Capital is the single most important factor needed to drive sustainable growth of Small and Medium Enterprises (SMEs). Such funds are needed for the government’s plans to create wealth through entrepreneurship development. Skye Bank, FirstBank, Fidelity Bank, Diamond Bank and Sterling Bank, among others, have so far identified with the Central Bank of Nigeria’s (CBN’s) drives for SMEs sector funding and development, writes COLLINS NWEZE.
The economies of great nations thrive on the strength and capabilities of their Small and Medium Enterprises (SMEs). Banks play a big role in this as the level of funding the operators get from commercial banks determines to large extent, their success.
Development patterns across the globe show the primacy and pre-eminence of the SMEs in resource mobilisation, deployment of resources for growth and development, and the emergence of an industrial economy. In Asia, Europe and North America, SMEs play significant roles in the growth, development and industrialisation of such economies.
However, Nigeria remains an exception as SMEs have largely performed below expectation as a result of a plethora of factors including lack of access to funds, managerial skills, poor accounting practice, among others. Also in the list of limiting factors to SMEs development in the country are poor infrastructure, policy somersault, multiple taxes, environmental factors, and marketing problems, among others.
However, some far thinking banks have recognised the need to boost SMEs financing, giving priorities to projects and businesses that support the continued operation of small businesses.
One of the Nigerian banks that has deployed its resources to the nurturing and development of the SME sector is the Skye Bank Plc. The lender has carved a niche for itself in the SMEs segment of the economy, helping budding Nigerian businessmen to realise their aspirations of wealth creation, and employment generation for the teeming unemployed people in the country.
The Group Managing Director/CEO, Skye Bank Plc, Timothy Oguntayo, said his bank has not only provided the enabling environment for SMEs to thrive, but has been in the fore front of extending credit to the operators as well as real sector businesses.
The bank chief said the lender has been involved in the process of optimising value and benefits from the agricultural value chain by extending credit facilities to operators in the agro allied industry, ranging from cocoa processing, flour production, and animal husbandry, among others.
These projects, he said, are located in the six geo-political zones of the country. Some of these companies do not only produce for local consumption but also export to the rest of the world thereby earning foreign exchange.
“The bank’s foot prints are also visible in the healthcare sector where several pharmaceutical companies have either been revamped through credit lines or assisted to expand their production capacity and improve their operational and logistic resources. The bank has also assisted many pharmaceutical firms to achieve certification by the World Health Organisation thereby placing some Nigerian drug makers among world-class drug companies that can bid for drug supplies globally,” the lender said in a statement.
For instance, drug makers such as Evans, Chi and May & Baker are the latest companies to secure World Health Organisation (WHO) Good Manufacturing Practice certification, after SwissPharma, which received its certification earlier this year.
The certification means products from the four drug makers—now adjudged to be world-class—became eligible to be assessed and granted WHO pre-qualification. Pre-qualification is a step toward enabling Nigeria’s local drug companies compete for drug supplies on an international scale.
Consumer goods funding
Skye Bank said it provided part-financing of one of the largest integrated plants in Sub-Saharan Africa for the production of flour, pasta, noodles and feed meal. The bank is the major financier in the development of one of the biggest confectionery companies in the West African sub region which produces one of the best cream crackers. The company is currently installing its fifth production line and discussions are on–going with the equipment manufacturers for the sixth line. The new line has increased the customer’s capacity to produce 30,250 metric tonnes annually.
Such significant project financing by the bank, analysts said, will enable the consumer goods firm expand operations and increase market share while at the same time aiding it to tap into the Nigeria’s large population and rising middle class that crave for consumption.
According to a recent report by McKinsey and co., a global consumer and retail firm, annual sales in Nigeria’s consumer goods sector could more than triple to $1.4 trillion by 2030 from $388 billion currently.
Other funding interventions of the bank are in the steel, fertiliser and power sectors where it has provided credit lines under syndicated loan arrangement.
Skye bank alongside six other lenders participated in the funding of the acquisition and rehabilitation of the 500,000 MT Urea Plant in an asset purchase transaction.
Since the transaction was consummated, it has continued to support the Onne based plant to ensure it remains the biggest producer of fertiliser in Nigeria and the West coast.
