By Isimeme Andrew esq.
As a way of improving and eliminating financial barriers relating to Nigerian industrial investment in its creative sector, the Central Bank of Nigeria initiated a scheme known as the Creative Investment Financing Initiative (CIFI) in May 2019.
It was created with an aim to improve and encourage commercial investment in the creative sector and information technology industry especially amongst the Youth. This no doubt is a welcome development in the Nigerian Creative Industry as it will augment productivity for businesses in the creative sector.
Similar initiatives have been implemented through the Bank of Industry — such as the Fashion Fund and Nolly Fund Programmes – with an aggregate value of N3b.
The CIFI programme is to the tune of Two Hundred Billion Naira (N200,000,000,000.00). It is to be funded from the Agri – Business Small and Medium Enterprises Investment Scheme (AGSMEIS), operated by the Bankers’ Committee with a seed fund of Twenty- Two Billion, Nine Hundred Million Naira (N22,900,000,000.00) appropriated as follows;
One Billion Naira (N1,000,000,000) for the Student software development loan (SSDL);
Five Billion, Five Hundred Million Naira (N5,500,000,000) for Information Technology;
Three Billion Naira (N3,000,000,000) for movie production;
Four Billion Naira (N4,000,000,000) for movie distribution; and
Four Billion Naira (N4,000,000,000) for fashion.
The objectives of the initiative are to:
Improve access to low cost and sustainable financing by entrepreneurs and investors in the Nigerian creative and information technology sub sectors.
Boost job creation particularly amongst the youth.
Harness the entrepreneurial potential of the youths within the creative and information sectors for economic development.
Complement other development finance schemes of the CBN, to accelerate financial inclusion in the country
The CIFI covers existing enterprises in the creative industry, start-ups engaged in the creative industry and students of higher institutions engaged in software development.CIFI will only apply to businesses that fall within the focal sub sectors namely; fashion, information technology, movie,and music.
In July, 2019 the CBN via a circular to all Deposit Money Banks released the modalities for the implementation of the initiative.
Entrepreneurs in the creative industry can get a loan of up to:
Three Million Naira (N3,000,000) for Software Engineering Students;
Thirty Million Naira (N30,000,000) for movie production businesses;
Five Hundred Million Naira (N500,000,000) for movie distribution businesses.
While SSDL carries a monthly repayment schedule, facility for other sectors are to be repaid quarterly.The source of repayment includes, but is not limited to, the proceeds of software sale or patent usage, movie tickets at the box office and other channels of distribution, sale of music recordsand income from services provided generally, as the case may be.The maximum interest rate of 9.0% per annum (all charges inclusive) is applicable to all loans.
Period stipulated for the repayment of the loan
For Software Engineering Student Loan, it is a maximum of three years.
For Movie Production and Distribution, it is a maximum of ten years.
For Fashion, Information Technology (IT) and Music, it is a maximum of ten years.
Funding Structure and Security arrangement
The stipulated funding structure, is made up of Minimum Equity Contribution (“MEC”) and Term Loan. With the exception of SSDL which is to be fully financed by banks (100% Term Loan with 0% MEC), other focal sub-sectors will have their businesses partly financed by MEC and Term Loan. Whilst eligible movie industry loans require 30% MEC (by borrowers) and 70% Term Loan (from the banks), loans relating to eligible activities in the fashion, IT and music industries require 20% MEC and 80% Term Loan, appropriately.
For SSDL and movie industry loans, required collateral includes the MEC by borrowers (where applicable) together with execution of All Assets Debenture and Legal Mortgage, Personal Guarantee and a Credible Guarantor. However, for SSDL, a borrower is required to deposit, with the PFI, certificates of his/her university degree and National Youth Service Corp (NYSC) certificate.
In addition to the foregoing collateral security, borrowers in the fashion, IT and music industry shall have a lien placed on their connected stock of trade and items of equipment.
Procedure for obtaining a loan facility under the CIFI
Creatives whose businesses fall within the focal sub-sectors are may approach any of the Participating Financial institutions (PFI), i.e. any Deposit Money Bank licensed by the CBN, with a comprehensive business plan or statement detailing the amount of money needed to carry on the business and complete the loan application process and documentation in the manner prescribed by the PFI.
The PFI is required to issue an offer letter to successful applicants after conducting a due diligence on the submitted application and documentation. The offer letter will contain the repayments schedules in accordance with the business dynamics.
The applicants accept the offer and must meet the condition precedent stated therein.
The PFI will then forward successful application with the offer letter to the Director, Development Finance Department of the CBN for further consideration.
