Improving access to credit for MSMEs – The Sun

For many years now, operators of Micro, Small and Medium Enterprises (MSMEs) have been hampered by poor access to finance and the unwillingness of banks to grant them credit facilities at reasonable interest rates. Even then, the conditions for accessing these loans are mostly too stringent for operators at these levels to meet. The insistence of banks and other financial institutions on collateral backing for loans invariably often shuts the credit doors against MSMEs, making it difficult for them to contribute their quota to the growth of the economy through the production of goods and services.
It is in this regard that we heartily welcome the Federal Government’s reduction of the collateral requirement for banks to access the N220 billion Intervention Fund from 75 percent to 50 percent. The import of this is that banks will have easier access to the intervention fund which was launched by the Central Bank of Nigeria (CBN) last year, and will thus be able to give loans to the intended beneficiaries at a lower rate.
The main objective of this development fund is to provide wholesale credit at three percent interest for banks, which will then lend to MSMEs at nine percent over a maximum period of five years. Many banks have, however, reportedly raised the interest rate demanded from the MSMEs far above the nine percent ceiling. The slashing of the collateral rate required for banks to access the funds will hopefully lead to a reduction of the interest rates they charge MSMEs.
The Federal Government’s intervention in this matter at a recent meeting of the National Council on MSMEs chaired by Vice President, Namadi Sambo, is a big boost for MSMEs in the country. Officially, there are 17 million micro, small and medium scale enterprises in the country. Many of them are suffering serious financial constraints on account of poor access to funding, that is worsened by unbearably high interest rates.
We commend this downward review which followed the recommendation of a sub-committee headed by the Minister of National Planning, Dr. Suleiman Abubakar, supported by the CBN Governor, Mr. Godwin Emefiele. The CBN has also specifically directed that “all inclusive interest rate must not exceed nine percent”.
We also support the directive by President Jonathan that about 60 percent of the fund should be made available to women. Persons living with disability, and the banks which have the strongest infrastructure and capacity for lending to the MSME sub-sector, will be given priority under the scheme. These are good steps which will help to ensure that the credit facilities actually get to those who need it.
Altogether, the slashing of the collateral requirement for banks to access the intervention funds could not have come at a better time than now that falling oil prices and the devaluation of the naira have made the need for diversification of the economy more compelling. For instance, MSMEs contribution to the nation’s Gross Domestic Product (GDP) is put at 60 percent. Therefore, if government is genuinely interested in developing the non-oil sector and generating reasonable income from it, one of the good ways to go about it would be to empower MSMEs by increasing their access to credit and instituting other business-friendly policies.
With the devaluation of the national currency and the need for import substitution, MSMEs can help to reduce imports and save foreign exchange. But, for this to happen, the problem of access to funds must be properly addressed.
This is why the widely reported reluctance of banks to give low interest loans to MSMEs remains a major concern. It is also the reason that the December 2014 pledge by the Bankers Committee to make huge funds available to MSMEs was received with applause. The MSMEs are core elements in the overall economic transformation agenda of the Jonathan administration and they need every support to fulfill their potential.
We must, however, caution that to make the N220 billion MSME fund achieve its lofty objective, its disbursement must be transparent and closely monitored. In that regard, we suggest that a monitoring/evaluation and supervisory team from the relevant ministry or government agency be charged with this role.
With this fund and the World Bank’s $500 million intervention last year through its subsidiary, the International Bank for Reconstruction and Development, the problem of underfunding of MSMEs will be significantly addressed.
Overall, we urge the banks to hasten the processes for lending to the MSMEs from this fund to correct the present unhealthy situation in which only 6.7 percent of them were found to have had access to loans in 2014.