CBN’s COVID-19 N50 billion targeted credit facility

The Central Bank of Nigeria (CBN) earlier this week released the guidelines for the implementation of its N50 billion targeted credit facility for households and Small and Medium-Scale Enterprises that have been hard hit by the effects of the COVID-19 virus.

According to the CBN, the objectives of the fund are to

• cushion the adverse effects of COVID-19 on households and MSMEs;
• support households and MSMEs whose economic activities have been significantly disrupted by the COVID-19 pandemic; and
• stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, research and development.

The guidelines further provide that those eligible for the funds will be households with verifiable evidence of livelihood adversely impacted by COVID-19, existing enterprises with verifiable evidence of business activities adversely affected as a result of the COVID-19 pandemic and enterprises with bankable plans to take advantage of opportunities arising from the COVID-19 pandemic.

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Notably, the scheme will be financed from the Micro, Small and Medium Enterprises Development Fund (MSMEDF) and will attract an interest rate of 5% per annum till 28 February 2021, after which the interest rate will be increased to 9% per annum.

[READ MORE: Manufacturing: Activity level slumps on COVID-19)

The maximum loan amount will be N25m for SMEs and N3m for households. Tenor of the loan will be a maximum of 1 year for working capital loans and a maximum of 3 years for term loans with at least one year moratorium. The scheme will be done in partnership with NIRSAL Microfinance Bank (NMFB) and collateral requirement will be as acceptable by NIRSAL.

While we believe the credit stimulus will help in mitigating the adverse effects of the COVID-19 outbreak on an already beleaguered household as well as SMEs, we are concerned about the accessibility of the funds to those are really in dire need of it, considering the bureaucratic process involved in accessing such funds and paucity of accurate and reliable data on the informal sector.

Based on the guidelines provided, one question that readily comes to mind is “what will be considered verifiable evidence of livelihood adversely impacted by COVID-19”.

That said, we expect sustained disruption of economic activities as the outbreak of COVID-19 continues to worsen in Nigeria, with the daily increase in the number of confirmed cases in the commercial hub of the country, Lagos.

READ MORE: COVID-19: Startups groan over losses, may shutdown in months

Taking cognisance of the disruption to global supply chains, brought about by the lockdown policy implemented across the globe, we think SMEs who are reliant on importation of raw materials for production will be significantly affected, affecting their production cycles and in turn cashflows. Consequently, we believe the credit stimulus will help in keeping them afloat in the interim, at least pending when normalcy returns to economic activities.

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