By Omodele Adigun
JUST at the weekend, the Bankers’ Committee and the Central Bank of Nigeria (CBN) bowed to the plea of some state governors to cut the interest rate charged on the CBN’s intervention fund to 5 per cent.
Addressing the media on Sunday, the CBN Governor, Godwin Emefiele, said it was meant primarily for small businesses. “What we agreed was that out of the fund, at least 50 per cent would be set aside for direct SME disbursement,” he added.
Excerpts:
Accessing credit
At the 9th Bankers’ Committee retreat at the weekend, we looked at all the things that happened in the year and took an evaluation about how we have performed and what we have done to really improve not only the banking system, but also our economy. This year’s theme for the retreat is improving financial access, enabling job creation and driving inclusive growth. The theme was deliberately chosen because we felt that, yes, the country just pulled out of recession, that everybody in the room that participated in the retreat constitutes a group that can practically give anybody who needs finance in Nigeria that. Accessing finance naturally means to create jobs for people. And once jobs are created and productivity is improved, naturally what that will lead to is inclusive growth for Nigeria. We took a very deep evaluation of our role.
We started to ask ourselves, what can the banks, the CBN and the Development Finance Institutions (DFIs) that were present do to create more jobs or to create more access to everybody, particularly the smes, and what we call small manufacturers. Realising that 95 per cent of businesses in Nigeria are smes, and that if we want to really see growth to be stimulated and accelerated, we cannot ignore those smes and small manufacturers. We also said how can this financial access lead to improved job creation?
Those who were with us, the special guests, were the Governor of Lagos State, Governor of Kebbi State, Governor of Jigawa State, as well as Minister of Agriculture and Rural Development. I want to seize this opportunity to thank all of them for coming to give us the government insight as to what the banks must do to improve access to finance and enable job creation so as to drive inclusive growth in Nigeria. We also had in attendance other than the banks, DFIs, and owners of companies in the SME sector in the small manufacturing sector who have had issues accessing finance and they gave us reason why finance has been difficult. We seized that as an opportunity to match the banks and these people, why they have not been able to access finance. So, indeed, it was a very good opportunity to brainstorm and begin to think about going forward to see that more people who need bank finance, get finance for their projects so that we can create jobs.
AGSME fund
The first of the issues we looked at, you all recall this time last year, that we said we were going to create an Agric SMEs fund. And in April, we were able to put together about N26 billion. But as we speak, not one kobo of that fund has been disbursed. It was a shame, according to the views expressed, that for a year we have N26 billion sitting in the CBN whereas there are people who needed access to funding. We decided to reevaluate the conditions under which the facilities were to be made available. It was meant to be just equity but we found out that because of certain apathy on the part of people who have businesses and would have wanted to be part of it, most people shied away from the equity fund. So we decided to amend it. Before I talk about how we amended it, we decided that the Fund needed to be reviewed completely. It must be in a way that we must improve access for people who need the facility, that it must be done in a very speedy manner so that those who need it can get it in good time to run their businesses. Indeed, that this fund must be affordable, and if possible, best possible pricing, so that it can be seen as the contribution of the Bankers’ Committee towards national development.
We also looked at the issue of what would be the tenor. We said for SMEs and Agric businesses that want to access this fund, the tenor must be long enough, a minimum of seven years, providing for certain moratorium so that those who are going to access the fund can do so at low pricing and at a tenor that would give them ample time to be able to repay.
The Bankers’ Committee retreat also looked at the governance principles around the pricing and it was agreed that the fund must be development-oriented.
Also, that it must be a non-profit maximisation scheme, and that there must be a professional and transparent management process around it, to give everybody comfort, such that everybody will be happy to be contributing to this fund. And we would know it is our contribution to job creation and economic growth of the country.
We also agreed that under the governance principles, it must be seen to be sustainable and the fund must have a life. If possible, it must be in perpetuity. In which case every year, banks must contribute. That means the fund would continue to grow.
Strategies
On the strategy to scale the fund, we looked at a couple of options. First, that it should no longer be equity fund and we agreed that we should tweak it so that it would be some form of preference share arrangement or like a debt structure, which makes it easy for those who want to access it. In terms of pricing, the Bankers’ Committee said it should not be more than five per cent for those who are going to have it. But it would be meant primarily for small businesses. What was agreed was that out of the fund, at least 50 per cent would be set aside for direct SME disbursement.
