In June 2020, the Central Bank of Nigeria (“CBN”) disclosed its plans to release a framework for the integration of non-interest window in all its intervention programmes with the twin objectives of supporting businesses and households that have been negatively impacted by the COVID-19 pandemic and promoting financial inclusion in Nigeria. The CBN has now published series of guidelines for the various intervention schemes, including the Guidelines for the Operations of the Agri-Business, Small and Medium Enterprises Investment Scheme (AGSMEIS) for Non-Interest Financial Institutions (the “Guidelines”).
The Guidelines contain the framework governing the participation of Non-Interest Financial Institutions (“NIFIs”) in the Agri-Business, Small and Medium Enterprises Investment Scheme (the “Scheme”), which was established in February 2017 by the Bankers’ Committee to support government’s policy measures and efforts for the promotion of agricultural businesses, micro, small and medium enterprises (“MSMEs”) as vehicles for sustainable economic development and employment generation.
Pursuant to the guidelines establishing the Scheme in 2017, deposit money banks, discount houses and merchant banks licensed by the CBN to provide banking services in Nigeria are required to contribute 5% of their annual profit after tax to be deployed for equity investment in eligible companies. NIFIs have now been integrated into the Scheme to deepen financial inclusion.
The objectives of the Scheme include the creation of employment opportunities, improving access to affordable and sustainable finance for agri-businesses and MSMEs and managerial capacity development for agri-businesses and MSMEs. Eligible activities covered under the Scheme are (i) businesses across the agricultural value chain, covering production, inputs supply, storage, processing, logistics and marketing; (ii) MSMEs in the real sector including manufacturing, mining and petrochemicals; and (iii) MSMEs in the service sector including information and communication technology and the creative industry. The CBN may however introduce other eligible activities.
In this post, we highlight some key points arising from the Guidelines.
The Guidelines provide for the governance structure of the Scheme as it relates to the participation of NIFIs. By the Guidelines, the Scheme shall have a board of directors to be constituted by the Bankers’ Committee. The key responsibility of the board of directors is to oversee the Scheme. In addition, a special purpose vehicle (“SPV”) will be established to manage and monitor investments/projects under the Scheme.
Funding Matters and Compliance with Principles of Non-Interest Finance
The Guidelines provide for the creation of a fund known as ‘AGSMEIS Non-Interest Fund’ to be domiciled in a dedicated account with the CBN (the “Fund”). Non-Interest Deposit Banks (whether full-fledged or window) are required to contribute 5% of their profit after tax annually to the Fund. The Fund shall be deployed to finance eligible activities for start-ups, business expansion or revival of ailing companies.
A key condition for the utilisation of the Fund is that financing must be in accordance with the principles governing the operations of NIFIs. A key underlining principle to note in this regard is that there is a general recognition of profit and loss sharing and the prohibition of interest.
Application of the Fund
The application of the Fund is categorized into 3 broad components, namely: debt, equity and developmental.
· Debt: The debt component constitutes 50% of the Fund to be disbursed as term financing and/or working capital to eligible businesses through Non-Interest Deposit Money Banks. The term financing includes equipment finance and any asset purchased under the debt component is required to be registered with the National Collateral Registry, which is in line with the Secured Transactions in Movable Assets Act, 2017 (“STMAA”). It may also be necessary for borrowers that are incorporated companies to register any security interests created with the Corporate Affairs Commission as required by the Companies and Allied Matters Act, Cap C20 Laws of the Federation of Nigeria, 2004 (“CAMA”).
Under the debt component, the financing limit is N10,000,000 with a tenor of up to 7 years, a markup of 5% per annum and a maximum moratorium period of 18 months for principal and 6 months on mark up.
· Equity/Corporate Debt: The equity component constitutes 45% of the Fund to be channelled through Islamic Fund Managers or Windows licensed by the Securities and Exchange Commission. This component can be deployed for equity, quasi-equity and non-equity financing in agri-businesses and SMEs. The quasi-equity investment includes convertible Sukuk while non-equity financing includes investment in Shariah-compliant commercial papers and corporate Sukuk. The investment is subject to a maximum of N2,000,000,000 with a tenor of up to 10 years. There is an initial lock-up period of 3 years for equity investment and a maximum moratorium of 6 months for coupon payment in respect of non-equity financing.
· Development: The remaining 5% of the Fund is for the developmental component of the Scheme, which is to be deployed for capacity building and technical assistance to MSMEs and to cover the operational costs of the Scheme.
Modalities for Accessing the Fund
For the debt component of the Fund, the following steps are required to be taken in order to access the Fund:
· The eligible applicant shall submit completed application form to the Entrepreneurship Development Institution (“EDIs”), Apex Trade Associations (“ATAs”) or Non-Interest Deposit Money Banks (where applicable).
· The EDIs, ATAs and Non-Interest Deposit Money Banks are required to collate, appraise and submit the applications received to the CBN.
· The eligible applicant is also required to submit an application to any of the Participating Financial Institutions (“PFIs”).
· The PFI shall appraise and forward successful applications to the SPV. The SPV has the duty to manage and monitor investments/projects under the Scheme.
· The SPV shall review the applications for completeness, approve and forward approved applications to the CBN.
· The CBN shall release funds to the PFIs as agents of the SPV for asset purchase.
· The PFI shall purchase the asset on behalf of the SPV for on-selling to the successful applicant using exchange-based contracts of Murabaha, Salam or Istisna’a at a mark-up of 5% which is due in whole to the SPV.
· The PFI is mandated to transfer the financed asset through any of the approved exchange-based contracts to beneficiaries within 10 working days from when it acquired the asset on behalf of the SPV.
· The payment obligations of the beneficiaries will commence after a moratorium of 18 months for principal and 6 months for mark-up.
The equity/corporate debt component requires the following:
· An eligible applicant shall apply to the fund manager.
· The fund manager shall appraise and forward successful application(s) to the SPV for approval.
· The SPV shall forward approved applications to the CBN for disbursement of fund to the investee company.
Responsibility of the Beneficiaries
To achieve the desired objectives of the Scheme and for the beneficiaries to take maximum benefit of the financing opportunities provided by the Scheme, the beneficiaries are required to do the following:
· Allot shares and issue Sukuk certificate of investment to the SPV (where applicable);
· Ensure prudent utilisation of funds;
· Keep up-to-date records on the companies’ activities under the Scheme;
· Make the companies’ books, records and structures available for inspection by the appropriate authorities when required; and
· Comply with guidelines governing the Scheme.
The integration of NIFIs into the Scheme is commendable as this will increase access to finance for many agri-businesses and MSMEs, which will hopefully aid businesses in their efforts to rebound from the negative impact of the COVID-19 pandemic, culminate into the overall development of the agricultural sector and lead to job retention and creation.
 The Bankers’ Committee is a committee comprising the Central Bank of Nigeria, the Nigerian Deposit Insurance Corporation, Deposit Money Banks, Discount Houses and Merchant Banks operating in Nigeria.
 That is any Deposit Money Bank or Microfinance Bank licensed by the CBN to provide banking services in Nigeria.
 Private equity investors licensed by Securities and Exchange Commission and appointed by the board of directors constituted by the Bankers’ Committee.
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