July 28, 2014

The Central Bank of Nigeria signed a Memorandum of Understanding (MOU) with thirty-six state governments to disburse $1.4 billion (N220 billion) to Small and Medium Enterprises across the nation.

This latest effort is part of the bank’s new framework for funding SMEs in the country through Micro, Small and Medium Enterprises Development Fund, a part of the federal government financial inclusion strategy for rural communities in the country.
The MOU was signed by Central Bank of Nigeria Governor Godwin Emefiele and the state governors.

Though micro-credit programs are recognized globally as critical engines of economic growth due to their potential to create jobs, boost production, generate income, and reduce poverty, funding for SMEs in Nigeria has largely been viewed from a social development perspective with the goal to reduce poverty through job and wealth creation.

This not only put the development of the sector squarely in the hands of the government, with mixed results, it also left the country dealing with one of the highest rates of youth unemployment on the continent, despite being Africa’s largest economy, and a population above 160 million.

Moving forward, the government said it will take a business approach to funding SMEs, which requires strong engagements with the private sector by taking a pivotal role in the development of the industry, by deploying funds through targeted predetermined sectors as an innovative way of improving access to finance, jump starting potential job creation that will lead to a reduction in the nation’s poverty rate.

The new approach will combine the profit motives of the private sector and the development objectives of the government to propose a structure which allows the government to leverage the project selection and credit analysis processes of private sector investors who will place more of their resources at risk in funding the SMEs.

While the private sector invests more of their risk capital in the selected companies, CBN’s funds will focus on finding solutions to challenges such as access to collateral, enterprise development support, and development of a nationwide credit scoring system, the bank said.

Aside from this new collaboration with the private sector, the CBN will also design a program for individual citizens who need as low as $308 (N50,000) without collaterals through registered and accredited local cooperatives.

Currently, the CBN has a number of initiatives, including the $1.4 billion (N220 billion) to fund SMEs with specific focus on women entrepreneurs and to be administered through microfinance banks owned by either state governments and or private organizations.

The Nigerian micro-credit initiative seeks to foster linkage between banks and SMEs to enhance financial inclusiveness and reduce poverty among its population.
Emefiele said the goal is to create jobs on a mass scale and significantly reduce import bills.

The fund will be disbursed through CBN’s commercial banks to the state governments but administered through private or state owned microfinance institutions, finance houses and cooperative finance agencies. Each state government will receive about $12.3 million (N2 billion) for lending to eligible SMEs through participating financial institutions in their states.

“The fund is directly in conformity with my resolve to create a professional and people-centered central Bank that will act as a financial catalyst for job creation and inclusive economic growth,” said Emefiele. “While these are our ultimate goals, our main intermediate objective is to ensure that these funds get to the people at the very bottom of our social pyramid at the single digit interest rates. Without achieving this intermediate objective, I have no doubt that it would be impossible to achieve the ultimate goal of job creation and poverty reduction.”

To achieve its goals, Emefiele said the CBN would invest considerable resources, including human capital, material and finance, to ensure that the funds are disbursed and used accordingly to the program’s objectives.

CBN plans to develop finance programs, act as a financial catalyst and deploy developmental initiatives to create an enabling environment with appropriate incentives that would empower innovative entrepreneurs to drive growth and development in the country, he said.

Among the state governments that will receive the funds are Borno, Delta, Enugu, Gombe, Imo, Katsina, Ondo, Oyo, Osun, Akwa Ibom, Bayelsa, Benue and Zamfara.

The government is establishing six entrepreneurship development centers in each geopolitical zone to support the mandate of the 23 Industrial Development centers under the purview of the small and medium enterprises development agency.

“I wish all of us [state governments and CBN] every success as we put our hands on the deck to making Nigeria a better place,” said Emefiele, who took office June 3.

Participating financial institutions will be required to submit periodic returns on disbursements as well as an analysis of the social impacts of the fund.

The bank will also undertake regular on- and off-site checks to ascertain veracity of the reports received and the funds are deployed in an effective and efficient manner.

Venture capital companies and business angels will be encouraged to fund SMEs and invite the Bankers’ Committee to play more active role in supporting SMEs.

The bank has maintained a tight regime of monetary policy since 2012, with the Monetary Policy Rate (MPR) and the Cash Reserve Requirement (CRR) mostly remaining unchanged at 12 percent.

These policy stances have served the bank well since they have properly anchored expectations, created policy certainty in macroeconomic management while offering a window of flexibility to respond to new information and developments globally as they emerge.

Although some of the state governments are concerned about the CBN’s involvement in “playing an active developmental role,” Emefiele said the CBN will not only operate within the law and its mandate but will also be transparent about what it believes as strategic and appropriate interventions.

Some of the CBN’s developmental functions also include credit allocations and direct interventions in key sectors of the economy such as power, agriculture, MSME, oil and gas and health.