On-Lending To Commercial Banks

BACKGROUND In line with global best practices, the Bank recently engaged in knowledge exchange with 3 major Development Finance Institution (DFIs) in the diaspora namely; KfW- Germany, BNDES- Brazil and SMERAN- India. The outcome of this is the need to engage the MSME friendly commercial banks as a vehicle for reaching out to the critical mass of the target MSME market through an on-lending credit window as it is the practice in more developed economies.
RATIONALE
  1. MSMEs are the target players in fast tracking development of the Nigerian economy, particularly as they constitute over 90% of enterprises in the country.
  2. Commercial banks due to their wider network of branches and closeness to MSMEs than any other player in the finance sector are veritable vehicle of reaching to the MSMEs.
  3. High financing costs for companies of all sizes when sourcing for funds from commercial banks
  4. Aligns with the Federal Government’s Economic Transformation Agenda to grow the MSMEs sector as enshrined in National Enterprise Development Programme (NEDEP) policy document.
  5. Increase the customer base of BOI with the resultant developmental impact in terms of job and wealth creation
  6. Enhance goodwill for BOI by supporting and enabling growth & development of MSMEs and LEs.
  7. The anticipated risks are dimensioned and mitigated by the transaction structure.
TARGET MARKET Ø  MSMEs-friendly Banks that satisfy minimum requirements for Capital Adequacy, Asset Quality, Strong Management, good Earning and Liquidity (CAMEL) rating as defined by BOI and within CBN stipulated indices.
CRITERIA On-lending to;

  • Projects with value addition to our local raw materials
  • Manufacturing companies
  • Trading in locally produced goods
  • Procuring plant and machinery
  • Procurement of raw materials
  • Solar Energy financing
  • Services industry with relevance to the manufacturing sector
  • SME Product Clusters as listed in Appendix I
PROJECTED IMPACT The fund shall be deployed for the financing of eligible customers of MSMEs and LEs within the Commercial banks portfolio; requiring financing for projects within the BOI’s developmental mandate.  Projects must be located in the areas with comparative advantages in terms of the available raw materials and moderate production cost as well as operating cost. This is expected to reach about 1,000 customers and create a minimum of 5,000 direct and 15,000 indirect jobs for Nigerians: total (20,000).
PROGRAM LIMIT Global fund availability is N50.0 billion
SINGLE OBLIGOR LIMIT
  1. Up to 20 percent of approved exposure limit for each of the participating banks (PB)
  2. Maximum of N50m per obligor (PB takes full credit risk)
  3. Above N50m but not more than N100m per obligor, BOI and PB to share the risk equally.
  4. Co-financing (Risk to be shared proportionately)
APPROVAL LIMIT In line with BOI internal approval limit
LOAN TYPE To be availed as:

  1. Long Term Loan
  2. Working Capital
 

 

PRICING

Interest Rate:

Maximum of N50m per obligor (PB takes full credit risk):

Long Term Loan  (all in rate of 9% per annum i.e)

·        BOI On-lending                            4% per annum.

·        Commercial Bank                        Max spread of 5% per annum

Working Capital (all in rate of 11% per annum i.e)

·        BOI On-lending                            5% per annum.

·        Commercial Bank                        Max spread of 6% per annum

 

Co-financing (Risk to be shared equally):

 

Long Term Loan  (all in rate of 9% per annum i.e.)

·        BOI                                                4.5% per annum.

·        Commercial Bank                       4.5% per annum

 

Working Capital (all in rate of 11% per annum i.e.)

·        BOI                                                 5.5% per annum.

·        Commercial Bank                        5.5% per annum

MORATORIUM Long Term Loan

·        6 months – from date of loan disbursement for MSME and 12 months -from date of loan disbursement for Large Enterprise (LE)

Working Capital

·        3 months – from date of loan disbursement

TENOR Long Term Loan

·        36 months for MSME inclusive of 6 months moratorium period

·        60 Months for Large Enterprise (LE) customers inclusive of 12 months moratorium period

 

Working Capital

·        The tenor of the working capital shall be a maximum of 12 months renewable yearly.

COLLATERAL/ SUPPORT Collaterals to be provided to the extent of the risk being taken

1.    ISPO from PB subject to CBN confirmation.

2.    Treasury Bills/ Government Bonds

3.    All assets Debenture/Legal mortgage (for Risk shared on pari-passu basis for co-financing)

DISBURSEMENT To the participating commercial bank(PB)
REPAYMENT SOURCE From the participating Commercial bank(PB)
REPAYMENT MODE Monthly by direct credit to BOI account by the participating commercial bank; which must be remitted to BOI within 24 hours. In the event of default, the MSME-friendly bank must notify BOI within 24 hours to trigger prompt remedial action by the Bank.
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