CBN Governor, Emefiele
*Includes Non-Interest Financial Institutions To Reduce Exclusion Rate
By CLEMENT NWOJI, Abuja
The Central Bank of Nigeria (CBN) has disclosed the extension of access to N200 billion Commercial Agricultural Credit Scheme (CACS) to Non-Interest Financial Institutions (NIFIs) in order to deepen access to finance and reduce exclusion rate.
The extension was disclosed through a circular to all banks and other financial institutions in respect of the recent amendment to guidelines of CACS. The circular was signed by the CBN’s Director Financial Policy and Regulation Department, Kevin N. Amugo.
The CBN explained the expansion of access to the scheme by NIFIs as “As part of the efforts by the Central Bank of Nigeria to deepen access to finance and reduce exclusion rate.”
It said the apex bank has revised the existing Commercial Agriculture Credit Scheme (CACS) Guidelines to include Non-Interest Financial Institution (NIFIs), adding that “It is expected that the review of the Guidelines for other invention funds would follow in due course.”
For the All Non-Interest Financial Institutions (NIFIs), the reviewed guidelines created Types of Financing and Tenor such as Long term financing for projects under the target activities, agricultural commodities and value chains.
The guidelines spelt out that “The tenor for the Restricted Profit Sharing Investment between the CBN and the NIFI shall be for the maximum term specified for financing of projects under the original scheme, which is seven years (but should not exceed the exit date of the scheme).
Also, the maximum tenor for financing of projects by NIFIs under the window is to run concurrently with the period described above.
It further provided that the working capital facility shall have a tenor of 1 year with a provision of roll over not more than two times (i. e. maximum of 3 years). The Facility allows for moratorium commensurate with the gestation period of the project.
Under the description of the Non-Interest Window, it provided that the Non-Interest window shall be structured as a two-tiered structure as follows: Tier 1 which is between the CBN and the NIFI and Tier 2: between the NIFI and the Investor.
For the Tier 1, a restricted Profit-Sharing Agreement (Restricted Mudaraba) shall be executed between the CBN and NIFI.
The CBN, as Capital Provider disburses the funds for investment by the NIFI as the Implementing Party, based on a Business Plan commitment to be signed by the NIFI committing itself to stated terms.
The terms are: Investment shall only be for financing of projects under the target activities, commodities and value chains; The financing shall have an overall target profit rate of 9.0 per cent; etc) The profit distribution ratio between the CBN as Capital Provider and the NIFI as the Implementing Party shall be in the ratio of 2:7 (i. e. CBN 22 percent and NIFI 78 percent); and the NIFI commits itself to achieving a target profit rate of 2 percent accruing to CBN.
For Tier 2, the NIFI finances the customer (Client) using CBN approved non-interest financial contracts appropriate with the type of financing requested, like Murabahah, Salam, Istisna’, Ijara, Wakalah, etc and repayments under the facility shall be amortized.
On the credit risk, as part of the investment terms, the NIFI shall bear the credit risk of repayment by investor, and the collaterals pledged by the borrowers are to mitigate that risk.
Also, the eligible securities under this window include the federal Government of Nigeria Sukuk; CBN Non-Interest Liquidity Management Instruments (such as CBN Safe Custody Account (CSCA), CBN Non-Interest Note (CNIN) and CBN Asset-Backed Securities (CABS); Sukuk backed by the guarantee of the Federal Government; Sukuk given regulatory treatment by the CBN; and Any other securities acceptable to the CBN.
The eligible NIFIs shall sign Participation Agreement with the CBN.