CREDIT GUARANTEE COMPANIES AND ACCESS TO CREDIT FOR MSMES IN NIGERIA

Abstract

MSMEs1 are pivotal to the economic growth and innovation in every country, but access to capital has remained a major obstacle to them, especially in developing countries like Nigeria. MSMEs usually face difficulty accessing funds for their businesses because of the unavailability of the needed collateral to secure such funds, among other factors. However, the Central Bank of Nigeria, as part of its effort to stimulate lending to Micro, Small and Medium Enterprises (MSMEs) developed guidelines for the establishment and operation of credit guarantee companies in Nigeria, to bridge the funding gap suffered by MSMEs in Nigeria. This work discovered that CGC improve access to credit, reduce credit risk, encourage lower interest rates and improve risk management, which stimulates the development of economies. The Credit Guarantee Companies create Credit Guarantee Schemes (CGS), which provides third-party credit risk mitigation to lenders to stimulate access to credit for MSMEs. They usually absorb a portion of a lender’s losses on loans made to MSMEs in the event of default. Credit guarantee schemes may be either public or private. In some economies they are run by private companies, cooperatives, or consortia of firms. However, they are usually financially supported, directly or indirectly, by the public sector. Some credit guarantee schemes are targeted at specific sectors or marginalized groups or persons. This work discovered that Public credit guarantee schemes are a common form of government intervention to unlock finance for MSMEs. The aim of article is to look at the rationale behind Credit Guarantee Companies, the modalities for credit guarantee scheme, the prospects of emergence of CGC and how the introduction will aid economic growth by helping MSMEs access credit for Business in the Nigeria. The work proposes proper implication of the CBN guidelines for Regulation and Supervision of Credit Guarantee Companies in Nigeria 2022, strong supervision of CGCs, proper appraisal of loan applications and adequate training of stakeholder in Credit Guarantee Scheme as the way of ensuring the success of Credit Guarantee Companies in achieving the purpose of their establishment.The doctrinal method of research was employed in this work.