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Development Finance Department

The Role of CBN in Providing Access to Finance for Nigerian Businesses

A Paper Presented at the Ease of Doing Business Conference

By Dr Aisha Usman Mahmood

(Special Adviser to CBN Governor on Sustainable banking)

@Nigerian Airforce Conference Centre, Abuja

on 28th January, 2020


OUTLINE

Access to Finance

Central Banks and Development

Development Financing and Growth

Rationale for the Interventions

Focal Sectors

CBN Interventions for Access to Finance

Overview of the Interventions

Other Development Finance Initiatives

Conclusion


Nigeria is an entrepreneurial economy with an estimated 37 million

micro, small and medium size companies (MSME) contributing over

48% to the GDP, employing over 60 million Nigerians and contributing

over 7% to exports according to the National Bureau of Statistics.

The World Bank identified three key enablers for a responsible credit

system: credit bureaus, collateral registry and a unique identification. All

three of them are interwoven in the roles they play within the credit

system.

The CBN has since put these in place to enhance the access to

finance

1.0 ACCESS TO FINANCE


1. Credit Bureaus facilitate ease of doing business by significantly

improving access to credit especially for the disadvantaged sectors of the

economy.

i. The CBN established the Credit Risk Management System [CRMS] or

Credit Bureau in 1990 to provide credit information on borrowers.

2. The unique identification, (the Bank Verification Number, BVN), was

successfully incorporated into the financial system in 2014.

i. The purpose of the project is to use biometric information as a means of

first identifying and verifying all individuals that have account(s) in any

Nigerian bank and consequently, as a means of authenticating customer’s

identity at point of transactions.

1.0 ACCESS TO FINANCE (Cont.)


3. The National Collateral Registry (NCR), a web-based system that

facilitates the use of movable assets as collaterals was established in

2016.

the Secured Transactions in Movable Assets Act, 2017 allows

borrowers to seek credit from any financial institution, leveraging

assets like jewelries, farm products and vehicles as collateral.

NCR has made available N1.264 trillion to MSMEs, individuals

and even large businesses as at March 20, 2019.

1.0 ACCESS to FINANCE


Central banks globally, are placing renewed emphasis on the promotion of

economic development and inclusive growth beyond the mandate of

macroeconomic stability.

CBN has developmental policies directed at financial sector development,

promotion of financial inclusion and aligning the financial system with sustainable

development as specified in:

Section 31 of the CBN Act 2007

The Bank’s strategic theme of “Promoting Sustainable Finance and Inclusive

Growth”

CBN has continued to develop policies that consider and reflect the dynamic nature of an increasingly sophisticated consumer base, while also constantly seeking ways to develop policies that will close the financing gap.

The key mandate of the development finance department is promoting access to finance to ensure job creation and sustainable inclusive economic growth in Nigeria.

1.0 CENTRAL BANKS AND DEVELOPMENT


2.0 DEVELOPMENT FINANCING AND GROWTH

The CBN remains focused on ensuring that the Bank’s interventions are targeted at the

financial un- and under- served segments of the society.

In recognizing that growth must be inclusive, the Bank’s interventions are aimed at:

Sectors that the economically active poor predominantly conduct business (e.g.

agriculture & industry)

Regions where they predominantly reside (e.g. rural areas)

Promoting factors of production which they largely use (e.g. unskilled labour)

Supporting price stability and foreign reserves accretion

Development Finance

Interventions

Economic Development

Inclusive Growth


3.0 RATIONALE FOR THE INTERVENTIONS

8

It is an established fact that MSMEs are critical to Nigerian economicgrowth and development.

The sector is responsible for the advances in innovation, employmentcreation, and is also a key indicator of the overall economicperformance.

For instance, the MSMEs contributes about 48% of the national outputand around 7% of Nigerian exports as of 2013 .

One of the prominent limiting inherent constraints to entrepreneurshipdevelopment in Nigeria is access to affordable and sustainablefinance.

