…as skewed credit risk, unattractive interest rates, others undermine programme
By AYOOLA OLAOLUWAs
There are strong indications that about N3 trillion special intervention funds instituted several years ago by the Central Bank of Nigeria (CBN) for micro, small and medium enterprises (MSMEs) in the country to stimulate economic growth have failed to achieve remarkable impact, Business Hallmark investigation can reveal.
It would be recalled that successive administrations in a bold move to address constraints experienced by MSMEs, especially in accessing funds for working capital, create jobs, expand the real sector and boost the nation’s Gross Domestic Product (GDP), had saddled the CBN with the role of funding and overseeing the schemes.
The schemes created under the CBN intervention policy are all sector-specific. They include those in the agriculture value chain – the Anchor Borrowers’ Programme; Agricultural Credit Guarantee Scheme (ACGS); Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and Commercial Agriculture Credit Scheme (CACS).
Others are the Micro, Small and Medium Enterprises Fund (N200bn) and the Creative Industry Financing Initiative (Nollywood, Fashion, Music, etc); Real Sector Support Financing (N300bn); Non-Oil Export Simulation Scheme (N500bn); Intervention Fund for Manufacturing Refinancing and Restructuring Facilities of Banks’ Loans (N200bn); Power and Airline Intervention Fund (N300bn), among others
However, BH findings revealed that the ambitious programme has largely failed to address the problems it was originally designed for owing to several hiccups. Though, the CBN failed to state the exact amount it budgeted and so far disbursed, the tabulation of all known dedicated funds by BH suggests that over N3trillion was in fact dedicated to the scheme.
And out of the available N3trillion, beneficiaries have only been able to access around N600bn, representing about 20 per cent of the funds. One of the problems marring the schemes is that of lopsided risk burden. Some entrepreneurs and manufacturers, who spoke to our Correspondent in Lagos, said they have been unable to access the funds they applied for due to the stringent risk burden put on banks by government.
According to the unsuccessful applicants, since they could not approach the CBN directly, they have to go through their banks to apply for the loans. They noted that since the banks are made to guarantee the low risk loans, they are mostly unenthusiastic to take a risk on behalf of their customers.
BH reliably gathered that CBN’s requirement that banks bear all the credit risks associated with disbursement of the funds is the major threat against the scheme.
“Banks don’t have much to benefit from the transaction, so they avoid picking up the risk. The funds are just sitting idle in their vaults since the banks are refusing to serve as guarantors and most applicants are not credit worthy to be given the loans on self recognition.
“I think the CBN should relax the stringent conditions a bit so that the aim of the scheme would not be defeated”, advised Mr. Bola Biobaku, an industrialist based in Otta, Ogun State.
However, a banker with one of the leading banks in the country who did not want his identity in print, blamed bank’s refusal to stand as guarantors on low or almost non-existent motivation.
“Don’t let me mince words with you, the biggest obstacle against the scheme is that of low interest income. This has been the major drawback against banks’ active participation in the program. The interest charged on the CBN loans is just 9 percent, which is just too low. The average interest rate in deposit money banks today is between 20 percent and 25 percent.
“While the banks have little margins left as commission, despite their troubles, CBN worsened the situation by insisting that we should guarantee the loans. What happens if loan beneficiaries default? That means the banks will bear the burden. This is a transaction they literally benefit nothing from.
“Unless the rules are changed, most banks will not be willing to participate actively in the programme. This will definitely lead to its collapse”, warned the banker.
Speaking on the matter, the Chief Risk Officer of First Bank of Nigeria (FBN), Olusegun Alebiosu, raised concerns over the repayment requirement of the intervention loans.
“For our customers to access any of the funds we have to issue our guarantee to CBN, they have to be our customers in order to access the fund.
“Unfortunately for banks, once we have given out our guarantees to CBN or Bank of Industry (BoI), we must pay on the due date to the Central Bank of Nigeria or the Bank of Industry (BoI).
“So how do we ensure that customers will pay us back in such a way that we can also repay? It’s important for us, because why should I fund you and give guarantee when CBN or BoI will not lose a dime when you default?
“What they have done is to make the funds available, but the credit risks stay with the banks. If you default in paying it is the bank that will refund that money to CBN or BoI. So if I’m the one that will refund the money if you don’t pay, why should I back the person that cannot pay?
“It is not risk-sharing, not that CBN or BoI will pay 50 per cent and I pay 50 per cent, no. I am taking 100 per cent risk on you and what am I getting back, what is the return to shareholders? If I do guarantee to BoI, it’s one per cent.
