In line with the vision of President Muhammadu Buhari, the CBN has indeed created several lending programs and provided hundreds of billions to different sectors; smallholder farmers, industrial processors in several key agricultural produce, health sector, etc, though some of the intervention funds discussed here predates this administration of President Muhammadu Buhari.
A good question is how well these funds/schemes have been able to achieve their objectives. For instance, a 2018-CBN-evaluation report on Commercial Agricultural Credit Scheme (CACS) shows that from 2009 to 2016, only 191 firms benefited from this scheme with combined credit of N147.87 billion. Cooperative, 1; government owned company, 14; private limited liability companies, 151; public limited liability company, 8; Partnership, 3; Sole Proprietorship, 13 and others 1. Though there were marginal growths in production, sales, of the benefiting companies and subsequently GDP, what would have been a priority is the number of firms that benefited vis-à-vis the number of firms set or projected to benefit and the reasons for any variance (if any).
Apart from having adequate monitoring and objective measurement metrics, there is a need to equally look at any inherent challenges/pitfalls that might have been a hindrance to achieving the set objectives. Internal scheme structure and implementation have to be looked into such as politics, delay by DMBs in disbursement leading to loss of interest to apply, etc.
Exogenously, situating some of these schemes with deposit money banks and CBN financial agencies for implementation has become a bottleneck. Some of the Schemes’ structures and guidelines put the Deposit Money Banks (DMBs) at a disadvantage. For instance, only equity investment (no debt) is required under Agric-Business/Small and Medium Investment Scheme (AGSMEIS). DMBs may not be willing to take such equity positions and hence may be reluctant to invest even when they have been mandated to set aside 5% of their Profit after tax for the scheme. Private equity and venture capital firms would have been the ideal institutions. They are better equipped, structured and trained to manage such arrangements.
Another issue is the funding criteria. Aside that some of these schemes have stringent funding conditions, especially the required collateral, DMBs most often, require additional criteria in line with their risk and credit management policies and may be reluctant to fund outside these criteria. As such the banks may prefer to keep their money with CBN and rather get sanctioned by the Apex body. A case in point is the REAL SECTOR SUPPORT FACILITY (RSSF) VIA CRR of 2018 and The Loan Deposit Ratio of 2019. No wonder, we are witnessing debits on banks CRR for default. Last year (2019), for instance, 12 of the DMBs were debited to the tune of N499 billion for not meeting up with their Loan to Deposit ratio, even though the debit was later reversed. Again, reportedly, last week, CBN took N1.47 trillion ($3.8 billion) from the cash reserves of DMBs for failing to achieve the 65% loan to deposit ratio.
Notwithstanding, some of these intervention funds, structure and guidelines are high as highlighted below:
AGRICULTURAL CREDIT GUARANTEE SCHEME FUND (ACGSF)
The ACGSF was established by Decree No. 20 of 1977, but started operation in 1978. The Federal government owns about 60% equity while CBN owns 40% equity stake. The fund guarantees credit facilities extended to farmers by banks up to 75% of the amount in default net of any security realized. Application forms are obtainable from various branches of the participating banks.
COMMERCIAL AGRICULTURE CREDIT SCHEME (CACS)
CACS just like ACGSF, predates Buhari’s administration. It is a sub-component of the FGN’s Commercial Agriculture Development Program (CADP) financed from the proceeds of the N200 billion seven (7) year bond raised by the Debt Management Office. The fund is for the financing of commercial agricultural enterprises at a maximum interest of 9%. (now 5% due to COVID-19). CBN offered the funding scheme to banks at 2% interest rate with a mark-up of 7% for the bank, culminating to 9% maximum. One of the key objectives of this scheme is to “increase national output”, which is measured through aggregating the values of production, income or expenditure of economies. Private/Public Limited Liability firms, Cooperatives, Sole Proprietorship, Partnerships, Cooperatives, State governments and others were benefiting participants.
NIGERIA INCENTIVE-BASED RISK SHARING SYSTEM FOR AGRICULTURAL LENDING (NIRSAL).
