In its resolve to bolster the economy, the Central Bank of Nigeria (CBN) has commenced the disbursement of the first tranche of the N50 billion targeted credit facility to small businesses. The intervention fund is specifically designed as a stimulus package to support households and Micro, Small and Medium Enterprises (MSMEs). It is being financed from MSME Development Fund and managed by NIRSAL Microfinance Bank. About 80,000 loan seekers were reported to have applied for the credit facility, out of which 40,000 of the applicants were households. According to the Managing Director of NIRSAL Microfinance Bank, Mr. Abubakar Kure, the loan is repayable.
According o the CBN guidelines, the disbursement of the N50billion stimulus package will be based on the activity, cash flow and industry size of the beneficiary, subject to a maximum of N25 million for Small and Medium Enterprises (SMEs). Households can access a maximum of N3 million, while working capital will be a maximum of 25 per cent of the average of the previous three years’ annual turnover. Also, prospective households must show verifiable evidence of livelihood adversely impacted by COVID-19, and listing verifiable evidence of business activities adversely affected by the pandemic, backed up by bankable plans.
The prospective loan beneficiaries include those in agricultural value chain, hospitality (accommodation and food services), health (pharmaceuticals and medical supplies) and airline service providers. Others are manufacturing/value addition, trading and any other income-generating activities as may be prescribed by the CBN.
We heartily welcome the initiative and hope that the fund managers will strictly adhere to the stipulated apex bank’s guidelines and ensure that only those who are qualified get the loans. However, we think that the nine per cent interest rate on the loan is prohibitive and may vitiate the aim of the stimulus package, which is to mitigate the hardships occasioned by the ravaging pandemic on small businesses and make them remain afloat, ensure that people remain employed.
While we commend the efforts of the CBN to keep small businesses afloat in these difficult times, we urge for an upward review of the amount from the present N50billion to something substantial. We say this bearing in mind that the informal sector in Nigeria contributes about 60 per cent of the nation’s Gross Domestic Product (GDP) and 80 per cent of employment, According to SMEDAN, there are over 17 million MSMEs in the country.
Although the initiative is good step in the right direction, the N50billion is like the proverbial drop of water in the ocean. Therefore, the government should take a cue from other countries affected by the pandemic and what they are doing to stimulate small businesses. For instance, the United States Senate recently passed a bill for $484 billion “more small-business stimulus,” including a $320billion “Paycheck Protection Programme” to enable small businesses pay their staff salaries for two months. This followed the exhaustion of earlier $350billion for small businesses under the $2.2trillion stimulus package.
While Nigeria may not afford that hefty amount for MSMEs, the small businesses already captured in the N50bilion intervention fund scheme will probably consume their business capital during the lockdown with no hope of helpline afterwards. With rising inflation, which has hit 23-month high at 12.26 per cent, caused largely by government’s recent protection policy, disruptions and challenges around food production belts, the cost of doing business has risen tremendously. With the nine per cent interest on the loan, beneficiaries may find it difficult to break even and repay the loan. Short-term outlook, according to CBN figures, suggest a gradual but continuously rising inflationary pressure. This definitely will impact negatively on the operations of these small businesses.
A survey conducted by PricewarehouseCoopers (PwC) Nigeria has identified liquidity and staff safety as some of the challenges confronting small businesses in the country right now as they grapple with the impact of the COVID-19 pandemic. One of the survey findings revealed that the much-needed investments to stimulate growth and move the needle on poverty will be greatly impacted as a result of the pandemic. The survey also showed that many small business owners believe that as welcome as the intervention fund is, it is grossly inadequate to make appreciable impact on the economy and make small businesses stay afloat.
Nonetheless, we believe that to salvage the economy from collapse at this crucial period, no effort should be spared to inject more financial assistance across all levels – micro, small, medium and large enterprises. That is one of the best ways to rescue the economy from the present contraction and free resources for investment in critical sectors of the economy.