Under the direct SME disbursement, we said banks must set up MSME Desks. On the part of the CBN, the central bank has entrepreneurial development centres in the six geo-political zones of the country and that the central bank on its part would make its Enterprise Development Centres available to train people that would benefit from the scheme. We are saying this would be mainly for people who are really low on the cadre.
We want to make this available for them. There are some of them who want to go into barbing business, hair dressing business, etc; we want to make this fund available to them or perhaps, if what some of those SMEs choose to do is to make it easy for them to acquire, for instance, rice harvesting machine that is not expensive or implements for agriculture that are cheap, rather than harvest in manual form for rice or these machines can be procured at very low prices not more than N250,000 to N500,000, and they can earn a living with that. How will it work? When we train, we will advertise, in fact, we are going to bring tiling for those who want to do tiling, you will learn tiling and we will buy them equipment for tiling. You want to do POP, plastering and so on, we will bring them in because we feel these are the weak and vulnerable people that need assistance; that may not even have the opportunity of working at the bank and that we need to open a channel through which they can have a bank and access facilities from the bank.
Capacity building
After their training, we are going to get people who will train them in those various skills taking into consideration the various geo-political zones we are talking about. They will be trained on that particular business, trained about how to manage those businesses so that those businesses also have life on their own. They can continue from there and sustain themselves in life. After training them, we will not disburse cash to them just like we do in Anchor Borrowers Programmes (ABP) where we buy seedlings we give to them, we buy fetilisers, herbicides we give to them. In this case, we will buy the cosmetic equipment and deliver to them, we will buy the barging equipment and deliver to them, we will buy the fashion machine, if you are into hair dressing, and deliver to them. If you want to use it in the agricultural sector, we buy the equipment and deliver to them and cost that item. When you cost it, you also deliver to them some kind of working capital money in case they need to rent a store and those kinds of things; you make these things available to them.
At the time they are being given the equipment, which is going to be launched, they will sign agreement like a loan agreement that specifies the amount and, of course, the pricing; like I said, not more than 5 per cent for at least a seven-year period. So you find out that somebody who takes a hair dressing machine and has seven years to pay back, he will continue to roll it may be when he starts to pay back after six months or nine months or one year moratorium as the case may be, if what he is paying is not more than N5,000, he can afford it and continue to pay and run his business and continue his life. That is the idea of the 50 per cent of the AGSME fund.
We estimated that if we start this, the fund will be disbursed by latest February because it will take some time to get those equipment. We are going to have some venture companies that would take about 45 per cent of the fund to identify specific projects. What are those projects? We still talk about someone who will go into the business of converting cassava to starch, or someone or group of people by way of cooperative, who want to go into the business of producing toothpick. These will work under certain structure after we have built capacity for them, with maybe a 10 per cent or 20 per cent equity stake just to make them have a stake in the project and then, we provide the remaining fund under the venture capital arrangement.
We imagine that that could take a little longer than the first part I just explained, but it is good for us to just begin a process of moving from the vulnerable to the weak until we get them up. Of course, the remaining 5 per cent will be for training and making sure they acquire the relevant skill they will need to be able to run all those businesses.
On the SME, assuming someone has asked for funds aside from the agriculture scheme, the Bankers’ Committee came to realisation that there is need for CBN to come up with few regulatory issues. We agreed that CBN will come up with guidelines and regulations. What that means is that CBN will provide some form of forebearance. For example, if you are a banker that has lent some percentage of your SME loan to a set of people in the target area, maybe your CRR will be lower than other banks that have not reached that level. In other words, if you want us to ease your CRR to have more money to loan to this set of people, then certain per cent of the loan should go to this people.
The banks raised the issue of risks embedded in lending to small businesses and the rest of them. We came up and said that between the DFIs and banks, there should be some risk sharing agreement where the risk is not only borne by the banks, just to assure that in case risks crystalise, that there should be a basis for sharing. What that does is that it makes both banks and DFIs to ensure that they put their eyes down to ensure that the loans perform.