CBN Releases Reviewed Guidelines on Micro, Small and Medium Enterprises Development Fund

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Monday, December 21, 2015 11:02 AM / CBN

Establishment of the Fund

As part of its developmental role and mandate of promoting a sound financial system, the Central Bank of Nigeria (CBN) launched the Micro, Small and Medium Enterprises Development Fund (MSMEDF) on August 15, 2013.

 

This was in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy.

 

The sub-sector is characterized by huge financing gap which hinders the development of MSMEs. Section 6.10 of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, stipulates that ‘a Microfinance Development Fund shall be set up, primarily to provide for the wholesale funding requirements of MFBs/MFIs’.

 

To fulfil the provisions of Section 4.2 (iv) of the Policy, which stipulates that women’s access to financial services to increase by at least 15 per cent annually to eliminate gender disparity, 60 per cent of the Fund has been earmarked for providing financial services to women.

 

This informed the decision of the Central Bank of Nigeria to establish the Micro, Small and Medium Enterprises Development Fund (MSMEDF).

 

The Fund prescribes 50:50 ratio for on-lending to micro enterprises and SMEs respectively by Participating Financial Institutions (PFIs).

 

In addition, 2% of the wholesale component of the Fund shall go to economically active persons living with disabilities (PLWD) and 10% provided for start-up businesses.

 

 

Seed Capital

The Fund shall have a take-off seed capital of N220billion.

 

 

Objective

The broad objective of the Fund is to channel low interest funds to the MSME sub-sector of the Nigerian economy through Participating Financial Institutions (PFIs) to:

 

1.       Enhance access by MSMEs to financial services; 

2.      Increase productivity and output of microenterprises; 

3.      Create jobs; and 

4.      Engender inclusive growth.

 

 

Components of the Fund

The Fund shall have Commercial and Developmental components.

 

 

Commercial Component

 

The Commercial Component shall constitute 90 per cent of the Fund which shall be disbursed in the form of Wholesale Funding to PFIs in the following ratio:

·         60% of the Fund: Women 

·         40% of the Fund: Others

 

 

Objectives of Wholesale Funding are to:

a) Provide facilities to eligible PFIs for on-lending to MSMEs;

b) Improve the capacity of the PFIs to meet credit needs of MSMEs; and

c) Reduce the cost of funds to the PFIs and ensure that this translates to reduction in cost of lending.

 

Developmental Component

The Developmental Component makes up the remaining 10 per cent of the Fund.

It shall be earmarked for developmental programmes in form of Grants.

 

 

Grant

The 10% Grant shall be utilized for the general development of the MSME sub-sector in the following areas:

a) Capacity building

b) Development of appropriate regulatory regime for MSMEs lending

c) Financial literacy and entrepreneurship development

d) Mobilization, training and linkage of MSMEs to financial services 3

e) Research and Development of MSMEs-friendly financial innovations and products

f) Business Development and Advisory Services g) Building of financial infrastructure to support the growth of MSMEs It shall also serve as incentive targeted at PFIs that demonstrate good performance under the Fund.

 

It shall also serve as incentive targeted at PFIs that demonstrate good performance under the Fund. The grant will position such institutions with improved capacity to expand their outreach.

 

In order to qualify for the grant, PFIs shall be considered based on their outreach, loan repayment and percentage of women enterprises financed. In applying for the grant, a PFI shall submit clearly defined project(s) including sources of funding. A PFI shall be allowed to access the grant window up to a maximum of 25% of the project cost and at the discretion of the CBN once in three years.

 

Other uses of the Grant sub-component include supporting internship programme, secondment, mentoring and registration with Mix Market, rating agencies, credit bureau and movable asset registry.

 

The Fund shall review all proposals taking into account the capacity, organization and the proposed programs of all applicants before they are considered for the Grant. Priority shall be accorded to PFIs based in the rural areas to promote financial inclusion.

 

In addition, special consideration shall be given to PFIs that have signed Memorandum of Understanding (MoU) with the Central Bank of Nigeria’s Entrepreneurship Development Centers (EDCs) to provide access to credit to their graduate trainees.

 

Click Here to Download Reviewed Guidelines

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