Financial constraint indeed limits businesses’ potentials to perform thecrucial roles of stimulating economic growth, generating employment,and contributing to poverty reduction.


3.0 RATIONALE FOR THE INTERVENTIONS (cont’d)

9

• Job creation.• Improved access to

finance by SMEs(currently, SMEs obtainless than 1% of bankingsector credit; agriculturereceives 3 – 4%).

• Enhanced capacityutilization of firmsthrough end-to-endlinkages.

• Increased competitiveness.• Enhanced innovation.• More product/ service

varieties.

• Strong value chains thatreduce supply gaps andimport dependence.

• Strong market linkages(end-to-end).

• Increased output ofgoods and services inthe economy.

• Inclusive growth.• Economic

diversification.• Reduced import bills to

increase forexreserves.

• Promote employment.• Accelerated financial

inclusion (to 80% by2020, 95% by 2024).

Interventions motivated by the need to ensure economic stability and development.

Specific intervention objectives have observable impact at firm, industry, sector andeconomy levels.


These sectors have high potentials for job creation, outputgrowth, foreign exchange accretion, financial inclusion andpoverty eradication.

AGRICULTUREINDUSTRY

(MANUFACTURING)MULTI-SECTORAL

4.0 FOCAL SECTORS

10

SERVICES (incl. INFRASTRUCTURE)

The sectoral focus of the Bank’s development finance interventions include:

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=0ahUKEwjPrsi-iOPTAhUm2oMKHTeSBsAQjRwIBw&url=http://www.vanguardngr.com/2012/12/waste-to-art-journey-in-creative-expression/&psig=AFQjCNFxq88lsmVJPutdaiI_AfjTWtl7Bw&ust=1494427896081579


5.0 CBN INTERVENTIONS FOR ACCESS TO FINANCE

The Bank’s interventions since 2009 have had two major goals

Address tight creditconditions and the under-performance of keymonetary aggregates.

Restructure/ refinanceDMBs’ exposures to themanufacturing sector andSMEs to ensure smoothflow of credit to the realsector of the economy.

Strengthening the financialsystem through quantitativeeasing policy to:

Fast track the development andaccess to credit facilities by large-scale enterprises to increase outputand create jobs.

Facilitate access to affordable creditby MSMEs, particularly womenenterprises.

Promote investment in infrastructureto achieve sustainable growth.

Direct support to enterprises with highpotentials for job creation, forexconservation/ import substitution, financialinclusion and other economic value


5.0 CBN INTERVENTIONS FOR ACCESS TO FINANCE

From 2009 to date, the following policies and programmes have beenoperationalized:

CACS – Commercial Agriculture Credit Scheme (2009)

ABP – Anchor Borrowers’ Programme (2015)

PAS - Paddy Aggregation Facility (2018)

AADS - Accelerated Agricultural Aggregation Scheme (2018)

MAS – Maize Aggregation Scheme (2019)

SMERRF – Small and Medium Enterprises Restructuring and RefinancingFacility (2010)

PFI – Presidential Fertilizer Initiative (2017)

TSIF - Textile Sector Intervention Facility (2016)

CBIF – CBN-BOI Industrial Facility (2017)

PAIF – Power and Airline Intervention Fund (2010)

NEMSF – Nigeria Electricity Market Stabilization Facility (2014)

NBET-PAF – Nigeria Bulk Electricity Trading Payment Assurance Facility(2017)


5.0 CBN INTERVENTIONS FOR ACCESS TO FINANCE (Cont.)

SMECGS - Small and Medium Enterprises Credit Guarantee Scheme(2010)

MSMEDF – Micro, Small and Medium Enterprises Development Fund(2013)

RSSF - Real Sector Support Facility (2014)

NESF – Non-oil Export Stimulation Facility (2015)

YEDP – Youth Entrepreneurship Development Programme (2016)

NFSP – National Food Security Programme (2016)

AGSMEIS – Agribusiness/ Small and Medium Equity Investment Scheme(2017)

EDF – Export Development Facility (2018)

DCRR – RSSF using Differentiated Cash Reserve Requirement (2018)

NCR – National Collateral Registry (2016)

SANEF – Shared Agent Network Expansion Facility (2018)

CIFI – Creative Industry Financing Initiative (2019)


6.0 AN OVERVIEW OF THE INTERVENTIONS

Economic linkage ofsmallholder farmers withcommodity processors/millers and access tocredit with assuredofftake of harvest atguaranteed minimumprice.

