Sanya Adejokun
Despite their current travails over the implementation of Treasury Single Account (TSA) by the Federal Government and speculations that many of their staff may be retrenched from the second quarter of the year, Nigerian banks seem determined to contribute to the lifting of the economy and aide government’s determination to diversify the economy and boost employment creation.
Probably agreeing with the Food and Agricultural Organisation (FAO) that “societies have in fact defined themselves by the way and degree in which they have succeeded in increasing agricultural production (FAO) the Bankers’ Committee at their meeting in December last year, expressed their preparedness to boost the efforts of serious farmers, agribusinesses and small and medium entrepreneurs in the new year by setting aside as much as N300 billion loans to boost lending to those segments of the economy. Governor of Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, who made this intention known while reading the communique released after the 7th Annual Bankers Committee Retreat held in Lagos.
Emefiele said that the facilities would not only be for SMEs, but also to large scale farming companies especially because agriculture value chain needed to be de-risked to allow banks to grant facilities to farmers to stimulate growth in the economy. He said the bankers agreed that de-risking those value chains in the agriculture would encourage large scale farming and boost productivity in the sector which will consequently increase lending to the sector, while the monetary and fiscal authorities must work together to improve local production.
Ultimately, the banks intend to ensure increased local agriculture products like rice, tomatoes, wheat, fish, sugar, among others, would reduce the demand for foreign exchange to boost foreign exchange reserves and by extension strengthen the naira.
The announcement, though comforting did not elicit much enthusiasm among industry stakeholders because it would be the umpteenth time that banks have announced lofty intentions of boosting various segments of the economy without much progress.
Over time, banks, CBN and the Federal Government have established various schemes purportedly to support agric and small business with not too impressive results.
Realising that SMEs have been crowded out of the credit market, CBN established the SME Credit Guarantee Scheme and the Refinancing and Restructuring Facilities for SMEs in 2010. The two schemes are meant to create indirect incentives and direct finance for increased lending to SME across the country. According to CBN, by 2010, 516 SMEs have received project support amounting to N199.67 billion under the RRF while projects valued at N7.5 million have been guaranteed under the SMEGS
Agric Credit Guarantee Scheme Fund (ACGSF)
The ACGSF was established by Decree No. 20 of 1977, and started operations in April 1978. Its original share capital and paid-up capital were N100 million and N85.6 million respectively.
Agric Credit Support Scheme (ACSS)
This was an initiative of both the Federal Government and CBN with support of Bankers’ Committee. The Scheme prescribed a fund of N50 billion to enable farmers exploit the untapped potentials of Nigeria’s agric sector, reduce inflation, lower the cost of agric production, generate surplus for export, increase foreign earnings as well as diversify its revenue base/Commercial Agric Credit Scheme. It is a collaborative scheme of the CBN and Federal Ministry of Agric and Water Resources in 2009 to provide finance for the agric value chain (production, processing, storage and marketing).
Micro Small and Medium Enterprises Development Fund
Special N220bn intervention fund created by CBN to provide long tenured funds at single digit to micro, small and medium enterprises as a means to fast track development in the nation’s socio-economy section.
Real Sector Support Fund (RSSF)
RSSF is N300bn intervention scheme of CBN designed to unlock potentials in the real sector of the economy, engender higher industrial output, drive value added productivity and stimulate job creation in the economy. The scheme provides long tenure credit facility to large enterprises at single digit.
Small and Medium Enterprises Equity Investment Scheme (SMEEIS)
The Small Medium Enterprises Equity Investment Scheme is a voluntary initiative of the Bankers’ Committee approved at its 26th meeting held on December 21, 1999. It was in response to the Federal Government’s concerns and policy measures for the promotion of Small and Medium enterprises as vehicles for rapid industrialisation, sustainable development, poverty alleviation and employment generation.
The scheme requires all banks to set aside 10 percent of the profit after tax for equity investment and promotion of small and medium enterprises. It is to be invested in SMEs as the banking industry’s contribution to government’s efforts towards stimulating economic growth, developing local technology and generating employment.
Available data from the central bank showed that N38.225 billion was contributed by the banks to the scheme. Of this, N17.038 billion, representing 44.73 per cent has been given out as loans to companies in the category.
