The Central Bank of Nigeria (“CBN”), in its Press Release of March 16, 2020 (“Press Release”), introduced six (6) policy measures in response to the Covid-19 outbreak. One of them was the creation of a N50 Billion Targeted Credit Facility Scheme (“the Scheme”) which was to be extended through the NIRSAL Microfinance Bank (“NMFB”) as a stimulus package to support households and small- and medium-sized enterprises (SMEs) that have been particularly hard hit by the Covid-19 outbreak.

Other policy measures, disclosed in the Press Release, are:

1. Extension of moratorium on principal repayments of intervention facilities effective March 1, 2020 for a further period of 1 year.
2. Reduction of interest rates on all CBN intervention facilities from 9% to 5% per annum for one (1) year.
3. Credit support for the healthcare industry particularly pharmaceutical companies, hospitals and health practitioners. (The CBN would later disclose a N100 Billion Credit Support Scheme for this purpose)
4. Regulatory forbearance in form of leave granted to Deposit Money Banks (DMBs) to grant temporary and time-bound restructuring of the tenor and loan terms for businesses and households adversely impacted by the Covid-19 outbreak.
5. Lastly, strengthening of the CBN LDR (Loan to Deposit Ratio) Policy by supporting industry funding levels to maintain DMBs’ capacity to direct credit to individuals, households and businesses –including the CBN’s decision to make credit facilities more attractive by making them longer-tenured.

Following the Press Release, the CBN introduced the Scheme to support households and micro, small and medium enterprises (MSMEs) affected by the COVID-19 pandemic and issued the Guidelines for the Implementation of the N50 Billion Targeted Credit Facility (“the Implementation Guidelines”) to outline the operational modalities for the Scheme.

What are the objectives of the Scheme?

(i) Cushioning the adverse effects of COVID-19 on households and MSMEs;

(ii) Supporting households and MSMEs whose economic activities have been significantly disrupted by the COVID-19 pandemic; and

(iii) Stimulating credit to MSMEs to expand their productive capacity through equipment upgrade, and research and development.

The only participating financial institution for the Scheme is NMFB and as such the Scheme shall be operated by NMFB and shall be financed from the Micro, Small and Medium Enterprises Development Fund (MSMEDF).

Who is eligible to benefit from the Scheme?

1. Households and existing enterprises that can show that their respective sources of income and business activities have been adversely impacted by the outbreak of the COVID-19 pandemic; and
2. Enterprises with bankable plans to take advantage of opportunities created by the COVID-19 pandemic.
3. The Loan Application Guidelines (for Households and MSMEs) provide an additional condition that applicants/prospective participants must consent to NMFB assessing their financial records (which may include obtaining the credit reports of such participant from any of the licensed Credit Bureau).

Activities covered under the Scheme

Activities covered under the Scheme are – 

i. Agricultural value chain activities

ii. Hospitality (accommodation and food services)

iii. Health (pharmaceuticals and medical supplies)

iv. Airline service providers

v. Manufacturing/value addition

vi. Trading

vii. Any other income generating activities as may be prescribed by the CBN.

Although, it is surprising to see that Health (pharmaceuticals and medical supplies) is also included under this Scheme considering that a separate credit support (CBN N100 Billion Credit Support Scheme for the Healthcare Industry) has already been designated for it.

What is the loan limit?

The loan limit of the facility for each category of eligible participant are as follows:

MSMEs: The loan amount which can be extended to an MSME shall be determined based on the activity, cashflow and industry/segment size of beneficiary, subject to a maximum of N25 million for SMEs. Working capital shall be a maximum of 25% of the average of the previous 3 years’ annual turnover (where the enterprise is not up to 3 years in operation, 25% of the previous year’s turnover will suffice).

Households can access a maximum of N3 million.

What is the interest rate?

Interest rate under the intervention shall be 5% per annum up to 28th February 2021 and thereafter, the interest on the facility shall revert to 9% per annum as from 1st March 2021.

What is the loan tenor?

Where a participant obtains Working Capital, such working capital shall be for a maximum period of one (1) year, with no option for rollover while those who obtain Term Loan shall have a maximum tenor of not more than 3 years with, at least, one-year moratorium.

Required Collateral

The Implementation Guidelines provide that collaterals shall be as may be acceptable by NMFB and may include any one or more of the following:

i. Moveable asset(s) duly registered on the National Collateral Registry (NCR).

ii. Simple deposit of title documents, in perfectible state

iii. Deed of Debenture (for stocks), in perfectible state

iv. Irrevocable domiciliation of proceeds

v. Two (2) acceptable Guarantors

vi. Personal Guarantee of the promoter of the business

vii. Life Insurance of the Key-Man, with NMFB noted as the First Loss Payee

viii. Comprehensive Insurance over the asset.

The collateral to be pledged by participants under the Scheme are as prescribed by the NMFB in the Loan Application Guidelines for Households and MSMEs respectively. For the purpose of collateral requirements, the NMFB further categorised Households and MSMEs into three (3) sub-categories each and broke-down the obligor limit for respective beneficiaries under Households and MSMEs into 3 thresholds for each of the sub-categories.

For Households, there is the Mini-Micro (N1 – N500,000), the Micro (N500,000 – N1.5M), and the Micro-Plus (N1.5M – 3M) and then the Loan Application Guidelines for Households create three different collateral requirements for each of the 3 sub-categories.

For MSMEs, there is the Mini SME (3M – 10M), the SME (10M – 15M), and the SME Plus (15M – 25M) and Loan Application Guidelines for MSMEs also create three different set of collateral requirements for each sub-category of MSME.

Prospective participants are to submit applications directly to NMFB for appraisal and due diligence and it is upon satisfactory appraisal of application that the NMFB shall forward the applications to the CBN for final approval. CBN then reviews applications and gives final approval for disbursement to NMFB. Periodic monitoring of projects financed under the Scheme shall be conducted by the NMFB.

Repayment of any facility obtained under this Scheme shall be made to the NMFB on installment basis by the beneficiaries depending on the nature of enterprise and the repayment schedule/work plan provided at the application stage.

The exit date of the Scheme is 31st December 2024 but the operational modalities as provided under the Implementation Guidelines shall be subject to review from time to time as may be deemed necessary by the CBN.

The Credit Reporting Act 2017 and the Secured Transactions in Moveable Assets Act 2017 are of noticeable utility in the collateral requirements for most sub-categories of beneficiaries in this Scheme. For instance, for applicants who belong in the category of Mini-Micro (N1 – N500K), their credit reports and that of their Guarantor only need to be assessed in order to adjudge their creditworthiness. There is also allowance for applicants to pledge their moveable assets which is up to 70% of the proposed facility and same will be registered in the National Collateral Registry and accepted as collateral. It will be recalled that the Credit Reporting Act 2017 and the Secured Transaction in Moveable Assets Act 2017 (Collateral Registry Act) were both signed into law in 2017 for the purposes of financial inclusion and responsible lending and to also signal the end of the era where most corporate lenders do not accept anything that is not land as collateral, it is needless to emphasise that this Scheme – considering the conditions for accessing credit thereunder – is a commendable step towards financial inclusion.