…NASME, NACCIMA blame banks for scheme’s flop
By Bimbola Oyesola
President Muhammadu Buhari’s dream to get the economy out of recession through the Micro, Small and Medium Enterprises (MSMEs) with the injection of about N220 billion into the sector is turning out a tall order.
This is sadly so because the N220 billion set aside by the Central Bank of Nigeria (CBN) for MSMEs financing using five commercial banks has been hijacked and diverted to some wrong hands, Daily Sun investigation has shown.
Under the original programme, entrepreneurs can access loans of N500,000, N5 million, N50 million at 9 per cent interest from Nigerian banks approved for the project.
It was considered a major breakthrough for SME financing at its launch as the regular interest rates were dropped by over 100 per cent for entrepreneurs under the MSME fund.
Each of the 36 states and the Federal Capital Territory (FCT), is also entitled to access as much as N2 billion, to be disbursed to the states through banks, which are expected to effect the disbursements directly to the beneficiaries. But immediately the various state governments got the MSME lsargese, many became emergency entreprenuers, and appropriating the facility to themselves and their cronies.
Banks that signed agreement with the CBN for onward disbursement to entrepreneurs in the country, include United Bank of Africa (UBA), Skye Bank, GTBank, Zenith Bank and Fidelity Bank with stakeholders expressing high hopes of SMEs contributing more to the nation’s Gross Domestic Product (GDP), accounting for over 60 per cent, the effectiveness and transparency of the disbursement of the CBN’s funds will determine the impact on the economy.
In developing economies like Nigeria, that MSMEs hold the key to government’s plan to develop the non-oil sector and generate income from it, hence the need for their empowerment through easier access to credit and specific business-friendly policies.
According to the Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, the MSME intervention fund was a concept designed to correct market failures in the financial markets.
According to him, some growth sectors would naturally find it difficult to access fund from the regular or conventional commercial banks because of competitiveness issues as well as the concerns around risk perception of the real sector.
“Besides, the Nigerian banking system has not got much of long term funds, and cost of funds is also very high. Intervention funds are long term and often at single digit. These are the gaps the intervention funds are designed to fill,” he explained.
The CBN has explained that it initiated the fund to unlock the potential of Nigerian MSMEs, thereby shoring up their potential for job creation and enabling them reduce poverty within the country.
“Our optimal goal is to see that this fund gets to our people at the bottom of the economic and social pyramid at single digit interest rate without which it will be 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 utilisation of these funds in a robust and verifiable manner.”
Disbursement
Though other participating banks have not disclosed how much they have disbursed nor their mode of disbursement, Fidelity Bank, one of the five designated banks, was reported to have disbursed N2.2 billion to the beneficiaries so far.
The report credited to the Managing Director, Mr. Nnamdi Okonkwo, said the loan beneficiaries have been committed to its repayment, adding that the bank has not recorded any default.
He had said that CBN was very serious about the N220 billion SMEs’ fund. “We are witnesses because we have customers who accessed the SME funds through us. We have done about N2.2 billion of the funds. We have got repayment of about N400 million. We haven’t had any default because of the process through which these funds were accessed,” Okonkwo said recently.
But from Nigerian Association of Small and Medium Enterprises (NASME), Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Nigeria Employers Consultative Association (NECA), Network of Entrepreneur Women (NNEW) and all other reputable Business Management Organisations (BMOs) interviewed, none has accessed any of the funds, raising some questions as to who owns the SMEs that have accessed the fund so far.
While some of the groups said they shunned the fund due to previous experiences, some who approached the banks said their applications were turned down because of the stringent requirements attached to the loans by the banks.
President of NASME, Prince ’Degun Agboade, said the organisation has got nothing from the N220 billion fund despite claims by banks of so many windows open to SMEs to raise funds.
According to him, “I’m not aware of anybody that has got anything. N220 billion was supposed to be given out by the banks at 9 per cent, but there are so many stringent measures, conditions that are not possible to meet, including collateral and unrealistic turnover. It is so cumbersome. Lots of applications were rejected. Even the Bank of Industry (BoI) loan, First Bank has just informed us that it has stopped disbursement because CBN wants it to guarantee the loan 100 per cent. With the way it is structured presently, I think it can never work,” he said.
Though both the real sector and MSMEs have applauded the formation of the new Development Bank of Nigeria (DBN), which they considered would fill the vacuum created by BoI, NASME President said the new bank has equally failed the SME group.
“The bank also said it would not give out loan directly but through commercial banks whose interest would be between 29 and 30 per cent. How would SMEs be able to access such loans?” Agboade queried.
