THE ROLE OF THE BANKS IN GROWING THE NIGERIAN ECONOMY THROUGH A SYSTEM OF FINANCING OF SMALL BUSINESS AND SMALL AND MEDIUM SCALE FARMING

THE ROLE OF THE BANKS IN GROWING THE NIGERIAN ECONOMY THROUGH A SYSTEM OF FINANCING OF SMALL BUSINESS AND SMALL AND MEDIUM SCALE FARMING

BY

AKPAN JACKSON NSEABASI (ACIBN)

Banks and the financial houses are vital organs and machinery in growing economy of any nation but this seems to be a very difficult task when it comes to applying this concept to the Nigerian economy. A closer look at the performance of so many banks in Nigeria especially in the area of financing SMEs and small and medium scale farming shows that many banks in Nigeria do not have anything to offer this sectors in terms of giving out loans and giving financial support. The advancement of the economy of the developed countries is premised on the vital role of funding and financing businesses performed by financial institutions in these countries. The urgency of making quick profit in order to put smiles on shareholders faces without having any positive impact on the economy is what so many banks are after in Nigeria.

Year in year out the Central Bank of Nigeria have continued to come up with good policies and schemes channeled towards the development of SMEs and the agricultural sector but banks in Nigeria have always adopted the strategy of what to do to make fast money and “decorative” profits to please their esteemed shareholders at the expense of the CBN directives, policies and guidelines and the Nigerian economy at large. The following shows the contributions of the CBN in this vital area of discussion.

The Central Bank of Nigeria (CBN) in its bid to ensure that businesses across all sectors of the country economy sustain their operations aftermath the COVID-19 pandemic, introduced several loan opportunities and fund interventions. See below the detailed list of these CBN Loans and how to access them;

1.???AGSMEIS Loan For SME’S And Agricultural Businesses Without Collateral

2.???Anchor Borrowers Programme (ABP) Intervention For Agriculture

3.???Accelerated Agricultural Development Scheme (AADS Loan)

4.???MSMEDF Loan – Micro, Small and Medium Enterprises Development Fund

5.???Creative Industry Financing Initiative (CIFI Loan)

6.???CBN Healthcare Research And Development Grants

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1. CBN AGSMEIS?LOAN FOR SME’S AND AGRICULTURAL BUSINESSES WITHOUT COLLATERAL?– The?Central Bank of Nigeria (CBN) and the Bankers’ Committee, created the?Agri-Business/Small and Medium Enterprise Investment Scheme?AGSMEIS Loan, as an initiative to support the Federal Government’s efforts in the promotion of agricultural businesses and small/medium enterprises (SMEs) in the country, you can apply for the Loan with collateral for the AGSMEIS loan is been disbursed by NIRSAL Microfinance Bank and other Banks. Interested Nigerian engaged in Agriculture or other SME businesses can access up to?N10 Million?from the AGSMEIS Loan, at a single-digit interest rate of 9% per annum. Click?CBN AGSMEIS Loan?for the requirements and application process.

2. CBN?ANCHOR BORROWERS PROGRAMME (ABP) INTERVENTION FOR AGRICULTURE?– The Anchor Borrowers Programme (ABP), is an initiative of the Central Bank of Nigeria (CBN) for the agricultural sector; it is in line with its developmental function of the apex bank.

The loan shall be targeted at smallholder farmers engaged in the production of identified commodities across the country. The Farmers should be in groups/cooperative(s) of between 5 and 20 for ease of administration.

The ABP is not solely for farmers, businesses can also apply to become the?Anchor?(private large-scale integrated processors) and?Inputs Suppliers.

3. CBN?NON-INTEREST ACCELERATED AGRICULTURAL DEVELOPMENT SCHEME?(AADS Loan)?– The objective of the Accelerated Agricultural Development Scheme (AADS) scheme according to CBN, is to engage a minimum of 370,000 youths in agricultural production across the country over the next three years in order to reduce unemployment among the youths in the country and increase agricultural production towards food security, job creation, and economic diversification. The beneficiary must be a Nigerian youth with the ages of?18 to 35 years?and must sign an undertaking to abide by the terms of agreement of the Scheme

4.?CBN MSMEDF LOAN – MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT FUND?– After identifying the huge financing gap which hinders the development of MSMEs, the Central Bank of Nigeria (CBN) as part of its developmental role and mandate of promoting a sound financial system launched the Micro, Small and Medium Enterprises Development Fund – Read more about?CBN MSMEDF Loan.

