As Nigeria prepares to help small businesses affected by coronavirus, I have a suggestion to the government: do not use the U.S. or European model.The U.S. intervention strategy is loan-driven which has more latency as loans must be approved first before the money starts working. Of course that is not a problem for the U.S. as its system is certainly advanced to ramp up all in days. But in Nigeria, I do think a loan-driven strategy will be sub-optimal.
I propose for Nigeria to deploy an overdraft-driven model where the government, through local banks, covers the same amount it could have given as loans. This model saves you time, and puts cash only on ACTIVE companies which are already working with banks. Loan-driven models via government institutions will stimulate many fake briefcase-companies, triggering fraud and waste, and eventual defaults on repayment.
Doing this is simple: release cash to banks and tell the banks to ask their customers to apply for overdrafts. Because they already have the customers’ records, the banks can push the funds in days, well faster than government institutions’ if we go through the path of loan.
Of course, everything depends on the government’s capacity to find money for this intervention initiative. I do think the N500 billion intervention fund (and more) should keep a small part for small business recovery even as we invest in healthcare and other areas.