30% of CBN’s N220bn MSME Development Fund To Be Paid By Financial Institutions As Collateral

Participating Finance Institutions (PFIs) has been told to make provision for 30% of the accessible amount of the N220 billion MSME Development Fund. The Central Bank of Nigeria (CBN) disclosed this in the guidelines released on Tuesday.

Relevant stakeholders in the Microfinance sub-sector yesterday called on the apex bank regarding the removal of the provision of collateral from all intervention funds.

Recall, that the Central Bank of Nigeria (CBN), in a bid to promote a sound financial system, and also improve the developmental role, launched the Micro Small and Medium Enterprise Development Fund (MSMEDF) on August 15, 2013. The fund is in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the Nigerian economy.

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According to the guidelines, the Non-Interest Financial Institutions (NIFIs) playing in the start-up space will access the MSMEDF facility at a rate of return of 0% for on-financing at 9% (all-inclusive) to start-ups as an incentive.

More so, the PFIs shall qualify for a 50% shared risk on the net outstanding balance in the advent of a default. Also, non-Interest Microfinance Banks with Portfolio At Risk (PAR) of 10% and below will be exempted from providing financial assets as regards collateral as a beneficiary of the MSME Development Fund.

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According to the guidelines, the Participating Finance Institutions (PFIs) are required to do the following:

• Fund start-up projects under the MSMEDF. 
• The PFIs are also expected to accept charge on fixed and floating assets of the financed projects as collateral for start-ups. However, the requirements for the collateral from start-ups by PFIs (NIFIs) shall be educational certificates such as SSCE, National Diploma (ND), National Certificate of Education (NCE), National Business and Technical Examination Board (NABTEB), Higher National Diploma (HND), University degree (NYSC Certificate where applicable) and a guarantor.

The Managing Director/CEO Bunmi Lawson, EdFin Microfinance Bank Limited said, “CBN should remove the need to provide collateral from all intervention funds and rely on the risk assessment, not collateral in granting loans.”

According to her, it is either collateral is defined by including a letter of personal guarantees and other moveable collateral, similar to what MFBs do with SMEs.

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The value chain regarding lending doesn’t seem balanced as CBN is requesting for collateral from banks, however, banks can’t ask collateral from the final lender.

“As for Non-Interest Financial Institutions (NIFIs) that is the nature of their lending. Would be interesting to see implementations. Our specific call is for the CBN to also dedicate a specific amount for education and the health sector as these are services used and required by all Nigerians,” Lawson said.

More so, the guidelines for MSMEDF for Non-Interest Financial Institutions (NIFIs) stated that potential start-ups who intend to access the MSME Development Fund must provide their Bank Verification Number (BVN). 

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Meanwhile, the Non-Interest Financial Institutions (NIFIs) requirement for collateral will be an MoU signed by CBN and undertake to bear all credit risks for projects presented to the beneficiary.

Also, there shall be a moratorium of one year for Micro Enterprises. However, the financing tenor for SMEs shall be from one to five years with the option of the moratorium as may be deemed necessary. PFIs shall re-access the fund upon the full repayment of the outstanding. Principal and Profit repayment for micro and SME financings shall be annual.

As entrepreneurs and great readers of Entrepreneurs.ng, what are your thoughts on this new development?

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