Startups don’t always need the support of big banks to get their businesses off the ground, or to keep them afloat. The marketplace of microloans continues to grow with the Lagos State Employment Trust Fund and Ibile Micro Finance to boost small businesses. DANIEL ESSIET reports.
LAST year, the Lagos State Employment Trust Fund (LSETF) disbursed N4.1 billion loans to 4,762 applicants.
A breakdown of the loans showed that N1.99 billion was approved for medium enterprises (ME), of which N61 million was disbursed to applicants to start their businesses.
Businesses in the Small and Medium Enterprises (SME) category got N2.91 billion, which created 3,180 jobs across various sectors during that period.
Association of Micro Entrepreneurs of Nigeria (AMEN) President, Prince Saviour Iche, said LSETF and Ibile Micro Finance Bank’s micro loans have helped entrepreneurs make important changes.
He said the two organisations owned by the Lagos State government were helping entrepreneurs build small business. According to him, the micro loans have helped to transform business for small business owners, adding that the cost of borrowing through normal commercial banks have increased over time.
As part of Governor Akinwunmi Ambode’s strategy to support small businesses, his Economic Statement included a commitment to establish LSETF to address small-business financing challenges.
According to him, members of his association have benefited from the fund.
Canvassing support for the governor’s re-election, Iche said he had recorded many success stories, adding that the administration has done a lot to support the ambitions of small entrepreneurs in times of economic uncertainty and financial decline. He pledged its support for Ambode’s second term bid.
According to Iche, what Ambode has done in the last three years is phenomenal. He explained that the development work taking place in Lagos is having a huge impact on the economy.
He explained that small businesses have made a very big investment in the economy, but there is a huge scope for expansion.
His worry is that banks’ unwillingness to lend to small businesses was being hidden behind high approvals for a select few. The danger, he explained, was in reduced growth and investment in productivity in a key segment since small businesses account for one in three private sector jobs.
There is no doubt, he observed, that low investment, particularly in enterprise, is a cause of the nation’s economic woes and a significant part of that problem is the failure of the banks to lend to SMEs, which make up 70 per cent of businesses in Nigeria.
He noted that if the financial system cannot make funding available for small business owners to grow their companies, then there is systemic failure.
Specifically, he expressed concern on the Bank of Industry’s (BoI’s) attitude towards small businesses. “Our members find it increasing hard for no good reason to assess BoI loans. Even when the requirements are provided, loan applications completed and finalised. BoI still manages to cause setback for businesses through its insensitive policies and lazy bureaucracy that eat up in waiting in between the finalisation of loan applications and release of funds. Most times, when the funds are finally released, the purposes of the funds can hardly be achieved because of the seemingly months of avoidable delay.”
He continued:“Delay in processing loan applications and releasing funds is one of the things BoI has to find a way to eliminate. At present, our experience with BoI is that it takes about six months or more in some cases between submitting applications for loan and release of funds. BoI requires a borrower to make a cash deposit of 10 per cent of funds being borrowed to a designated commercial bank. Suppose an entrepreneur needs a loan of N10 million from BoI, what it means is that the entrepreneur must make a down payment of 10 per cent of the loan being borrowed to a commercial bank approved by BoI.’’
At the monent, the highest interest rate on savings with commercial banks is 4.5 per cent, meaning that 4.5 per cent of N1 million is N45,000 paid as interest for a year by the commercial bank holding the N1 million for BoI. Regrettably, if you walk into any of the commercial banks and request for a loan of N1 million for one year, the lowest interest rate you would have to pay is 20 per cent. At the end of the period, you would end up paying N1.2 million to the same commercial bank.”
He said small business were responsible for the majority of job growth in the economy, but that their owners had a very difficult time accessing capital at reasonable rates from risk-averse lenders.
Many members, he added, have sought loans from banks to get their businesses off the ground, but their got no takers.
He called for a special bank with the passion to boost the economic emancipation of the nation by offering services to small businesses.
He said SMEs, like in India, needs a special ministry and bank to provide several loans for SMEs.
Besides financing equipment, he said such a bank will provide loan for entrepreneurs to manage cash flow, hire new workers, run new marketing or advertising campaigns, invest in new technology, and more.
He pointed out the fact that the government is giving out funds but people are not accessing it.
He said: ”The problem can be solved when the government puts the right people at the realms of affair, like I advocated the ministry of small businesses. We have only ministry of trade and investment which deals with both big and small industries and, to them, everybody is in the same level. That is why if you are sourcing for loan, they will ask you to take the same protocol as a multinational, asking you to go and bring a land when you are living in one room.
‘’Even with this small money, we are managing, we still have to pay multiple taxations, which is why a lot of local manufacturers are relocating to neighbouring countries.”
In a forum with AMEN members, the state Coordinator, Itesiwaju Ipinle Eko Vanguard, Seyi Bamigbade also urged the entrepreneurs to support Ambode’s reelection to enable him continue the several initiatives he has put in place to address small business operational and financial challenges.
According to him, the governor is working to improve access road and ensure ease of doing business for small business owners.
