Omodele Adigun
“Since CBN and other Development Financial Institutions do not have the banking history and KYCs of bank customers, any one (wishing) to access this fund must be properly assessed by their primary banks. This goes with proper credit assessment and ratings. Questions such as loan default history (if any) of beneficiary, what is their credit rating among others would be asked”.
The above is part of the expectations of a stakeholder as the Central Bank of Nigeria(CBN)-led Coalition Against COVID-19 (CACOVID) at the weekend grew its planned N120 billion relief fund to N26billion, aside the apex bank’s N50billion Targeted Credit Facility for households, businesses, regulated financial institutions and other stakeholders hardest hit by the highly infectious bug.
The President of the Chartered Institute of Bankers of Nigeria (CIBN), Mr Bayo Olugbemi, while chatting with Daily Sun on pitfalls that banks and potential beneficiaries of the facilities need to avoid, also added the following to his above views :
“At the end of the day, unless we are sharing national cake, which are not to be returned, banks will have to do their background checks to ensure the bankability of projects to be financed. The government, through CBN, might waive some conditions precedent to draw down, such as equity contributions by those accessing these loans, moratorium on payment of interest, moratorium on repayment, making the repayment period longer and, of course, very friendly interest rates.”
Olugbemi’s position was borne out of the public cynicism over the initiative following CBN’s release of guidelines for the implementation of the N50 billion facility.
In its March 16, (2020) circular to deposit money banks and general public on measures taken in response to the COVID 19 outbreak and spillovers, the apex bank had observed that “the COVID -19 impasse has already led to unprecedented disruption in supply chains, sharp reduction in crude oil prices, created enormous turmoil in global stock and financial markets, massive cancellations in sporting, entertainment and business events, lockdown of large swath of movement of persons in many countries, and international travel restrictions across critical air routes in the world. These outcomes have had serious adverse implication for key sectors, including but not limited to oil and gas, airlines, manufacturing , trade and consumer markets .”
But in furtherance of its financial stability mandate, the government’s bank of last resort says it is committed to providing support for the affected households, businesses, regulated financial institutions, and other stakeholders in order to cushion the adverse economic impact of this pandemic.
Accordingly, the CBN then announced the following policy measures:
Extension of moratorium:
‘All CBN intervention facilities are granted a further moratorium of one year on all principal repayments with effect from March 1, 2020; interest rate reduction from nine to five per cent of all applicable CBN intervention facilities for one year; the creation of N50 billion Targeted Credit Facility(TCF)’.
On this TCF, the apex bank says: “The CBN hereby establishes a facility through NIRSAL Microfinance Bank for households and Small-and- Medium sized enterprises (SMEs) that have been particularly hard hit by COVID-19, including, but not limited to, hoteliers, airline service providers, healthcare merchants etc.”
Other measures include credit support for healthcare industry, regulatory forbearance and strengthening the CBN’s Loan-Deposit-Ratio(LDR) policy.
On the Credit support for healthcare industry, Mr. Kevin Amugo, the Director of Financial Policy and Regulation, who issued the circular, says:
“To meet potential increase in demand for healthcare services and products, the CBN hereby opens for its intervention facilities, loans to pharmaceutical companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to hospital and healthcare practitioners who intend to expand/ build the health facilities to first class centres. This is in addition to growing the size of existing interventions to agricultural and manufacturing sectors in Nigeria.”
Then on March 23, the apex bank rolled out the TCF guidelines:
Objectives of the facility
The broad objectives of the CBN’s N50 billion Targeted Credit Facility include: cushion the adverse effects of COVID-19 on households and MSMEs; support households and MSMEs whose economic activities have been significantly disrupted by the COVID-19 pandemic; stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, and research and development.
Participants
Households with verifiable evidence of livelihood adversely impacted by COVID-19; and existing enterprises with verifiable evidence of business activities adversely affected as a result of the COVID-19 pandemic; enterprises with bankable plans to take advantage of opportunities arising from the COVID-19 pandemic.
Activities covered
Eligible activities under the Scheme include: Agricultural value chain activities; Hospitality (accommodation and food services); Health (pharmaceuticals and medical supplies); Airline service providers; Manufacturing/value addition; Trading; Any other income generating activities as may be prescribed by the CBN.
Loan limit
SMEs: The loan amount shall be determined based on the activity, cashflow and industry/segment size of beneficiary, subject to a maximum of N25 million for SMEs; and households can access a maximum of N3 million.