“Banks should tell us who they have disbursed the money to because the way they treat SME is like leper, which is not the practice in other countries like India, China, or Malaysia. We’re told that about 13 windows are available but we cannot access any. The only fund our members have been able to access is Dangote Fund, which is N5 billion at 5 per cent, while banks added 1 per cent as their profit and it was allocated per state, and some states exhausted this within a month. For example, we have over 55 per cent of the SMEs in the country in Lagos alone but this was not factored in while disbursing the funds.”
Lamenting the plight of SMEs, Agboade called on CBN to moderate and prevail on the banks to ensure that the funds actually get to the right group.
Also expressing his displeasure on the fate of MSMEs in Nigeria, the National Vice President of NACCIMA and the Chairman of SMEs group, Alhaji Sanusi Maijamaa, confirmed that no member of NACCIMA has accessed the funds due to their past experiences.
He, however, wondered on which platform the funds being disbursed by the banks if not through the Organised Private Sector (OPS) like NACCIMA, NASME and others.
Maijamaa noted that the system of disbursement was not transparent, adding that the SME clinic launched by the Acting President, Yemi Osinbajo, in Abuja and Aba equally failed to address the problem at hand.
“The conditions set by banks cannot allow our members to get the loans because there are lots of cumbersome requests. We look for the same treatment given to the multinationals. There is need to recognise informality when dealing with SMEs. When they grow, you can now formalise the conditions,” he said.
Maijamaa stated that though there are lots of impacts on what the government is doing, they, however, do not reflect directly on the SMEs. “There is need to involve the grassroots in all these developmental plans because lots of SMEs are in the grass roots. The government also needs to emphasise cluster arrangement, and role of states and local governments should be spelt out clearly to support the intervention of the Federal Government,” he said.
Sharing the same view as others, the Vice President of NNEW, Edobong Akpabio, said it has been frustration galore for the members of the group in accessing loans from any of the commercial banks designated to disburse the fund.
“We have made several applications, but till date, none of us has been able to get anything. Actually, we were happy when we discovered that such fund has been set aside for the SMEs sector but the conditions set by the banks to access the loan are unattainable. This makes us wonder whether it is actually meant for us or another ploy by commercial banks to give it to their privileged clients,” she said.
The LCCI Director General, Muda Yusuf, however, berated government on the management of the intervention fund. He said, “for most of the funds, the deposit money banks are expected to provide 100 per cent cover (to the CBN) for the funds disbursed and this should be done with securities such as treasury bills and Federal Government bonds. The implication is that the banks are made to bear full credit risk for the facility.
“They would be held fully responsible in the event of default. This is why the banks also impose stringent collateral conditions for granting the loans, which invariably creates a major problem of access to the funds, especially by the small scale industrialists or farmers. Some banks are not even keen about intervention funds for this reason. The risk and reward metrics are not often favourable.”
To succeed with intervention fund
The LCCI DG expressed the view that for better results, the risk bearing responsibilities of the banks in the funds should be reduced considerably through other forms of guarantees.
Yusuf lamented that intervention funds lay too much emphasis on equipment and machineries, whereas what most of the small scale industrialists and agricultural investors need is working capital.
“Many are carrying idle capacity because they lack adequate working capital. Funding provision for working capital should therefore be given better accommodation in the intervention funds scheme than is currently the case,” he said.
He also noted that for the desired outcomes to be realised from intervention funds in the promotion of the real sector, some other complementary conditions must be in place. According to him, “infrastructure (especially power and transportation); policy consistency; effective regulatory environment to curb smuggling, faking and counterfeiting, and many more, need to be given attention. Advancing the frontiers of the real sector is not just about funds, the operating environment and policy context must also be right. Unless this is addressed, default rates will remain high and the impact will remain marginal.”
He recalled that one of the biggest beneficiaries of intervention funds is the textile manufacturing sector but till date, the sector is still comatose. Many of the companies, he said, could not repay the loans; some are already in receivership. “This underscores the point that while funding is important, other factors which impact on competitiveness are equally critical,” he stated.
He added further: “The obsession of policy makers (in the context of interventions funds) for real sector also needs a rethink. There is a perception that for jobs to be created in the economy, focus of funding should be almost entirely on the real sector. But the integrated character of the economy needs to be understood.
“The inter-sectoral linkages also should be appreciated. The distributors, for instance, need funds to buy the products of the manufacturers for onward transmission to consumers; the transporter that moves the products to different parts of the country needs funds to buy and maintain trucks; the fashion designers need funds to buy fabrics from textile manufacturers; the advertising companies that undertake marketing and promotions of the real sector products need funds; real sector needs various forms of IT support, and so on.
“Besides, the service sector of the economy is fast growing and currently creates more jobs and more incomes for citizens and therefore contributes to improving purchasing power in the economy from which all sectors, including the real sector, benefit. While not diminishing the importance of the real sector, the role of the service sector in wealth creation and employment generation needs to be better appreciated. There is need for the sector to be better accommodated in the intervention funds scheme.”