CHAPTER FIVE
STATE GOVERNMENTS’ AND FEDERAL CAPITAL TERRITORY (FCT) PARTICIPATION UNDER THE FUND
5.0 Background In recognition of State Governments/FCT strategic role in grassroots economic development, the Fund anticipates their indirect participation through the PFIs in their respective jurisdictions.
5.1 General Requirements To participate in the Fund, a State Government/FCT shall satisfy the following conditions:
a) Provide evidence of Resolution of State House of Assembly authorizing the State to participate and access the Fund.
b) Establish a Micro Credit/MSME SPV which shall coordinate the applications by PFIs for the Fund. However, the PFIs shall be solely responsible for the appraisal, disbursement and recovery of loans under the Fund.
c) Provide a Bank Guarantee/Irrevocable Standing Payment Order (ISPO) equivalent to the amount requested including interest charges. The ISPO shall be invoked to accommodate the outstanding amount in default at the end of the loan tenor.
d) Sign a Memorandum of Understanding (MoU) with the CBN on modalities for the implementation of this window.
e) Operate a Sinking Fund Account with the CBN, into which any outstanding balance of disbursed amount shall be paid at the expiration of the loan.
f) Present a convincing annual framework on empowerment programme for prospective target groups, thereby creating sustainable demand for 20 financial services and providing the basis for measuring performance of the Fund.
5.2 Capacity Building Capacity building shall be conducted for PFIs and borrowers as specified below:
a) PFIs: PFIs shall mandatorily undergo pre-disbursement capacity building programme to be implemented by the CBN. The Programme shall cover loan appraisal, disbursement, monitoring and recovery among others.
b) Borrowers: The State Government/FCT shall provide capacity building opportunities to borrowers through State-owned skills acquisition/vocational centres, CBN Entrepreneurship Development Centres (EDCs) or any such relevant agencies.
5.3 Utilization of Fund
a) Maximum Limit per State/FCT A State Government or the FCT shall access a maximum of N2.0 billion.
b) Tenor The facility shall have a maximum tenor of one (1) year for micro enterprises and up to five (5) years for SMEs with option of moratorium. PFIs shall access the fund as many times as possible upon full repayment.
c) Interest Rate The interest rate shall be at 3% per annum to the State PFIs for on-lending to borrowers at a maximum of 9% per annum, inclusive of all charges.
5.4 Participating Financial Institutions (PFIs) The State Government/FCT shall participate in the Fund through any of these PFIs (government or privately owned) in their Local Government Areas:
a) Microfinance Banks (MFBs) 21
b)Non-Governmental Organization – Microfinance Institutions (NGO-MFIs)
c) Financial Cooperatives
d) Finance Companies
5.5 Mode of Application The required modalities are as follows:
a) The borrowers shall apply to the PFIs for a facility.
b) The PFIs shall appraise the applications for economic and financial viability of the request.
c) The PFIs shall forward their applications through the State SPV to the CBN specifying the amount, categories of clients, purpose, etc.
d) CBN shall appraise all applications submitted by the SPVs in favour of the PFIs, in line with the criteria in Section 5.5.
e) CBN approves and disburses funds through the PFIs’ correspondent banks.
5.6 Roles and Responsibilities of Stakeholders To achieve the desired objectives, the responsibilities of the various stakeholders shall include:
5.6.1 Central Bank of Nigeria The CBN shall:
a) Articulate clear guidelines for the implementation of the Fund.
b) Provide funds for the programme.
c) Open a Repayment/Sinking Fund Accounts for the ISPO proceeds and the interest charges from the State Governments/FCT
d) Provide capacity building programme from the Grant Component to PFIs in the areas of loan appraisal, disbursement, monitoring and recovery among others 22
e) Release approved fund to the PFIs through their correspondent banks and advise the PFIs accordingly.
f) Notify the State Government/FCT through the StateSPV of all disbursements made to the PFIs
g) Monitor the implementation of the Fund and prepare periodic reports on its performance
h) Receive periodic returns from PFIs as may be specified
i) Ensure compliance of other parties with the Guidelines. 5.6.2 State Government/FCT The State Government/FCT shall:
a) Provide evidence of Resolution of State House of Assembly authorizing the State to participate and access the Fund.
b) Establish a Micro Credit/MSME Special Purpose Vehicle (SPV) for the purpose of coordinating applications by PFIs for the Fund. The PFIs shall be solely responsible for the administration (disbursement and recovery) of the Fund.
c) Provide a bank guarantee or Irrevocable Standing Payment Order (ISPO) for the loan amount plus interest charges signed by the State Governor, Commissioner for Finance and State Accountant General.
d) Comply with terms and conditions of the MoU.
e) Access the Fund on behalf of their participating financial institutions at 3% interest rate per annum.
f) Present a convincing annual framework/roadmap on their empowerment programme for prospective target groups, as a basis for measuring performance of the loan
g) Provide borrowers of the Fund with capacity building opportunities through State-owned skills acquisition/ vocational centres, CBN Entrepreneurship Development Centres (EDCs) or any such relevant agencies. 23
5.6.3 State Special Purpose Vehicle (S-SPV) The S-SPV shall:
a) Collate and forward applications by PFIs to CBN
b) Carry out quarterly monitoring of PFIs activities
c) Render quarterly report on performance of the loans to the State Government and CBN.
d) Build capacity of MSMEs under this window
5.6.4 Participating Financial Institution (PFIs) The PFIs shall:
a) On-lend funds to MSMEs
b)Disburse funds within 5 working days of receipt to the borrowers
c) Monitor funds utilization by borrowers
d) Ensure repayment by borrowers
e) Open dedicated account with their correspondent banks for this window and forward details of the account to the CBN
f) The PFIs shall repay principal and the interest on the approved facility to the CBN as and when due
g) Render periodic returns to CBN and State SPV
h)Not be eligible to function as SPVs for States under the Fund
5.6.5 Deposit Money Banks (DMBs)
a) Open a dedicated account for PFIs for disbursement and recovery under this window.
b) Ensure release of approved funds to PFIs within 48 hours. c) Remit repayments by PFIs to CBN within 5 working days. 5.7 Monitoring & Evaluation Framework
a) The projects shall be subject to on-site verification and monitoring by the CBN in conjunction with the PFIs during the loan period.
b) There shall be off-site monitoring through quarterly reports submitted to CBN and the State SPVs.
c) Reports of the monitoring exercise shall be shared with the concerned PFIs and State Governments.
d) The State SPVs and CBN shall leverage Apex Associations’ capacities and information in monitoring and evaluation.
e) CBN shall periodically evaluate the activities of the State SPVs and PFIs to ensure achievement of the objectives of the Fund.
5.8 Infractions PFIs and State Governments/FCT may be suspended or black listed for infractions such as fund diversion, etc.
5.9 Amendments The provisions of the Guidelines under this window shall be subject to review as shall be deemed necessary.
Enquiries and Returns should be addressed to: The Director, Development Finance Department, Central Bank of Nigeria, Corporate Headquarters Central Business District, Abuja. Fax No. 09-46238655 www.cbn.gov.ng
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