Eligible Enterprises In line with the provisions of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, enterprises to be funded under the Scheme shall be:

a) Micro Enterprises

b) Small and Medium Enterprises (SMEs)

The following are eligible activities under the Fund: Microenterprises

● Agricultural value chain

● Cottage Industries

● Artisans

● Services

● Renewable energy/energy efficient product and technologies

● Trade and general commerce

● Other economic activities as may be prescribed by the CBN

5.?CBN LOAN FOR THE CREATIVE INDUSTRY FINANCING INITIATIVE (CREATIVE INDUSTRY LOAN)?– The Central Bank of Nigeria (CBN) in collaboration with the Bankers’ Committee developed a Creative Industry Financing Initiative (CIFI), also known as Creative Industry loan to boost job creation in Nigeria, especially among young people, who are the most active in the creative industry. The aim according to CBN, is to improve access to long-term low-cost financing for entrepreneurs and investors in the Nigerian creative and information technology (IT) sub-sectors.

6.?CBN GUIDELINES ON HOW TO ACCESS HEALTHCARE RESEARCH AND DEVELOPMENT GRANTS?–?The Central Bank of Nigeria (CBN) has released the guidelines for interested candidates to access funds under the Healthcare Sector Research and Development Intervention Scheme (HSRDIS) grant. The Healthcare Research And Development Grant, according to CBN, aims to strengthen the public healthcare system with innovative financing of research and development (R&D) in new and improved drugs, vaccines and diagnostics of infectious diseases in Nigeria and is accessible to biotechnological and pharmaceutical companies, institutions, researchers, and research institutes for the research and development of drugs, herbal medicines, and vaccines for the control, prevention, and treatment of infectious diseases.

Another vital guideline and provision of the CBN is also provided below:

1.0 Establishment of the Scheme As part of its developmental role, the Central Bank of Nigeria (CBN) has established the Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), for promoting access to credit by SMEs in Nigeria.

?2.0 Funding; The Scheme shall have a fund of N200 billion to be wholly financed by the Central Bank of Nigeria (CBN)

?3.0 Objectives of the Scheme: The objectives of the scheme are to:

?i. Fast-track the development of the manufacturing SME sector of the Nigerian economy by providing guarantee for credit from banks to SMEs and manufacturers.

?ii. Set the pace for industrialization of the Nigerian economy.

?iii. Increase the access to credit by promoters of SMEs and manufacturers. iv. Increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis.

?4.0 Managing Agent The Central Bank of Nigeria (CBN) shall be the Managing Agent and be responsible for the day to day administration of the Scheme.

?5.0 Activities to be covered Under the Scheme The activities to be covered under the Scheme are:

?(i) Manufacturing

?(ii) Agricultural Value Chain

(iii) Educational Institutions

(iv) Any other activity as may be specified by the Managing Agent from time to time. Trading shall not be accommodated in this Scheme.

?6.0 Definition of Small and Medium Scale Enterprises For the purpose of this Scheme, a Small and Medium Scale Enterprise (SME) is an enterprise that has asset base (excluding land) of between N5million –N500 million and labour force of between 11 and 300.

7.0 Eligibility Criteria for Participation in the Scheme

?a. Participating Bank (PB) All Deposit Money Banks and Development Finance Institutions (DFIS) shall be eligible.

?b. Borrower: A borrower shall meet the following criteria to be eligible:

?· Any entity falling within the definition of an SME

· A wholly-owned and managed Nigerian private limited company registered under the Companies and Allied Matters Act of 1990.

?· A legal business operated as a sole proprietorship

?· A start-up company with satisfactory cash flows indicating a Fixed Asset cover ratio of 100: 150.

?· A Franchise

?· Have no non-performing or delinquent loans with any financial institution

· Be a member of the Organized Private Sector Bodies/Associations such as Nigerian Association of Small & Medium Enterprises (NASME), the Manufacturers Association of Nigeria ( MAN), etc.

?· Have a clear business plan.

?· Provide up-to-date records on business operations, if any.

