Credit Gurantee, a Tool for Increased Access to Finance for MSMEs, Says DBN

By Tony Obiechina, Abuja

Current realities in Nigeria including the Covid19 Pandemic has brought to light the urgent need for additional support in alleviating the financial constraints faced by MSMEs.

This was the main thrust of the discussion by industry experts at the just concluded DBN Webinar Series with theme “Risk Sharing: A Key Driver for Increased Financial Access and Economic Development for MSMEs”.

Panelists on the session included: CEO, InfraCredit, Mr. Chinua Azubike; Group Head Emerging Business, Access bank Plc, Mrs. Ayodele Olojode; Senior Financial Sector Specialist, World Bank, Mr. Ahmed Rostom and MD, JNC International, Mrs. Claire Omatseye.

The panelists contented that there is a need to increase awareness by key industry stakeholders in ensuring that the much-needed stimulus and alternative means of facilitating financing are discovered to stem the shock to Nigeria’s economic and financial system.

They also pointed out that Credit Guarantees Schemes (CGS) are popular policy instruments that were created to help alleviate the credit constraints faced by MSMEs.

The panelists however noted that there exist some challenges with risk sharing in the local market as most MSMEs do not fully grasp the concepts of risk-sharing and credit guarantees.

They also stressed the need for key industry stakeholders, MSMEs, Banks, and Regulators to openly discuss alternative means of financing and the existence of risk-sharing.

Group Head Emerging Business, Access bank Plc, Mrs. Ayodele Olojode explained that MSMEs do not have regular and sustained access to finance because of limitations like high interest rates, lack of tangible collateral and economic conditions.

She emphasized that “Risk sharing facilities will help increase access to finance which helps MSMEs grow, increases employment and output in the economy”.

According to her, “the credit guarantee industry in Nigeria is still at a nascent stage, where the volume of guarantees and the size of the industry contributions to SMEs remain low compared to peers in other economies. Credit guarantee is the future because it will compensate for insufficient collateral, provide regulatory capital relief for banks, growth for MSMEs, increased economic GDP and job creation.”

On economic growth challenges and the impact of COVID-19 in Nigeria, Senior Financial Sector Specialist, World Bank, Mr. Ahmed Rostom shared data from surveys carried out by the World Bank between April and March 2020.

The survey highlighted the impact that the pandemic has had on the Nigerian economy stating that 42% of individuals who were working before March 2020 especially those working in hospitality and service industry are no longer working, a situation which he described as disturbing.

While rounding up the webinar, MD, JNC International, Mrs. Claire Omatseye stressed the importance of risk sharing among all stakeholders.

“For MSMEs, risk sharing helps eliminate financial oppression and predatory lending, while also ensuring prosperity is shared equitably. For the government, risk sharing contributes to the realization of its economic objectives and stabilization policies”.

The DBN Webinar series is aimed at providing capacity building for MSMEs through digital platforms to ensure they are empowered to remain in business through this unprecedented period.

The Development Bank of Nigeria is a development finance institution, established by the Federal Government in collaboration with global development partners to address the major financing challenges facing Micro, Small and Medium Scale Enterprises (MSMEs) in Nigeria.

DBN carries out this function by providing financial institutions, predominantly Deposit-Money Banks, Microfinance Banks and other financial institutions with funding facilities designed to meet the needs of MSMEs.

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