CBN Creates New Framework for SMEs Funding

CBN 

From Benjamin a ameh, Lagos

Advice CBN to develop strong political will to continually keeping inflation low so as to encourage financial institutions to increases lending

The Central Bank of Nigeria CBN, governor who resumed in the office with new method of operation in banking industry different from the outgoing is like cardinal election for the new pope within Catholic faith. It has becoming order of the day for every CBN governor coming to office with new promises and methodology of operations in the banking industry rather continue build on the previous process of the out-going governor.

The CBN governor, Godwin Emefiele unveiled the new strategy of developmental banking as a new way of operations in banking industry going forward. Therefore, developmental banking model is a new way of funding Small and Medium Enterprises SMEs which is in operational mostly in Asia countries quite sometimes.

Emefiele has raised hope of operators of Small and Medium Enterprises SMEs in Nigeria which before largely been viewed from a social development perspective with the goal to reduce poverty through job and wealth creation. This has put the development of the sector squarely in the hands of the government, with mixed results.

The governor pointed out that going forward, “we propose a business approach to funding SMEs, which requires the strong involvement of the private sector. The new framework proposed will combine the profit motives of the private sector and the development objectives of the government. It proposes a structure that enables 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.”

He further revealed that at the moment, the CBN has a number of initiatives including the N220 billion to finance Small-and Medium-Scale Enterprises with specific focus on women entrepreneurs and to be administered through Microfinance Banks owned either by state governments and/or private organizations.

According to his statement on the CBN website excerpts  disclosed that the private sector invests more of their risk capital in the selected companies, CBN funds will focus on resolving challenges such as access to collateral, enterprise development support, development of a nationwide credit scoring system, etc. Aside from this new collaboration with the private sector, the CBN will also design a programme for our fellow citizens who need as low as N50,000 without collaterals through registered and accredited local cooperatives.

“We shall encourage venture capital companies and business angels to fund SMEs and invite the Bankers’ Committee to play more active role in supporting SMEs.”

Banking Supervision

“Our take on banking supervision would be to Work towards a better risk-based supervision framework. This will be achieved by training sector-specific bank examiners. For example, while the banking industry has excessive concentration in oil and gas loans, the CBN does not have the expertise to analyze and monitor the risks inherent in these credits. In other words, every examiner is a generalist. In connection with the above, specialization will help reduce an increasing reliance on outside consultants, ensure that confidential supervisory information are protected and guarantee a staff depth that can generate robust in-house data to help senior Central Bank officials prepare adequately for public engagements.

“We hope to better align the Cashless Policy .This policy was introduced in 2012 with pilots now completed in Lagos, Kano, Anambra, Abia, Rivers, and the FCT. The policy is now expected to go nation-wide on July 1st, 2014.

“Over the course of the pilot, we have become aware of complaints by customers particularly regarding the charges being imposed for cash deposits. This has resulted in customers devising various means to avoid the charges through opening of multiplicity of accounts and other disingenuous behaviour all aimed at undermining the objective of this policy.

“Given these outcomes and to better reflect our goal of having more cash under our control, all charges on deposits are hereby stopped with immediate effect. Charges on withdrawals, in view of their eventual elimination, remain sustained at the current 3 percent for individual transactions exceeding N500,000 and 5 percent for corporate transactions exceeding N3 million.

Currently, these fees go entirely to the commercial banks.

However, going forward, the Central Bank shall determine what percentage of these fees on excess drawings that will be retained by the banks while the rest shall be remitted to the CBN”

In response to questions, an investor based in Lagos, mr Celestine Ukpong, said that looking back to the present CBN governor antecedent in the Zenith bank in the pass shown that the governor did not promoted SMEs when his was there, how can he change within few months that was employed as CBN governor to learnt about develops, operates and supervise the development banking model effectively base on the governor’s statement in above passage which said ‘‘while the banking industry has excessive concentration in oil and gas loans, the CBN does not have the expertise to analyze and monitor the risks inherent in these credits’’, is the  CBN have enough manpower about SMEs or  is the apex not trying jump into deep hole with two eyes closed?

Ukpong advice Emefiele to focus on economy of the country squarely which is 90percent to banking supervision which is 10percent adding that all pass CBN governor dwelled on through their tenure in the office.

He noted that if the country economy is good, surely banking industry will benefits from the economy directions as well. Then real sector would have given dormant money enough to the workers which will overflow to their love ones which banks will benefits from their saving and investments in capital markets, Ukpong added.

In the same vein, mr Festus Odoko, a  former Deputy Director and Head, Corporate Affairs, CBN stated in his paper presented at one of FICAN?CBN seminar, themed “beyond finance: strategies for poverty reduction in Nigeria” outlined that we have reached the conclusion that although finance is critical, the provision of finance alone will not do the magic. Therefore, there is a call for a coordinated, focused and increased action, without which no significant progress can be made in reducing poverty in Nigeria.

Odoko, however pointed out that the role of a favourable macroeconomic and regulatory environment of rising inflation lenders are wary. While advice CBN to develop strong political will to continually keeping inflation low so as to encourage financial institutions to increases lending, he added.

 

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