Agricultural Sector Interventions

To fast-track thedevelopment of mediumand large-scaleenterprises along theagricultural value chain.Non-interest componentis also operational.

A short term bridging/working capitalfacility to enable ricemillers procure paddyfor all-year roundprocessing.

Anchor Borrowers’ Programme (ABP)

Commercial Agriculture Credit Scheme (CACS)

Paddy Aggregation Scheme (PAS)

Working capital facility toenable integrated feedmillers, large-scale poultryfarmers, confectioneriesand concessionaires ofgovernment silos, procuremaize thereby indirectlycushioning the effect ofthe drop in price of maizeon maize farmers.

Provides guarantee tobanks that grant loansfor agricultural purpose.Repayment of loans asand when due attractsan interest rebate underthe Interest DrawbackProgramme (IDP).

Designed to engage at least10,000 youths per state andthe FCT in agriculturalproduction towards foodsecurity, job creation andeconomic diversification,based on commodities ofcomparative advantage.

Maize Aggregation Scheme (MAS)

Agricultural Credit Guarantee Scheme

(ACGS)

Accelerated Agricultural

Development Scheme (AADS)



An initiative to providelocal currency supportto the NigerianSovereign InvestmentAuthority (NSIA) for theprocurement of rawmaterials for theproduction of NPKfertilizer locally.

Industrial Sector Interventions

To enable the Bank ofIndustry (BOI) finance theindustrial sector throughinvestments in value-added projects.

Targeted at revivingthe cotton, textileand garment industryto promote localproduction of fabricsand create jobs.

Presidential Fertilizer Initiative

(SPFI)CBN-BOI Industrial

Facility (CBIF)

Textile Sector Intervention Facility

(TSIF)



To stimulate privatesector investments inthe power andaviation sectors.

Services Sector Interventions

A bridging facility to theNigerian Bulk ElectricityTrading (NBET) Plc. to enableit settle at least 80% of theinvoices of powergeneration companies inorder to sustain powersupply in the economy.

A medium termfacility for CBN-licensed SuperAgents and MobileMoney Operators(MMOs) to enhancetheir capacity to rollout 500,000 agentnetworks across thecountry in 2018.

Power and Airline Intervention Fund

(PAIF)

Nigerian Bulk Electricity Trading - Payment Assurance Facility

(NBET-PAF)

Shared Agent Network Expansion

Facility (SANEF)

Provides liquidity to theNigerian ElectricitySupply Industry (NESI) bysettling the shortfall inrevenue during theInterim Rules Period (IRP)up to end-December2014 and outstandinggas debts owed by thePower HoldingCompany of Nigeria(PHCN).

Introduced in collaborationwith the Bankers’Committee, to improveaccess to long-term andlow-interest financing toentrepreneurs and investorsin the Nigerian creative andinformation technology (IT)sub-sectors.

Nigeria Electricity Market Stabilization

Facility (NEMSF)

Creative Industry Financing Initiative

(CIFI)



Finances large enterprises withpotentials for high growth,increasing accretion toforeign reserves, expandingthe industrial base andconsequently diversifying theeconomy.

Multi-Sectoral Interventions

An extension of the RSSFto further improveaccess to affordable,long-term finance bymanufacturing,agriculture, and othersectors that areemployment- andgrowth-stimulating.

This is to channelaffordable credit to theMSME sub-sector, andespecially to womenentrepreneurs, to createjobs and enhanceproductivity.

