institutions (PFIs).While N118.2 billion is earmarked for women entrepreneurs, the remaining N79.2 billion is for others.
A further breakdown shows that N106.92 billion of the fund is allocated to women entrepreneurs; and the remaining N71.28 billion to ‘others;’ while another N19.8 billion is for refinancing guarantee, with N11.88 billion for women and N7.9 billion for others.
Speaking with a cross-section of prospective beneficiaries, they confided in The Nation that the intervention fund was a right step in the right direction.
Firing the first salvo, Mrs Lucy Kanu, the Chief Executive Officer, Lucy Initiative, Lagos, said the low interest rate would enable women to have access to loan facilities to grow their businesses.
Echoing similar sentiments, Adaeze Victor of Global Women Venture, expressed optimism over the development but however noted that the modalities should be streamlined to encourage equal participation by the targeted group.
