Credit access that is available to MSMEs, businesses in Nigeria.
The Central Bank of Nigeria, CBN, has been cautious about access to credit for micro, small and medium enterprises (MSMEs) within many faces of difficulties.
According to the bank, “credit markets for MSMEs in Nigeria are characterized by market imperfections, collateral constraints, information asymmetry, low-profit margins, among others.”
Aside from these, the formal sector in the country offers MSMEs much less attractive credit due to the perception of risks in the sector.
The CBN further considered credit guarantee schemes as possible means of mitigating limited access to credit by MSMEs.
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The use of Credit Guarantee Companies (CGCs) for credit access by MSMEs in Nigeria
Credit Guarantee Companies, CGCs in Nigeria are elemental in the CBN credit guarantee scheme providing reasonable features as collateral.
The CGC institutions get licences from the CBN with the primary objective of providing guarantees to banks and other lending financial institutions against the risk of default by obligors.
A guarantee issued by a CGC represents a legal commitment to discharge the liability of a borrower in the case of default.
The CBN recognises the role of CGCs as lending facilitators. It also has a guideline that is in line with the relevant provisions of BOFIA 2020 and the CBN Act.
What does a CGCs do for an MSMEs
Aside from facilitating access to credit for MSMEs, CGCs also stimulate lower interest rates on loans.
MSMEs can obtain a guarantee from any CBN licensed CGC through açpplication. It is necessary to engage one who can facilitate loans at better terms.
CBN rules also permit CGCs to render advisory services for financial and business development. A guarantee does not provide credit to MSMEs.