Accessing N220bn MSME Fund – Useful information for banks and entrepreneurs

One of the major topics of discussion for many microfinance bankers and entrepreneurs over the last couple of months is the Micro Small and Medium Enterprises (MSME) development fund launched by the Central Bank of Nigeria (CBN). The fund has received a lot of interests for many reasons. One, this is the first time a major intervention is being passed through micro finance institutions. Previous attempts to boost different sectors were usually channelled through commercial or development banks.

No doubt, microfinance institutions are closer to micro enterprises, so they are in a better position to channel resources to them. Another reason the fund has received a lot of air time is that 60 percent of the fund is to be channelled to women entrepreneurs or women groups.

The CBN must be commended for coming out with this fund, as these sectors of the society (women and micro entrepreneurs) have been neglected over the years. Furthermore, the micro- finance institutions have been running with shareholders’ funds and these shareholders desire above market returns, which might be at variance with the developmental impact of the overall microfinance philosophy.

Only recently, the CBN had to issue a statement saying that no one should pay to any individual or organisation to access the fund. No doubt, some dubious elements have capitalised on the pent- up demand of unsuspecting entrepreneurs to make some quick bucks.    As the Holy Book says, my people perish for lack of knowledge. So, our purpose is to give pertinent information to lenders and potential borrowers.

For Small businesses:  – that is, anyone looking for between N10, 000 to N50 million, this fund is for you. However, you must first be banking with either a microfinance bank or commercial bank. The fund will be administered to you at a maximum rate of nine percent. No other fees are applicable. Your banker must be comfortable with your business in order to push forward your case. You can be involved in any line of business. If you are engaged in manufacturing and agribusiness, this will be best suited for you, because your kind of business requires long-term funding.

Furthermore, schools, restaurants, artisans and other income-generating activities approved by the CBN can access the fund. You can get up to five years of funding through a commercial bank.If you are looking to access less than N1 million, then you should approach a microfinance bank, but if you are looking for between N1 million and N50 million, then you should approach a commercial bank.

Groups or cooperatives can also come together and approach a microfinance institution. The key thing is that you must already be operating a business. Even though the fund can be used for start-up business, most lenders will be comfortable to fund existing businesses. In any case, you must be able to convince the lender of your cooperative group’s business proposition. You can approach Small and Medium Enterprise Development Agency of Nigeria (SMEDAN) for help in setting up your cooperative and making sense of your business @ www.smedan.gov.ng

For Lenders: You have to be either a registered microfinance bank, NGO- microfinance institution, financial cooperative, finance company or a deposit money bank of a development bank.

Microfinance banks have to provide 50 percent of the collateral of the loan amount they are asking for. This will be in the form of a combination of financial assets (bond, treasury bills, cash) and a third party guarantee from at least two board members and or third party guarantees from high net worth individuals.

Deposit money banks, on their part, have to sign an undertaking to bear all the credit risks arising from use by their borrowers and issue an authority for the CBN to debit the balance outstanding on the fund. They also have the benefit of setting aside a portion accessed for start-up funding. Hopefully, this will spur some sort of start-up financing by the DMBs.

In any case, all sets of lenders must forward a list of potential borrowers along with their applications to the CBN. This is to ensure that funds are used for the purposes for which they are stated. They should also make sure that they send these names to licensed credit bureaus to ensure that these borrowers are not defaulting on any of their obligations to other banks in the system.

We will like to see more women-owned businesses and groups’ access funding to start and grow their business through this fund. So, what are you waiting for? Visit your bank, any SMEDAN office or the CBN website (www.cenbank.org) today for more information and tools.

Oguche Agudah