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AGSMEIS: Banks’ fresh impetus for SMEs growth

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AGSMEIS: Banks’ fresh impetus for SMEs growth

Two years after the Bankers’ Committee pledged to pool their five per cent profit to support the small and medium scale enterprises (SMEs) financing, the dedicated account has grossed N60 billion. ABDULWAHAB ISA examines the new initiative of supporting SMEs operators with equipment financing in place of cash.

 

Data so far released by the National Bureau of Statistics (NBS) attests to the “time bomb” Nigeria’s growing unemployment has become. In the third quarter 2017, the bureau noted that of the total active labour force of 85.08 million people in Nigeria, about 16 million people were unemployed.

The unimpressive high number of idle hands, which on further analysis comprises more of young people in their active age, must be of concern to the authorities.

To remedy the situation, the Central Bank of Nigeria (CBN) branched out from its core mandates of ensuring monetary and price stability to intervene in support of SMEs

Essentially, the intervention is geared towards reducing the widening gap in unemployment rate and spur wealth creation.

 

Support for SMEs

A thriving Micro, Small and Medium Enterprises (MSME) is not only a major source of wealth creation for the country, but a gateway for job creation.

Realising the important role SMEs could play in the decimation of high unemployment rate, the apex bank in 2013, launched the MSME Development fund with a share capital of N220 billion.

The Fund was established in recognition of the significant contributions of MSME sub-sector to the economy and the existing huge financing gap.

Ten per cent of the Fund was devoted to developmental objectives such as grants, capacity building and administrative costs while 90 per cent commercial component will be released to Participating Financial Institutions (PFIs) at two per cent for on-lending to MSMEs at a maximum interest rate of nine per cent per annum.

Eligible activities to be financed include agricultural value chain, services, cottage industries, artisans, trade and commerce and any income generating business as may be prescribed by the CBN from time to time.

Over N75 billion of the fund had been disbursed while various loan application requests are said to be undergoing processing . However, some business operators of MSMEs complained of hurdles in accessing the fund.

 

Rallying DMBs for funding

During one of the Bankers’ Committee meetings in Abuja two years ago, banks’ chief executives offcers took a unanimous decision to support the funding of SMEs. They agreed to the contribution of five per cent of their profit after tax (PAT) for investment in the Agricultural/ Small and Medium Enterprises Investment Scheme (AGSMEIS).

The CBN followed up with banks on this commitment by issuing a reminder via circular to all banks titled: “Guidelines for the Operations of the Agricultural/ Small and Medium Enterprises Investment Scheme (AGSMEIS).”

The circular signed by Director, Financial Policy and Regulation Department, CBN, Mr. Kelvin Amugo, stated: “The Bankers’ Committee at its 331st meeting held on February 9, 2017 approved the Agri-Business/Small and Medium Investment Scheme (AGSMEIS) to support the Federal Government’s efforts at promoting agricultural business/Small and Medium Enterprises (SME) as a vehicle for sustainable economic development and employment generation.

“All deposit money banks pursuant thereof, are hereby required to set aside and remit to the designated account domiciled in the CBN, five per cent of their annual profit after tax (PAT) for equity investment in permissible activities as stipulated in the scheme guidelines. Each bank is also required to nominate a representative to the Project Review Committee, which shall have the responsibility for recommending investment of the funds in eligible enterprises.”

According to the guidelines of the scheme, each bank is supposed to transfer the five per cent of its PAT to the CBN and warehoused in an account opened for the scheme within 10 working days after the annual general meeting of the bank.

Among other things, the guidelines stated that the objectives of the scheme are to: “Ensure access to finance Small and Medium Enterprises (SMEs) as these enterprises are the engine of growth of the Nigerian economy; Generate much-needed employment opportunities in Nigerian; Develop agricultural value chain and ensure sustainable agricultural practices; Boost the managerial capacity of Agribusiness/SMEs as pipelines of growth.

“The amount investable in any enterprise shall be limited to a maximum of N2 billion. Investment in excess of the maximum allowable amount shall be subject to the approval of the CBN. Investment under the scheme, which could be for start-ups, expansion of established companies or reviving of ailing companies, shall be through equity in the form of fresh injection of capital.

“Investment shall be made for a maximum period of 10 years. There shall be a lock-up period before exit in order to encourage value creation and boost managerial capacity of the SMEs unless there is material adverse event. The scheme shall be operated for a period of 10 years in the first instance and be reviewed after five years,”

 

Emphasis on tools over cash

Unlike other SMEs support and empowerment that are largely cash-driven, the AGSMEIS initiative is tailored differently. Beneficiaries are empowered with required tools of their trade and vocations.

With the fund grossing N60 billion, the CBN in conjunction with bank CEOs commenced disbursement to first beneficiaries recently.

Speaking at the occasion, CBN Governor, Mr. Godwin Emefiele, said the fund would be disbursed to youths who have been trained in various entrepreneurship, vocational and management skills across the country by entrepreneurship development institutions and centres, such as Fate Foundation, Lagos Business School, House of Tara and Thrive Agric.

He said unlike other intervention scheme where the funds are disbursed in cash, beneficiaries under the agribusiness programme would be given equipment that are commensurate with the required amount based on their trade areas.

“In Nigeria, the challenges of youth unemployment and restiveness must be confronted with strategic innovative thinking to provide sustainable solution. No matter how daunting the challenge might seem, I believe that with unity of purpose, we can fight this scourge together. There is no gainsaying that one of the most effective ways to tackle this scourge is through entrepreneurship development and easy access to affordable financing. Yet, access to finance has been an Achille’s heel on entrepreneurship development in the country today,” said CBN governor

 

Overhauling repayment package

One of the major problems of SMEs operators is loan default. SMEs operators often advance harsh operating business environment as bane for loan repayment.

However, the CBN governor said AGSMEIS comes with a different loan repayment terms designed to make it easier for beneficiaries.

He said the AGSMEIS scheme would be implemented under three broad components-direct, indirect and developmental components.

Under the direct component of the AGSMEIS, the CBN governor said beneficiaries could access loans to a limit of N10million, at interest rate of five per cent per annum and a maximum tenor of up to seven years.

He added that there was also a moratorium period of 18 months on principal and six months on interest element, depending on the nature of the business. Under the indirect component of the scheme, the CBN governor said beneficiaries could access equity and quasi-equity investments of up to 10 years with an initial lock up period of three years before divestment.

He explained that the developmental component of the scheme would be used for capacity building and technical assistance to support beneficiaries.

 

Last line

The latest intervention by the Bankers’ Committee is a good initiative that will reduce the level of unemployment and create wealth to support the growth and development of the economy.

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1 Comment

1 Comment

  1. Itoro

    June 1, 2018 at 9:17 am

    the expected contributed fund by banks is targeted at N60bn by the end of July. after the flag off of this Scheme, no single entrepreneur have received 1kobo in cash, except for those that received equipment on April 12 during the flag off in CBN, Abuja. You people should stop telling us lies oooooooo

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