The Central Bank of Nigeria (CBN) recently released the guidelines for the Agricultural Small/Medium Enterprises Investment Scheme (AGSMIES) an initiative of the Bankers Committee to ensure that more funding goes to small businesses particularly in the agriculture sector in an effort to help restore the Nigerian economy.
Last year at its annual retreat in Lagos, the Bankers Committee which comprises all bank chief executives and regulators had agreed to set aside a portion of banks’ profit for on lending to small and medium businesses in the country, particularly in the agriculture sector.
Specifically, five per cent of their profit- after- tax declared after their financial statements was adopted by the external auditors and approved for publication by the Central Bank of Nigeria (CBN).
The pool of funds which would be kept at the CBN would be used to finance eligible bankable projects that are meant for export drive or import substitution.
According to the guideline, definition of small and medium enterprises are those whose sales turnover do not exceed N4.5 billion and whose total assets is not in excess of N4.5 billion.
Also the company’s total tax paying staff should not be more than 250 although this is subject to review by the board of the AGSMIES. Small and medium businesses can draw facilities from the fund up to N2 billion.
The guideline’s requirements for companies willing to access the fund include compliance with the provisions of the Companies and Allied Act of 1990 such as the filing of annual returns including audited financial statements.
They must also comply with all applicable taxes laws and regulations and render regular returns to appropriate authorities and they must apply through a participating bank which would submit the application to the CBN.
According to the guideline, the apex bank would having received the application, conduct an initial review of the OP project to ensure that the project is within the focal sectors of the scheme.
The project will be reviewed by the Project Review Committee which consist of all the chief risk officer of all the banks.
Explaining the rationale for the AGSMIES, the CBN governor, Godwin Emefiele, said the country needs to create an economy that is shielded away from international shocks, and the best way to do it is to help the MSMEs in the country grow.
To this end, the Bankers Committee which comprises all bank chief executives and regulators had agreed to set aside a portion of banks’ profit for on lending to small and medium businesses in the country, particularly in the agriculture sector.
The commitment of the banks is similar to the Small and Medium Enterprises Equity Investment scheme a voluntary initiative of the Bankers’ Committee. The initiative which was approved in 1999 was in response to the federal government’s concerns and policy measures for the promotion of Small and Medium Enterprises (SMEs) as vehicles for rapid industrialisation, sustainable economic development, poverty alleviation and employment generation.
With the present challenges of the country, economists have stressed the need to help small businesses grow in order to speed up the economic recovery as well as the diversification of the economy.
A report by the World Bank states that SMEs play a major role in most economies, particularly in developing countries as they contribute up to 45 per cent of total employment and up to 33 per cent of national income (GDP) in emerging economies.
These numbers are significantly higher when informal SMEs are included. It is estimated imaged that, 600 million jobs would be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and Sub-Saharan Africa. In emerging markets, most formal jobs are with SMEs, which also create four out of five new positions. However, access to finance is a key constraint to SME growth, as without it, many SMEs languish and stagnate.
These SMEs however face a financing gap as a World Bank report indicated that approximately 70 per cent of all micro, small and medium scale enterprises (MSMEs) in emerging markets lack access to credit.
While the gap varies considerably between regions, it’s particularly wide in Africa and Asia. The current credit gap for formal SMEs was estimated to be $1.2 trillion.
The total credit gap for both formal and informal SMEs was as high as $2.6 trillion.