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Nigeria: Central bank issues guidelines for accessing Covid-19 credit facility

  • Credit to SME’s capped at NGN25mn for SMEs, households capped at NGN3mn

  • Health sector intervention loans of up to NGN2bn

  • Interest rate pegged at 5%, to revert to 9% from March 2021

Nigeria: Central bank issues guidelines for accessing Covid-19 credit facility
Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

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Tellimer Research
26 March 2020
Published byTellimer Research

Following Tuesday’s MPC meeting, which kept all key policy rates constant (MPR: 13.5%, CRR: 27.5%), the Central Bank of Nigeria (CBN) has disclosed its guidelines for accessing the NGN50bn credit facility for households and Small and Medium Enterprises (SME’s) affected by Covid-19 and the NGN100bn intervention fund for the health sector.

We expect that the injection of these facilities will help support and stabilise the economy over the near term, but as the effective rates on borrowing remain the same we may see a build-up in non-performing loans (NPLs) due to the overall disruptions to business activity.

The funds were initially announced last week in response to the coronavirus outbreak, which has caused a slowdown in global demand and production and could have severe consequences on domestic economic activities. 

Both the Households/SME and health sector facilities require some form of collateral and interest rates are pegged at 5% up to February 2021, after which they can revert to 9%, which is the historic rate on CBN’s intervention funds. 

Targeted credit facility for households and small and medium enterprises

The NGN50bn facility is to be funded from the Micro, Small and Medium Enterprises Development Fund (MSMEDF) and administered by the NIRSAL Microfinance Bank (NMFB). The facility is to be provided to individuals, households or SME's that are adversely impacted by Covid-19. Commercial activities highlighted as being covered by the scheme include:

  1. Agricultural activities
  2. Hospitality (accommodation and food services)
  3. Health (pharmaceuticals and medical supplies)
  4. Airline service providers
  5. Manufacturing/value addition
  6. Trading
  7. Other discretionary business activities as prescribed by the CBN.

Household loans have a maximum limit of NGN3mn, while for SME's the limit is NGN25mn with a 3-year tenor and a 1-year moratorium. Also, SME’s can access 1-year working capital loans up to a maximum of 25% of the average of the previous years’ annual turnover, with no option for rollover.

We reiterate that we see this is a positive for the sector. However due to the historical inaccessibility of credit for bottom-of-the-pyramid individuals, as well as the shutdown of non-essential government services, we believe this measure would have been more effective if it was disbursed through the commercial banks or even using specialised channels such as apps, USSD etc.

Health care intervention fund

The NGN100bn fund was set up to help the health sector adequately meet the increased demand for health care services and products that is expected to arise due to the coronavirus pandemic. Eligible participant are:

  1. Health care product manufacturers
  2. Health service providers
  3. Pharmaceutical product distributors
  4. Other human health care services

The loans can be accessed from deposit money banks (DMB’s) and development finance institutions (DFI’s), and have a limit of NGN2bn on term loans with a 10-year tenor and 1-year moratorium. Working capital loans are also available, capped at a maximum of NGN500mn, with a 1-year tenor that can be rolled over for no more than 3 years.

The lower rates could lead to an increase in health sector loans, although we still anticipate increased non-performing loans (NPLs) due to depressed economic activity.