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We can’t access govenment loans — SME operators

By on February 14, 2015

Two years after the establishment of the N220bn Micro Small and Medium Enterprises Development Fund by the Central Bank of Nigeria, some operators of SMEs in Lagos State have claimed they haven’t been able to access the fund.

An industrialist and the General Secretary of the Yaba Industrial Estate Residents Association, Mrs. Bamgbose Alaba, said she had tried but failed many times to obtain money to expand her vegetable oil business. “I have gone everywhere. If you go to the banks, the first thing they want to know is how soon you can pay back the money. If you tell them that you want to borrow the CBN fund, the banks will tell you that they don’t have the CBN loan to give, that what they have is shareholders’ money and they cannot give shareholders’ money at nine per cent.

“I even went to a Microfinance Bank which urged me to borrow their own money at the interest rate of 60 per cent per annum. They said after doing that for two years, they would now expose me to the CBN fund.”

Another small scale industrialist and a maker of pure water, Mrs. Veronica Onule, said she had tried many times but failed to obtain N5m from the fund to expand her business.

She said, “The banks keep asking for landed property. It is hard for small manufacturers to come up with some of their requirements.”

Onule added that some of the banks also declined to give long-term loans to industrialists and instead preferred to give the loans to importers and traders who would pay back within a short period of time. “We tell them that the short-term loan they give to importers cannot work for industrialists. Some of them even give the loan to operators of fast food restaurants, anybody who will pay back immediately,” she alleged.

One Prisca Adele alleged that when she approached some of the banks to make enquiries about the percentage of the fund that was reserved for women, she was told that the fund had been disbursed and was no longer available. “We do not know who has been accessing the funds,” she told our correspondent.

An SME operator said a source at one of the banks that he refused to name informed him that the fund was accessed by some big manufacturers who went behind to form small cooperative groups, masking as SMEs. The SME operator, who pleaded anonymity, said it was easy for big manufacturers to access the loan because they had landed property and could meet other conditions for borrowing.

Early in 2013, the Federal government acknowledged that Small and Medium Enterprise sub-sector was making significant contributions to the economy.

The acknowledgement was contained in the opening chapter of a document from the Development Finance Department of the Central Bank of Nigeria which spelt out guidelines for the establishment of a Micro Small and Medium Enterprise Development Fund.

In the document, which was later revised in August 2014, the CBN stated that as part of its developmental functions and mandate of promoting a sound financial system in Nigeria, it launched the Micro, Small and Medium Enterprises Development Fund on August 15, 2013.

The CBN noted in the document, “The sub-sector is characterised by huge financing gap which hinders the development of MSMEs. Section 6.10 of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, stipulates that ‘a Microfinance Development Fund shall be set up, primarily to provide for the wholesale funding requirements of Micro Finance Banks/Micro Finance Institutions’.

“To achieve the provisions of Section 4.2 (iv) of the Policy, which stipulates that women’s access to financial services should increase by at least 15 per cent annually to eliminate gender disparity, 60 per cent of the fund has been earmarked for providing financial services to women.”

The CBN guidelines stipulated that the micro loans were to be administered through private or state-owned microfinance institutions, finance houses, and cooperative finance agencies, while the SME loans were to be disbursed through the nation’s commercial banks.

State governments were also empowered to access up to N2bn each for onward lending to eligible beneficiaries through participating financial institutions in their states.

At the Memorandum of Understanding signing ceremony between the bank and participating state governors in July 2014, the CBN Governor, Mr. Godwin Emefiele ,also reemphasised the importance of the MSME subsector to the economy.

He said, “MSMEs are globally recognised as the critical engines of economic growth due to their potential to create jobs, boost production, generate income, and reduce poverty.

Despite this recognition, MSMEs in Nigeria do not have the adequate financing needed to play this pivotal role in our development trajectory.

In order to address this gap and unlock the potential of Nigerian MSMEs, the N220billion fund came as an innovative way of improving their access to finance, shoring up their potential for job creation and enabling them to reduce poverty within the country.

He stated that the main objective of the bank was to ensure that the funds got to people at the very bottom of the nation’s social pyramid at single digit interest rates.

However, the National Vice President, Small Scale Industrialists, a body that oversees small scale industries nationwide, Duro Kuteyi, told our correspondent that he did not know of any member of the association who had accessed the loan.

Stakeholders in the real sector had reportedly in December, blamed difficulties associated with accessing the funds on the strict guidelines set down by the banks.

In the same vein, the SME sector had earlier appealed to the CBN to promptly review the guidelines for the disbursement of the intervention funds.

At the 15th MSME International Conference and Exhibition organised by the Nigerian Association of Small and Medium Enterprises, last year, the President of NASME, Alhaji Garba Ibrahim, stressed the need for the review of the guidelines noting that the real sector would grow and become successful, if the guidelines were reviewed in favour of the operators.

Another small scale manufacturer, Funke Adigun, urged the banks to adopt the same method they used with other sectors in disbursing money to industrialists.

She said, “Asking a small scale business owner to bring collateral is not even helpful. They give loan to market women without collecting collateral; they could extend that service to the SME sector. Or they could buy raw materials on our behalf like they do in the agricultural sector.

Why is it that the banks are busy marketing market women and street vendors instead of paying visits to industrial clusters? That is the common practice these days. You find them in motor parks, bus stops and marketplaces but they don’t express the same enthusiasm toward the industrial sector. They avoid the sector like a plague.”

A wine manufacturer and chairman of the Matori Industrial Estate residents Association, Linus Kotey, said it would be necessary for the government to establish an MSME bank to service the sector. According to him, that will go a long way in overcoming the huge funding challenges faced by operators.

However, an official representing the Central Bank of Nigeria, Mr. Adebisi Adedeji, said during an MSME International Conference and Exhibition, that most of the SME operators did not familiarise themselves with the guidelines which accounted for their inability to access the funds.

Responding to the complaint by participants that the funds were not available in their states, Adedeji said, the CBN partnered with the state governments to ensure even distribution of the funds, noting that every state knew the aspects to be developed with the fund.

He therefore advised applicants to acquaint themselves with the guidelines to know the content and demands of banks before applying for the loan.

He added that despite the opportunity provided by the CBN, many states did not turn up for the programme. “There is an opportunity for every state government to access the funds. The CBN cannot force it on them. Presently, only 11 states have signed the MoU with the CBN,”he said.

The Executive Secretary, Nigerian Association of Small and Medium Enterprises, Eke Ubiji, recently, observed that some of the commercial banks were yet to commence disbursement of the funds. He added that some of the SME operators were also not aware that their states had N2bn of the fund for onward disbursement to beneficiaries.

When our correspondent paid a visit to one of the SME-friendly banks to make enquiries about borrowing from the N220bn fund, the SME official in the bank told her all she needed was a current account in any bank but advisably a current account in the bank which she intended to borrow from. She explained that she needed to buy equipment with the money and was also told that she would need collateral. But the official also added that as an alternative to landed property, the bank would hold a debenture on the equipment that she would purchase.

The same official called her back the following day to tell her that her business did not meet the criteria approved under the CBN beneficiaries list. He informed her that the bank had asked for additional N300m to increase holdings to N650m so they could lend to pharmacists. He assured our correspondent that pharmacy falls under the small business category.