MSME
CBN to integrate non-interest window in its loans to SMEs, households
At least, more than 1.1 million farmers are expected to benefit from the CBN loans.
The Central Bank of Nigeria (CBN) announced today that it has unveiled a framework that will integrate a non-interest window in all its intervention programmes aimed at supporting businesses and households that have been impacted negatively by the COVID-19 pandemic.
A statement released by the apex bank said the integration will focus mainly on its Anchor Borrowers’ Programme (ABP) as well as the Targeted Credit Facility (TCF). Note that the CBN’s Anchor Borrowers’ Programme mainly provides financial and other supports to smallholder farmers in a bid to boost productivity. You may learn more about it by clicking here.
particularly the Anchor Borrowers’ Programme (ABP) and the Targeted Credit Facility (TCF) to support households and Micro, Small and Medium Enterprises (MSMEs) affected by the COVID-19 pandemic.
— Central Bank of Nigeria (@cenbank) June 18, 2020
What this means: This simply means that the CBN is putting measures in place that will ensure to provide loans to Medium, Small and Medium Enterprises (MSMEs) without requiring borrowers to pay interests on such loans. The CBN’s guidelines on Non-Interest Window defines it thus:
“A non-interest window operation is defined as part of a conventional financial institution (which may be a branch or a dedicated unit) that provides fund management (investment accounts), financing, investment and other banking services that are Shariah-compliant.”
In the meantime, the CBN will be deploying the sum of N432 billion to fund the value chains of nine commodities during the 2020 farming season. This is part of the government’s commitment to reinvigorate the country’s agric sector by providing necessary support to farmers, all with the ultimate goal of averting a recession in the economy. Part of the statement by the CBN said:
“CBN earmarks N432bn to fund the value chains of nine commodities in the 2020 wet season farming. CBN committed to aggressively fund its agricultural programmes and spur farmers along select crop value chains to prevent the country from sliding into a recession.”
At least, more than 1.1 million farmers (cultivating more than one million hectares of arable lands) will benefit from the CBN loans. This should enable them to collectively produce as much as 8.3 million metric tons of assorted produce.
MSME
How SMEs can access capital in Nigeria
Despite the global consensus that SMEs are crucial to economic development, access to funds remains a militating factor against the sector’s growth.
The significance of SMEs for any country, especially Nigeria, cannot be overemphasized. It is, therefore, not surprising that SMEs constitute one of the bedrocks of economic development in the country. This makes it a sector that should be given utmost priority by the government.
To get started, the government needs to make funding more accessible to small and medium enterprises at low interest rate. Reason being that they need capital to thrive and nurture their businesses. Despite the global consensus that SMEs are crucial to economic development, access to funds remains a militating factor against the growth of SMEs in both developed and developing nations of the world.
The federal government of Nigeria with the support of the World Bank and the African Development Bank have tried in the past to assist SMEs through various credit schemes and loans structured to fund Small and Medium Enterprises, some of which are World Bank SME loan scheme, African Development Bank Export Stimulation Loan scheme; CBN Rediscounting and Re-financing Facility, National Economic Reconstruction Fund, Bank of Industry and the Graduate Employment Loan Scheme initiated by the National Directorate of Employment. Moreso, there are other ways that SMEs can be funded which are through Bootstrapping, loans from banks, moneylenders and grants from government institutions and non-governmental institutions.
SME Funding | |
| Bootstrapping | 73% |
| Financial Institutions | 2% |
| Others | 0.21% |
Source: Nigerian Institute for Social & Economic Research
According to NISER findings, about 73% of SMEs raised their funds through Boostrapping (personal savings), about 2% obtained their funds from financial institutions, while 0.21% obtained their funds from other sources.
Here are some ways that SMEs are can access funds in Nigeria.
Accessing loans from banks
Banks (Commercial, Merchant & Development banks) offer credits to Small & Medium Enterprise in Nigeria. Before giving you a loan, they need to ascertain that you are creditworthy, and your business would have gotten to a particular stage. Also, you need to know that before applying for a loan, your small-scale business must conform with the goals and interest of the financial institution you want to apply to. Other things banks put into consideration before disbursing a loan are a well-written business plan, a financial record, collateral, and a guarantor. Nevertheless, many financial institutions are sceptical about giving SMEs loans because of the associated risks. Some prefer to pay the fine imposed for not meeting the target of giving SMEs loans than run the risk of being exposed to them.
Funding from Small and Medium Industries Equity Investment Scheme (SMIEIS)
Another source of funding for SMEs in Nigeria is the Small and Medium Industries Equity Investment Scheme (SMIEIS) Fund. This type of funding is designed to finance SMEs through venture capital. This initiative is from the government and its aim is to advance SMEs to drive industrialisation, poverty mitigation, sustainable economic development, and creation of employment. Venture Capital financing provides funds as a loan to SMEs with the idea of converting the debt capital into equity in future. Venture capital may be regarded as an equity investment where investors expect significant capital gains in return for accepting the risk that they may lose all their equity. To be eligible for equity funding under the scheme, a prospective beneficiary shall have the following:
- Be registered as a limited liability company with the Corporate Affairs Commission and comply with all relevant regulations of the Companies and Allied Matters Act (2020) such as filing of annual returns, including audited financial statements.
- Be in compliance with all applicable tax laws and regulations and render regular returns to the appropriate authorities.
Grants from non-governmental organisations/foundations
Business grants are another source of funding and they are mostly given by NGOs and foundations. These grants can be accessed by individuals, firms/company, business, or corporations to develop their businesses or scale up operations. One of the best ways to get finance for business or ideas is getting a grant. While a loan is a good alternative, a grant is far better than a loan. It gives you the peace of mind to build and grow your business or idea. It is like getting “free money.” There are many organizations that offer grants in Nigeria, Africa and worldwide. Some of these organizations are the Tony Elumelu Foundation, Bank of Industry, YouWIN, AYEEN financial grant, etc.
Bootstrapping
This is a situation where business owners resort to funding their businesses with their savings and revenue without the support of venture capitalists or bank loans. Apart from personal savings, financial support for businesses, especially at the startup stage, can also be sourced from relatives and friends.
Getting loans from microfinance schemes/moneylenders
Due to the rigorous processes and high interest rates demanded by commercial banks, Microfinance banks were established to assist small businesses in securing loans. SMEs are eligible for Microfinance loans if they meet the requirements stipulated by the bank.
In conclusion, SMEs constitute the driving force of industrial growth and development in the country. The government should focus on and nurture the sector by making funds at low-interest rates more accessible to players in it to help them thrive.
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