How to access CBN’s 220Bn MSME fund: A CBN official put us through

How to access CBN’s 220Bn MSME fund: A CBN official put us through

The much lauded CBN 220 billion MSME development fund has obviously faced a lot of challenges, primarily noncompliance from governors and banks and opacity in its disbursement and impact. Not much is really known about the impact and reach of the fund and entrepreneurs have grown weary of accessing it. After several Google searches linking

The much lauded CBN 220 billion MSME development fund has obviously faced a lot of challenges, primarily noncompliance from governors and banks and opacity in its disbursement and impact. Not much is really known about the impact and reach of the fund and entrepreneurs have grown weary of accessing it. After several Google searches linking hundreds to our stories, phone calls and requests on the fund, we decided to launch our own investigation into the matter.

A cursory visit to many selected banks for the disbursement of the fund was met with feigned ignorance of the existence of the fund. Several of our readers have also commented that they had similar experience. So we reached out to the regulators and put a phone call through to its department of Development Finance. The source (Segun, not real name) explained that many banks have not bought into the development fund because it outcompetes their credit line facilities. While Nigerian banks offer double-digit interest loans for short periods the MSME fund policy pegs its loans at a 9 percent interest rate p.a that can be spread over 5 years. That’s too long and unattractive for the rich quick Nigerian commercial lender.

“It’s quite the opposite of what commercial loan is”, Segun said, so they are not incentivized to aggressively push the fund. But he added that CBN has been urging the nonparticipatory banks to cooperate.

And there’s some good news

Without asking, he informed us that there are banks that have been responsive and proceeded to mention a short list.

Sterling Bank

Fidelity Bank

Zenith Bank

FCMB Bank

And LAPO Microfinance Bank.

 

Candidly, I was expecting to hear pro-SME banks like Diamond and Heritage Banks, but God knows best!

However, because the loan risk is carried by the banks when a borrower defaults, they have come up with their terms and conditions, a tad different from the fund’s CBN guidelines, to ensure loan performance and mitigate their credit risk. Definitely, these individual requirements include a business plan, company balance sheet to show viability of business etc.

The source’s last cautionary note is important: “Go there (bank branches) with an open mind. It’s not automatic. Some may want to be funny. They first of fall tend to discourage and dissuade lenders so they can seek alternative loan options then they present theirs that has a higher interest rate. But insist. They all know about it. Tell them you called CBN and they directed you. We have records that they are aware”.

If you get successful, you can access over N5 million loans from the commercial banks and below N5 million from LAPO.

 

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2 Comments

  • Ogwezi Donatus
    August 3, 2016, 2:54 pm

    I think the government should find a way to encourage other banks to adopt the system irrespective of what they will gain from it.

    REPLY
  • David
    August 4, 2016, 9:59 am

    Here’s a simple idea of why the banks won’t give the CBN SME loans to just anyone.
    It’s easy to see that just by playing a little bit of arbitrage things like this can happen.

    1. Get the SME loan of say (N10m) at 9% pa. Final payment = N10.9m
    2. Dump the N10m into FG T.bill at 17% pa. Final returns = N11.7m
    3. Pay back the SMS loan and keep the N600k balance for doing nothing.

    But this has a;ready been happening a lot in Nigeria and of course in the developed countries.
    That’s why dollar resale has been a very lucrative business for many.

    1. Buy locally sourced dollar officially from the bank or BDC at the government’s pegged rate (or now the free floating rate).
    2. No need to bother about anything else, just arrange with a street dollar merchant and sell it off with a spread of between ~N20 to N50.

    REPLY

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