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Manufacturers say rigorous demands obstruct ease of accessing credit schemes

Manufacturers in Nigeria are lamenting what they say are rigorous demands from Nigerian banks, which have hindered them from accessing credit schemes deployed to drive the sector’s growth.

“The problem is that credit schemes are being processed like normal loans using the same requirements,” Micheal Ola Adebayo, director at Haffar Industrial Company Limited, told BusinessDay. “Banks ask for at least 10 to 12 different documents and a lot of other things that are not easy to get, which eventually will not guaranty getting credited because the banks will continue asking for other documents till you get frustrated.”

Adebayo, who is also the chairman, Gas Users Group, MAN said that for the intervention funds, manufacturers negotiated a five percent interest rate with the CBN, but banks are giving it out at nine percent.

Finance experts say that most banks are reluctant to play an active role in the disbursement of the funds due to the unattractive interest rate as well as the risk burden, which the banks have to bear alone.

The Central Bank of Nigeria (CBN) deployed series of intervention funds such as N1trillion manufacturing and import substitution facility, N220 billion Micro, Small and Medium Enterprises Development Fund (MSMED), the 100 billion Health Care and Pharmaceuticals Support Funds, and N300 billion Real Sector Support Facility (RSSF) to help boost activities and recovery in local manufacturing

Consequently, these interventions of over one trillion naira and the increase of the minimum loan to deposit ratio (LDR) to 65 percent are yet to effectively make an impact on the country’s manufacturing sector.

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Adebayo added that currently, manufacturers are sceptical about asking for loans or funds because tough macroeconomic conditions and the unfriendly business climate cannot guarantee returns that will help pay off the loans.

Segun Ajayi-Kadir, director-general, Manufacturers Association of Nigeria (MAN) said in a statement that accessing the N1 trillion COVID-19 stimulus for manufacturing required a maximum working capital of N2 billion per obligator, with a refinancing facility of N15 billion per obligator.

“Generally, MAN observed through feedbacks from members and interaction with the CBN on several occasions that these facilities and funds have not been adequately accessible to manufacturers due mainly to the prevarication of the PFIs and MDBs,” he explained.

The MAN DG also stated that most of the association’s members who applied for the loan could not get it as only N300 billion (30 percent of the loan) was disbursed in one year to 76 companies according to the financial regulator.

According to the MAN’s CEOs Confidence Index (MCCI) for the second quarter of 2021, 304 Chief Executive Officers of MAN member companies agreed that the rate at which commercial banks lend to manufacturers discouraged productivity in the sector.

In addition to this, the available loans come with a double-digit interest rate and tough requirements to access, which worsens the plight of manufacturers who need funds for improved productivity and business expansion.

The CBN pegged its Monetary Policy Rate (MPR) at a double-digit of 11.50 percent leaving deposit money banks to lend as high as 25 to 30 percent interest loans while other countries like Kenya and Ethiopia have an MPR of 7 percent, Rwanda has 4.5 percent, South Africa has 3.5 percent interest rate while Namibia has 3.75 percent.

“Usually, successfully accessing credit from banks is dependent on a number of factors, including the obligor’s relationship with the bank, the bank’s policies, the size of the loans and a number of other factors,” Justin Nwaogwugwu, CEO, Macjames Global Resources Limited located in Port Harcourt, Nigeria said.

MAN recommends that the apex bank improve and sustain policies aimed at increasing loans to boost the sector’s productivity, especially the Loan to Deposit Ratio policy which should be monitored closely to ensure effective implementation.

“Recapitalization of Bank of Industry (BOI) and Bank of Agriculture (BOA) is necessary to adequately meet the industry credit need at a single-digit interest rate, furthermore a credit guarantee for industrial loans from commercial banks should be provided,” MAN said.

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