In just about six months after banks and the Central Bank of Nigeria (CBN) agreed that commercial banks to set aside a percentage of their profit- after- tax to finance small businesses and the agriculture sector, N26 billion has been pooled into the fund.
This provides another funding option for small and medium-scale enterprises (SMEs) and agriculture ventures, as the Bankers Committee which comprises chief executive of banks and the CBN has decided to utilise the fund through equity.
Equity financing is an exchange of money (from a lender) for a piece of ownership in the business, allowing businesses to access funds without incurring debt. Unlike loans where businesses are faced with paying off interest and become burdened, equity financing allows them to access long-term financing.
According to the managing director and chief executive of Standard Chartered Bank, Bola Adesola, “Many companies cannot just survive on debt because of the cost of debt and so long term capital is required to catalyse the growth in SMEs and make them more viable and sustainable we are doing our own bit to support them.”
Although there is no set framework yet, the apex bank said the fund would be disbursed with immediate effect on a case by case basis, as banks search out private equity firms to partner with in the disbursement of the fund.
Presently, the economic development of the Bankers Committee is working with development finance and legal department and supervision in the CBN and the five highest contributor to the fund on the framework for the fund but before then the utilisation would go ahead.
Adesola had mentioned that although the framework is yet to be presented, “that does not stop us from investing once customers meet the eligibility criteria we will start investing immediately but we also want to ensure that we have the right governance around the equity fund and it is our own contribution to economic growth and prosperity in the country.”
The Agric and SME fund is part of efforts to revitalise the Nigerian economy which officially slipped into recession last year. Under the fund, banks are to set aside five per cent of their profit- after- tax into a fund kept with the CBN.
As high benchmark interest rate has made capital more expensive for companies, the banking industry had decided to set aside part of their profit to be dedicated to critical sectors that would have speedy and direct impact on the economy.
While not all sectors had been affected, critical sectors such as manufacturing and small businesses had been adversely affected as the cost of foreign exchange and higher cost of fund made raw materials and capital harder to acquire.
The Agric SME Equity fund which is asides the N220 billion Micro Small and Medium Enterprises Development Fund is similar to the Small and Medium Enterprises Equity Investment scheme initiated by the Bankers Committee in 1999 but had been abandoned.
According to the guideline for the fund released recently, definition of small and medium enterprises are those whose sales turnover do not exceed N4.5 billion and whose total assets is not in excess of N4.5 billion.
Also the company’s total tax paying staff should not be more than 250 although this is subject to review by the board of the AGSMIES. Small and medium businesses can draw facilities from the fund up to N2 billion.
The guideline’s requirements for companies willing to access the fund include compliance with the provisions of the Companies and Allied Act of 1990 such as the filing of annual returns including audited financial statements.
They must also comply with all applicable taxes laws and regulations and render regular returns to appropriate authorities and they must apply through a participating bank which would submit the application to the CBN.
According to the guideline, the apex bank would having received the application, conduct an initial review of the OP project to ensure that the project is within the focal sectors of the scheme. The project would be reviewed by the Project Review Committee which consist of all the chief risk officer of all the banks.
Explaining the rationale for the AGSMIES, the CBN governor, Godwin Emefiele, said the country needs to create an economy that is shielded away from international shocks, and the best way to do it is to help the MSMEs in the country grow.
Emefiele had noted that the banking industry goals for 2017 include supporting government to develop adequate infrastructure to engender viable and productive SMEs as well as increasing access and cost of funding particularly to the agriculture and manufacturing SMEs.
There has been increased focus on funding for MSMEs in recent times as the country slips further into recession. In 2015, the focus of the Bankers Committee retreat was on how to channel resources both financial and infrastructure towards the micro small and medium enterprises in making it a veritable tool for the growth of the economy of the country.