Banks shun N200bn SME Credit Guarantee scheme , CBN

The Central Bank of Nigeria (CBN) has disclosed that five months after unveiling the Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), for which N200 billion was set aside to promote easy access to credit by SMEs in Nigeria, it is yet to receive any application from any bank for the fund.

sanusiDirector, Development Finance Department, CBN, Mr. Joe Alegieuno, disclosed this last week, in Lagos, during a technical session for participating banks in the Power and Aviation Intervention Fund (PAIF) established by the apex bank. He said that the CBN has called for dialogue with the banks to find out the reason behind their apathy towards the scheme.

He recalled that the CBN set aside a total of N500 billion as intervention fund to fast-track certain aspects of the real sector, with N200 billion going to SMEs and manufacturing, and the remaining N300 billion for the Power and Aviation sectors. “And what we expect is that the Fund will be accessed by operators in the sectors with a view to developing them,” he added.

Alegieuno further stated: “The SMECGS and the power and aviation intervention fund (PAIF) are meant to compliment each other.

The Credit Guarantee is supposed to be for fresh facilities to entrepreneurs whereas PAIF is for existing facilities. This is meant to help those who are already in business but are finding it difficult, to do it in an easier framework, and environment, especially in terms of tenor and rates.

“But in the case of Credit Guarantee, it is for those who want to take fresh facilities. For which we are saying that ‘banks give them and we will guarantee 80 percent of any amount that you give them’. But we haven’t seen any of them come forward. So we want to ask them what the problem is, why they are not coming forward.”

As part of its developmental role, the CBN established the SMECGS for promoting access to credit by SMEs in Nigeria, with a fund of N200 billion to be wholly financed by the apex bank

The objectives of the scheme are to: Fast_track the development of the manufacturing SME sector of the Nigerian economy by providing guarantee for credit from banks to SMEs and manufacturers; Set the pace for industrialization of the Nigerian economy; Increase the access to credit by promoters of SMEs and manufacturers; Increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis.

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 (CBN) from time to time.

According to the guidelines released for the scheme by the CBN, “For the purpose of this Scheme, a Small and Medium Scale Enterprise (SME) is an enterprise that has asset base (excluding land) of between N5million _N500 million and labour force of between 11 and 300. All Deposit Money Banks and Development Finance Institutions (DFIS) shall be eligible to be participating banks (PBs).

“A borrower shall 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;

A start-up company with satisfactory cash flows indicating a Fixed Asset cover ratio of 100: 150; 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; Satisfy all requirements specified by a Participating Bank. A Borrower shall have one loan under the Scheme at any point in time.

Maximum Loan amount is N100 million which can be in the form of Working Capital, Term Loans for refurbishment/equipment upgrade/expansion, overdrafts, etc.
“The guarantee cover shall be 80 percent of principal and interest and shall be valid up to the maturity date of the loan with a maximum tenure of 7 years inclusive of a 2-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. The lending rate under this Scheme shall be at Prime Lending Rate (PLR) of the participating Banks. The security to be offered to a bank for the purpose of any loan under the Scheme shall be one realizable and acceptable to the participating bank(s). Loans shall have a maximum tenor of seven (7) years and/or working capital facility of one year with provision for roll over. The scheme allows for moratorium in the loan repayment schedule.”
The responsibilities of stakeholders in the scheme were also stated in the guidelines.

“For the effective implementation of the scheme and for it to achieve the desired objectives, the responsibilities of the stake- holders states that: The Central Bank of Nigeria shall: Provide Fund for the Scheme; Act as the Managing Agent of the Fund; Determine the limits of guarantee of the Scheme; Carry out verification/monitoring of projects under the Scheme; Process Applications for guarantee from Participating Banks within 21 days of receipt of such application; Request PB(s) to render periodic returns as may be specified from time to time. The Organised Private Sector Associations shall: Accredit would-be beneficiaries of the Scheme; Ensure prompt repayment of loans by members.

“The Participating Banks (PBs): Grant credit facilities to SME Promoters at prime lending rate; Approve loan requests under the Scheme based on normal business consideration exercising appropriate due diligence; Render periodic returns under the Scheme as may be specified by the CBN from time to time; and Monitor the projects during the loan period.

“The borrower shall: Utilise the funds for the purpose for which it was granted; Insure the charged assets being financed; Adhere strictly to the terms and conditions of the Scheme; Make the project and records available for inspection/verification by the CBN.
“Whenever a credit is repaid or the facility is otherwise discontinued, the PB shall advise the CBN immediately, giving particulars of the credit facility.