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CBN steps up job creation efforts, set to disburse N220bn MSMEs fund

By on August 4, 2014

The Central Bank of Nigeria (CBN) will this month begin implementation of the N220billion Micro, Small and Medium Enterprises (MSME) fund as part of the bank’s development agenda. Festus Akanbi examines the modalities to be employed by the bank to ensure the fund gets to the target beneficiaries

In his maiden address to the nation in June, the CBN Governor, Mr. Godwin Emefiele, did promise, among others things, to lead an apex bank that would deploy developmental initiatives to create an enabling environment with appropriate incentives to empower innovative entrepreneurs to drive growth and development.
Emefiele, who explained that the CBN would not be targeting individual companies but rather specific sectors, listed the CBN’s developmental functions to include credit allocations and direct interventions in key sectors of the economy such as power, agriculture, MSME, oil and gas, and health.
It was in the light of this objective that analysts described the readiness of the apex bank to commence the disbursement of the N220 billion Micro, Small and Medium Enterprises (MSME) Development Fund this month as a step in the right direction.

War against Poverty
The fund, which was launched last year by the CBN under its micro-credit programme, was targeted at reducing poverty amongst the poorest of the poor across the federation, as part of its financial inclusion strategy for rural communities in the country.
Under the programme, each of the 36 states and the Federal Capital Territory (FCT) would be entitled to access as much as N2 billion. But the funds will not be disbursed to the states directly but through banks which are expected to effect the disbursements directly to the beneficiaries to be selected, based on conditions which have already been stipulated by the apex bank.
According to Emefiele, funding for SMEs in Nigeria has largely been viewed from a social development perspective with the goal to reduce poverty through job and wealth creation. This, he said, had put the development of the sector squarely in the hands of the government, with mixed results. “Going forward, we propose a business approach to funding SMEs, which requires the strong involvement of the private sector. The new framework proposed will combine the profit motives of the private sector and the development objectives of the government. It proposes a structure that enables the government to leverage the project selection and credit analysis processes of private sector investors who will place more of their resources at risk in funding the SMEs,” Emefiele said.
Analysts say it is the same thinking that is driving the N220 billion earmarked for the finance of the Small- and Medium-Scale Enterprises with specific focus on women entrepreneurs and it is to be administered through microfinance banks owned either by state governments and/or private organisations. While the private sector invests more of their risk capital in the selected companies, CBN funds will focus on resolving challenges such as access to collateral, enterprise development support, development of a nationwide credit scoring system, etc.

Partnership with States
To underscore the determination of the apex bank to ensure the funding gets to the target members of the public, state governments are being partnered and governors of the respective states have been mandated to ensure the process is devoid of bureaucracy that killed similar efforts in the past.
The MSMEs are globally recognised as critical means of economic growth due to their potentials to create jobs, boost production, generate income and reduce poverty. Despite this role, the MSMEs in Nigeria have never received enough funds to play this pivotal role.
According to plans, the MSMEs Fund will be disbursed and administered through the commercial banks. State governments will be able to access up to N2 billion each for on-lending to eligible beneficiaries through participating financial institutions in their states. “The scheme is directly in conformity with our resolve to create a professional and people oriented CBN that would act as a financial catalyst for job creation and inclusive economic growth in our country,” Emefiele explained, adding that “Our optimal goal is to see that this fund gets to our people at the bottom of economic and social pyramid at single digit interest rate.”
It is believed that without achieving this ultimate goal, it will be impossible to achieve job creation and poverty reduction. In order to ensure the attainment of this goal therefore, the CBN said it would be committing human, material and financial resources to monitoring both the disbursement and utilisation of these funds in a robust and verifiable manner.

Disbursement
The CBN is also insisting that participating financial institutions would be required to submit periodic returns on disbursement as well as analysis of the social impact of this fund on our people. The CBN will also undertake regular on-site and off-site checks to ascertain the veracity of the report received from the banks.
An official of the CBN, who gave further clarifications on the fund, said, “The fund has two broad objectives which are social and commercial. The social/development fund shall constitute 10 per cent, broken down as follows: Grants, (5 per cent), Interest Drawback (3 per cent), Managing Agents’ Operation cost (2 per cent), while the commercial fund shall constitute 90 per cent of the fund as follows; wholesale funding, 90 per cent of the commercial component and guarantees/refinancing, 10 per cent of the commercial component.
“Considering the peculiar challenges faced by women in accessing financial services in Nigeria, the revised Micro-finance policy, regulatory and supervisory framework in section 4.2 (1V), provides that women’s access to financial services should increase by 15 per cent annually to eliminate gender disparity. To achieve this, 60 per cent, which is N132 billion of the fund has been earmarked for financial services to women.
“In operating the fund, special consideration shall also be given to institutions that will provide financial services to graduates of the CBN’s Entrepreneurship Development Centres (EDCs)”
He said that no fewer than 200,000 people would benefit from the CBN gesture in collaboration with the state government. He said Osun State government would provide counterpart fund so as to increase the number of beneficiaries to 400,000, adding that the state government would provide bank guarantee for the cooperative societies in the state to enable them access the fund.
Emefiele said CBN initiated the funds as an innovative way of improving access to finances at single digit interest rates by MSMEs in order to unlock their potentials.
He said the state governments would be able to access up to N2 billion each for lending to eligible beneficiaries through participating financial institutions in their states.
Some analysts who were not particularly excited about the initiatives, given the failure of previous attempts to meet the desired objectives feared that the funding might not get to the target segment of the society.
However, Emefiele said CBN would ensure that the funds get to people at the bottom of the country’s economic and social pyramid at a maximum of nine per cent interest rate.
He also said 60 per cent of the funds would be given to women, adding that they turned out better yields than men.
According to him, the CBN will be committing considerable human and material resources to monitoring the disbursement and utilisation of the funds in a robust and verifiable manner.
“Participating financial institutions will be required to submit periodic returns on disbursement as well as analysis of the social impact of these funds on our people’’, he said.

The Budget
Another source of worry to analysts is the amount budgeted for the exercise. They argued that considering Nigeria’s population and the peculiarity of the Nigeria’s economy, N220 billion was too insignificant to make the desired impact, a position shared by Akwa Ibom State governor, Gov. Godswill Akpabio.
Although he commended the CBN for the initiative, he nevertheless believed that the N220 billion set aside for the initiative was relatively small, considering the size of the country, the rate of unemployment and its economic potentials.
He also urged the CBN to review the procedures involved in the disbursement of the fund to enable it get to the targeted population without difficulties.
Uduaghan said the funds should be channeled through the states- owned microfinance banks to allow easy access by the people. He said if microfinance banks were encouraged to handle the funds, more jobs would be created and more people involved in economic activities at the local level. Ajimobi, on the other hand said there was need to disburse the funds according to the size and needs of the MSMEs in various states of the federation.
Considering the peculiar challenges faced by women in accessing financial services in Nigeria, the Revised Microfinance Policy, Regulatory and Supervisory Framework in Section 4.2 (iv), provides that women’s access to financial services should increase by 15 per cent annually in order to eliminate gender disparity .In order to achieve this, 60 per cent (N132.00 billion) of the Fund has been earmarked for providing financial services to women.

 

 

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