The media is replete with the efforts of governments world over to provide safe landing for businesses and households that are being ravaged by the economic impact of COVID-19. Economic measures, in form of stimulus packages, are being put together by various governments to stimulate floundering economies. The objective of these stimulus packages is to reinvigorate the economy and prevent or reverse a recession.The Central Bank of Nigeria (CBN) and apex monetary authority in Nigeria has also put together some measures in this regard.
The CBN stated that the pandemic has led to unprecedented disruptions to global supply chains, a sharp drop in global crude oil prices, turmoil in global stock and financial markets, massive cancellation of sporting and entertainment events, lockdown of large movements of persons in many countries and intercontinental travel bans/restrictions across critical air routes across the world. Therefore, driven by its financial stability mandate, the CBN issued a press release on the 16th of March, 2020 detailing policy measures being activated to cushion the adverse economic impact of the pandemic.
Some of the policy measures include: extension of moratorium by one year on all CBN intervention facilities, interest rate reduction on all CBN intervention facilities from 9% to 5% per annum, N100 Billion credit support for the healthcare industry, regulatory forbearance by granting leave to deposit money banks to consider temporary and time-limited restructuring of the tenor and loan terms for businesses and households most affected by the pandemic and a creation of N50 Billion targeted credit facility for households and small-and-medium sized enterprises (SMEs).
Of particular interest is the N50 Billion Targeted Credit Facility (TCF) for households and SMEs that have been particularly hard hit by the COVID-19. On the 23rd of March, 2020, the guidelines for the implementation of the TCF was released by the Nigerian apex bank. The guidelines set out the objectives of the TCF as follows:
- To cushion the adverse effects of COVID-19 on households and MSMEs;
- Support households and MSMEs whose economic activities have been significantly disrupted by COVID-19;
- Stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, and research and development.
The guidelines also identify the eligible participants to the TCF scheme as:
- Households with verifiable evidence of livelihood adversely impacted by COVID-19; and
- Existing enterprises with verifiable evidence of business activities adversely affected as a result of the COVID-19 pandemic.
Whilst the original guidelines provided that eligible enterprises must have a bankable plan to take advantage of opportunities arising from COVID-19, the requirement for a business plan is no longer compulsory. Furthermore, the requirement for payment of between N5,000 and N10,000 for a bank approved business plan has also been dispensed with. The NIRSAL Microfinance Bank (NMFB) tasked with the administration of the TCF has however commented that the inclusion of a business plan in an application will make the application process faster for beneficiaries.
Upon submission of the application by an eligible participant, the NMFB will appraise the application, conduct due diligence and upon satisfactory appraisal,forward the application to CBN.The CBN will then review the application and give final approval for disbursement to NMFB and onward disbursement to the applicant.
The economic activities covered by the TCF include agriculture, hospitality, health, airline service providers, manufacturing, trading and any other income generating activity as may be prescribed by the CBN. SMEs that fall under any of the above listed categories will be eligible to access the TCF.
The TCF scheme will be financed from the Micro, Small and Medium Enterprises Development Fund.Furthermore, there are loan limits for SMEs and Households. The guidelines specify that the loan limit for SMEs will be determined based on the activity, cashflow and industry/segment size of the beneficiary, subject to a maximum of N25 Million while households can access a maximum of N3 Million. The working capital allowable under the TCF scheme will be a maximum of 25% of the average of the preceding 3 years’ annual turnover. However, where the SME is less than 3 years in operation, then the working capital will be pegged at 25% of the previous year’s turnover.
Another interesting aspect of the TCF is the interest rate applied. The guidelines stipulate that an interest rate of 5% per annum (all inclusive) will apply up till the 28th of February, 2021 and thereafter revert to 9% per annum (all inclusive) as from the 1st of March, 2021. The tenor of the working capital is for a maximum period of one year with no option of roll over while the term loan will be for a maximum of not more than 3 years with at least, one-year moratorium. The guidelines allow for repayment to be made by installments as per the repayment schedule provided at the application stage.
As seen with secured loans, the TCF requires that beneficiaries pledge collateral and the guidelines state the types of collateral that will be acceptable. They include: movable assets, simple deposit of title documents in perfectible state, irrevocable domiciliation of proceeds with the NMFB, two acceptable guarantors, personal guarantee of the promoter of the business, life insurance of the key man with NMFB noted as the First Loss Payee and comprehensive insurance over the assets. It must be noted that the guidelines give a leeway to NMFB to determine what is acceptable to it as collateral from the beneficiaries.
As part of its oversight functions the NMFB shall engage in periodic monitoring of the projects financed under the TCF. CBN will however monitor and evaluate implementation of the TCF scheme by NMFB.
On the 28th of April, 2020, the Managing Director of NMFB, Mr Abubakar Kure, inaugurated the disbursement of the funds in Abuja and he stated that a total of 3,256 individuals and businesses that were affected by the negative impact of the pandemic would benefit from the first tranche of the disbursement. He explained that the beneficiaries are to resume productive activities as the economy begins a phased re-opening after the lockdown. The Managing Director, whilst reiterating that the TCF is not a grant but a credit facility which must be repaid, urged the beneficiaries to use the funds for the purpose for which they were disbursed.
While this is a laudable effort of the Nigerian government to provide stimulus packages to SMEs, (which according to the Nigerian Bureau of Statistics, contribute about 48% of the national GDP), the challenges relating to the proper implementation of the scheme are apparent. Questions such as what is the criteria for determining SMEs or households that have been ‘hard hit by COVID-19’? Or how does the NMFB plan to significantly reduce or eradicate in its entirety, the bottlenecks and bureaucracy associated with the whole process (that is, from the point of application to final disbursements) etc., need to be addressed.The novel corona virus disease brings with it, novel challenges that stand to test the policies in place in the economic landscape of the Country. It is our hope that after all is said and done, these policies will pull the Nigerian economy out of the looming recession.
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