Some private sector operators have said the real sector support facility (RSSF) introduced by the Central Bank of Nigeria (CBN) will help boost investment and provide low cost funding for businesses.
The initiative, according to them, would also support the drive towards economic recovery in the country.
The guidelines for accessing the facility through the Cash Reserve Requirements (CRR) and Corporate Bonds (CBs) were unveiled last Thursday.
The activities to be covered under the scheme would be Greenfield (new) and expansion (Brownfield) projects in manufacturing, agriculture and other related sectors approved by the CBN.
The CBN pointed out that emphasis would be placed on Greenfield projects. The facility shall have minimum tenor of seven years and two years moratorium. Also, participating financial institution (PFI) shall bear the credit risk.
Speaking in a chat, the Director General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, described the initiative as a positive development, saying it would help increase the flow of credit to the private sector.
He said, “It is a very good initiative by the CBN. As service sector players, we have always canvassed for low interest rate and have always complained about high interest rate for businesses.
“Each time the Monetary Policy Committee met, they kept tightening the benchmark interest rate, which meant that the cost of borrowing would remain high.
“So, the issue of adjusted CRR is an innovative approach, which would help to boost investment through low-cost funds and longer tenor funds as well. So, it is a good initiative.”
But, Yusuf appealed to the CBN to also design such intervention schemes for other sectors of the economy, which according to him need support.
He listed such sectors to include the service, construction, maritime, transportation, healthcare, education, entertainment and tourism.
The LCCI boss said, “All these sectors also bring value to the economy and generate employment. So, we need to look beyond the agriculture and manufacturing sectors, because these other sectors are also adding value and they also need funding.
“The guidelines also said the funds cannot be used for refinancing, but only for Greenfield and Brownfield. But my appeal to the CBN also is that existing investors are as important as new investors.”
The Managing Director, Cowry Assets Management Limited, Mr. Johnson Chukwu, welcomed the initiative, saying it would help unlock the flow of credit.
Commenting on the adjusted CRR initiative, he said, “In principle, it is a very creative initiative. It may not completely address the issue of the real sector, but it would help towards improving the performance of firms.
“The reality is that it is hard for the real sector operators to be paying interest of between 22 to 25 percent and remain profitable.
“So, to give them loan at nine per cent is quite creative and will certainly ease their problems.”
Chukwu, however, stressed the need for the monetary policy and the fiscal policy authorities to continue to work towards achieving single digit interest rate in the economy and not just for real sector operators.
Also speaking on the support facility, a senior analyst at Bode Augusto & Co, Mrs. Ada Ufomadu, said, “Banks have been asking CBN to release the CRR because of the impact it has had on profitability.
“So, the first upside would be the impact on profits as banks can now lend more. Of course, this will also mean more funding to the private sector given that government yields have crashed.
“However, increased lending can only be possible if capital adequacy ratio is well above the CBN requirement. Banks are still healing from the prior years and generally still cautious in growing risk assets. So, the question is, ‘are there bankable projects that banks can lend to given the state of the economy?”