Uncertainty Over N220b CBN MSME Fund

‘How Governors Frustrated Disbursements’
MORE than two years after the Central Bank of Nigeria (CBN) launched a N220 billion Micro, Small Medium Enterprises (MSME) Fund with fanfare, refusal by the bank authorities to provide progress report on the scheme and state governors’ defaulting on agreements have cast uncertainty over its disbursement.

While The Guardian’s effort to obtain information on the impact and status of the fund and its beneficiaries were rebuffed by CBN officials, it was learnt that, by defaulting on counterpart funding agreements, some state governors frustrated efforts to provide seed capital and support to micro entrepreneurs and SMEs in their domain.

Under immediate past governor, Mallam Sanusi Lamido Sanusi, the CBN launched the fund on August 15, 2013 with a share capital of N220 billion. Eleven months later, under the leadership of Mr. Godwin Emefiele, specifically, on July 27, last year, the bank signed a Memorandum of Understanding (MoU) with 14 states for the fund’s disbursement.

However, to date, little is known of the scheme’s impact or how much has actually been disbursed to banks for onward release to small businesses in an exercise that is envisaged to radically transform the industrial sector in benefiting states. Also, there is still the question of the performance of loans attached to the funding arrangement.

Sources within and outside the apex bank assert that the intervention scheme may have been frustrated by state governors, who are sureties of the fund for their respective states, but are prevented from having control or access over disbursements, which is in line with the funding framework. This is to ensure that payments are made directly to entrepreneurs and kept out of the reach of governors. The role of the governors, however, is to get state assemblies’ approval, as well as, sign an irrevocable standing payment instruction (ISPO) to guarantee the repayment of the facility on behalf of their beneficiaries.

States that signed the MOU in 2014 are, Akwa Ibom, Delta, Osun, Oyo, Bayelsa, Gombe, Enugu, Ondo, Benue, Borno, Imo, Taraba and Zamfara.

But the CBN has kept mum on what transpired after the MoU was signed. The Directorate of Development Finance at the bank, which superintends the fund, has continued to shun enquiries concerning the scheme, deflecting enquiries to the bank’s Corporate Communications Department.

But the director at the department, Alhaji Muazu Ibrahim, promised to provide progress report after checking with the appropriate department, a pledge he has not kept despite repeated reminders.

The apex bank, in 2013, declared that the SMEs sub-sector was characterised by huge financing gap, which hindered its development, as well as, posed developmental challenges to Nigeria’s financial system.

Accordingly, Section 6.10 of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, which the apex bank produced for the implementation of the scheme, stipulates that “a microfinance development fund shall be set up, primarily to provide for the wholesale funding requirements of MFBs/MFIs.”

And 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 was earmarked for financing women-run businesses.

The document prescribes 50:50 ratio for on-lending to micro enterprises and SMEs respectively, adding that only new SMEs shall be allowed to be financed by DMBs under the MSMEDF.

Also, under the framework, special consideration would be given to Participating Financial Institutions (PFIs) that have signed MoU with the Central Bank of Nigeria’s Entrepreneurship Development Centers (EDCs) to provide financial services to its graduates.

In addition, two per cent of the wholesale component of the fund was set aside for economically active persons with disabilities (excluding mental disabilities).

Also, 10 percent of the fund would be devoted to developmental objectives such a grants, capacity building and administrative costs while the other 90 percent goes to commercial component, which will be released to Participating Financial Institutions(PFIs) at two per cent for on-lending to MSMEs at a maximum interest rate of nine per cent per annum.

Businesses eligible for financing are agricultural value chain, services, cottage industries, artisans, trade and commerce and any income generating enterprise as may be prescribed by the CBN from time to time.

To qualify for the scheme, micro entrepreneurs, that is, borrowers seeking loans of less than N500,000 may approach any of Microfinance banks, NGOs/Microfinance institutions, financial cooperatives or finance companies, while Small and Medium Enterprises (SMEs), who seek between N500, 000 and N50million, are to apply to any of Deposit Money Banks, Bank of Industry (BOI) or Bank of Agriculture.

To participate in the Fund, a State Government/FCT shall satisfy the following conditions: Provide evidence of Resolution of State House of Assembly authorizing the State to participate and access the Fund Establish a Micro Credit/MSME Special Purpose Vehicle (SPV), which shall coordinate the applications by PFIs for the Fund. However, the PFIs shall be solely responsible for the appraisal, disbursement and recovery of loans under the Fund.

Provide a Bank Guarantee/Irrevocable Standing Payment Order (ISPO) equivalent to the amount requested including interest charges. The ISPO shall be invoked to accommodate the outstanding amount in default at the end of the loan tenor.

Sign a Memorandum of Understanding (MoU) with the CBN on modalities for the implementation of this window.

Operate a Sinking Fund Account with the CBN, into which any outstanding balance of disbursed amount shall be paid at the expiration of the loan.

Present a convincing annual framework on empowerment programme for prospective target groups, thereby, creating sustainable demand for financial services and providing the basis for measuring performance of the Fund.

Speaking at the MoU signing ceremony, CBN Governor, Emefiele, said the bank has set up a robust monitoring mechanism to ensure that funds were not diverted by banks but disbursed strictly to the targeted range of people at the lowest rung of the Nigerian social ladder at the recommended single digit interest of not more than 9 per cent.

He added, “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. Without achieving this ultimate goal, it will impossible to achieve job creation and poverty reduction. In order to ensure the attainment of our goal therefore, the CBN will be committing human, material and financial resources to monitoring both the disbursement and utilization of these funds in a robust and verifiable manner.”

Stressing that participating financial institutions would be required to submit periodic reports on disbursement as well as analysis of the social impact of the fund, he said that the CBN would also undertake regular on- site and off -site checks to ascertain the veracity of reports received from the banks.

Reacting to the gesture, the governors at the ceremony commended the CBN Governor, saying that the scheme would compliment social programmes in their respective states.

Former governors of Akwa Ibom, Mr. Godswill Akpabio and Delta, Dr. Emmanuel Uduaghan, as well as, Osun State governor, Ogbeni Rauf Aregbosola, at the occasion, pledged to write off the interest rate for beneficiaries from their states as part of their contributions to the scheme and to help their people repay the principal easily.

Akpabio advocated for the upscaling of the fund, as N2 billion was somewhat inadequate to achieve the vision of the scheme. He also advised the CBN to simplify the process of disbursement by removing the bottlenecks attached to the process.

He said: “What is worth doing is worth doing well. Let us raise the amount because we don’t have time any longer. Nigeria is in a hurry with the kind of destruction going on as a result of insurgency. It takes more than N2 billion to touch the lives of those at the grass root. However, even if you start with N3.5 billion or N4 billion per state, I am sure we have the capacity to use the money in a way that would make the CBN proud of the fund’s impact at the end of the day.”