CBN cuts intervention fund rate for banks to one per cent

An opportunity for renewed support by banks in the development finance of the Central Bank of Nigeria (CBN) may have opened up again, as the regulator, yesterday, released a fresh guideline for the Real Sector Support Fund (RSSF), cutting rates for financial institutions from three per cent to one per cent.

CBN, as part of efforts to stimulate output growth, enhance value addition and engender productivity in the economy, established RSSF to intervene in the some critical development issues.

Before now, banks were to access the fund at three per cent and lend it to small businesses at nine per cent.

It has been learnt that banks were not fully supporting the system as they insisted that the six per cent margin was not enough to cover the assessed risks inherent in lending to the targeted sectors, hence they shunned the funds.

The RSSF is scripted to channel more facilities to priority sectors of the economy, assessed to have sufficient employment capabilities, high growth potentials, increase accretion to foreign reserves, expand the industrial base and consequently diversify the economy.

In the new scheme, it will be used to support start-ups, as well as expanding the existing enterprises.

The facility specifically targets improved access to finance by the agricultural value chain, manufacturing, mining, solid minerals activities and other strategic sectors of the Nigerian economy.

The initiative rules out any support for trading activities, while according top priorities to projects with high local content, import substitution, foreign exchange earnings and huge potentials for job creation.

The RSSF will have a maximum tenor of 10 years, depending on the complexity of the project, which means that each project tenor would be determined in relation to its cash flow and life of the underlying collateral.

It would also allow for moratorium of one year in the loan repayment schedule, while interest rate will still remain at nine per cent yearly.

However, drawdown by banks from the scheme will be subject to their contributions to the Special Intervention Reserve (SIR)with the CBN, while repayments would be amortised, with quarterly principal repayments remitted to SIR Account domiciled in the CBN.

Meanwhile, the guideline has stipulated that for banks to become participating financial institutions under the scheme, it would be solely determined by their respective contributions.

“Any borrower shall be an entity registered in Nigeria under the Companies and Allied Matters Act of 1990 to be eligible,” the guideline stated.