Real Sector Support Facility (RSSF)

RSSF using Differentiated Cash

Reserve Ratio(RSSF-DCRR)

Micro, Small and Medium Enterprises Development Fund

(MSMEDF)

A Bankers’ Committeeinitiative to supportgovernment’s policymeasures for the promotion ofagricultural businesses andMSMEs as vehicles forsustainable economicdevelopment andemployment generation.

To unlock theentrepreneurial spirit ofNigerian youths toenable them be theirown boss and createjobs.

Agri-business/ Small and Medium Enterprises Investment Scheme

(AGSMEIS)

Youth Empowerment Development

Programme (YEDP)

Non-Oil Export Stimulation Facility

(NESF)

To improve access ofexporters to finance forexpansion anddiversification of thenon-oil export basket.



To enable the NigerianExport Import Bank(NEXIM) financeinvestment in export-oriented projects ofnational economicimportance.

Multi-Sectoral Interventions (Cont’d)

Financing large agriculturalenterprises to supportgovernment’s StrategicGrain Reserves by moppingup excess grains and tofinance investments inmodern agriculture.

Provides guaranteecover of 80% on termloans for SMEs toencourage banks tolend to them.

Export Development Facility (EDF)

National Food Security Programme (NFSP)

Small and Medium Enterprises Credit

Guarantee Scheme (SMECGS)

A registry to enableborrowers use movableassets as collateral for loansfrom financial institutions andfor potential lenders toassess their ranking priority inclaims against suchcollateral.

National Collateral Registry (NCR)

To provide short-termfinancing to keycommodities, with theobjective of scaling upnon-oil exports and forexreceipts from thecommodities. Thecommodities are sesameseed, shea, cocoa,cashew and oil palm.

Export Facilitation Initiative (EFI)


Financial Inclusion

Five Key Gaps in financial Inclusion:

Exclusion

Ag

e G

ap

The 18-25 group is the least included age group

Inclusion

Fo

rmal

ity

Gap

Total DMBs credit to MSMES as a %age credit to private sector in 2016 was 0.07%

Exclusion

Gen

der

Gap

Inclusion rates are lower among women than men. However, informal inclusion is higher for women than men

Adult Financial Exclusion Rate

46.3%Actual 2010

41.6%Actual 2016

20.0%Target 2020

North WestNorth East

ExclusionReg

ion

al G

ap

Exclusion

Only ~33% of adults in the NE and

NW (combined)

are financially

included

Ru

ral Gap

Exclusion

FI rates are much lower in rural areas than in urban areas , However informal inclusion is higher in rural than urban areas

7.0 OTHER CBN DEVELOPMENT FINANCE INITIATIVES


Adult Financial Exclusion Rate

46.3%Actual 2010

36.8%Actual 2018

20.0%Target 2020

Rural

Agent Banking

Digital Products

Financial Literacy

Microfinance institutions and products

Mobile Money

MSMEs

Collateral Registry

Specialized Institutions

Digital Products

Financial Literacy

North

Non-interest Products

Agent Banking

Special Models

Utilize traditional channels

Digital Products

Financial Literacy

Youth

Financial Literacy

Digital Products

School Reach-out Programs

Women

Tailored products

Data base on women

Digital Products

Financial literacy

With 16.8 percentage points to reach the 2020 target, appropriate interventionsthat address the exclusion challenges of peculiarly excluded populations:North, Youth, Women, Rural Areas and MSMES are being concentrated upon.

The Revised National Financial Inclusion Strategy: Measures to Address challenges of most excluded groups


Financial Inclusion


2020 (80%)

Adult Population 103,086,000

2022 (90%)


2024 (95%)


82, 468, 800

96, 024, 609

104,906, 885

Strategy Highlight Towards 95%

• Rapid Agent Network Expansion through SANEF

• Increasing Financial Service access points via Nirsal MFB and Payment Service Bank

• Massive Financial and Digital literacy

Beyond 2020: The 2024 Destination

22


Financial Inclusion

Development Finance Department 24

The CBN in collaboration with the International Finance Corporation (IFC) established theNational Collateral Registry (NCR) to improve access to finance for MSMEs and reduce the risksassociated with MSME lending

