Nigeria has grappled for long with under- investment in the real sector of the economy. This has had attendant negative impact on its growth and development. Whereas the real sector is the backbone of the economy of most developed nations, the reverse has been the case with Nigeria for decades since crude oil became the mainstay of the economy. The pandemic and price war induced crash in international crude oil trade in the 1st Quarter of 2020 has aggravated further. Economic Recession is almost a certainty in the short to medium term; but it also offers new opportunities for sustainable entrepreneurial resurgence in the real sector.
As if in anticipation of the challenges, and with a view to unlocking the huge potentials embedded in the real sector as engine for promoting growth, productivity and job creation, the Central Bank of Nigeria (CBN) established a Three Hundred Billion Naira (N300,000,000,000.00) Real Sector Support Facility (RSSF) with the understanding of the Bankers’ Committee in 2019.
The facility is to support investors in new and expansion projects with capital credit enhancement starting from Five Hundred Million Naira (N500,000,000.00) up to a maximum of Ten Billion Naira (N10,000,000,000.00).
Activities targeted by this credit facility are the agricultural value chain, manufacturing, mining, solid minerals activities and other strategic sub-sectors.
Consequently, applicants are expected to demonstrate that their businesses fall within the purposes spelt out above. It is therefore imperative for applicants to be familiar with and indeed meet the basic requirements of accessing the facility as specified by the CBN to ensure that their application is successful.
The CBN released the first RSSF Guidelines in December 2014 which was further revised in January 2016 and then in August 2018.
Objectives of the Facility:
- To improve access to finance in the real sector (i.e. agricultural value chain, manufacturing, mining, solid minerals activities and other strategic sub- sectors) of the Nigerian economy.
- To increase output, create job opportunities, diversify the economy, increase access to foreign reserves and provide inputs for the industrial sector on a sustainable basis.
- Stimulate growth in employment elastic sectors.
Activities covered under the facility are new (Greenfield), start-ups and expansion (Brownfield) projects under the following sub-sectors:
- Agricultural Value Chain (non-primary production), and
NB: Priority is given to projects with high local content, import substitution, foreign exchange earnings and huge potential for job creation. Trading Activities are expressly excluded from this facility. With the twin negatively impacting effect of Covid-19 Pandemic and global crash in oil prices; forex inflow drop and devaluation of Naira, it is a no brainer that qualifying, non-oil businesses with appreciable export potential and forex earning component will likely attract appreciable support under the RSSF.
Loan amount is a minimum of Five Hundred Million Naira (N500,000,000) and up to a maximum of Ten Billion Naira (N10,000,000,000) for a single obligor . Any amount above Ten Billion Naira (N10,000,000,000) requires a special approval by the CBN.
Interest rate under this facility was earlier at 9% per annum payable on a quarterly basis. However, based on the Covid-19 Pandemic, interest rates on all CBN Intervention Facilities have been reduced to 5% per annum for a period of one (1) year effective from 1st March 2020. Borrowers can therefore look forward to a 5% interest rate on facility granted within the one (1) year window.
Types of Facilities:
The 2014 and 2016 Guidelines provided for two facilities namely:
- Working capital for purchase of raw materials etc, which shall be for a period of one (1) year with a maximum rollover of one (1) year , subject to approval.
- Term loan for acquisition of plant and machinery etc which shall have a maximum tenor of ten (10) years depending on the complexity of the project. Each project’s tenor shall be determined in relation to its cash flow and the life of the underlying collateral. The facility allows for a one (1) year moratorium in the loan repayment schedule.
Two additional facilities were introduced by the CBN in the August 2018 Guidelines namely:
- Differentiated Cash Reserve Requirement (DCRR) Programme: Under this Programme, Deposit Money Banks (DMBs) may request from the CBN, a release of funds under their CRR to finance the eligible projects subject to DMBs providing evidence that the funds shall be directed at the projects approved by the CBN. The tenor is for minimum of seven (7) years and the moratorium shall be for two (2) years. It is important to note that emphasis here is on new (Greenfield) Projects.
- Corporate Bonds (CBs) Programme: This program involves investment by CBN and the general public in CBs which are financial instruments issued by corporate entities and that meet eligibility criteria/transparency requirements by CBN especially for Triple A-rated entities. Such requirement would include publishing through printing of an information memorandum spelling out the details of the projects for which the funds are required together with terms and conditions showing that these are long term projects that are employment and growth stimulating. The tenor and moratorium shall be as specified in the prospectus by the issuing corporate but the tenor must not be below seven (7) years.
NB: According to the CBN Policy in response to the Covid-19 Pandemic, all CBN intervention facilities are granted further moratorium of one year, effective from 1st March 2020. It will appear therefore that any intervention loan currently under moratorium is granted additional period of one year.
Repayment under these facilities shall be spread and quarterly principal repayments shall be remitted to the Special Intervention Reserve (SIR) Account domiciled in the CBN.
