“They want to intervene on the MSME space to increase funding to that space. At the end of the day, what benefits the country more, at any particular point in time, will be what trumps the order. For now, what is key to us is managing liquidity and inflation,” Diamond Bank head of retail banking Jude Anele told CNBC Africa on Tuesday.
“The last decision they took on increasing the cash reserve requirement for public sector funds has created some liquidity squeeze, which has made interest rates to go slightly up, which will impact on loanable funds.”
60 per cent of the 200 billion naira will be allocated to women entrepreneurs. This particular allocation, according to Anele, is motivated by the Central Bank’s Financial Inclusion Strategy, as women are more financially excluded than men.
Additionally, about 42 per cent of women entrepreneurs find themselves in the micro-segment, where most of the traders do not own bank accounts and have no means whatsoever of obtaining a loan.
“The Central Bank knows that if they don’t make any conscious effort to specifically target these women entrepreneurs, if you leave it the way it’s been, the women will never see any of that money because most of them operate at a level where they, on their own, cannot access funds through other micro finance banks or even the commercial banks,” Anele explained.
Even at a microfinance level, interest rates can still be significantly high. This is due to an inability to generate enough local deposit from the public, and as a result some microfinance institutions end up not having enough of a network to mobilise cheap deposits.
The issue of trust is an additional player that deters the public from depositing their own money into microfinance institutions.
Microfinance institutions then purchase money from the wholesale market, which is at high cost, and subsequently lend it at a high rate to make a good return.
“In my view, 200 billion naira is a drop in the ocean. If you look at the funding gap for MSMEs in Nigeria, it’s over 80 billion dollars. So it’s a drop in the ocean but that is still appreciated. What the Central Bank is trying to do is to stimulate the market,” said Anele.