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Promoting SME Growth Through Lending Products Initiative – Blueprint Newspapers Limited

First Bank of Nigeria Limited is at the forefront of developing different loan products that cater to the needs and growth of SMEs in the country. AMAKA IFEAKANDU examines products and their impact on SMEs and the growth of the national economy

In recent times, the Nigerian government has launched different initiatives to boost small and medium industry activities in the country.

With the support of the World Bank and the African Development Bank, the government has assisted SMEs through various credit programs and structured loans to finance their activities. Some of them are the World Bank’s SME Lending Program, the African Development Bank’s Export Incentive Loan Program; CBN Rediscount and Refinancing Facility, National Economic Reconstruction Fund.

At different times, the apex bank set up intervention funds to improve the production of SMEs. Besides the government, there are other ways to finance SMEs, namely start-up, loans from banks, pawnbrokers, and grants from government institutions and non-government institutions. Financial experts are of the opinion that the reason why the government’s attention has always been on small businesses is that the total set of business type has the potential to accelerate the pace of economic development of the country and has successfully played a positive role in the economic life of Nigerians in rural areas.

Record low SME performance

it seems that given the enormous potentials of the SME sector, and despite recognition of its immense contribution to sustainable economic development, its performance remains below expectations in many developing countries, including Nigeria. Indeed, the sector in these developing countries has been plagued by several factors. These factors include unfavorable and very harsh economic conditions resulting from unstable government policies; gross undercapitalization, constrained by the difficulty of accessing credit from banks and other financial institutions; the shortcomings resulting from the very dilapidated state of the infrastructure; astronomically high operating costs; lack of transparency and corruption; and the lack of interest and sustained support for the SME sector by government authorities.

These challenges have affected the contributions of SMEs to Nigerian industrial production in particular.

Government efforts on SME growth

In Nigeria, the current administration and financial institutions are doing all they can to ensure sustainable growth of SMEs in the country.

As part of the mortgage industry, the federal government had in the past come up with different initiatives to develop the mortgage industry in the country. The Federal Government established the Federal Mortgage Bank of Nigeria (FMBN), the National Housing Funds (NHF) and the Nigeria Mortgage Refinance Company (NMRC) with the aim of making housing in the country more affordable.

In addition, the Federal Ministry of Finance and the Nigerian Sovereign Investment Authority (NSIA) jointly initiated the establishment of Family Home Funds and voted N1 trillion for the creation of affordable housing for Nigerians with the potential capacity generate up to 1.5% increase in gross domestic product. by 2023.

The NMRC, which offered refinanced mortgages totaling N18 billion in December 2018, explained that it was in line with its mandate to promote affordable home ownership in the country.

The NMRC, in a statement, said: “The deployment of the N18 billion to refinance the mortgage portfolios of member lending institutions has helped to increase the liquidity of the Nigerian property market, thereby enabling mortgage lenders to provide more housing loans and encourage long-term loans -creation of term mortgage loans.

Although the deployment of the fund has had an impact on housing delivery or home ownership, it has failed to address the country’s housing deficit. But today, some Nigerian banks, including First Bank of Nigeria Limited, have introduced a loan product that will help boost the development of commercial mortgages in the country. It is believed that access to this fund would go a long way in boosting business in the sector.

Oil sector

The Federal Government, in partnership with the Central Bank of Nigeria (CBN), has set up a N250 billion Intervention Facility to boost financing and incentivize investors in the gas value chain for the sustainable development of companies in the country. The fund, according to the Permanent Secretary of the Ministry of Petroleum Resources, Bitrus Nabasu; was designed to improve access to finance for private sector investment in the gas value chain and stimulate investment in infrastructure development to optimize national gas resources for economic development.

Other goals of the facility include providing a platform to accelerate the adoption of compressed natural gas (CNG) as the fuel of choice for transportation and power generation and liquefied natural gas (LPG) for domestic cooking, transport and captive energy.

The provision of loan facilities by the government or financial institutions always helps revive businesses that are struggling to survive.

