The Central Bank of Nigeria (CBN) has instructed banks to accept school certificates and Bank Verification Number (BVN) as collaterals from enterprising young school leavers.
According to the reviewed guideline, for its N220 billion micro, small, and medium scale enterprises development fund (MSMEDF), this will encourage entrepreneurial ventures and new businesses in the country to develop and thus create jobs for school leavers.
The decision to allow business start-ups borrow from the fund is aimed at boosting graduate employment by encouraging banks to lend to graduates intending to set up businesses.
The CBN governor, Mr Godwin Emefiele, while addressing the just concluded 7th annual Banker’s Committee Retreat, had announced that the apex bank would soon introduce measures to generate one million graduate employments.
He said: “In 2016, the CBN is contemplating a programme that would support SMEs at concessionary pricing to our young graduates. We need to get more people to be employed. The Central Bank would, over the next few weeks, work out the initiative to create employment for at least one million graduates in Nigeria in 2016. That would entail the support from Nigerian banks and our development partners.”
The banking sector regulator stated that collateral requirements from start-ups by Participating Financial Institutions (PFIs) shall be educational certificates, such as SSCE, National Diploma (ND), Nigerian Certificate in Education (NCE), National Business and Technical Examination Board (NABTEB), Higher National Diploma (HND), university degree (NYSC certificate, where applicable) and a guarantor.
For the start-ups to access the MSMEDF, they must present their BVNs.
Part of the 23-page new revised guidelines that was posted on the CBN’s website stated that incentives would be given to start-ups that apply for the fund.
In addition, the CBN also reduced interest rate it charges PFIs accessing the loan from three per cent to two per cent.
“All PFIs shall access funds at an interest rate of two per cent per annum and on lend [to bank customers] at nine per cent per annum, inclusive of all charges. The interest rate chargeable under the MSMEDF may be reviewed by the Central Bank of Nigeria from time to time,” it added.
It also stated that PFIs are expected to accept charges on fixed and floating assets of the financed projects as collateral for start-ups.
Previously, only existing businesses could borrow from the fund through their banks. The new guidelines, however, removed this limitation stating, “Participating Financial Institutions (PFIs) are required to fund start-up projects under the MSMEDF. To encourage Deposit Money Banks (DMBs) and Development Finance Institutions (DFIs), some incentives shall apply.
According to the central bank, Venture Capital Firms (VCFs) that wish to finance start-ups in the form of equity participation shall be eligible to access the MSMEDF at two per cent for investment in start-up projects. The collateral for such facility to the VCF shall be bank guarantee.
The CBN also said that banks and other finance institutions that lend to business start-ups under the fund would be allowed to access the fund at zero interest rate.