In the face of the recent launch of the massive N220 billion empowerment fund for Micro, Small and Medium Scale Enterprises (MSMEs) by the CBN Governor, Bukola Afolabi explores the prospects for a hitherto disadvantaged sector.
One of the greatest obstacles Micro, Small and Medium Enterprises (MSMEs) have had to grapple with in Nigeria is access to funds. This is further compounded by the fact that even where credit facilities are available, they may not be able to muster the required collateral to access them. This has invariably led to many of them closing shop, resulting in the loss of thousands of unskilled, semi and skilled jobs across the country; a situation that led to the launching of the National Micro-finance Policy by the President Obasanjo government in 2005/2006.
That policy, to be supervised and implemented by the Central Bank of Nigeria also marked the beginning of the guidelines for setting up and regulating Micro-finance banks. Part of the components of that policy was also the establishment a fund to strengthen the link between entrepreneurship and access to financial services for MSMEs in the country.
This came to fruition in Abuja, when a N220 billion fund was formally launched at the seventh annual MSMEs Finance Conference and D-8 Workshop on Micro-finance for SMEs by Governor of the Central Bank of Nigeria (CBN) Sanusi Lamido Sanusi. The objectives of the new fund, Sanusi revealed is to enhance the ability of the microfinance institutions to shape themselves into low interest, long-term funding organisations that would provide financing windows to improve the capacity of the PFI to meet the credit needs of the micro, small and medium enterprises. The ultimate goal, according to the CBN governor, is for the financial market to integrate the micro-entrepreneurs, alongside low income earners, farmers and artisans into the financial system to improve the effectiveness of the polity.
Sanusi also noted the MSMEs Finance Conference is focused on financing SMEs since they are generally acknowledged to contribute meaningfully to the growth, income and employment generation and innovation.
In line with its plan to boost businesses owned and managed by women, the Central Bank of Nigeria (CBN) has also set aside N100 million intervention fund for women enterprises. The Director General of Nigeria Employers Consultative Association (NECA), Mr. Olusegun Oshinowo, who disclosed this in Lagos last week, said the funds would go a long way in complementing government’s economic transformation agenda. Oshinowo, who spoke at NECA’s Network of Entrepreneurial Women (NNEW) meeting, noted that the fund would assist women entrepreneurs grow their business and create more job opportunities for the youths.
The NECA boss also stated that the CBN has already set-up a committee to work out modalities of disbursing the fund to beneficiaries.
He observed that if properly disbursed and utilised, it would create more jobs for the youths and women.
This was corroborated by Ms. Regina Amadi, Chief Executive Officer of Gracefields Multi-Options Limited, who noted that accessing funds from banks has always being an uphill task.
Need to enhance a vital sector
While underscoring the importance of the MSMEs to national economy and growth, Sanusi disclosed that the sector as at 2012 had 8 million businesses, employing 42.4million people and contributing about 46.5 per cent of nominal GDP. He also disclosed that 80 per cent of these MSMEs are excluded from the financial market, a situation that hampers their condition and contribution to the economy, and therefore underscores the importance of the conference.
Sanusi also lamented that “commercial bank loans to SMEs dropped at an exponential rate” in 2012. He revealed a decline of about 7.5 per cent in the share of commercial bank credit to small scale industries in 2003, which further plummeted to 1 per cent in 2006 and 0.14 per cent in 2012. The reasons identified for this trend, the CBN governor revealed, include lack of managerial capacity, inadequate collateral and poor record keeping among others. He added that other reasons such as high transaction costs and lack of understanding by the banks of the nature and operation of MSMEs as well as other constraints have put the MSMEs at a disadvantage and left them vulnerable.
He thus called on policy makers in all tiers of government to formulate and implement policies “to strengthen the MSME sub-sector.” He disclosed that the CBN has been working towards improved access to finance for the sub-sector vis-a-vis micro-finance policies, regulatory and supervisory framework, the fortification programme of micro finance banks, designated financial businesses and professionals, consistent framework.
Other efforts being put in place include the payment system transformation, development of unmovable collateral registry, the financial ombudsman board currently with the National Assembly and the encouragement of lending.
Sanusi also announced an interest rebate component for women in the fund, so that women entreprenuers who borrow from MFBs can access the funds at a subsidised interest rate of not more than nine per cent.
In the words of Ms. Regina Amadi, “approaching banks and getting good response from them has been so difficult, but with this fund that would be made available to the women, access to fund by women will be easier.” She added that statistics have shown that women are better at paying back loans than their male counterpart.
Also speaking at the event, the President of NECA’s Network of Entrepreneurial Women (NNEW), Mrs. Lola Okanlawon, said that the greatest challenges facing many women entrepreneurs are in the areas of financing their businesses. This, she says is because they are either faced with daunting repayment conditions from financial institutions or are unaware of SME friendly schemes that have been put in place to assist them. She therefore demanded an end to the politics played with women entrepreneurs in the country, while stating that employment generation ability of entrepreneurs would be enhanced if the intervention was fully implemented.
Wholesale funds
The CBN, according to Sanusi Lamido Sanusi will not be lending directly to farmers or businesses. The N220 billion fund is therefore a wholesale funding to the participating financial institutions. “If you are a Micro Finance Bank in Benin (City), 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 (equally) 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.”
He stated that it is a merit-based incentive system where the Micro Finance Bank will earn the right by performing, to get even better credit terms from the fund. “We will start with smaller amounts, and as they lend to their customers and repay and build a track record of performance, they can then access a larger at amount at lower rates of interest and at longer terms.” He concluded.
In his remarks, President of the Association of Micro Finance Banks of Nigeria, Jethro Akun, said the fund is aimed at transforming the lives of the rural people financially, even as it marks the beginning of unlocking the untapped potentials and opportunities that govern the operations of key players in the micro finance industry.
Speaking on behalf of the state governors, Ekiti State Governor, Dr. Kayode Fayemi expressed happiness that the conference is focusing on the “rural poor.” He revealed that “the population of the unbanked in our country is wobbling around 70 per cent of our entire population, which is pretty much all of us apart from some of us who are in the urban areas.”
He also expressed delight that the CBN has initiated the quick release of the N220 billion into the sector, adding that “What is most commendable about this current initiative is the focus on women.”
Women’s enviable track record
Governor Fayemi noted that women have a track record of micro credit initiative of 100 per cent pay back, adding that this justifies the focus that the central bank has put on them. He concluded that for Nigeria to talk of poverty eradication in the fundamental and not in the corporative sense, “believes focus must be on women, because women are our greatest guarantee in rebuilding our society and eradicating poverty in our various communities.”
Strict monitoring
The CBN deputy governor, Economic Policy, Dr. Sarah Alade, admitted that the CBN needs to collaborate with other stakeholders to leverage on what the law permits in terms of regulation, while affirming that it would do whatever is within the bank’s purview to ensure better and tighter regulation.
On ensuring that the fund gets to intended beneficiaries, she said, “We have done a lot of guidelines and there is a guideline that surrounds that N220 billion. I can assure you that we are going to monitor it. We have done interventions in the past in agriculture that domestic money banks are doing and we are on top of the issues. Once these things starts being disbursed, we will monitor them seriously to make sure that they’re given to the right people and that the money also comes back”.
Funds guideline
The fund will be managed by a Special Purpose Vehicle (SPV) or managing agent to be constituted. But before this takes off, the CBN will manage the fund.
