Participating Finance Institutions (PFIs) are expected to provide 30 percent of the amount to be accessed from N220 billion Micro Small and Medium Enterprise Development Fund (MSMEDF), the Central Bank of Nigeria (CBN) said in the guidelines released on Tuesday.
Operators in the Microfinance sub-sector yesterday called on the CBN to remove the provision of collateral from all intervention funds.
As part of its developmental role and mandate of promoting a sound financial system, the CBN launched the MSMEDF on August 15, 2013. This was in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy.
The guidelines stated that NIFIs playing in the start-up space shall access the MSMEDF facility at rate of return of 0% for on-financing at 9% (all-inclusive) to start-ups as an incentive.
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The PFIs shall qualify for a 50% risk shared on the net outstanding balance in the case of default. Non-Interest Microfinance Banks with Portfolio At Risk (PAR) of 10% and below are to be exempted from providing financial assets as collateral to access facility under the MSMEDF.
PFIs are required to fund start-up projects under the MSMEDF. PFIs are expected to accept charge on fixed and floating assets of the financed projects as collateral for start-ups.
Collateral requirement from start-ups by PFIs (NIFIs) shall be educational certificates such as SSCE, National Diploma (ND), National Certificate of Education (NCE), National Business and Technical Examination Board (NABTEB), Higher National Diploma (HND), University degree (NYSC Certificate where applicable) and a guarantor.
“CBN should remove the need to provide collateral from all intervention funds and rely on the risk assessment not collateral in granting loans,” said Bunmi Lawson, managing director/CEO, EdFin Microfinance Bank Limited.
She said it is either that or they define collateral to include letter of comfort personal guarantees and other moveable collateral just as Microfinance get from lending to SMEs. MSMES are unable to access this cos they don’t have collateral so if CBN is asking for collateral from banks yet banks can’t ask collateral from the final lender seems unfair.
“As for NIFIs that is the nature of their lending. Would be interesting to see implementations. Our specific call is for the CBN to also dedicate a specific amount for Education and the health sector as these are services used and required by all Nigerians,” Lawson said.
The start-ups to access the MSMEDF must present their Bank Verification Number (BVN), the CBN stated in the guidelines for MSMEDF for NIFIs.
Collateral requirement for NIFIs will be a signed MoU with CBN and undertake to bear all credit risks for projects presented.
According to the guidelines the facility shall have a maximum tenor of one year for micro enterprises. Financing tenor for SMEs shall be from one to five years with the option of moratorium as may be deemed necessary. PFIs shall re-access the fund upon full repayment of the outstanding. Principal and Profit repayment for micro and SME financings shall be annually.
All PFIs shall access funds at a is targeted rate of 2% per annum based on a restricted Mudarabah contract between the CBN as fund provider and the PFI as manager.
The restricted Mudarabah shall be based on a business plan to be submitted by the PFI to the CBN confirming the PFI’s commitment to achieve the 2% targeted rate of return.