NIRSAL was introduced to tackle some noticed challenges in the agricultural value chain such as low productivity, poor technology/cultural practices, low research and development and under financing of the agricultural value chain. Before the scheme, agricultural sector lending stood at about 2 percent of the total lending of banks against 6 percent in a country like Kenya caused by poor or lack of understanding of the agricultural sector, perceived high risks, complex credit assessment processes/procedure and high transaction costs. Also prior to the scheme, though the agricultural sector accounted for about 40% of the GDP, provided over 60% of employment, but however, represented only 1% of exports. NIRSAL is meant to tackle the agricultural value chain as well as the agricultural financing value chain; fixing the value chain, so that banks could lend to the agricultural value chain, by offering the banks strong incentives and technical assistance. Take-off investment fund was USD 500 million to be invested as follows:
- USD300 million in risk sharing facility, that is sharing risks with banks;
- USD 30 million in insurance Facility – to expand insurance products (weather index insurance, new variants of pest and disease insurance, etc) for agricultural lending;
- USD 60 million in Technical Assistance Facility – to equip banks to lend sustainably to agriculture, producers to borrow and use loans more effectively and increase output of better quality agricultural products.
- USD 10 million for Holistic Bank Rating Mechanism. This is to help rate banks based on how effective the banks’ lending is and the social impact of these lending.
- USD 100 million for banks incentives mechanism; sort of cash awards to winning banks.
Six pilot crops were identified based on existing crop production levels then. The crops are tomatoes, cotton, maize, soya beans, rice and cassava. The target is to get additional USD 3 billion of bank lending within 10 years to increase agricultural lending from the current 1.4% to 7% of total bank lending, increase lending to the “pooled” small farmers segment to 50%, reach 3.8 million agricultural producers by 2020 through pooling mechanisms such as value chain MFIs and cooperatives and reduce banks’ break even interest rate to borrowers from 14% to 7.5 – 10.5%.
The scheme and its five pillars are to be administered by Non-Banking Financial Institution (NBFI) at the National level and at the regional level by Regional Transformation Engines via Portfolio Investment Managers and a Technical Assistance Representative.
AGRIC-BUSINESS/SMALL AND MEDIUM ENTERPRISES INVESTMENT SCHEME (AGSMEIS)
This is a voluntary initiative of the bankers’ Committee approved at its 331st meeting held on February 9, 2017 to support the FG’s efforts at promoting Agricultural Business/Small and Medium Enterprises (SMEs) as a vehicle for sustainable economic development and employment generation. According to the guideline, all deposit money banks are to set aside 5% of their PAT annually for equity investment in permissible activities. The essence was to ensure that small and medium enterprises have access to finance, generate needed employment, develop the agric value chain business, etc. Business with sales turnover not exceeding N4.5 million, total assets not exceeding N4.5 billion with not more than 250 tax paying employees are classified as small and medium enterprises. Maximum investable amount is N2 billion per enterprise for a maximum period of ten years, with 3-year lock period before exit. Investment type could be; start-ups, expansion or reviving of ailing companies, which shall be in the form of equity. Debt of any form is not allowed under the scheme. Eligible applicants shall submit applications through any of the participating banks to the CBN and must comply with the provisions of CAMA 1990, such as filing of annual returns, including audited financial statements, and must comply with all applicable tax laws and regulations and render regular returns to the appropriate authorities. The scheme’s Secretariat is the Development Finance Department of the CBN
REAL SECTOR SUPPORT FACILITY (RSSF) VIA CRR AND CORPORATE BONDS
This scheme came on board after the MPC 119th meeting of July 23, 2018. The aim was to increase the flow of credit to the real sector of the economy in order to consolidate and sustain economic recovery, increase backward integration, enhance Nigeria’s Import Substitution Strategy. Deposit Money Banks were therefore encouraged to direct affordable, long-term bank credit to the manufacturing, agriculture as well as other sectors considered by the CBN as employment and growth stimulating. The scheme also encouraged corporate/triple A-rated companies to issue long-term corporate bonds (CBs). DMBs interested in providing credit financing to Greenfield (new) and Brownfield (new/expansion) projects in the real sector may request for the release of funds from their CRR to finance the projects subject to the DMBs providing verifiable evidence that the funds shall be directed at the projects approved by the CBN. For the CBS, CBN and the general public are encouraged to invest in Tripple A-rated entities bonds that have transparency requirements, which must include the publication/printing of an Information Memorandum spelling out the details of the projects, the terms and conditions; it is a long term project with capacity to create employment and growth. Loan tenure is a minimum of 7 years with a two-year moratorium. Maximum facility amount was N10 billion at an interest rate of 9%, but later reduced to 5% due to COVID19. Repayment was to be amortized and remitted on quarterly basis to CBN. For the DCRR, only contributing DMBs were eligible, while for CBS, all financial institutions and the general public were eligible. According to the scheme’s guideline, only entities incorporated in Nigeria under CAMA of 1990 were entitled to borrow and such entities must not have a non-performing facility with any financial institution.
