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Banks seek CBN’s guarantees on N220b MSMEs’ fund

Deposit Money Banks (DMBs) have tabled before the Central Bank of Nigeria (CBN), a proposal asking the apex lender to guarantee commercial bank loans to the Micro, Small and Medium Enterprises (MSME) operators.
The guarantee, according to Deputy Managing Director, First Bank of Nigeria Limited, Gbenga Shobo, would apply only to customers accessing loans from the N220 billion MSMEs’ Fund.
Speaking at the 2016 Entrepreneurship Development Centre/FirstBank SME Breakfast Series tagged: The Economy and You!, he said banks needed CBN’s guarantees to lend the funds to Small and Medium Enterprises (SMEs).
He said the practice is already being implemented in other countries, and had helped to boost lending to small businesses in those countries.
“These are one of the suggestions on the table. There many suggestions, but they picked this particular model. They are worried that many borrowers look at the loans as part of national cake. You go there, take the loan and refuse to pay. We know that if the CBN guarantees the loans, even if the customer doses not pay back, the CBN will pay. It has been done in other countries and we have seen the impact on SMEs’ lending. We must all find a way whereby we make it work,” he said.
The MSMEs’ Fund was launched by the CBN as part of its developmental role and mandate of promoting a sound financial system. This was in recognition of the significant contributions of the MSME sub-sector to the economy. It said the sub-sector is characterised by huge financing gap, which hinders the development of MSMEs.
Shobo urged SMEs’ operators not to be discouraged by the ongoing economic challenges facing the country. He advised the operators to identify key sectors of the economy where opportunities for businesses are available.
“The economy is facing some challenges, but opportunities still abound. Our population of about 186 million means that if provide services that we need internally, we can still make profit,” he said.
He said Nigeria’s population is a huge business opportunity that should interest discerning entrepreneurs, hence the need to carefully study and understand Nigeria business environment.
Shobo said FirstBank will continue to support the SMEs because of the critical role they play in creating jobs and economic development for the country. He disclosed the level of non-performing loans in the banking industry is also a disincentive for new lending. “As banks explain the bad loans in their books, they will be less ready to give out new loans. That is why SMEs operators should always ensure they repay back their loans at the agreed time,” he said.
He identified the agricultural and educational sectors as key segments of the economy where huge opportunities abound. “We have been lending a lot to private schools. It is an industry that people haven’t found out earlier. I want the SMEs to embrace the new technology that is driving today’s businesses,” he said.
Chief Economist, FirstBank, Ifeanyi Uddin, said since Nigeria’s population is largely youthful, there are huge investment opportunities in manufacturing of goods that are predominantly consumed, and service offerings that are preferably accessed, by the youths.
“Clearly, the business environment in Nigeria is challenging, but there are hopes that with right leadership and reforms, the environment will soon improve. Sixteen out of 46 economic activity sectors in Nigeria have GDP size in excess of N1 trillion each. There are yet-to-be tapped inherent opportunities in the sectors,” he said.
Uddin explained that government’s apparent moves to enhance transparency and accountability in the sector will open up investment opportunities across the industry’s value chain. He disclosed that with estimated 40 million litres of daily petrol consumption and export opportunities to neighbouring countries, downstream subsector of the oil industry is the next frontier in oil and gas industry.

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