‘Why CBN’s N220bn MSMEs Devt Fund Recorded Low Patronage’

  • DBN urged to avoid pitfalls of other DFIs

By Ndubuisi Francis in Abuja

The Managing Director of Fortis Microfinance Bank (MFB), Mr. Tiko Okoye has blamed the partial success rate of the N220 billion medium small and micro enterprises (MSMEs) development fund set up by the Central Bank of Nigeria (CBN) to stringent conditions attached to accessing the funds. 

Such conditions, he pointed out, included bank guarantees, which most microfinance  banks cannot easily lay their hands on as well as demand for collateral to enable MSMEs to access the funds.

Okoye, who spoke in an interview in Abuja, also advised the newly-established Development Bank of Nigeria (DBN) to avoid the pitfalls of other existing development finance institutions in the country if it must make the desired impact in the MSMEs sector.
“The CBN, had initially set up the N220 billion MSME Development Fund, which was supposed to have been channeled through the microfinance institutions for onward lending to target customers.

“But that fund was not accessed that much by micro finance banks because of the conditions attached to accessing the funds.
“Like the N220 billion MSME fund, if DBN ask us to bring bank guarantees, many MFBs (micro finance banks) may not to be able to access it.
“You expect me to lend to the grassroots who have virtually no collateral. Then, why ask me for collateral? Where am I going to get collateral from?

“To bring a bank guarantee, I have to go to a commercial bank and if I don’t meet their requirements, I will have to sign an agreement that the money remains with them.
“It’s not helping my liquidity as a bank because I have it as cash, but in terms of outreach to the people, it does not help in any way,” he argued.
Okoye noted that from the administration of Yakubu Gowon, policy measure instruments had always been factored into development plans with a view to enabling small and medium enterprises, but regrettably torpedoed by large scale corruption, adding that policy inconsistency was another bane.

He advised the management of DBN to collaborate with the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) by derisking the small and medium enterprises sector through the creation of credit guarantees.
He also advised the DBN to promote industrial clusters as well as look into the lending methodology of MFBs, adding that the group lending methodology was ideal.
Okoye equally admonished the DBN to introduce the business incubation system, which he noted, reduces the failure rate of businesses.
He noted that if well managed, the DBN could bring down the cost of lending by MFBs in Nigeria.

Okoye stated that although MFBs take the risk to lend to low-end small scale businesses, the lending rate remains too high at between 25 to 100 per cent.
The reason for this, he said, was the source of most MFB funding, which is largely from commercial banks, noting that only few MFBs currently access funding from the  CBN and Bank of Industry (BoI).
A lower interest rate, he stated, would give businesses the opportunity to make capital improvements, and acquire equipment or supplies to grow.
He urged the DBN to priotise funding the MFBs rather than commercial banks if it indeed wants to improve the MSMEs.
The CBN had on March 28, 2017, approved the operating licence of a Wholesale Development Finance Institution Licence with national authorisation to the DBN.

The DBN will have access to a pool of $1.3 billion (N396.5 billion) which has been jointly provided by the World Bank, German Development Bank,  the African Development Bank and the Agence Française de Development, a French Development Agency.
The bank will provide loans to MSMEs cutting across all sectors of the economy including, manufacturing, services and other industries not currently served by existing development banks.
As a wholesale bank, the DBN would lend wholesale to MFBs, commercial banks and other financial institutions, expecting them to in turn, provide medium to long-term loans to MSMEs.

The management team is led by Mr. Tony Okpanachi, a former deputy chief executive officer, Ecobank Nigeria Limited