A well-meaning initiative by Nigeria’s central bank (CBN) to soften the blow of the COVID-19 pandemic on households and small businesses has come up against all too familiar foes in dodgy execution and lack of adequate transparency, with several intended beneficiaries claiming the scheme has eluded them.
The CBN set up a N50 billion Targeted Credit Facility (TCF) in March that was supposed to be a lifeline in form of single-digit interest rate loans to households and small businesses whose livelihoods and operations had been upended by the pandemic.
The initial optimism which greeted the facility has, however, fizzled out in a flash as it has been marred by several complaints from people who are yet to receive the loans. This is despite the CBN saying 98 percent of the loans has been disbursed.
Degun Agboade, president and chairman of council at the Nigerian Association of Small and Medium Enterprises (NASME), was one of those who had high expectations of the facility when it was set up but has since been frustrated by the process.
Agboade, who presides over perhaps the biggest cluster of small businesses in the country, said the initiative has not been effective as most of his members who applied were yet to draw down from the fund.
“Three hundred members of our association applied nationwide, but less than 10 of them have been credited,” Agboade told BusinessDay. That’s about 3 percent of the total number of applicants.
Agboade said while one or two of their members in Sokoto, Bauchi, Kaduna and Akwa-Ibom were among the successful applicants, none of the Association’s members from Lagos had received anything.
He fears the initiative, like several ones in the past targeted at small businesses, is being bogged down by familiar challenges around lack of proper execution and monitoring which have muted their intended impacts.
BusinessDay’s survey on 100 SMEs on social media platform, Twitter, showed that only two small business owners had received funding with 98 still pending.
Yusuf Yila, a director at the development finance department of the CBN, said last Friday through his Twitter handle that NIRSAL Microfinance Bank, the institution responsible for the disbursement of the fund, was “working round the clock to make sure the loans are disbursed to every person approved by the CBN” and urged patience from those yet to be credited.
“So many individuals had been paid and the funds were tied up in the NIRSAL bank, but it will be paid out soon,” Yila said.
A few hours later, Yila took to his Twitter handle again to say that “the CBN is investigating and trying to get the reason why a larger number of people have not been paid”, following
numerous complaints by people who claimed they were yet to receive funds even after their applications were approved.
For the majority still expecting money from the fund, it may never happen, after the CBN said last week that N49 billion had already been disbursed. The CBN’s director of communications, Isaac Okorafor, said this in an interview on television station, Channels.
“If the giver claims to have given and the receivers claim otherwise, then the CBN should publish the names and locations of the people who have benefitted from the fund and set up a committee to look into the process of disbursement and why majority are yet to receive anything,” Agboade said. “Without this, the initiative may just be another ploy to merely hype us up for nothing.”
The supposed failure of the fund to get into the hands of majority has three implications. It could force the closure of many small businesses, lead to job losses feeding into a higher unemployment and poverty rate, and increase the risk of a deeper economic recession in a country tipped by the International Monetary Fund (IMF) to contract by 3.4 percent in 2020, the biggest contraction in four decades.
Beyond dodgy implementation, the fund was always going to be inadequate to go round in a country with over 40 million small businesses, according to some bankers.
“That meant that for every deserving household or SME that was paid, 100 deserving others were denied due to the small size of the fund,” a senior banker told BusinessDay.
A recent survey by the Lagos Chamber of Commerce and Industry (LCCI) showed that 81 percent of small businesses operating in sectors from hospitality to airline service providers were severely affected by the pandemic, which arguably puts them in the pool of intended beneficiaries of the CBN fund. Eighty-one percent would equate to 32 million SMEs.
It is unlikely that every affected SME applied, but if every affected SME did share the N50bn fund, excluding households –which are also entitled to apply – each would get a paltry N1,562.
Assuming the money was shared among only 2 million SMEs, it would translate to N25,000 each, which is still quite little.
The CBN may already be overstretched in terms of providing more loans. There’s a N1 trillion facility for manufacturers which is separate from the N50bn fund.
This is why the CBN must find creative ways to grow the size of the fund, analysts say. One way is to release some of the N10.3 trillion of non-interest-yielding banks’ money sitting idle with the CBN as Cash Reserve Requirement.
“The CBN could allow banks draw down on some of the enormous cash sitting in its coffers as CRR so that the banks have more liquidity and can support more businesses at this crucial time,” said a development economist at a multilateral agency who did not receive immediate authorisation by his employer to speak publicly on the matter.
“I’m sure the banks will be happy to get 5 percent rather than nothing on all that cash, so it’s a win-win for all parties,” the economist said.
More financial institutions should also be allowed to disburse the money so that the workload is not solely on NIRSAL, according to Oyin Ramon, a small business owner who applied to the fund in April but is yet to receive anything.
“The funds are meant to be given out at NIRSAL Microfinance Bank but in reality, applications also have to go to the development finance department of the CBN and from there on to the office of the CBN; that’s perhaps why the process of disbursement is so slow and people are complaining,” Ramon said. “It’s like putting water meant to serve a multitude of people through one funnel.”
While there might be challenges on the supply-side, Muda Yusuf, director-general of the LCCI, however, highlighted demand-side challenges caused by businesses that may not have applied properly and with the required documentation.
“These are loans and not free money, so when a business fails to apply with satisfactory documentation, then they are likely to be turned down. My experience is that some of the businesses yet to receive funds did not apply properly,” Yusuf told BusinessDay.
He said 99.8 percent of the 41.5 million SMEs are micro enterprises many of whom are not structured enough to be able to access such a facility.
“It may be more, but only three of our members confirmed to me that they have obtained money from the Fund, but I don’t have the exact number of those that have not received anything,” Yusuf, whose LCCI draws membership from over 2,000 businesses in the country’s commercial capital of Lagos, said.
To help SMEs that fall short of the requirements of the loans, Nigeria can adopt the Credit Guarantee Scheme adopted by many other countries to boost credit to MSMEs, analysts say.
Credit Guarantee Schemes (CGS) provide guarantees to small businesses that do not have access to credit by covering a share of the default risk of the loan.
In case of default, the lender recovers the value of the guarantee.
CGSs can reduce information asymmetry and alleviate high collateral requirements even as they can improve loan terms and facilitate access to formal credit for small firms.
Additionally, by allowing loans to be made to borrowers that otherwise would have been excluded from the lending market, these firms are now able to establish a repayment reputation that itself can, in the future, act as a type of collateral.
