Nigeria: CBN and Funding Policy for Start-Ups

28 December 2018

A major problem confronting start-ups or what is generally known as Micro, Small and Medium Enterprises (MSMEs) in Nigeria is essentially how to raise the seed money needed to take off. It has remained a recurring challenge over time for the simple reason that the approach to the matter had been, at best, uncoordinated. We recall the Peoples Bank set up by the Babaginda administration under the chairmanship of Dr Tai Solarin. As a policy, it could not fly because of government's penchant for throwing money at problems and beneficiaries saw it as their own share of the national cake.

The Central Bank of Nigeria (CBN) under the present governor, Godwin Emefiele, as part of his determination to grow and diversify the economy, reduce the unhealthy reliance on one commodity, oil, as well as tackle at the base the embarrassing unemployment scourge, especially among the youth, decided to set aside N220 billion as a development fund to be disbursed as loans to cooperative organisations.

Known as Micro Small and Medium Enterprises Development Fund (MSMEDF) the fund was put in place to encourage artisans, including people into vulcanising works, hair dressing and barbing among others, especially those who employed others to work with them. The loans are granted as a long term single digit interest loan at the rate of nine per cent per annum, all charges inclusive, irrespective of the type of eligible activity financed. This has resulted in reduced cost of borrowing which will impact positively on the earnings of the MSMEs.

By the operating terms of the fund, prospective borrowers who are categorised under micro entrepreneurs as well as small and medium enterprises are expected to approach Participating Financial Institutions (PFIs) of their choice and apply for the fund.

Interestingly, the CBN reserved 60 per cent of the fund for women. Access to finance is often cited as one of the major factors impeding the growth of women-owned businesses in developing countries. Therefore, this deliberate policy objective of the CBN is part of its holistic approach and long-term commitment to the economic empowerment of women - to acknowledge that achieving women's empowerment, gender equality and women's human rights are prerequisites for sustainable development. It is also part of the quest to get more of them into the formal financial sector, especially with regard to access to credit and other intervention schemes.

Micro entrepreneurs, that is, borrowers seeking loans of less than N500, 000 from this fund are to approach any of the four institutions: Microfinance Banks, NGO/Microfinance Institutions, Financial Cooperatives and Finance Companies, while Small and Medium Enterprises (SMEs) or prospective borrowers seeking between N500, 000 and N50million are to approach any of these institutions: Deposit Money Banks, Bank of Industry (BOI) and Bank of Agriculture

A look at the financial institutions involved in this CBN initiative will reveal that the sectors of the economy being targeted are agricultural value chain activities, manufacturing and cottage industries, artisans, services, trade and general commerce, renewable energy or energy efficient products and technologies, as well as any other income generating projects as may be prescribed by the apex bank. It needs to be pointed out that most of the 43 items excluded from official foreign exchange window are those that fall within the productive competence of this sector of the economy. It is no surprise then that the local production of those items has taken an upward swing as a result of the financial and other policy support of the CBN.

The success achieved by this fund partly inspired the CBN to embark on the more aggressively ambitious Anchor Borrowers Programme that is making giant strides in food production, especially rice. It is the understanding of this newspaper that when this segment of the nation's productive sector is empowered, the economy will move faster. The ease of access to this loan through the cooperative organisations, the absence of collateral and the favourable interest rate are the features that make the fund attractive to this level of entrepreneurs and which in turn affirms the CBN policy of creating avenues for people to follow as they strive to create wealth for themselves and the nation in general.

It is pertinent to emphasise that with the 43 items' exclusion from official foreign exchange window, which in turn expanded areas that these MSMEs can effectively operate, the fund provided the resource base urgently needed by these entrepreneurs to give life to their ideas. That the CBN is also recycling the repayment from the beneficiaries has also expanded the number of those who can draw from the fund.

We are compelled by the positive impact this fund is having on the MSMEs to commend Governor Emefiele for this and other bold initiatives he is bringing about to rebuild the economy in a more pragmatic way.

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