?· Satisfy all requirements specified by a Participating Bank. A Borrower shall have one loan under the Scheme at any point in time.

?8.0 Modalities of the Scheme i. Loan Amount

?· Maximum Loan amount is N100 million which can be in the form of Working Capital, Term Loans for refurbishment/equipment upgrade/expansion, overdrafts, etc.

?ii. Guarantee Cover

?· The guarantee cover shall be 80% of principal and interest and shall be valid up to the maturity date of the loan with a maximum tenure of 7 years inclusive of a 2-year moratorium. The Guarantee shall be executed at the point of the loan disbursement by the Bank to the customer and shall be redeemed when the facility becomes non-performing and classified under the loss category of the Prudential Guidelines.

· In the event of recoveries after payment of claims by the CBN, such recoveries shall be shared in the ratio of 80:20 for CBN and Participating Banks respectively.

?4 iii. Interest Rate The lending rate under this Scheme shall be at Prime Lending Rate (PLR) of the participating Banks. 9.0 Acceptable Collateral The security to be offered to a bank for the purpose of any loan under the Scheme shall be one realizable and acceptable to the participating bank(s). 10.0 Loan Tenor (i) Loans shall have a maximum tenor of seven (7) years and/or working capital facility of one year with provision for roll over. (ii) The Scheme allows for moratorium in the loan repayment schedule. 11.0 Procedure for Applying for the Guarantee

?· All loan applications by SME promoters under the Scheme shall be made directly to the Participating Bank accompanied by the necessary documents as per normal loan processing requirement and the PBs applying the same degree of due diligence and professionalism as in the normal course of banking business.

?· Applications received by Participating Banks should be processed promptly and the period elapsing between the submission of an application and requisite documents for appraisal under the Scheme and its approval or otherwise will not exceed 60 days. Banks may call for information which has not been sufficiently provided by the applicant. Officials of the Managing Agent may call on banks which have not acted within a reasonable time on any application submitted to them.

?· Participating Banks should submit application for guarantee using a standard application form, on behalf of their clients to the Managing Agent .

?· The application for a guarantee should be accompanied with Offer Letters. 12.0 Verification/Monitoring of Projects. (i) Projects under the Scheme shall be subject to verification by the Managing Agent. Acceptance or rejection of an application for a guarantee by the CBN shall be communicated to the PB and the borrower within 14 working days after verification. (ii) The project shall be subject to monitoring by the Managing Agent (CBN) during the loan period. (iii) The CBN has the right to reject a request from any Participating Bank if it contravenes any section of the Guidelines.

?13.0 Responsibilities of Stakeholders: For the effective implementation of the Scheme and for it to achieve the desired objectives, the responsibilities of the stake holders shall include: a. The CBN :The Central Bank of Nigeria shall:

· Provide Fund for the Scheme

· Act as the Managing Agent of the Fund.

?· Determine the limits of guarantee of the Scheme

· Carry out verification/monitoring of projects under the Scheme.

?· Process Applications for guarantee from Participating Banks within 21 days of receipt of such application.

· Request PB(s) to render periodic returns as may be specified from time to time. b. The Organised Private Sector Associations (MAN, NASME, etc) The Organised Private Sector Associations shall:

· Accredit would-be beneficiaries of the Scheme

· Ensure prompt repayment of loans by members c. The Participating Banks (PB[s]) The PB(s) shall: · Grant credit facilities to SME Promoters at prime lending rate;

· Approve loan requests under the Scheme based on normal business consideration exercising appropriate due diligence

?· Render periodic returns under the Scheme as may be specified by the CBN from time to time; and · Monitor the projects during the loan period. d. Borrower The borrower shall:

· Utilise the funds for the purpose for which it was granted.

?· Insure the charged assets being financed.

· Adhere strictly to the terms and conditions of the Scheme.

?· Make the project and records available for inspection/verification by the CBN.

?14.0 Discontinuation of a Credit Facility Whenever a credit is repaid or the facility is otherwise discontinued, the PB shall advise the CBN immediately, giving particulars of the credit facility.

15.0 Amendments These Guidelines shall be subject to review from time to time as may be deemed necessary by the Managing Agent.

With all these provisions one vital question one needs to ask is why are the banks not conforming to all these regulations and guidelines of the CBN? There is an urgent need to grow and develop the economy of Nigeria.

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