ENTERPRISE54 – Good times are here for Nigerian entrepreneurs and micro small and medium enterprise (MSME) owners. The days of high interest loans and inaccessible credit facility, is about to end.

Tuesday 22nd July, Central Bank of Nigeria (CBN) reviewed the harsh guidelines that made its much anticipated N220billion ($1.36Bn) MSME Development Fund unattractive. The fund was established August last year to channel long-term low interest funds to the MSME sub-sector of the Nigerian economy but it came at a high 15% interest rate – just 4% short of the average lending rate by commercial banks.

However, the good news after Tuesday’s deliberation, is that the interest has been dropped to a maximum of 9%! On each disbursed loan, the apex bank would receive 3% interest while approved participating financial institutions (PFIs) that help distribute the funds cannot charge more than 6%. The framework document made available to me confirms that, under no circumstance should PFIs charge more than 6% interest. Additional interest fees – managing, processing, insurance fees et al – are prohibited.

At the signing of a Memorandum of Understanding (MoU) between CBN and 11 state governments to enable the states access N2 billion each under the N220billion MSME Development Fund, CBN governor Godwin Emefiele pointed out that Nigeria has never received adequate financing which is pivotal to the country’s development – a situation which resulted in a financing gap of N9.6 trillion as at 2010, as revealed by a joint report by the International Finance Corporation (IFC) and McKinsey.

Throughout my career as a business writer, I’ve spoken to a lot of businessmen and women who have taken loans from Nigerian banks and aside the scary double-digit interest of the credit, what they also find troubling are the usually short repayment terms which don’t allow for long periods to do business to make substantial profit with the secured loan. But with the new MSMEDF guideline, debtors can stretch their loan amortization over five years with at least a year to fully repay depending on personal agreement with PFI. The previous framework had a loan tenor of 3 years and no minimum tenor meaning banks could demand full repayment in as short as 3 months.

And how much capital can you access from this much touted fund? Artisans and micro businesses will be able to borrow up to N500,000 to grow their business. Startups and small businesses have a credit limit of N5m while growing companies can access N50m. Not bad.

An interesting aspect of the Fund is that 60% of it has been earmarked for women-owned businesses. The implication, going by the guideline, is that only businesses with women controlling 75% shareholding shall be eligible for the larger chunk of the cash. This is the result of an aggressive policy to see financial access of women increase annually by 15% to eliminate gender disparity. If you would remember, the last exercise of the federal government-backed YouWin program also funded and trained only female entrepreneurs; about a thousand of them. I guess it’s becoming a good time to be a Nigerian woman.

According to Sanusi Lamido Sanusi, the former bank chief under which the fund was launched, its specific objective was to reach no fewer than two million MSMEs in 10 years with careful thought to increase gross domestic product and job creation. Consequently, just 10% of the Fund is stipulated for trade and commerce while the rest will be channeled to productive industries like agribusiness, renewable energy, manufacturing, education etc. Here’s a precious piece of advice – new SMEs applying through banks will find it tough to secure loans. They can go through participating financial cooperatives instead. This is because one of the stipulated conditions for deposit money banks to participate in the exercise is to “set aside (only) ten per cent of SME fund accessed for financing start-up businesses.”

Should this Fund be properly managed, giving its size and distribution to women-owned and production businesses, it has the potential to make sizable impact on Nigeria’s MSME sub-sector. I have no specific knowledge of the founding capital of Grameen Bank, the microfinance bank innovated by Mohammed Yunus for poor Bangladeshis in 1976, but its current equivalent is definitely not up to $1.36 billion. Yet, Mohammed Yunus has alleviated poverty and facilitated economic development in poor economies around the world through the bank.

See Also: CBN N220 billion MSME fund: Here are the 5 banks selected to disburse

Well, we are excited by the arrival of this fund, and so are many other entrepreneurs and small business owners. It remains to see if deposit money banks and other PFIs (MFBs, Enterprise development NGOs) would use accessed funds for the right purposes and not divert them to their other businesses. The Central Bank did say it has a monitoring and evaluation plan in place and defaulters would be penalized. We also would be doing investigative reporting to ensure credible businesses access this needed fund. Application for loans opens in August and the CBN has directed that the loans be disbursed within 5 working days after funds are released to PFIs.