N220bn MSMEDF: CBN may cut rate to PFIs to 2%, collateral requirement to 50%

There are indications that the Central Bank of Nigeria (CBN) will likely cut rates at which Participating Financial Institutions (PFIs) can access the N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) to two percent, as it tries to remove those impediments frustrating proposed beneficiaries from accessing the money.

Part of the present guidelines which are also being reviewed by the CBN is that the fund will be administered to the PFIs at three percent per annum, for on lending to beneficiaries at not more than nine percent per annum and maximum tenor of one year and five years for micro and SMEs respectively.

But banks have been particularly aggrieved with the prescribed interest rate margin which they see as very low, because they are used to bigger ticket transactions, usually at double digit interest rate.

As at mid December, at least five commercial banks – United Bank of Africa (UBA), Skye Bank, GTBank, Zenith Bank and Fidelity Bank, had signed agreements with the  CBN to enable them disburse some part of the funds, despite reluctance by so many others.

BusinessDay also gathered that the CBN will likely reduce the collateral requirement for the PFIs to gain access from 75 percent of loanable funds to 50 percent.

This means for instance, that any PFI proposing to access N10 million on behalf of its clients, must have up to N5 million and not N7.5 million as contained in the present framework.

These changes are among the key outcomes of the ongoing review of the guidelines of MSMEF guidelines, following several complaints by the operators and PFIs around the stringent conditions attached to the fund.

Although the changes are yet to be confirmed and announced by the regulator, Mudashir Olaitan, Acting Director, Development Finance Department, CBN confirmed that the guidelines are being reviewed to suit the interest of all stakeholders.

Olaitan said that the review is to ensure that conditions attached do not scuttle the aim of the fund, but also put adequate structures in place to be able to recover the money since it is revolving fund.

He confirmed that the commercial banks were asking for more leg room in the interest rate because they see the spread between the CBN and that to the end users as too small.

“What the Central Bank does in terms of policy implementation is to carry along all the stakeholders, so we take into cognisance, their comments and inputs, to ensure that the objectives are met,” he stated.

“So, we held several meetings with the PFIs to find  out what we can do to improve accessibility, and their basic complaint has been that their cost structure cannot allow them good margin under this fund.

“We are looking at it and will announce our decisions as soon as we conclude,” Olaitan told BusinessDay.

He explained that the collateral requirement, which are conditions precedent to accessing  the fund, are not difficult to meet, but that the perception that because it is something coming from government, it should be a ‘national cake,’ was unacceptable.

Apart from the collateral requirements and rates, another key requirement is that the PFIs must submit a list of their clients that want to benefit, as well as their contacts, to be sure that they are not phony. Olaitan thinks that this should not be an issue, especially for ongoing businesses.

“The N220 billion is a revolving fund which is supposed to be sustainable and at the same time, drive economic development, so it must be repaid,” he insisted.

He confirmed that the CBN was still harmonising figures on the amount already accessed from the fund. BusinessDay learnt that the banks have already accessed over N100 billion, while several states have already signed MOUs for N2 billion each, for their own clients back home.

“What we have been able to achieve is that some states are already accessing the fund on behalf of the cooperatives in their states,” he said.

He explained that a cooperative can apply directly on its own merit to access the fund. The other way is that the MFBs could have cooperatives as part of their clients.

But he added that if they were going to access on their own merit, it then presupposes that they have to provide their own collateral, which is 50 percent of what they are requesting for.

The CBN had also announced that the fund would be given to entrepreneurs without the conventional collaterals, to make it easier for them to access capital for their businesses.

Paul Eluhaiwe, the then CBN’ Director of Development Finance, said that entrepreneurs would be allowed to use movable collaterals to secure credit from financial institutions, beginning this year, and that the apex bank was working with the International Finance Corporation, (IFC) to fine -tune the modalities.