The CBN in collaboration with the International Finance Corporation (IFC) established theNational Collateral Registry (NCR) to improve access to finance for MSMEs and reduce the risksassociated with MSME lending

The NCR is a publicly available database ofsecurity interests in moveable assets

Theses assets are registered for thepurpose of being used as collateral toobtain facilities from financial institutions

It allows borrowers prove theircreditworthiness and lenders to assesstheir priority interest in potential claimsagainst a particular collateral

It is aimed at deepening access to creditand inducing prompt repayment

Structure of the NCR


The National Collateral Registry (NCR)


Nigeria Incentive-Based Risk Sharing for Agricultural lending (NIRSAL)

25

7.0 OTHER CBN DEVELOPMENT FINANCE INITIATIVES (CONT’D)

NIRSAL was established by the Bank to develop new mechanisms for unlocking the access of farmers, agro-processors, agribusinesses and

input suppliers to financing in the agricultural value chain.

Modality:• NIRSAL shares risk with banks and

other counterparties on predetermined rates of the face value on loans: primary production and mechanization – 75%, large scale and processing – 50%, and logistics – 20%.

• Each risk guaranteed loan is qualified in principle for consideration for interest drawback, which is paid on quarterly basis (for smallholder farmers and cooperatives – 40%, large-scale farmers and agro input dealers – 20%.

Objectives of NIRSAL:• Spark agricultural

industrialization process through increased production and processing across the value chain

• Deploy risk sharing instruments that will mitigate or reduce those risks inherent in agricultural lending.

• Develop a bank rating scheme that will incentivize and showcase banks based on their capacity to lend to the agriculture sector.

Development Finance Department26


Why NIRSAL MFB?

Only 3 MFB meet the licensing requirements of N5 billion

Few MFBs with national reach to

rural communities

No MFB have special focus of lending to farming community in very rural areas

Rural communities have zero access to

finance

MFBs average interest rates at 14%.

Extremely high Lending Rates to

rural communities

Low likelihood of achieving the Year 2020 FI target of 70% banked adults .

Dwindling Financial

Inclusion Rates

01 0402 03

Development Finance Department27


The Central Bank of Nigeria (CBN)

The Bankers Committee 50% Shareholding

The Nigerian Postal Service (NIPOST) 10% Shareholding

NIRSAL 40% Shareholding

Financing low income entrepreneurs and de-risking credit originated by the National MFB by providing guarantee in line with its mandate.

They would provide their facilities in 774 local governments and this would be their own contribution by way of equity into the establishment of the national MFB

The Bankers’ Committee played the role of first line financiers. The banks, out of their magnanimity, decided that five per cent of their profits would be set aside to support Agric. business and SMEs

Apex Financial Institution

NIRSAL MFB – Key Stakeholders


Business Benefits of NIRSAL MFB

28


Credit to the agricultural sector Credit to the agricultural sector Credit to the agricultural sector

Effectively administer N26 billion

intervention fund for Agric and other

small informal businesses under

(AGSMEIS)

Provide more credit to the

agricultural sector

Easier access to intervention funds

for SMEs and farmers

Address challenges militating against

AGSMEIS initiative


- Director, Development Finance Department

The CBN and other stakeholders have embarked on several access to creditreform initiatives resulting in improved legal and regulatory environment ofcredit in Nigeria.

These market-friendly policies and regulatory frameworks

8.0 CONCLUSION

influenced the recent World Bank’s 2020 Ease of Doing Business report According to the Report, Nigeria ranks 131 out of 190 countries on the World

Bank Doing Business Index, moving up 15 places from 146th position in the 2019 Report. The Report names Nigeria, for the second time, as one of the top 10 countries with the most notable improvements during the review period, with Togo being the only other African country.

This ranking will make CBN reaffirm its commitment and renew efforts to improve lending to the key sectors of the economy to achieve sustainable development.


THANK YOU FOR YOUR ATTENTION

For more information visitwww.cbn.gov.ng

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