The Central Bank of Nigeria (CBN), as part of efforts by the Nigerian government to fight the COVID-19 pandemic and its impacts, announced the release of 50 billion naira for a Targeted Credit Facility for households and small and medium scale enterprises (SMEs).
With the current dip in the global price of crude oil, there is a spectre of economic recession in Nigeria. Government spending capacity to boost aggregate demand will be drastically affected. A cumulative impact of COVID- 19 and oil price induced recession would stifle local businesses, thereby increasing the level of unemployment in the country. It is, therefore, essential to put in place measures to protect citizens and the economy post-COVID-19 pandemic.
According to the Central Bank, the Targeted Credit Facility would ameliorate the adverse effects of COVID-19 on households and MSMEs. The intervention would stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, research and development. Government’s intention to support vulnerable households and to stimulate the economy through support to small businesses is commendable. SMEs provide employment and contribute to poverty alleviation.
The CBN’s guidelines for implementation of the scheme shows some considerations to help cushion some of the effects of the COVID-19 pandemic on business by making provision for a one-year moratorium in case businesses affected by the virus outbreak are not be able to repay their loans. However, a careful examination of the intervention plan, as put forward by the Central bank of Nigeria, throws up issues that cast strong doubts on its practicability and indeed the sincerity of purpose in the intervention.
The exclusion of the informal economy
The structure, guidelines and conditionalities for target beneficiaries seem to negate the very stated objectives of the Facility. The CBN Guidelines for the implementation of the Credit Facility, released on 23 March 2020, the scheme focuses on households or enterprises with verifiable evidence of livelihoods adversely affected by the COVID-19 pandemic. While proof of registration and existence as a business is imperative for accessing such credit, specific requirements in the CBN guidelines would result in the exclusion of the vast majority of Nigerians that operate in the nation’s thriving informal economy.
While officially, micro, small and medium scale businesses in the country contribute about 50% of the nation’s GDP and 30% to employment creation, in reality, the level of contribution to GDP is in the range of 70-75 per cent and about 80% to employment. The informal sector constitutes about 75% of the nation’s active economic stream as well as 70% of the private sector. A large proportion of this economic stream operate as unregistered businesses and would not benefit from CBN Targeted Credit Facility.
The CBN set unduly overbearing collateral requirements for obtaining the loan. Collateral requisitions such as “movable assets, title documents and deed of debenture” before the loan can be assessed negate the spirit of the intervention. Such a requirement will limit the ability of small enterprises to access as the majority of micro-businesses cannot provide these requirements.
Single Manager of the Fund?
Another concern and issue with the scheme is the appointment of a sole-manager for the 50 billion naira fund. The CBN appointed just one Microfinance Bank, NIRSA, to manage the funds. The sole management of such a huge amount by a single Microfinace Bank with limited branch coverage across the country is inadequate. There are about 37 million SMEs operating in states, local government areas and communities across Nigeria. With other herculean requirements for accessing the fund in place, the added burden of trying to reach a single microfinance bank at a time of restricted movements is too much for vulnerable small and medium scale businesses. As there are over 800 Micro Finance Banks in Nigeria, the CBN should utilize more of them to ensure better national coverage of the scheme.
In the light of the preceding, and for the CBN’s Intervention Program to be effective and achieve its aim, it is pertinent for the Apex Bank to immediately revise the scheme to take care of the poorest households who operate in the informal sector. Secondly, there is a need for the process of disbursement of the credit to be diversified. More or other banks with wider reach should be enlisted into the scheme to enable the process of accessing the loans be less cumbersome and within reach of the citizens. Lastly, if the programme is indeed to achieve its intended and stated goals, then the CBN should, as a matter of necessity, review the collateral requirements and other conditionalities tied to the Intervention Funds in a manner that is indicative and reflective of government’s understanding of the COID-19-inflicted difficulties on people and businesses in the country.
Social Development Integrated Centre (Social Action)
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