Banks set to draw from N200b SMEs fund  

 By Enitar Ugwu

3rd May 2010

Most banks in the country have put their Small and Medium Enterprises (SMEs) units on the alert in order to profit from the N200 billion SMEs credit guarantee scheme recently put in place by the Central Bank of Nigeria (CBN).

An investigation by The Guardian over the weekend indicated that the banks have directed all the personnel in their SMEs units across the country to furnish their various headquarters with the profiles of the SMEs in their charge before the end of this week.

Some of the banks with weak SMEs units, may have started strengthening the units with extra hands to meet the expected challenges.

These developments, it was learnt, are sequel to a meeting between the apex bank and the 24 banks in the country recently.

The essence of the meeting, a CBN source said, was to discuss the apex bank's proposed plans to stimulate the economy through a N500 billion debenture stock to be issued by the Bank of Industry (BoI) as follows:

• N300 billion for power projects to support infrastructural development and improvement; and

• N200 billion for refinancing/restructuring of banks' existing loan portfolio to Nigerian manufacturers to fast-track development of the manufacturing sector.

However, at present, the banks believed to be are more interested in the N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) to promote access.

According to some of the operators, this is mainly because the SMEs loans will be 80 per cent guaranteed by the CBN.

A senior manager with one of the banks who sought anonymity, said: "With what happened in the recent past, banks are wary of giving out loans. If you give and it goes bad, you are branded a criminal.

"But, in this particular instance, the CBN is guaranteeing 80 per cent of such loans. So, the thinking among bankers is that, there is a safety net. So, we can afford to look at it seriously."

Another bank officer pointed out that since almost all the avenues for banks to make money were closed, "banks have no option but to latch on to this particular opportunity."

The CBN had, in a circular to all banks recently, explained that in a bid to unlock the tight credit market in Nigeria, enhance credit to the real sector, and complement its power/manufacturing facility, it has approved the setting up of a N200 billion SMECGS to promote access to credit by manufacturers and SMEs.

The scheme, it said, would be funded 100 per cent and managed by the CBN, noting that its main objectives were to fast-track the development of SME/manufacturing sector by providing guarantees, set the pace for industrialisation of the Nigerian economy; increase access to credit by promoters of SMEs and manufacturers; and generate employment.

According to the CBN, the activities to be covered under the scheme are:

• Manufacturing; agricultural value chain;

• SMEs with assets not exceeding N300 million and labour force of 11 to 300 persons;

• Private education institutions;

• Processing, packaging and distribution of primary products; and

• Any other activity as may be specified by the managing agent from time to time.

Trading activities are not covered by the scheme, it stressed.

Meanwhile, the CBN stipulated that the maximum amount that would be guaranteed under the scheme is N100 million which can be in the form of Working capital, term loans for refurbishment equipment upgrade/expansion, overdrafts, adding that the guarantee cover shall be 80 per cent and valid up to the maturity date of the loan with a maximum tenure of five years.

It explained also that all deposit money banks and development banks shall be eligible to participate in the scheme. Banks are however expected to conduct due diligence on any applications received and ensure that adequate collateral are provided to secure the facilities taken by promoters.

Also, it said, SME promoters and manufacturers must belong to any of the private sector bodies like Nigeria Association of Small and Medium Scale Enterprises, Manufacturers Association of Nigeria and National Association of Small Scale Industries.

On interest rate, the CBN stressed that the lending rate under the scheme shall be market-driven. However, it added that it was expected that banks would lend at their Prime Lending Rate (PLR) in view of the fact that CBN was sharing the credit risk with them by providing the guarantee.

Source: Guardian

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