Working capital shall be a maximum of 25 per cent of the average of the previous three years’ annual turnover. (where the enterprise is not up to three years in operation, 25 per cent of the previous year’s turnover will suffice).
Interest rate
Interest rate under the intervention shall be 5 per cent per annum. (all inclusive) up to February 28, 2021 and thereafter, the interest on the facility shall revert to 9 per cent per annum. (all inclusive) as from March 1, 2021.
Loan tenor
Working capital shall be for a maximum period of one year, with no option for rollover; Term loan shall have a maximum tenor of not more than three years with, at least, one year moratorium.
Collateral requirement
The collateral to be pledged by beneficiaries under the programme shall be as may be acceptable by NIRSAL MFB, but may include any one or more of the following: moveable asset(s) duly registered on the National Collateral Registry (NCR); simple deposit of title documents, in perfectible state; deed of debenture (for stocks), in perfectible state; irrevocable domiciliation of proceeds; two acceptable guarantors; personal guarantee of the promoter of the business; life insurance of the key-man, with NMFB noted as the First Loss Payee;. comprehensive insurance over the asset.
Principal repayment
Repayment shall be made on installment basis by the beneficiaries to the NMFB according to the nature of enterprise and the repayment schedule/work plan provided at the application stage.
The apex bank had hardly released the guidelines when Twitter exploded in protests over some of its key provisions. For instance, a user, BISA @bishop bias tweets: “How do SMEs get access to this with the collateral clause there? Households with verifiable source of livelihood? How do you verify those petty traders who do just anything to feed their families? Please if something like this is to be done, kindly come down to our level.” Another user who goes by the name Dakup Tongzum @teedotzee observes that “the conditions are even hard to fulfill than the hardship covid 19 is causing at the moment”.
kenny Adazie@KennyAdazie says:”Having gone through the implementation targeted credit facility, I don’t see how SMEs will access it, even those with over N50million turnover. Moveable asset registered on the National Collateral Registry (NCR), title document, deed of debenture, guarantor, life insurance? It’s not realistic. We’ve been sidelined as ALWAYS.”
But reacting to some of the reservations, a former CIBN President, Professor Segun Ajibola, said: “Over 80,000 applicants have already applied for the intervention fund. I think the conditions are more generous than those of the orthodox banks when you apply for the normal facility. And, of course, you know, even statutorily, the question of collateral has been modified with the passing into law of this collateral registry bill, now Collateral Registry Act.
With that in place, it will reduce the burden of the borrowers in the area of providing for security and the tough conditions that go with that request. I think the intervention funds are being placed before the potential beneficiaries at very soft requirements compared with what we have.The whole essence is that the CBN is trying to see what it could do to rejig the economy, to make the conditions relatively softer for many beneficiaries to be able to access the funds.The only way to avoid the loan from turning toxic is to make sure that the assessment process is very fair and objective. And those who apply for the funds should have bankable projects. Projects that can generate cash flow to pay back the loans. It is not a national cake to be shared for Nigerians. It is a fund to encourage business ventures. And to encourage these people (CBN and banks), you must have identifiable and bankable projects. “
As for Mr Nnamdi Okafor, the Managing Director of May & Baker Nigeria Plc, the apex bank deserves a pat on the back for the gesture, saying “I want to commend the initiatives of the government, in particular the CBN with the proactive way they are trying to protect the industry and the economy in general. Those palliatives are needful at this time to ensure that profits do not go down with (attendant) consequences of loss of jobs, and ,of course, the impact on GDP, availability of forex and inflation. So it is critical that we have the palliatives. The CBN moved quickly to make these offers.”
Recently, CBN and the Bankers’ Committee jacked up their stimulus package to N3.5 trillion and listed 10 pharmaceutical firms, among which is May & Baker, to benefit from N100 billion funding facilities. On this, Okafor said: “We have applied through our banks. We have not received the facility yet. But we are hoping that very soon, we would be availed of this facility so that we can begin to apply them, especially with the current challenges with supply chains. So it is imperative that we move quickly to avert any major challenges in the next two to three months.”
On collaterals issue, he said: “I don’t think so(that banks are coming up with stringent conditions). For me, I don’t have the problem because it is something that we have been doing. We have accessed the RRF funds some months ago. It is the same process. So we didn’t have any issue with demand for collateral. But for smaller companies, I don’t know whether they are having issues. But the CBN made it clear that the collaterals should not be demanded and that all we need to do is to show what we want to apply the money to, and for the banks to be comfortable that the money will be properly applied and would be paid back when the time comes.”