Failure of state governments to contribute 1.0 percent of their total budget to the Micro Finance Fund (MFC) may have robbed Micro Small and Medium-scale Enterprises (MSMEs) the opportunity to access loans from Microfinance Banks (MFBs) at an interest of 8.0 percent.The Federal Government had given N50 billion as seed money for the take-off of the MCF.
The SMEEIS was a voluntary initiative of the Bankers’ Committee introduced in 2001, in response to government’s concerns and policy measures for the promotion of SMEs as vehicles for rapid industrialisation, sustainable economic development, poverty alleviation and employment generation.
It was stated in the MCF guidelines that a total of N50 billion MCF was introduced in 2008 to enhance the flow of funds to micro enterprises in response to the shortcomings of SMEEIS. The unutilised portion of the SMEEIS fund was used as the seed fund of MCF. The MCF is a virtual fund domiciled in the accounts of each bank. This, according to the CBN, was projected to grow to N100 billion by 2010.
Meanwhile, all Deposit Money Banks (DMB) are to set aside five percent of their profit after tax annually for the MCF. Also, the state governments are to set aside a minimum of one percent of their annual budget for the purpose of providing, among others, the counterpart for accessing funds under the MCF. The implication of the initiative is that if all the stakeholders contribute their quota as stipulated in the guidelines, there will be enough money for SMEs to be disbursed through microfinance banks and others.
However, the question that has kept bothering microfinance operators is whether the money is actually available. Bunmi Lawson, managing director/CEO, Accion Microfinance Bank Limited, says if the fund in question is that which consists of the contribution of five percent of commercial banks’ profits combined with one percent of the state government’s funds, then that fund is non – existent. “With the commercial banks declaring losses and only two state governments having any funds for microfinance so far, the micro credit fund is unlikely to be established,” she adds.
As regards rate fixing by the government, Lawson notes that time and again, it has been shown that when government directly intervenes in microfinance by either fixing interest rates or direct lending to microentrepreneurs, the scheme has failed. “At least 13 different schemes created by the government of this nation have failed - and one that readily comes to mind is the Peoples’ Bank,” she said, adding that “in my opinion, the CBN should create an enabling environment for microfinance banks to thrive and source funding from market-priced funding avenues which should not be fixed or pegged by the CBN.”
Reacting on the eight percent for MCF, Michael Barleon, CEO and managing director, AB Microfinance Bank Nigeria Limited, says, “I guess many operators in microfinance would be happy. On the other hand, the price (although it should be somehow commercially driven) is not the essential issue - accessibility and supervision is the key. Who gets how much and what are the conditions attached? How is monitoring done and who will take care of the proper use of these funds to ensure that it is lent to small businesses in the end?”
His guess is that many institutions would have access to refinancing (for the first time), which is sorely needed for lending to continue. In addition, he says the hope is to drive down lending rates, even though the fund only has limited impact at this stage.
As stated in the guidelines for the operations of the MCF presented recently by the CBN, not more than eight percent interest rate per annum shall be charged from the Fund, and it shall not be subjected to any other fees or charges.
Interestingly, the channels for the utilisation of the MCF, according to the guideline, include wholesale loans to microfinance banks and other relevant institutions (NGOs); grants to MFBs and other relevant institutions through Venture Capital Companies; and establishment of a Special Purpose Vehicle (SPV) by government to be managed by the private sector for channelling the funds.
It has a 10 percent microcredit component to support the activities of micro enterprises, and its implementation has had salutary effects on the economy, according to the apex bank. The expectation, meanwhile, is that this development will end the high interest rates charged by microfinance banks, which scare most microsavers away.
For instance, Iffiok Essien, a tailor, says he does not have an account with any microfinance bank because the interest rate they charge is high. “If I take loan from them, they will ask me to pay N10,000 monthly, and if I am unable to repay as agreed, it will accumulate and they will come to close my shop,” he remarks.
However, Olufemi Fabamwo, acting director, Other Financial Institutions Department, CBN, once explained that interest rate for microfinance banks is deregulated because microfinance banks have to cover their cost of fund.
“So, interest rate is deregulated. It is not like commercial banks or deposit money banks where they have a band between the deposit and the lending rate. But for microfinance banks, it is deregulated. Usually, their customers are not really keen on whether the interest rates are high. They are more concerned with ease of assets to funding. Most of their customers cannot have access to credit from the regular banks,” he says.