COVID-19: Nigerian Central Bank’s Intervention For Households And Small Businesses Excludes The Majority

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The Central Bank of Nigeria (CBN), as part of the efforts by the Nigerian government to reduce the adverse economic impacts of the COVID-19 pandemic,released 50 billion Naira for vulnerable households and Micro, Small and Medium Enterprises (MSME).

With the current precipitous drop in the global price of crude oil, there is a spectre of economic recession in the country. Government spending capacity to boost aggregate demand will be drastically affected by both the drop in the price of oil and the pandemic. The cumulative impact of these would throttle local businesses and further complicate the already dire unemployment level, especially for the burgeoning youth population, in the country. It is, therefore, essential to put in place measures to protect citizens and the economy both during and after COVID-19.

According to the Central Bank, the 50 billion Naira Targeted Credit Facility would ameliorate the adverse effects of COVID-19 on households and MSMEs. The intervention would stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, research and development. Government’s intention to support vulnerable households and to stimulate the economy through support to small businesses is commendable. MSMEs provide employment and contribute to poverty alleviation.

The CBN’s guidelines for implementation of the scheme shows some considerations to help cushion some of the effects of the COVID-19 pandemic on business by making provision for a one-year moratorium in case businesses affected by the virus outbreak are not be able to repay their loans. However, a careful examination of the intervention plan, as put forward by the Central bank of Nigeria, throws up issues that cast strong doubts on its practicability and indeed the sincerity of purpose in the intervention.

Vulnerable Households

The CBN requirements for households to access the loan facility is unclear. Indeed, there are no clear requirements or procedures for households intending to access the fund. The apex bank left vulnerable household undefined.

The exclusion of the informal economy

The structure, guidelines and conditionalities for target beneficiaries seem to negate the very stated objectives of the Facility. The CBN Guidelines for the implementation of the Credit Facility, released on 23 March 2020, the scheme focuses on households or enterprises with verifiable evidence of livelihoods adversely affected by the COVID-19 pandemic. While proof of registration and existence as a business is imperative for accessing such credit, specific requirements in the CBN guidelines would result in the exclusion of most Nigerians that operate in the nation’s thriving informal economy.

While officially, micro, small and medium scale businesses in the country contribute about 50% of the nation’s GDP and 30% to employment creation, in reality, the level of contribution to GDP is in the range of 70-75 per cent and about 80% to employment. The informal sector constitutes about 75% of the nation’s active economic stream as well as 70% of the private sector.  A large proportion of this economic stream operates as unregistered businesses and would not benefit from CBN Targeted Credit Facility.

Collateral

The CBN set unduly overbearing collateral requirements for obtaining the loan. Collateral requisitions such as “movable assets, title documents and deed of debenture” before the loan can be assessed negate the spirit of the intervention as well as undermines the urgency that is both required and called for by the program. Such a requirement will exclude many of the MSMEs that the program is designed to support. Again, calling into question the fitness of the program design to meet its stated objective.

Single Manager of the Fund?

Another concern with the scheme is the appointment of a sole-manager for the 50 billion naira fund. The CBN appointed just one Microfinance Bank, NIRSA, to manage the funds. The sole management of such a massive amount by a single Microfinance Bank with limited branch coverage across the country is inadequate. About 37 million MSMEs are operating in states, local government areas and communities across Nigeria. With other herculean requirements highlighted above, the added burden of trying to reach a single microfinance bank at a time of restricted movement will be an obstacle too many for vulnerable small and medium scale businesses. As there are over 900 Microfinance Banks in Nigeria, the CBN should utilize more of them to ensure better national coverage of the scheme.

Conclusion

In the light of the preceding, and for the CBN’s Intervention Program to be effective and achieve its aim, it is pertinent for the apex bank to immediately revise the scheme to take care of the poorest households who operate in the informal sector. Secondly, there is a need for the process of disbursement of the credit to be diversified. More or other banks with wider reach should be enlisted into the scheme to enable the process of accessing the loan to be less cumbersome and within reach of the citizens. Lastly, if the programme is indeed to achieve its intended and stated goals, then the CBN should, as a matter of necessity, review the collateral requirements and other conditionalities for both MSMEs and households. The CBN must explicitly define which household is eligible for funding through the program. As it is presently framed, the most vulnerable Nigerian families will not be able to access the fund because of unclear and onerous conditions.

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