For startups and businesses in Nigeria who borrowed money or about to borrow money from banks under various intervention programmes operated by the Central Bank of Nigeria (such as the Creative Industry Financing Initiative (CIFI) launched in 2019 which seeks to improve access to long-term low-cost financing for entrepreneurs and investors in the Nigerian creative and information technology (IT) sub-sectors), the good news, in the face of the coronavirus pandemic, is that they would no longer have to pay 9% interest rate on any loan facilities they took out with any of the commercial banks in Nigeria, in this regard. The CBN governor Godwin Emefiele, has announced an immediate cut on interest rates of all applicable CBN intervention facilities from nine per cent (9%) to five percent (5) per annum for one year, effective March 1, 2020.
“We will also consider additional incentives to encourage the extension of longer-tenured credit facilities. DMBs are encouraged to continue to build capital buffers in order to improve the resilience of the sector,” Mr Emefiele said.
Here Is All You Need To Know
- According to the CBN, about N3 trillion ($8.1 bn) of its intervention funds currently operate under various intervention programmes in various deposit money banks.
- These include the Anchor Borrowers, Commercial Agricultural Credits Scheme, Micro-Small and Medium-scale Enterprise, or Agri-Business/Small and Medium Enterprise Investment Scheme (AGSMEIS) programmes.
- The latest move by the CBN is inspired by what the CBN believes is the inability of companies to repay the loans received under the various programmes as a result of the coronavirus disease outbreak.
- Thus, the cut in the interest rate payable on such loans, the CBN governor explained, would give the businesses a breather to settle their financial obligations and help them continue to grow their businesses.
Setting Up Of A New $136 million Fund For Startups, SMEs and Households Affected By The Pandemic
- The CBN governor also announced the creation of an N50 billion ($136m) targeted credit facility for small and medium scale enterprises as well as households impacted by the COVID-19 pandemic. This, the Central Bank stated could be accessed through the Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Microfinance Bank for households, micro, small- and medium-sized enterprises (SMES). Also to benefit from the fund are hoteliers, airline service providers, health care merchants, etc.
- For startups and businesses in the heath sector, particularly pharmaceutical companies, the CBN said it has approved loans for such companies intending to expand/open their drug manufacturing plants in Nigeria, as well as to hospitals and healthcare practitioners planning to expand/build the health facilities to first-class standards.
An Extended Loan Repayment Period For Defaulters
- The Central Bank also gave further extension of the period of grace given for the repayment of the loans by one year on all principal facilities, particularly intervention loans, effective March 1, 2020.
- Accordingly, the CBN governor directed participating financial institutions to provide new loan repayment schedules for all beneficiaries to repay.
- To provide a cushion for businesses and households most affected by the outbreak of COVID-19, particularly oil & gas, agriculture, and manufacturing companies, the CBN also granted all deposit money banks leave to consider temporary and time-limited restructuring of their loan tenor and terms.
- Under this arrangement, any business that took a loan from a bank, and due to a drop in its revenue caused by the adverse consequences of COVID-19, is unable to repay back as agreed by the parties, would have the loan restructured by the bank for a longer period.
- This is to ensure that what the businesses will be paying to the bank as principal, plus interest, is reduced substantially for longer tenure, to allow the business to grow and survive.
Comments:
This is indeed a great move from the Nigerian central bank. Startups and businesses in Nigeria who may have been burdened by the weight of inability to repay loans, worsened by the hardship caused by the coronavirus epidemic, have a chance to breathe a sigh of relief for the next one year. This is also some good news for Nigerian banks who may have to enjoy some sort of relaxation in the new 65% Loan-to-Deposit ratio policy recently introduced by Nigeria’s apex bank.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer.
He could be contacted at udohrapulu@gmail.com