Part of the Financial Inclusion Strategy of the CBN is to increase access to credit by eligible Nigerian from 2% to 40% by year 2020. This target of the Apex bank is responsible for the launch of the N220Billion MSME development fund in August 15, 2013. The fund was established in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy and the existing huge financing gap in the sub sector..
Objective of the Funds
1. Channel low interest funds to MSME
2. Enhance access by MSMEs to financial services
3. Increase productivity and output of micro enterprise
4. Increase employment and create wealth and
5. Engender inclusive growth in the economy.
Major Attractions of the MSME Development Fund
1. The fund is given to Participating Financial Institutions (PFI) at the rate of 2% by CBN for lending to to eligible and willing MSME at a single digit of 9% all in (Interest rate and Fees).
2. There is a 3% interest drawback incentive for customers of PFI who repays principal and interest as and when due. The 3% is paid at the expiration of the facility as incentive for encouraging credit discipline.
3. 60% of the N220billion MSME fund is reserved for providing financial service for women owned enterprises. Women owned enterprises refers to enterprises owned by Nigerian women (group or individual) or enterprise that are at least 75% owned and or operated by female Nigerians.
4. 10% of the fund is earmarked for funding of start up businesses. CBN has also approved the use of original certificate such as University, Polytechnic, Technical College, College of Education and Secondary School Certificate as collateral for start up businesses.
5. 2% of the fund is also reserved for funding of businesses owned by person with disability.
What categories of entrepreneurs can apply for the Fund?
(a) Micro entrepreneurs (i. e. borrowers seeking loans of between N500,000 and N5,000,000) are to approach any of the four institutions:
1. Microfinance Banks
2. NGO/Microfinance Institutions
3. Financial Cooperatives
4. Finance Companies
The repayment period for Micro Enterpreuner is 12months
(b) Small and Medium Enterprises (SMEs) (i.e. prospective borrowers seeking between N5, 000,000 and N50million) are to approach any of these institutions:
1. Deposit Money Banks
2. Bank of Industry (BOI)
3. Bank of Agriculture)
The repayment period for SMEs is 36months
Micro Enterprise are businesses operated by sole proprietor with maximum of 10 employees and total asset of less than N5million (excluding land and building) while Small and Medium Enterprise are business with asset base of between N5million and N500million (excluding land and building) with employee of between 11and 200.
Eligible business activities under the Fund are:
1. Agricultural value chain activities
2. Cottage Industries
4. Services, Hotel, Schools Restaurants, Laundry
5. Renewable energy/energy efficient product and technologies
6. Trade and general commerce
7. Other income generating economic activity as may be prescribed by the CBN
Note: Only 10% of the Fund is channeled to trade and commerce while 90% is earmarked for production activities. This is aimed at providing much needed funds for employment and economic diversification business activities.