Lifeline for Save MSMEs

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By Dike Onwuamaeze

Despite a raft of measures put in place by the Central Bank of Nigeria (CBN) to support micro, small and medium scale enterprises (MSMEs) since the outbreak of the Covid-19, the Bank recently introduced intervention schemes to cater for non-interest financial institutions (NIFIs).

The initiative was also part of efforts to increase access to NIFIs, promote financial inclusion and enhance economic activities.

Clearly, small businesses across the globe are facing an existential threat. Owing to this, analysts have continued to stress the need for policymakers to focus on measures to ensure that these businesses remain as going concerns.

According to them, for small businesses to come back after the pandemic abates, and continue to serve as an engine for economic growth, they need aid.

The President of the Institute of Chartered Accountants of Nigeria (ICAN), Mrs. Onome Adewuyi, advised that MSMEs should be given enough support, especially with interest free loans, for the informal sector of the economy to rev up again.

“The MSMEs contribute about 50 per cent to the GDP. Thus, they hold the key to the economic recovery of the nation. The government must place greater premium on this sector to achieve a quick exit from the inevitable recession which would occur,” she explained.

The Non-Interest Schemes

The schemes under the NIFI include Non-interest Guidelines for the Accelerated Development Scheme (AADS); Non-interest Guidelines for Intervention in the Textile Sector; Guidelines for the Operations of the Agri-Business, Small and Medium Enterprise Investment Scheme (AGSMEIS) for NIFIs; Guidelines for MSME Development Fund for NIFIs; Non-interest Guidelines for Non-oil Export Stimulation Facility; Non-interest Guidelines for Anchor Borrowers’ Programme and Non-interest Guidelines for Real Sector Support Facility Revised Guidelines.

Others are Non-interest Guidelines for the operation of the Credit Support for the Healthcare Sector; Modalities for the implementation of the Creative Industry Financing Initiative (Non-interest version); Non-interest Guidelines for the implementation of the N50 billion Targeted Credit Facility.

Under the AADS, the CBN listed the objective to include engaging a minimum of 370,000 youths in agricultural production nationwide over the next three years in order to reduce youth unemployment. It said the broad objective of the AADS was to increase agricultural production towards food security, job creation and economic diversification.

“The specific objectives are: promotion of national food security in each state through sustained interactions amongst stakeholders in the agricultural value chain; collaboration amongst state governments, the CBN and relevant other stakeholders to create jobs in the agricultural sector, with strong focus on crops where states have comparative advantage; and provision of short and medium term funding windows for the implementation of the scheme,” it stated.

According to the CBN, the target group is Nigerian youths within the ages of 18 to 35 years and the focus would be on two agricultural commodities where the state has comparative advantage.

Under this scheme, the state government is expected to mobilise prospective young farmers with representation from all senatorial zones while state governments/FCT are to provide agricultural land in contiguous locations in all the senatorial zones.

A minimum of 100 hectares per cluster are to be provided.

“Prospective entrepreneurs (that meet the eligibility criteria) shall be grouped into clusters by commodity to be produced. State government to allocate 2-5 hectares of land per beneficiary.

“State government to provide access roads, water sources and other infrastructure that will enhance agricultural production on the land
“States may charge a rental on land (maximum. of N10,000 per ha) to defray the cost of land clearing and other infrastructure provided. Rental charged will be embedded in the Economics of Production (EoP) of the farmer,” it added.

The guidelines also stated that the participating financial institutions (PFIs) would act as agents of the CBN in disbursing the financing to the beneficiaries, which shall be in kind.

The PFIs shall purchase the inputs for on-selling to the beneficiaries, using CBN approved non-interest financing contract of Murabaha, Istisna’, etc at an all-inclusive rate of return of nine per cent per annum.

“For the financing of labour, the PFI shall use Service Ijarah or any other appropriate CBN approved contract for NIFIs with the same all-inclusive rate of return of nine per cent.

“Financing tenor is six months for grains and broiler production (rice, maize, soy bean etc); 18 months for cassava; 24 months for egg production and ruminants; five years for plantation crops, etc

“Average financing size of N250,000 per ha for arable crops; N500,000 per unit for livestock; and N1.5 million for plantation crops like cocoa, cashew and oil palm,” it said.
It explained that diversion of funds by the PFI shall attract a penalty at its maximum financing rate at the time of infraction, among other penalties.

Non-Interest Guidelines for Textile Sector

The CBN in a bid to resuscitate the textile industry also put in place a N50 billion special mechanism for restructuring of existing facilities and provision of further facilities for textile companies with genuine need for intervention. This, it stated was the result of the meetings between the Governor and owners of textile mills in Nigeria on August 7, and September 29, 2015. Among the resolutions reached were that the Textile Mills articulate the status of their BOI CTG Loans stating their outstanding loan balances, tenure, interest rate, interest payment and the assistance being sought from CBN.

The activities to be covered under the intervention shall include operations in the CTG value chain as follows: Cotton ginning (lint production); spinning (yarn production); textile mills; integrated garment factories (for military, para-military and schools and other uniformed institutions). It listed the facilities under the scheme to include refinancing of existing projects; long term financing for acquisition of plant and machinery and working capital.

For textile companies to be eligible to participate in the scheme, the Bank stated that any textile company with an existing facility in the books of BOI under the CTG scheme (emphasis will be on facilities that are indicating weakness arising from tenor, structure as well as facing cash flow difficulties).

The financing amount is a maximum of N2 billion for a single obligor in respect of new facilities and N1 billion for refinancing. The fund is to be administered at an all-in rate of return of 4.5 per cent per annum payable on quarterly basis and the intervention allows for a maximum moratorium of years in the facility repayment schedule.

“Existing benefiting companies would submit requests to BOI for consideration on case by case basis. The BOI’s consideration of the applications shall be subject to approval by the CBN,” the guidelines stated.

According to the CBN, Each request must be accompanied with request from banks seeking to transfer the facilities to the BOI; three years financials including the latest management account of the obligor; copies of duly executed offer documents between the bank and the obligor evidencing existence of a facility; six months loan account statements showing the current exposure, as well as an abridged business plan of the underlying project for which the facility was initially approved, among others.

“Within 14 days of the receipt of the banks’ requests, BOI shall inform the companies of the status of their application and also advise each company of the amount of its facility that shall be refinanced. BOI shall forward the applications to CBN for approval and release of funds,” it added.

Guidelines for AGSMEIS for NIFIs

The AGSMEIS supports government’s policy measures and efforts for the promotion of agricultural businesses, MSMEs as vehicles for sustainable economic development and employment generation. The objectives of the Scheme are to improve access to affordable and sustainable finance by Agri-businesses, MSMEs, create employment opportunities in Nigeria and boost the managerial capacity of agri-businesses. Financing under the Scheme shall be for start-ups, business expansion or revival of ailing companies and shall be in compliance with provisions of BOFIA (1991) as amended and the principles underpinning operations of NIFIs.