How CBN’s N220bn fund will revive the economy

The Central Bank of Nigeria (CBN) on 15 August 2013 launched a N220 billion fund to be distributed to Micro, Small and Medium Scale (MSME) finance institutions at 9 per cent interest rate. The fund is designed to further enhance access to finance by MSMEs with the following objectives: (i) provide wholesale financing windows for […]

The Central Bank of Nigeria (CBN) on 15 August 2013 launched a N220 billion fund to be distributed to Micro, Small and Medium Scale (MSME) finance institutions at 9 per cent interest rate. The fund is designed to further enhance access to finance by MSMEs with the following objectives: (i) provide wholesale financing windows for Participating Financial Institutions (PFIs); (ii) improve the capacity of the PFIs to meet credit needs of MSMEs; (iii) provide funds at reduced cost to PFIs; and (iv) improve access of NGO/MFIs to finance. CBN Governor Sanusi Lamido Sanusi said: “The ultimate responsibility for sustainable intermediation for the sub-sector lies with the financial markets. Moreover, these interventions serve to integrate the micro-entrepreneurs, the low-income earners, farmers, artisans and the active poor who operate in the informal sector, into the financial system to improve the effectiveness of public policy.”
The launch of this intervention fund will usher in a new era of economic renaissance in the economy by opening up access to credit facilities which will in turn improve the well-being of the MSMEs. One of the greatest challenges facing the MSMEs in this country is the limited access to credit facility. Today, commercial banks charge as high as 25 per cent while Micro-Finance Banks (MFBs) charge between 30 to 40 per cent interest rates. Exorbitant interest rate is one of the reasons many industries are shutting down in Nigeria and relocating to neighbouring countries. Imagine an ugly situation where those MSMEs that have limited access to credit facilities due to high interest rates being charged by commercial banks still have to contend with other issues like power supply, security, tax, infrastructure etc., thereby making business environment in Nigeria hostile.
A study carried out by experts at the apex bank discovered that commercial bank loans to small scale enterprises have been dropping steadily. The CBN governor illuminated on this when he said: “The state of MSMEs in this country underscores the importance of this fund. Suffice it to say that between 2003 and 2012, commercial bank loans to small scale enterprises dropped at an exponential rate. Analysis of the annual trend in the share of commercial bank credit to small scale industries indicates a decline from about 7.5 per cent in 2003 to less than 1 per cent in 2006 and a further decline in 2012 to 0.14 per cent.”
To cushion the effect of high interest rates in the sub-sector, the Central Bank said it planned to disburse these funds through micro-finance banks because the apex bank would not be lending directly to businesses.
“The CBN will not be lending directly to farmers or businesses. What this fund does is wholesale (financing). It provides funding to the Participating Financial Institutions. If you are a micro-finance bank, you can come to this fund. We assess you; we give you the money at low rate of interest long-term, and then you undertake that you will lend at low rate of interest,” Sanusi stressed.  
If the disbursement of these funds would be strictly monitored and supervised as promised by the apex bank and at the same time be given to qualified MSMEs who are the real people that need the money not politicians that may masquerade as entrepreneurs, I think the funds would not only help to break the back of unemployment in Nigeria but could also ignite industrial revolution.  
The intervention would not only emancipate MSMEs from the stranglehold of commercial banks, which have been exploiting them with exorbitant interest rates, but would also empower them to create job opportunities for millions of unemployed Nigerian youths roaming streets. For instance, in 2012, Nigeria had about 17.6 million MSMEs employing about 32.4 million people, and contributing about 46.54 per cent of nominal GDP when they were operating without adequate funds. Imagine what will happen when more than 15 million MSMEs would now have access to credit facility through this intervention fund that offers them loans at single digit interest rate of 9 per cent with long-term period of repayment.
According to statistics, more than 40 million Nigerians are unemployed. If each of the 15 million MSMEs would create five new job opportunities after accessing these funds, that would amount to 75 million jobs which would in turn eradicate the menace of unemployment in Nigeria and boost Nigeria’s Gross Domestic Product (GDP). The Central Bank would not only be solving the problem of limited access to credit facility being experienced by the MSMEs, but would indirectly also be eroding the negative impacts of unemployment in the economy through this intervention fund.
In the developed economies of the world, private sector is the engine that propels the economies by creating the bulk of job opportunities while government creates enabling business environment through the opening up of access to credit facilities for MSMEs, provision of adequate infrastructure, security of lives and properties, etc. In Nigeria the Federal Government is the largest employer of labour and that is why government’s recurrent expenditure in the annual budget keeps skyrocketing thereby stifling the growth of the economy. The CBN rolled out these funds to strategically position the private sector to become the main driver of Nigerian economy. Another major factor that portrays this Intervention fund as historic is the allocation of 60 per cent of the fund to Nigerian women. There is a feeling that when a man is empowered, an individual is empowered; but when a woman is developed economically, the whole nation is affected.
The allocation of greater percentage of this fund to Nigerian women shows that the Central Bank is not only gender sensitive, but it also believes that Nigerian women should no longer be relegated to the background.

1. wrote  rom Abuja,  ([email protected])