CBN Earmarks 60% of MSME Development Fund for Women

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August 18th, 2014/CBN

 

1.0 Establishment of the Fund

As part of its developmental functions and mandate of promoting a sound financial system in Nigeria, the Central Bank of Nigeria 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 achieve the provisions of Section 4.2 (iv) of the Policy, which stipulates that women’s access to financial services should 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. Only new SMEs shall be allowed to be financed by DMBs under the MSMEDF.

Special consideration shall be given to Participating Financial Institutions (PFIs) that have signed Memorandum of Understanding (MoU) with the Central Bank of Nigeria’s Entrepreneurship Development Centers (EDCs) to provide financial services to its graduates.

In addition, 2% of the wholesale component of the Fund shall go to economically active persons with disabilities (excluding mental disabilities).

1.1 Seed Capital

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

1.2 Objective

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

• Enhance access by MSMEs to financial services

• Increase productivity and output of microenterprises

• Increase employment and create wealth

• Engender inclusive growth

1.3 Components of the Fund

The Fund shall have Commercial and Developmental components.

1.4 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 qualified and eligible PFIs for on lending to MSMEs

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

c) Reduce the cost of funds of the PFIs and ensure that this translates into reduced borrowing costs for the borrowers.

1.5 Developmental Component

The Developmental Component makes up the remaining 10 percent of the Fund. It shall be earmarked for developmental programmes in the following categories:

• Grant (9.75%)

• Operational Expenses (0.25%) at take-off

1.5.1 Grant

The 9.75% Grant Component of the Fund shall support general development of the MSME sub-sector. It shall be incentives targeted at institutions that demonstrate good loan repayment culture to enable them attain more capacity for expanded outreach.

PFIs shall qualify for the grant component based on their performance rating in poverty reduction, job creation and financial inclusion. For institutions to benefit, they shall submit clearly defined projects and provide counterpart funding which shall be matched by the Funds grant support. An institution shall enjoy the grant once in three years up to a maximum of 25% of the project cost and subject to the discretion of the CBN.

The following activities shall be supported under the component:

a) Building capacity of staff of PFIs and their apex bodies

b) Development of appropriate regulatory regime for MSME lending

c) Financial literacy and entrepreneurship development

d) Mobilization, training and linking of MSMEs to financial services

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

f) Business Development and Advisory Services

g) Building of financial infrastructure in support of MSMEs

Other areas of technical assistance under the Grant subcomponent include support in the areas of internship, secondment, mentoring and registration with Mix Market, sponsorship of ratings, 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 financial services to its graduates.

1.5.2 Selection Criteria

a) PFIs shall submit request to the Fund in a format which shall be prescribed by the CBN from time to time..

b) Applications shall be processed on receipt of complete documentation.

c) The CBN shall communicate the terms and conditions for the approved Grant within one month of submission.

1.6 Management and Administration of the Fund The Fund shall be managed by the CBN under the terms and conditions defined in the Guidelines. In addition, the office that is responsible for the administration of the women component of the Fund shall be headed by a woman.

The Fund shall have a Steering Committee constituted in line with its approved shareholding structure and chaired by the Governor, Central Bank of Nigeria. Other members shall include:

1. The Deputy Governor, Financial Systems Stability

Representatives of:

2. Federal Ministry of Finance Incorporated (MoFI)

3. Federal Ministry of Agriculture and Rural Development (FMA&RD) - RUFIN

4. Nigeria Deposit Insurance Corporation (NDIC)

5. National Association of Microfinance Banks (NAMB)

6. Association of Non-Bank Microfinance Institutions of Nigeria (ANMFIN)

7. Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)

8. The Banker’s Committee

9. Ministry of Women Affairs and Social Development (MWA&SD)

10. Director, Development Finance Department of CBN

11. Head, MSME Development Fund Office, Development Finance Department, CBN (Secretary)

1.7 Eligible Enterprises

In line with the provisions of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, enterprises to be funded under the Scheme include:

a) Micro Enterprises

b) Small and Medium Enterprises

The following are eligible activities under the Fund:

Microenterprises

• Agricultural value chain activities

• Cottage Industries

• Artisans

• Services to hotels, schools, restaurants, laundry etc.

• Renewable energy/energy efficient product and technologies

• Trade and general commerce

• Any other income generating enterprise as may be prescribed by the CBN

A maximum of 10% of the Commercial component of the Fund shall be channeled to trade and commerce. This is to ensure that productive sectors of the economy continue to attract more financing necessary for employment creation and diversification of the country’s economic base.

Small & Medium Enterprises (SMEs)

• Manufacturing

• Agricultural value chain activities

• Educational institutions

• Renewable energy/energy efficient product and technologies

• Any other income generating enterprise as may be prescribed by the CBN

Note: Refinancing under this programme is strictly prohibited.

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