- Eligible businesses shall submit applications directly to a Participating Financial Institution (PFI) with the following documents:
- Business plan which should expressly state the financing plan, economic benefits, environmental impact assessment report, etc.
- Audited accounts (3 years) for existing company OR Statement of Affairs for startups and companies with less than 3 years of existence.
- Copies of duly executed offer documents between the bank and the loan applicant.
- Certificate of Incorporation
- Brief on directors
- At least two (2) Credit Report of the company and directors
- Proposed schedule of fund disbursement
- The CBN shall within 5 working days of the PFI’s request, inform the PFI of the status of its request.
- Upon disbursement of the fund by the CBN, the PFI shall within 5 working days disburse the approved limit according to the proposed disbursement schedule.
Eligibility Criteria for Participation:
- Participating Financial Institutions (PFIs): All Deposit Money Banks (DMBs) and Development Finance Institutions (DFIs). Only CRR contributing DMBs shall be eligible to participate under the DCRR. For CBs, all financial institutions and general public are eligible to participate in investing in corporate bonds.
- Any entity falling within the definition of an SME (entities with an asset base (excluding land) of between N5million and N500million and with labour force of between 11 & 300) and/or Manufacturer,
- An entity wholly-owned and managed Nigerian Private Limited Company registered under Companies and Allied Matters Act,
- Legal business operated as a sole proprietorship,
- Be a member of relevant organized Private Sector Association such as MAN, NASME, NACCIM, NASSI etc.
NB: A Borrower under the CB Programme shall be an entity incorporated in Nigeria under the Companies and Allied Matters Act and must not have a non-performing facility with any financial institution.
Prior to the disbursements of the loan, each of the PFIs are required to deposit with the CBN, securities with market value of not less than 120% of its specified loan amount. Eligible securities include the following:
- Nigerian Treasury Bills
- FGN Bonds
- Other Bonds backed by the
- guarantee of the Federal Government
- Any other securities acceptable to the CBN
Some PFIs have disclosed the documents that they will require from borrowers which include:
- Formal application letter ,
- Certificate of incorporation, memorandum and Article of Association (MEMART),
- Management/Audited account,
- Board resolution to borrow,
- Bank(s) statement of account, (without encumbrance),
- Feasibility study/Business plan, projected cash flow analysis etc.
Verification/Monitoring of Projects:
- Projects under this facility are verified by the CBN. Acceptance or rejection of an application for the facility shall be communicated to the PFIs and the borrower within five (5) working days after verification.
- CBN reserves the right to reject an application from PFIs that do not adhere to the requirements of the Guidelines.
- The project shall be monitored, and impact evaluated by the CBN periodically.
The following among others shall constitute infractions under the Guidelines:
- Loan diversion
- Delay in disbursement to beneficiaries
- Delay in remittance of quarterly repayments.
Penalties for the Infractions
- For loan diversion and delay in remittance of quarterly repayments, the penalty shall be the Monetary Policy Rate (MPR) plus 2 per cent of the amount outstanding.
- In cases of two (2) quarterly defaults by the beneficiary, the lending bank shall be liable to pay back the amount outstanding within two (2) weeks, failing which the CBN shall debit the lending bank.
Discontinuation of a Credit Facility:
Whenever a loan is repaid or the Facility is otherwise discontinued, the lending bank shall return the fund to the SIR Account in the CBN within (three) 3 working days, providing the details of the credit Facility.
The intervention of the CBN vide the RSSF is commendable and couldn’t have been more timely. The outcome of the current Covid-19 Pandemic which has been projected to result in a credit crisis in the economies of most African and developing nations by the World Bank and its development partners, has further accentuated the imperatives of leveraging the opportunities in the real sector which has prospect of promoting economic growth, but which unfortunately has received little attention from previous administrations.
To maximize the opportunity the RSSF affords, it is our expectation that the relevant stakeholders in the scheme would see to its success by shunning all forms of corruption and nepotism that often discourage operators in the targeted sectors of the economy. On their part, it is advised that interested businesses and corporations, mindful of exploring financing opportunities available under the facility, would seek and obtain the necessary advisory of professionals in the legal and financial services sector before participating.
Businesses are further encouraged to watch out for additional business support initiatives which may soon be rolled out by the Vice President-led Economic Sustainability Committee set up by the Federal Government in the midst of the Pandemic with a view to alleviating its long terms consequences on the economy.
You are welcome to direct questions and clarifications to:
Phone: +234 802 290 5559, +234 808 313 0255
Address: TheJuweirat, No. 12, Wede Obahor Street, Atlantic View Estate, Off Alpha Beach Road, Igbo- Efon, Lekki - Lagos State.
While Synergy Attornies has taken the trouble to avoid any deliberate misstatement or errors in this informational bulletin, it expressly disclaims any representation that the opinions contained in it may be relied upon as legal or professional advice. Trusted independent counsel and direct engagement with entities charged with processing the facility is the prudent course to follow by interested applicants which we encourage.