Bottom of pyramid

BACKGROUND

BACKGROUND ·      The Bottom of the Pyramid (BOP) Scheme is an on-lending Scheme using the services of Microfinance Banks (MFBs) as vehicle for credit delivery to the under-served and under-banked micro-entrepreneurs. The BOP Scheme is essentially aimed at poverty reduction through job and wealth creation focusing on the rural micro-enterprise operators with a view to extending financial inclusion to them.

 

·      The Scheme is designed to leverage on the spread and penetration of the MFBs in all parts of the country to stimulate economic activity within the critical mass at the BOP.

 

·      The customer structure of MFBs is currently biased towards Trade and Commerce (47%), Crop Production/Livestock (14%), Personal Consumption (11%) and Educational Services (7%). As for other sectors like Manufacturing, Real Estate, Health Services, Transport, etc. the intervention ranges between 1% and 3%. In fact, mining/quarrying constitute 0%, while manufacturing is 2%. This therefore calls for the promotion of increased lending to value addition activities by MFBs in order to accelerate job and wealth creation.

 

RATIONALE a.     Aligns with the employment and wealth creation objectives of the National Enterprise Development Programme (NEDEP) of the Federal Government.

 

b.     Enables BOI to deepen its developmental/lending activities by utilizing the services of MFBs to deliver credit to the under-served and under-banked at the Bottom of the Pyramid.

 

c.      Engender a savings culture among the BOP as that would be part of the conditions under which the MFBs would lend to them.

 

d.     The anticipated risk are dimensioned and mitigated by the transaction structure.

 

e.      This will further enable BOI to achieve its core mandate of industrialization by providing finance for the economically active yet; financially excluded from the current commercial banking arrangement.

 

TARGET MARKET/ CRITERIA There are three (3) categories of licenses issued to MFBs by the CBN as follows:

S/N TYPE AREA OF COVERAGE PAID-UP CAPITAL
1 Unit License Permits the MFB to own and operate a single office at a single location. N20.0 Million
2 State License Permits the MFB to own several branches but operate only within a single State. N100.0 Million
3 National License Permits the MFB to operate several branches in as many States within the country. N2.0 Billion

 

The target market will be Unit, State and National licensed MFBs that are able to satisfy the following criteria:

·        Minimum of 10% Capital Adequacy Ratio.

·        Non-Performing Loans Ratio of ≤10%.

·        Liquidity Ratio of 20% minimum.

·        Ratio of shareholders’ fund unimpaired by losses to net credits of not more than 1:10.

·        Year of commencement of operation of not less than 3 years.

·        Microcredit to other loans:  Minimum of 80:20.

·        Evidence of financial membership of the National Association of Microfinance Banks (NAMB).

PROGRAM LIMIT N5.0 billion is proposed under Phase 1 of the modified program.
 

PROJECTED IMPACT

The funds shall be provided wholesale on agreed terms to MFBs to be on-lent to micro enterprises at the BOP for propagation of value addition activities in various sectors of the economy. An estimated minimum of 40,000 direct and 120,000 indirect jobs (total 160,000) are expected to be created at an average loan size of N250,000.00 per ultimate obligor.
SINGLE OBLIGOR LIMIT Up to 25% of Total Deposit as at the last Financial Year End or Up to 50% shareholders’ fund (whichever is lower), for each category of MFB: Unit, State and National.
ULTIMATE OBLIGOR LIMIT Section 1.2.4 of the Revised CBN Regulatory and Supervisory Guidelines for MFBs stipulates that: “In line with best practice, the maximum principal amount for a micro loan shall not exceed N500,000.00 or 1% of the shareholders’ fund unimpaired by losses or as may be reviewed from time to time by the CBN”.
PRICING Interest Rate:

·         BOI to MFB: 1.0% per month flat.

·         MFB to Beneficiary: 1.5% per month flat (all inclusive).

TENOR Three (3) years
MORATORIUM Six (6) months (from date of loan disbursement)
APPROVAL LIMIT As prescribed by the Executive Management Committee
COLLATERAL/ SUPPORT Bank Guarantee from reputable commercial banks acceptable to BOI in line with the Bank’s policy on exposure limits to commercial banks OR Treasury Bills of up to 110% of principal exposure in line with CBN-IF requirement.
DISBURSEMENT Drawdown by the MFB within the single obligor limit of the Product Program.
LOSS NORM / SANCTION:
  • The Product Paper is to be suspended if the NPL exceeds 5%.

·     Any disbursement under the Product Program is an NPL when repayment is past due by at least 90 days.

REPAYMENT SOURCE From the proceeds of operation of the MFB.
REPAYMENT MODE Quarterly instalments to BOI by the MFB.

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