“Annually, AMCON (Asset Management Corporation of Nigeria) will take 0.5 per cent of that one percent. So, what comes to me as a bank, with all the risks I take is 0.5 percent. If you now default, I will be expected to pay back 100 per cent of that money. Where is the business in that?” Alebiosu queried.
While corroborating the FBN chief risk officer, the President of the National Association of Small and Medium Enterprises (NASME), Prince Degun Agboade, argued that the interventions would not achieve the desired goal except government bear the bulk of associated credit risks.
“The banks are right. The loans should be structured in a way to allow government to bear the bulk of the risk. It appears that the initiatives were designed to fail from the beginning. We, as an association, are not satisfied with the disbursement because majority of our members have not benefited,” he stated.
In his remark, the National President, Association of Small Business Owners of Nigeria (ASBON), Dr. Femi Egbesola, said that accessing the funds for SMEs has proved difficult, as members rarely get paid despite spending huge resources on required fees and attendant costs.
“We have quite a series of government intervention loans fashioned towards the needs and in support of SMEs. There was the N220 billion intervention fund announced by CBN for the sector in either 2015 or 2016, but none of our members who applied had been able to benefit from the fund’, Egbesola disclosed.
Also reacting, the Director-General of Lagos Chamber of commerce and Industry, Dr. Muda Yusuf, called for the review of the credit risk allocation between CBN and the commercial banks.
“It is not just enough to just disburse funds and reel out figures, it’s important to measure the outcome so that we know that we are actually achieving results. The commercial banks cannot continue to carry the entire risks, especially if you are pushing them to go to areas which are perceived to be high risk areas.
“If you want to support businesses, diversify the economy, support the real sector and long term projects, the banks cannot continue to bear the entire credit risks of this lending. If you continue to have that then you will continue to cope with the reluctance of banks to disburse the money,” Yusuf stated.
Available data suggests that the actual disbursement of funds is in the region of fifteen and twenty percent. Though several banking sources gave different figures, they were still within the bandied range of 20 percent.
BH checks revealed that till date, the country’s apex bank has disturbed around N600bn, with the Anchor Borrowers’ Scheme the greatest beneficiary, with almost N300bn disbursement. This is followed by the real/manufacturing sector with N200bn actual disbursement and others, N100bn.
Meanwhile, while interventions in most sectors have continued to underperform, the Anchor Borrowers Programme in the agricultural sector appears to be outlier. As at December 2019, the ABP has benefitted to the tune of N200bn in cash machinery and seedlings from the CBN. Another N100bn was said to have been disbursed afterwards.
BH findings revealed that the ABP is succeeding because of several factors. For example, unlike other sectors of the economy where beneficiaries of loans must get banks to bear the risk, the case is different with ABP.
The risk for the loans in the agricultural sector is borne by the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) and is shared by all farmers. As long as a recipient is a registered farmer in his home state, he or she is sure of getting the CBN loan.
Sources told our correspondent that most farmers were able to access the CBN facility because their state governments provided the necessary guarantees to NIRSAL.
“Most farmers, particularly those from the northern part of the country, are very lucky because their state governments act as their guarantors. I have it on good authority that many beneficiaries heavily defaulted, but were bailed out by their home states which pay NIRSAL, and then come back to try to recover the loan from defaulting farmers.
“This is obvious bias as the same opportunity is not available to those outside the agricultural value chain”, noted a source.
However, critics have identified shortcomings in the operation of the anchor borrowers’ programme. Some aggrieved farmers who spoke with BH alleged that the initiative is revolved around only rice and wheat grown in the northern part of the country, leaving other farmers out of the scheme.
An Ibadan-based farmer, Oladipo Otunla, maintained that the emphasis placed on rice production and its value chain prevented development of other sub-sectors of agriculture in Nigeria, particularly in the South. Otunla, who is a cassava farmer, argued that total value chain development across various crops and regions is desirable for food security.
“While should attention be placed only on rice and wheat grown majorly in the North to the detriment of others? I know that there are interventions too in other agricultural products, but they are too small and inconsequential.
“Can you imagine what will happen if the government also pumps N200 billion into cassava production? The impact will be massive. I don’t think rice has any other benefit apart from consuming it, unlike cassava that could be eaten and also serve as raw materials for industrial gum and starch, syrup, and others”, a very bitter Otunla noted.
Meanwhile, the CBN has maintained that anchor borrowers’ program intervention is recording huge disbursements. The CBN said it has undertaken about 36 such initiatives since 1962, about 25 currently ongoing, covering some major sectors of the economy, with focus on agriculture, manufacturing, health and Small and Medium Enterprises (SMEs).