Cotton Textile and Garment Intervention Fund
The N100bn Cotton, Textile and Garment Intervention Fund, targets businesses under the cotton, textile and garment value chain. This facility was later converted to equity by the government in 2013. Interest rate initially fixed at six percent per annum with the tenor of up to 10 years was recently reviewed downwards to four percent and the tenor equally extended.
Nigeria Incentive-Based Risk Sharing System for Agricultural Lending and Anchor Borrower’s Programme
This is a N75bn programme designed to provide farmers with affordable financial products and reduce the risk exposure of financial institutions that lend to the sector.
Small and Medium Enterprise Credit Guarantee
This is a N200bn Scheme established in 2010 to fast-track the development of the manufacturing and SME sub-sector by providing guarantee for banks’ credit.
Refinancing and Restructuring Fund
This is a N235bn CBN intervention fund established for refinancing and restructuring of banks’ existing loans to the manufacturing/SME sub-sector.
Micro, Small and Medium Enterprise Development Fund
This N220bn Fund was lunched on August 15, 2013 to provide low interest funds to the MSME sub-sector of the economy through participating financial institutions.
Real Sector Support Facility
This N300 billion support facility was set up in 2014, to address the funding needs of large ticket SMEs.
There have been various reasons adduced for the little impact of these schemes on the agricultural and SMEs sectors that they were established to lift including the inability of potential beneficiaries to produce realistic proposals and business plans. Others have been accused of not keeping proper records for their businesses while others lacked necessary instruments to submit as collaterals. On the part of commercial banks, many of them have been said to deliberately frustrate the schemes by deliberately making it difficult for SMEs to access such loans and facilities.
Nigerian banks are generally used to making excessive interests on loans and even secretly adding charges that are unethical and detrimental to the health of businesses.
At a workshop on the MSMEDF, organised by the Banker’s Committee of the CBN in Abuja, the Assistant Director, DFD, CBN, Mr. Jonathan Tobin, said the financing gap in the SME sector was caused by banks and other lending institutions’ aversion to lending to small businesses in the informal sector. “Nigerian banks are averse to taking risk. They like to play safe. The economy is virtually collapsing yet banks keep declaring huge profits,” he said.
But the Director-General of the LCCI, Mr. Muda Yusuf, says the CBN’s conditions, established for managing the funds, are to blame. He says, “For most of the funds, the deposit money banks are expected to provide 100 percent cover to CBN for the funds disbursed and this should be done with securities such as the Treasury bills and Federal Government bonds. The implication is that the banks will be held fully responsible in the event of any default. This is why the banks also impose stringent conditions for granting the loans, which invariably creates a major problem of access to the funds, especially by the small scale industrialists or farmers.”
Both Director-General of the Manufacturers Association of Nigeria (MAN) Remi Ogunmefun and Chairman, National Association of Small and Medium Enterprises (NASME), Lagos chapter, Mr. Ladi Jemi-Alade insisted that no member of their organizations has accessed any of the intervention funds. Ogunmefun, stated that so far, only 15 members of MAN have received approval from their banks and are currently queuing up to access the RSSF loan.
Way Forward
Olaoluwa in an interview said owing to the size of the economy, the amount of funding required to make that impact is a lot more than what is available, which is why there is always that sense of insufficiency. Even CBN Governor, Mr. Godwin Emefiele, says that N9.6tn is required to fund the SME sector alone. For Yusuf, “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 says the interventions should be holistic and embrace other affiliated sectors of the economy. “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 the 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 the textile manufacturers. The advertising companies that undertake marketing and promotions of the real sector products need funds. The real sector needs various forms of IT support, and so on.”
He adds, “Intervention funds lay too much emphasis on equipment and machinery; whereas what most of the small scale industrialists and agricultural investors need is the working capital.”
An analyst and the Vice President, Centre for Values in Leadership, Mr. Rasheed Adegbenro, suggests that the intervention should be continuous.
He says, “It should not be a stop and go intervention. Having seen the blue side of what intervention can do in the life of enterprises, it should be something that should be long-lasting so that so soon many of the sick enterprises will be revived.”
