The Central Bank of Nigeria on Thursday said that commercial bank loans to the Micro, Small and Medium Enterprises declined from 7.5 per cent in 2003 to only about 0.14 per cent in 2012.
It also said about 80 per cent of the MSMEs were excluded from the financial markets.
The Governor, CBN, Mr. Lamido Sanusi, stated these in Abuja at the launch of the N220bn intervention fund for the MSMEs.
He said, “In 2012, commercial bank loans to the SMEs dropped at an exponential rate; analysis of the annual trend in the share of commercial banks’ credit to small-scale industries indicates a decline of about 7.5 per cent in 2003 to less than one per cent in 2006, and a further decline in 2012 to 0.14 per cent.
“A number of reasons have been proffered for this financing gap. The banks readily attribute their risk aversion stance for not lending to MSMEs to demand-side constraints, which include the lack of managerial capacity, inadequate collateral, and poor record-keeping, among others.
“However, there also exist supply-side issues such as high transaction costs and lack of understanding by the banks of the nature and operations of the MSMEs.
“Other constraints plaguing the MSME sub-sector in Nigeria include infrastructure deficit, especially power and transport; policy inconsistencies; bureaucracy; multiple taxation and levies; weak intellectual property protection and contract enforcement, and insecurity.”
Sanusi said it had become necessary to formulate and implement policies to strengthen the MSME sub-sector, adding that the fund would be accessed by microfinance banks at an interest rate of nine per cent.
The governor said once the fund was accessed by the MFBs at nine per cent; it would be disbursed to SME at a low interest rate.
The central bank boss, however, cautioned that the MFBs’ access to the fund would not be automatic as they would have to meet up with some regulatory requirements.
Some of the requirements are competence, provision of three-year financial record as well as records of good behaviour.
At the event, the governor also announced an interest rate rebate for women entrepreneurs. This implies that all women entrepreneurs will get the fund at nine per cent interest rate.
He also stated that the intervention would provide funds at reduced costs to participating financial institutions as well as boost access of women entrepreneurs to finance.
This, he noted, would be achieved by assigning 60 per cent of the fund to them.
The fund, Sanusi said, would improve the access of non-governmental organisations to finance.
He said, “The CBN will not be lending directly to farmers or businesses. What this fund does is a wholesale fund; it provides funding to the participating financial institutions.
“If you are a microfinance bank in Benin, you can come to this fund. We will assess you, give you the money at a low rate of interest for a long term, and then you undertake that you will lend at low rate of interest.
“Today, commercial banks charge 21 per cent and MFBs charge 30 to 40 per cent interest rate. We are not going to get anywhere near there.
“These are small businesses that are highly profitable and highly risky, and the MFBs tend to charge higher and the greatest challenge is not really the interest rate, but the tenor.
“If you give someone money for two or three months, how much can he really do in such a short time? The way we plan it is that you start with a small amount, relatively low rates of interest and relatively longer tenor. When the MFB repays and establishes a track record, it is entitled to move to another level where it can get a large amount, lower rate of interest and a longer tenor.”
The CBN boss said the fund was a merit-based incentive-based system where the MFBs would earn the right through performance to get even better credit terms.
“In China, they have what they call the bronze card, then the silver card and the gold card,and each card gives access to a larger amount, lower rates of interest and longer tenors,” he added.
Sanusi said the actual economic impact of the fund might not be determined currently as all levels of governments must improve basic infrastructural development to support access to finance.
Meanwhile, the Governor of Edo State, Mr. Adams Oshiomhole, said the new MSME scheme showed that the central bank had demonstrated its commitment to the development of the sector, particularly women.
He, however, urged the CBN to adequately supervise the fund in order to ensure that the MFBs adhered to the stipulated interest regime when dealing with customers.