Were the CBN finds such application successful it will thereafter disburse the approved sum to the PFI for on lending to the successful applicant within 10 days of receiving same from the CBN. The PFI bears the credit risk and is responsible for monitoring the performance of the facility.
Inherent challenges with the modalities for implementing CIFI
Having carefully examined the fundamental and technical aspects if the CIFI, we have identified a few shortcomings with the Modalities for implementing the scheme.
The Restriction of the loan facility to the few sub- sectors under the creative industry
The CIFI Modalities only made provision for four subsectors namely: movie, music, software development and fashion creatives.Projects or businesses which do not fall within these activities are out-rightly exempted from benefiting from the initiative and unable to access the loan facilities.
We therefore recommend that the CBN expand the initiative to accommodate other subsectorse.g many aspects of visual arts and performing arts, covering dance, drama, etc. within the creative industry thereby affording other businesses access to low cost and sustainable financing within the industry and erasing undermining sentiments towards these sectors.
The lack of a uniform application and documentation process:
The documentation and application requirements necessary for obtaining the loan facility under the scheme are left to the absolute discretion of the Participating Financial Institutions (PFI). The PFIs are to determine successful applicants only in accordance with the requirements set out by them.
It simply means the requirement for the selection of successful applicants in, for example,Guaranty Trust Bank is at variance with the requirements stipulated by Zenith bank. This absolutely rules out transparency and uniformity from the selection process under the CIFI. We therefore recommend that rather than absolutely vest the discretion on the PFI’s, the already released modalities should be altered to include a nationwide uniform application and documentation requirement for obtaining the facility.
The Minimum Equity Contribution (MEC) requirement
The CBN funding structure for the framework is rather counter-productive for upcoming entrepreneurs whose sole aim is to give life to their businesses with their major obstacle being the ability to raise capital. Although the MEC applies to other subsectors (exempting SSDL) with a requirement of 30%, the question then is -why must a borrower make contributions? or why borrow if I had money to give in the first place?
Minimum equity contributions have over time been a hindrance to taking advantage of loan facilities. To the man on the street, the idea of equity contribution does not augur well, he does not understand why someone in search of a loan facility is required to bring a percentage of said facility in order to obtain the remainder.
For example, if an applicant needs N6 million to start a business and he has 30%, i.e., N1,800,000 in his pocket, isn’t it rational for him to go back home and start his project? This is a common trend amongst financial institutions. But should this also apply under a framework supposedly initiated by the Federal Government to ease the burden of ‘capital starved’ entrepreneurs.
We therefore make the following recommendations;
Rather than include 30% or 20% MEC in the applicable sectors, the 100% PFI’s term loan should apply to all sectors;
Qualified applicants should be made to provide credible Guarantors to guarantee the entire loan facility; or
The scheme should incorporate the option of the operation of an escrow account by the applicant within the PFI in order to monitor the inflow of income from whatever source and also enable the PFI to make periodical withdrawals of interest and subsequently, the principal as well as other terms and conditions as may be stipulated in a properly executed escrow agreement.
The applicability of the provisions of the Secured Transaction in Moveable Assets Act (STIMA) 2017
We have earlier noted that some form of collateral security is required by applicants to gain access to credit facilities under the CIFI.For SSDL, a borrower is required to deposit, with the PFI,University degree as well as National Youth Service Corps (NYSC) certificates, while Creatives in fashion, technology and music industry shall have a lien placed on their connected stock of trade and items of equipment.
We recommend that the modalities for the CIFI be made to incorporate the regime of guaranteed access to credit secured by immoveable assets of creatives as provided under the Secured Transaction in Moveable Assets Act (STIMA) 2017, especially for the SSDL to enablebeneficiaries retain possession of the collateral after it has been registered with the Collateral Registry.
Prospective applicants, who may not be able to meet up with the presently stipulated requirements, may be alternatively required to have their various intellectual properties duly registered and present such certificate of registration as a collateral. This will result in the PFI holding a lien over the intellectual property, all the applicant will be require to do is to subsequently register such certificate at the Collateral Registry.
This will make it easier for creatives in the industry to access credit with minimal cost especially with the security interest created over moveable assets as duly registered in the Collateral Registry.
The CIFI objectives are quite laudable and its significance in the development of an economy cannot be overstated. One of the greatest challenges for businesses especially startups are lack of capital. The Initiative is a step in the right direction and its implementation will address these challenges and encourage commercial investment in the creative sector. We are however hopeful that an immediate review will be conducted on the identified shortcomings inherent in the modalities to maximize effective and efficient implementation.
Thank you for reading.
See the Modalities for implementing the CIFI –https://www.cbn.gov.ng/Out/2019/CCD/Modalities%20for%20CIFI%20Implementation%20.pdf