BKLC COVID-19 Briefings: CBN NGN50 Billion Facility for Households & MSMEs in Nigeria

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By Adetayo Adetuyi and Nnanke Williams, Senior Consultants, Brooks & Knights


COVID-19: Understanding the CBN Guidelines for the Operation of the NGN50 Billion Targeted Credit Support Facility for Households & MSMEs in Nigeria

Overview

COVID-19: CBN NGN50 Billion Facility:

The coronavirus (COVID-19) pandemic has resulted in disruptions to global supply chains, a sharp drop in global crude oil prices, turmoil in global stock and financial markets, massive cancellation of sporting and entertainment events, and intercontinental travel bans/restrictions across critical air, land and sea routes around the world. Across Africa, governments of African countries such as Nigeria, are taking proactive steps to constrain the spread of the virus by instituting partial or total lockdown within their jurisdictions. Households and micro, small and medium enterprises (MSMEs) are prone to be hard hit by the effect of the pandemic as businesses are literally ground to a halt. SMEs constitute about 90% of all the businesses in Nigeria. In March 2020, the Central Bank of Nigeria (CBN), as part of the Federal Government’s intervention policy during COVID-19, released Guidelines for the Implementation of the NGN 50 Billion Targeted Credit Facility (the Scheme) aimed at providing succour to households and MSMEs that have been adversely affected by COVID-19. This commentary explains the content of the guidelines and the operational modalities for the Scheme.

What are the objectives of the Scheme?

With the introduction of the Scheme, the CBN intends to:

  1. Cushion the adverse effects of COVID-19 on households and MSMEs;
  2. Support households and MSMEs whose economic activities have been significantly disrupted by COVID-19; and
  3. Stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, and research and development.

What activities are covered under the Scheme?

The Scheme covers agricultural value chain activities, hospitality (accommodation and food services), health (pharmaceuticals and medicals supplies), airline service providers, manufacturing/value addition, trading and any other income generating activities as may be prescribed by the CBN.

Who is eligible to participate under the Scheme?

Eligible participants under the Scheme include households (with verifiable evidence of livelihood adversely impacted by COVID-19), existing enterprises (with verifiable evidence of business activities adversely affected as a result of COVID-19) and enterprises with bankable plans to take advantage of opportunities arising from COVID-19.

How is the Scheme funded/financed?

The Scheme is financed from the Federal Government’s Micro, Small and Medium Enterprises Development Fund (MSMEDF).

Who are the Stakeholders under the Scheme?

The CBN, a Participating Financial Institution (PFI) and the borrowers/beneficiaries are the major stakeholders under the Scheme.

Who is the Participating Financial Institution under the Scheme?

The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank is the only PFI under the Scheme.

Is there a limit to the loan that can obtained under the Scheme?

For households, the loan limit for each borrower is NGN3 million. For SMEs, the loan limit is NGN25 million determined based on the activity, cashflow and industry/segment size of the beneficiary. Where the purpose of obtaining the loan is working capital, the limit is a maximum of 25% of the average of the previous 3 years’ annual turnover of the enterprise or business applying. Where the enterprise or business is not up to 3 years in operation, 25% of the previous years’ turnover will suffice.

What is the interest rate applicable to a loan under the Scheme?

The applicable interest rate is 5.0% p.a (all inclusive) up to 28th February 2021. Interest shall thereafter revert back to 9% p.a (all inclusive) as from 1st March 2021.

What is the Tenor of the Loan?

Working capital shall be for a maximum period of one year, with no option of rollover while the term loan shall have a maximum tenor of not more than 3 years with at least, one-year moratorium.

Is any collateral required to obtain the facility?

The collateral to be pledged by borrowers/beneficiaries under the Scheme shall be as may be acceptable by NIRSAL Microfinance Bank and may include one or more of the following:

  1. Moveable asset(s) duly registered on the National Collateral Registry (NCR);
  2. Simple deposit of title documents, in perfectible state;
  3. Irrevocable domiciliation of proceeds;
  4. Two (2) acceptable guarantors;
  5. Personal guarantee of the promoter of the business;
  6. Life insurance of the key-man, with NIRSAL Microfinance Bank noted as First Loss Payee; and
  7. Comprehensive Insurance over the asset.

How is the interest and principal to be repaid?

The interest and principal repayment shall be made on instalment by the borrowers to NIRSAL Microfinance Bank according to the nature of the enterprise and the repayment schedule/work plan provided at the application stage.

How to apply for the loan

Eligible households, MSMEs and corporate entities are to submit applications directly to NIRSAL Microfinance Bank. The application must, amongst others contain BVN Number, business registration (where applicable) and a business plan with clear plan of the opportunity or adverse impact as a result of COVID-19. NIRSAL Microfinance Bank will appraise the application, conduct due diligence and forward the application to CBN upon satisfactory appraisal of the application. CBN will review the application and give final approval for disbursement to NIRSAL Microfinance Bank and onward disbursement to the applicant.

How will the loans be monitored?

Periodic monitoring of projects financed under the Scheme will be conducted by NIRSAL Microfinance Bank.

What is the responsibility of the CBN under the Scheme?

The CBN shall provide the seed fund for the Scheme; release funds to NIRSAL Microfinance Bank for disbursement to successful applicants; review the Guidelines of the Facility as may be necessary; receive and process periodic returns from NIRSAL Microfinance Bank and monitor and evaluate the implementation of the Scheme by NIRSAL Microfinance Bank.

What is the responsibility of NIRSAL Microfinance Bank under the Scheme?

NIRSAL Microfinance Bank is mandated to validate the status and BVN of the applicants; process and disburse the funds to approved beneficiaries; maintain records of all beneficiaries and disbursements; forward periodic returns on the prescribed format on the Scheme to CBN; comply with the Guidelines and carry out any duties as the CBN may prescribe from time to time.

What is the deadline for the availability of the Scheme?

The Scheme shall be available until 31 December 2024.

Conclusion

It is expected that this facility will be utilised by Nigerian households and MSMEs during this COVID-19 period.