CBN’s N200bn SMEs fund with BoI, BoA & others; how to access it

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There is no gainsaying the fact that Small and Medium Enterprises (SMEs) are critical to the development of any economy.

As a result to their “great potential for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries,” according to the Central Bank of Nigeria (CBN).

According to some opinions, for this hot boy (SMEs) to pivot economy of the country to greater height, seem to be gross under-performed and this has undermined its contribution to entire economic growth and development.

For instance, the much talked about, the Financial Sector Strategy (FSS) 2020 SME Sector Report of 2007 traded blame on the following four key issues. These are: unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology. Both FSS report and general opinions among stakeholders anchored on the shortage of finance which occupies a very central position.

Also, to worsen the entire situation, commercial banks, which according to their records remain the biggest source of funds to SMEs, have, in most cases, shied away due to the perceived risks and uncertainties. Furthermore, the fragile economic environment and absence of requisite infrastructure do not help the matter either as they have rendered SME practices costly and inefficient, thereby worsening their credit competitiveness.

Thus CBN came out with policy of the investment of N500 billion debenture stocks to be issued through the Bank of Industry (BoI) with effect from May, 2010 to improve access to finance SMEs.

In the first instance, the sum of N300 billion was to be applied to power projects and N200 billion to the refinancing/restructuring of banks’ existing loan portfolios to SME/manufacturing sector.

According to the guidelines and the procedure for accessing the fund published by the CBN. Shown as following: the business should be in any of this areas: – agriculture, manufacturing, cottage industries, artisanship, services, trade and general commerce, renewable energy/energy efficient products and technologies; other income generating projects as may be prescribed by the CBN in due course.

If you are ok with the above mentioned, then you must have prepared business plan or statement on how much income, you want for your business. After that you can approach mentioned below financial institutions for a loan up to N500,000 for your Micro-business while N50 million for SME.

The repayment of the loan is as follows, micro business, it is a maximum of one year, while for SMEs, is a maximum of three years.

The financial institutions to access the fund are: microfinance banks, commercial banks, cooperatives, finance companies, NGO-microfinance institutions, Development Finance Institutions (DFIs), such as Bank of Industry (BoI) and Bank of Agriculture (BoA).

With all documents ready, then approaches one of the above mentioned bank with mind how much you need or types of business model. Then your choice bank will discuss with you on your request as it related to maximum interest rate on the loan which is nine per cent pa (charges inclusive) is applicable to all loans and if all is ok by your bank they provides you the needed money.

Period for the repayment of the loan

Let the borrowers be aware: 60 per cent of the fund is reserved for enterprises owned by women; two per cent for persons living with disability and 10 per cent for start-up businesses.

In further thought of expand the Nigeria’s economy, the apex bank also issued the guidelines for the N200 billion re-financing and restructuring of banks’ loans to the manufacturing sector with the objectives of fast-tracking the development of the SMEs and manufacturing sector of the Nigerian economy and improving the financial position of the deposit money banks.

Complementary to this, the CBN also established a N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) for promoting access to credit by SMEs in Nigeria.  The guidelines are as follows:

Activities

The activities to be covered under the scheme are manufacturing, agricultural value chain, educational institutions and any other activity as may be specified by the managing agent from time to time.

Criteria for participation

Participating Bank (PB): All Deposit Money Banks (DMBs) and Development Finance Institutions (DFIS).

Borrower

A borrower is expected to meet the following criteria to be eligible: Any entity falling within the definition of an SME; a wholly-owned and managed Nigerian private limited company registered under the Companies and Allied Matters Act of 1990; a legal business operated as a sole proprietorship and a start-up company with satisfactory cash flows indicating a fixed asset cover ratio of 100:150.

Others include a franchise; have no non-performing or delinquent loans with any financial institution; be a member of the Organised Private Sector bodies/associations such as Nigerian Association of Small & Medium Enterprises (NASME), the Manufacturers Association of Nigeria (MAN), etc.; have a clear business plan; provide up-to-date records on business operations, if any; and satisfy all requirements specified by a participating bank.

A borrower is expected to have one loan under the scheme at any point in time.

Loan amount

Maximum loan amount is N100 million, which can be in the form of working capital, term loans for refurbishment/equipment upgrade/expansion, overdrafts.

Guarantee cover

The guarantee cover is 80 per cent of principal and interest and is valid up to the maturity date of the loan with a maximum tenure of seven years, inclusive of a two-year moratorium. The guarantee shall be executed at the point of the loan disbursement by the bank to the customer and shall be redeemed when the facility becomes non-performing and classified under the loss category of the Prudential Guidelines.

In the event of recoveries after payment of claims by the CBN, such recoveries shall be shared in the ratio of 80:20 for CBN and participating banks respectively.

Procedure for applying

“All loan applications by SME promoters under the scheme shall be made directly to the PB accompanied by the necessary documents as per normal loan processing requirement and the PBs applying the same degree of due diligence and professionalism as in the normal course of banking business.

“Applications received by PBs should be processed promptly and the period elapsing between the submission of an application and requisite documents for appraisal under the scheme and its approval or otherwise will not exceed 60 days. Banks may call for information, which has not been sufficiently provided by the applicant.

“Officials of the managing agent may call on banks, which have not acted within a reasonable time on any application submitted to them.

“PBs should submit application for guarantee using a standard application form, on behalf of their clients to the managing agent (CBN).

 


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