Transport sector

In addition, in its effort to support the growth of SMEs in the transportation sector, the federal government recently launched an intervention grant for micro transportation operators under its Survival Fund for Micro, Small and medium-sized enterprises (MSMEs). The program marked the transportation trail targeting 4,505 beneficiaries in every state in the country. But the subsidy is not enough to make up for the country’s transport deficit. Experts are of the opinion that the transport industry has the capacity to generate more revenue in Nigeria if the government and financial institutions give them adequate support. Available data showed that the Nigerian transport sector accounts for 74% of public-private partnerships (PPPs) amounting to $27 billion of funded projects in the country with an investment gap of around $113 billion.

Agricultural sector

Undoubtedly, agriculture remains key to the country’s economic diversification agenda. The CBN has developed different agricultural programs to support the growth of the agricultural sector. Some of these programs include the Agricultural Credit Guarantee Fund (ACGSF), the Commercial Agriculture Credit Program (CAC), the Agricultural Credit Support Program (ACSS), and the Anchor Borrower Program. CBN intervention funds in agriculture have helped farmers to some extent to increase their productivity.

The Agri-Business/Small and Medium Investment Scheme (AGSMEIS) was also created to support the federal government’s efforts to promote agricultural enterprises/small and medium-sized enterprises (SMEs) as vehicles for sustainable economic development and creation jobs. But with the outbreak of the COVID-19 pandemic, the federal government saw an urgent need to diversify its revenue base into non-oil sectors by strengthening support for priority sectors of the economy with high job creation potential. .

Building sector

Contract financing is considered a great way to fulfill government contracts and is quite common in the construction industry. It can be considered a form of working capital financing. Contract finance is a payment solution where the contractor sells an invoice to a contract finance company to receive an advance of up to 90% of the invoice amount before the project begins. This provides the business with cash flow that can help fund project-related costs, such as inventory and equipment. When the contract is paid for by the customer, the contract financing company will send the contractor the remaining amount, less a commission.

First Bank’s efforts to promote SME growth

First Bank of Nigeria is one of the national banks at the forefront of supporting SME growth in the country. The bank has initiated various products intended to finance the specific needs of SMEs. Some of the funds may be used for commercial mortgage financing, petroleum distribution financing, operational vehicle financing, contract financing, among others.

Commercial mortgage

This facility is designed to meet the financing needs of small and medium-sized enterprises established in a viable business with regard to the acquisition of commercial premises under the take-or-pay or construction scheme.

The loan has a tenor of 60 months with a maximum loan of N100 million while the collateral is the purchased property.

The recipient will also pay a one percent management fee under a competitive interest rate.

Oil distribution financing

The product is created to provide financing to dealers of fast moving white petroleum products (Premium Motor Spirit (PMS), Dual Purpose Kerosene (DPK), Automotive Gas Oil (AGO), and must have a DPR license and be in business for at least 24 months.

The loan has a tenor of 12 months with flexible collateral and a maximum loan amount of N120 million. The product has a competitive interest rate with a one percent management fee.

operational vehicle

This product is launched to partially finance the vehicles of SMEs for operational use for the daily management of their activities such as logistics and distribution. It was set up to support the growth and expansion of the business by giving beneficiaries the option to purchase the vehicle with ease.

The loan has a duration of 24 to 36 months depending on the brand of vehicle. The maximum loan is set at N20 million and above, while the collateral is the purchased vehicle.

Fast Moving Consumer Goods (FMCG)

This facility was developed to provide financing to distributors of FMCG companies on the bank’s approved list of principals to meet the working capital needs of distributors for their business expansion. The loan provides the opportunity to increase the volume of business and achieve the goal set by the directors.

The loan has a tenor of 12 months with a maximum loan totaling N500 million and flexible collateral. The loan attracts flexible and competitive interest rates with a 1% service charge.

Contract financing

Contract Finance was created to provide structured and controllable financing to eligible SMEs for the execution of contracts for companies on the bank’s approved list.

The fund has a tenor of 180 days with a maximum loan of N50 million and above. It has flexible guarantees depending on the nature of the contract. The interest rate is flexible and competitive with a management fee of 1%.

Overall, SMEs are the engine of the country’s growth and industrial development. The government should focus on the sector and support it by making low interest funds more accessible to the players who participate in it to help them thrive.

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