Nigeria: CBN-Funding MFBs To Boost MSMEs Development
Abuja, Nigeria, June, 26 2013 -
Micro, Small and Medium Enterprises (MSMEs) are critical to the development of any economy as they possess great potentials for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries.
However in Nigeria, there has been gross underperformance of the MSMEs sub-sector and this has undermined its contribution to economic growth and development.
Although they play a pivotal role in driving equitable development and employment, they often face a number of challenges, one of which is access to credit. Despite the huge lending portfolios of financial institutions MSMEs have access to very little as they are constrained by many factors.
Some of these factors include collateral provision, high interest rates, insufficient education on methods of loan applications and sometimes entrepreneurs feel that their loan applications won’t be approved so they don’t bother to apply, even when they have every other thing right.
This is where microfinance banks (MFBs) come in. They are designed to do what the big commercial banks do not have the time for, providing financial services for micro and small businesses. They serve as a vehicle to channel funds to entrepreneurs.
But then, they are also having their own challenges. They do not have adequate liquidity to give out as many loans as they ought to. A manager of one of the Lagos based MFBs had explained that “our vision is to financially empower micro enterprises, entrepreneurial poor, small and medium scale enterprises, because we know that it is key to poverty alleviation.
“But we need more funds to lend some more. Our funds are limited. We can only work within the funds that we have. A lot of people do not realise that microfinance banks are set up by individuals who put their money together to help others.”
This limitation of the MFBs had informed the Micro Small and Medium Enterprises Development Fund initiated by the Central Bank of Nigeria which is set out to address the problem of microfinance banks not having enough funds to support entrepreneurs at the grassroots.
According to the governor of the CBN, Mallam Sanusi Lamido Sanusi, the fund would provide the wholesale funding requirements of Micro-Finance banks and institutions to support MSMEs in the country. “This is a more sustainable approach to the provision of credit, guarantee and advisory services to the specialised needs of the MSME sector.”
CBN director, other financial institutions, Femi Fabanwo had explained that the MSME Development Fund is a pool of funds that is being created to enable MFBs lend to their customers. The fund, he said will enable them have more resources than they can mobilise through savings and deposits from their customers.
One MFB operator who emphasised the importance of the fund had noted that when the fund is finally established, it will enable operators to reach the low income earners as expected. He believes that the fund will come in single digit interest rate which will translate to lending to the poor business people at lower interest rate.
According to the CBN, the MSME Development fund will be launched by August or September this year, thus preparing the ground for the development of micro and small businesses by providing the adequate funding that is so much needed.
To ensure that the fund does not go the way of some intervention funds, the CBN had put in place strategies to ensure its success and continuity. Fabanwo had explained that only MFBs that have a history of loan recovery would be able to access the fund.
“The MFBs that would be able to access the MSME Development Fund (MDF) must have a proven track record of performance. That is they should have been able to recover the loans that they have given out on their own,” he said explaining that the capability to recover loans would enable the banks to recycle the fund as many times as possible, thus helping to grow the economy.