The bank is also a development partner to many other SME firms across the length and breadth of the country, supporting their growth aspirations and taking them from infancy to the level where they are currently big players in the Nigerian economy.
The potentials and opportunities for SMEs in Nigeria to rebound and play the crucial role of engine of growth, development and industrialisation, wealth creation, poverty reduction and employment creation are enormous. To achieve these lofty objectives, however, requires pragmatic steps towards solving the problems enunciated above.
Banks, other stakeholders speak
Managing Director/CEO, M&E Limited, Michael Stephens-Obi, said that while SME operators need to change their attitude and habits relating to entrepreneurship development, the local, state and Federal governments need to involve them in policy formulation and execution for maximum impact.
He said there is also the dire need to introduce entrepreneurial studies in the universities in addition to emphasising science, practical and technological studies at all levels of our educational system.
“Through financial intermediation, banks play a crucial role in mobilising deposit from surplus zones to areas of deficit, thereby creating jobs, reducing poverty and bringing about economic growth and development in the country,” he said.
“Many industry experts and economists say that for any developing country to grow and develop economically, greater attention and emphasis must be paid to the SME sector. The SME sector is a viable and crucial channel of utilising locally available resources to produce for local consumption and export trade”.
Stephens-Obi said small and medium enterprises in the agricultural sector constitute growth drivers and strong guarantees for sustainable food production, enhanced employment generation and for combating food shortage in developing countries.
Head, SME Banking, Stanbic IBTC Bank, Obinna Ukachukwu, said without capital, it would be difficult for any business to attract finance or investment.
He defined capital as the value of and the history behind a business. According to him, if a promoter of a business does not know the value of the business, it is very unlikely that any investor or financier will be comfortable committing their money because the equity or debt investor is bringing in money in exchange for value.
“If you don’t know the value of your business then you do not expect a debt investor to put in his money,” Ukachukwu said.
He, however, assured that Stanbic IBTC Bank continues to work with operators in the SME sector, particularly through capacity building and information sharing, to ensure they build capital. He explained that the value of a business can be determined if the proper structures, such as proper book keeping, annual reports, tax returns, auditor’s report, and record of banking transactions, which form the history of the business, have been put in place.
The CBN on SMEs funding
The Central Bank of Nigeria (CBN) set up the N220 billion Micro Small and Medium Enterprises fund as part of its developmental role and mandate of promoting a sound financial system. This was in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy. It said the sub-sector is characterised by huge financing gap which hinders the development of MSMEs.
“To fulfill the provisions of Section 4.2 (iv) of the policy, which stipulates that women’s access to financial services to increase by at least 15 per cent annually to eliminate gender disparity, 60 per cent of the Fund has been earmarked for providing financial services to women,” it said.
“This informed the decision of the Central Bank of Nigeria to establish the Micro, Small and Medium Enterprises Development Fund (MSMEDF). The Fund prescribes 50:50 ratio for on-lending to micro enterprises and SMEs respectively by Participating Financial Institutions (PFIs)”.
It explained that two per cent of the wholesale component of the Fund shall go to economically active persons living with disabilities (PLWD) and 10 per cent provided for start-up businesses.
“The broad objective of the fund is to channel low interest funds to the MSME sub-sector of the Nigerian economy through Participating Financial Institutions (PFIs) to enhance access by MSMEs to financial services; increase productivity and output of microenterprises; create jobs; and engender inclusive growth,” it said.
Deputy Managing Director, First Bank of Nigeria Limited, Gbenga Shobo said fund was launched by the CBN as part of its developmental role and mandate of promoting a sound financial system. This was in recognition of the significant contributions of the MSME sub-sector to the economy. It said the sub-sector is characterised by huge financing gap which hinders the development of MSMEs.
Shobo, who spoke at the 2016 Entrepreneurship Development Centre/FirstBank SME Breakfast Series tagged: The Economy and You!, urged SMEs’ operators not to be discouraged by ongoing economic challenges facing the country. He advised the operators to identify key sectors of the economy where opportunities for businesses are available.
He said FirstBank will continue to support the SMEs because of the critical role they play in creating jobs and economic development for the country.
He disclosed that the level of non-performing loans in the banking industry is also a disincentive for new lending. “As banks explain the bad loans in their books, they will be less ready to give out new loans,’’he said.