EXPORT FACILITATION INITIATIVE (EFI)
The Bankers’ Committee 343rd meeting of April 4, 2019 gave birth to this scheme to compliment government efforts to engender growth in the non-oil sector of the economy as well as enhance foreign earnings and employment generation. The scheme focuses on value chain development in cashew, cocoa, palm oil, sesame seed and Shea. The commodities are to be funded based on the approved guidelines of AGSMEIS, NESF, AND RSSF-DCRR (already explained above) and also in line with the approved limits in the Export Initiative Funding Framework (EFIFF). According to the scheme’s funding terms, facility tenor ranges from 1 – 10 years; moratorium between 1 – 3 years and interest rate of 9% (later reduced to 5% due to covid19) across board. The facility covers both the upstream sector of the value chain (Land acquisition and cultivation), midstream sector (milling and refining) as well smallholder farmers (under clusters via aggregation).
In order to ameliorate the effect and impact of COVID19 and strengthen the economy, a combined stimulus package of about N3.5 trillion in targeted measures to households, businesses, manufactures and healthcare providers was introduced categorized into:
N50 BILLION TARGETED CREDIT FACILITY (TCF) FOR HOUSEHOLDS AND SMALL AND MEDIUM SIZED ENTERPRISES (SMEs)
The facility was introduced via CBN’s Governor’s Press Release of March 16, 2020 in response to COVID-19 outbreak and spill over, as a stimulus package to support households and micro, small and medium enterprises (MSME) affected by the COVID-19 pandemic.
The broad objectives of FCF are to cushion the adverse effects of COVID-19 on households and MSMEs, support households and MSMEs whose economic activities have been significantly disrupted by the COVID-19 pandemic and stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, research and development.
All households/existing enterprises with evidence of livelihood/business activities adversely affected by COVID-19 and enterprises with bankable business plans to take advantage of opportunities arising from the COVID-19 pandemic are eligible to apply for the facility.
Agricultural value chain activities, hospitality (accommodation and food services), health (pharmaceutical and medical supplies), airline service providers, manufacturing/value addition, trading and any other income generating activities as may be prescribed by the CBN are the activities to be considered for funding under the scheme.
The scheme is to be financed from the Micro, Small and Medium Enterprises Development Fund (MSMEDF) with NIRSAL Microfinance Bank (NMFB) as the participating financial institution.
Loan limit is to be determined based on the activity, cash flow and industry/segment size of the beneficiary, but subject to a maximum of N25 million for SMEs and maximum of N3 million for households.
Collateral requirements vary depending on the type of loan and amount involved. For household loans for instance, loan amount is between N1 – N500,000 applicants are to provide acceptable guarantor with valid ID card and BVN. However, generally, collateral requirements include moveable asset (s) duly registered on the National Collateral Registry (NCR), simple deposit of title documents in perfectible state, deed of debenture (for stocks), in perfectible state, irrevocable domiciliation of proceeds, two (2) acceptable Guarantor of the promoter of the business, life insurance of the Key-Man, with NMFB noted as the First Loss Payee and comprehensive insurance over the asset.
For you to access this facility, you must submit applications directly to NIRSAL Microfinance Bank (NMFB) with applicant BVN, business registration where applicable and business plan with clear evidence of the opportunity or adverse impact as a result of COVID-19 pandemic. Other terms and conditions are as contained in the CBN press release.
Others are N100 billion Healthcare intervention Loans to pharmaceutical companies, healthcare practitioners intending to expand/build capacity; N1 trillion in loans to boost local manufacturing and production across critical sectors, etc.
Idika Aja, ACS, writes from Lagos and can be reached via Email – firstname.lastname@example.org or 08034003768