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Covid-19: CBN’s approach on stimulus package is restricted and exclusive

By Botti Isaac



– SOCIAL ACTION 15/4/2020

The Central Bank of Nigeria, as part of efforts by the Nigerian government to fight the COVID-19 pandemic and its impacts, announced the release of a N50Billion Targeted Credit Facility. This the country’s apex bank said was to support specifically, households and small and medium-sized enterprises that have been impacted by the COVID-19 outbreak. According to it, the intervention package was to among others, cushion the adverse effects of COVID-19 on households and MSMEs; support households and MSMEs whose economic activities have been significantly disrupted by the COVID-19 pandemic and Stimulate credit to MSMEs to expand their productive capacity through equipment upgrade, research and development. No doubt this step and its objectives can be described as very commendable. This is particularly so, when viewed against the backdrop that SMEs are the engine of growth and drivers of growth in the nation’s Gross Domestic Product (GDP), employment generation, industrial output, poverty alleviation, export promotion, and self- reliance. However, a closer and 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. This is given the fact that its structure, guidelines, and conditionality seems to sharply negate the very stated objectives of the Intervention Program.

Under the guidelines for implementation cum disbursement of the fund as released by the CBN on 23 March 2020, on the eligibility of participants, the scheme focuses on Households or Enterprise with verifiable evidence of livelihoods adversely affected by the Covid-19 pandemic; While this in itself may not be exactly out of order, , it however limits the ability of the vast majority of Nigerian households or enterprises that are not operating as registered business, but of which all the same had thriving sources of livelihoods to access such fund for stated purposes. 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 percent and about 80% to employment. This is based on the fact that 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 operate as unregistered businesses and are therefore not captured in the GDP. And so arising to the fact that there is no data base that captured this segment of the economy and its contributions, they are therefore invariably skewed out of the CBN Targeted Credit Facility. What this, therefore, means, in reality, is that, the needs of the poorest of the poor householders are not captured in or rather, cannot be taken care of by the scheme, contrary to what the CBN touts in the program as is.

In a similar vein, another major concern and issue with the scheme is a sole-manager for the N50 billion funds. The CBN stated that just one Microfinance Bank, NIRSA, will manage the funds. This is worrisome considering the fact that there are over 37 million MSMEs operating in states, local government areas and communities across Nigeria and that the process of registering to access the fund by the MSMEs being a huge task; it is disturbing and at the same time curious, to note that this huge responsibility of disbursing the funds is in the hands of only one Microfinance Bank out of the over 800 Micro Finance Banks in Nigeria.

Also, collateral requirement for the loan is additionally another issue of concern that in its present form, will limit the ability of particularly Micro enterprises to access the fund. The CBN set unduly overbearing collateral requirements for obtaining the loan. Collateral requisitions such as “movable assets, title documents and deed of debenture” etc, before the loan can be assessed, in the purview of MSMEs, negate the spirit of the Intervention. This is so because clearly, majority of micro businesses cannot provide these requirements’ It therefore again follows, that they are automatically marginalized from the scheme.

Although 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, this does not adequately address some post COVID-19 challenges the businesses may face. With the current dip in the global price of crude oil, an inevitable recession stares us in the face. This means that government spending capacity, to boost aggregate demand will be drastically affected. This, in turn, means that wages and other economic stimuli will be stagnant for some considerable period of time. The implication of this is that the purchasing power of the citizens will significantly be affected and thus affecting demand. This, in turn, will lead to low productivity or production as a result of drop in prices (deflation). This kind of situation coupled with the attending effect of devaluation will stifle local businesses thereby increasing the level of unemployment in the country. It is there important to put in place measures to adequately address to adequately protect and defend citizens and the economy in the post Covid-19 Crisis.

And therefore in the light of the foregoing, and for the CBN’s Intervention Program to be affective 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 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 loans be less cumbersome and within the reach of the citizens. lastly, if the scheme is indeed to achieve its intended and stated goals, then the CBN should as a matter of necessity, review the collateral requisitions and conditionality tied to the Intervention Funds in a manner that are indicative and reflective of government’s understanding of the COID-19-inflicted difficulties on people and businesses in the country.botti

Botti Isaac
Programme Officer,
Social Development Integrated Centre (Social Action)
No 20, Yaling Street, Wuse II, Abuja
Skype: Botti Isaac
Twitter: @BottiIsaac

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