Many banks are not lending to the Micro, Small and Medium Enterprises (MSMEs’) sector because of poor margins and risks involved. Some banks are, however, taking lending to the subsector seriously now. A survey by KPMG Nigeria and Enterprise Development Centre of the Pan Atlantic University, says FirstBank, GTBank and United Bank for Africa are keading lenders to MSMEs for both deposit transaction and lending, writes COLLINS NWEZE.
Globally, access to finance is a critical factor in the growth and development of the Micro, Small and Medium Enterprises (MSMEs’) sector. This has prompted many banks to make lending to the subsector a priority.
The Central Bank of Nigeria (CBN) is also encouraging banks to lend to the sector, prompting it to earmark N220 billion to it.
The role of MSME in economic development prompted KPMG Nigeria and Enterprise Development Centre of Pan Atlantic University to conduct a survey that highlighted banks’ performance in the subsector.
Partner and Head, Management Consulting at KPMG Nigeria, Bisi Lamikanra, said the survey which polled over 3,000 entrepreneurs, 18 banks and government/multilateral agencies reflects both the SMEs and banks’ perspectives on the primary issues affecting the growth of this critical sector. The survey, conducted between November last year and March this year highlighted key roles of banks in the sector.
For the survey, this simple question was asked: Which bank(s) do you carry out transactions with?
Thirty-six per cent of the respondents picked FirstBank; 22 per cent picked GTBank; 19 per cent went for United Bank for Africa; 18 per cent chose Ecobank; 15 per cent picked Diamond Bank while 14 per cent went for Access Bank.
When the respondents were asked: Which bank(s) do you now or have in past obtained a loan? They responded in this order. Twenty- six per cent of the respondents said they obtained their loans from FirstBank; 10 per cent said they got theirs from United Bank for Africa; Ecobank got 10 per cent; GTBank eight per cent; Diamond got seven per cent while Zenith got seven per cent.
Director, Enterprise Development Centre, Pan-Atlantic University, Peter Bamkole, said the finding suggests that there is scope for banks to improve on their relationships with MSMEs, particularly on deepening their understanding of the various segments/sub-segments.
He explained that in terms of ease of doing business, the study revealed that about 50 per cent of MSMEs do not find it easy to access relevant services from their banks. This could be due to banks not having specialised MSME relationship managers at branches, preferring to rely on retail relationship managers to serve MSMEs.
He said: “The survey revealed that only about five Nigerian banks have SME business managers in their branches, however, focusing largely on financial targets (revenue, deposits and loans), instead of developing products that address the needs of MSMEs.
“Among alternate sources of funds for MSMEs, Development Financial Institutions (DFIs) are not necessarily preferred by the MSMEs. The study also revealed that only two per cent of MSMEs have obtained loans from a development bank such as NEXIM, Bank of Industry, Bank of Agriculture among others either directly or through some other bank.”
Govt’s role
The government and banks brainstorm on initiatives which will encourage banks to lend to this segment. Banks, therefore, need to intensify their engagement with the government to improve the business environment necessary for facilitating bank lending to the MSMEs.
One government initiative that could be beneficial to banks and the MSME segment is its participation in risk sharing facilities.
Bamkole said Nigeria must support the sector if she intends to be one of the top 20 economies of the world by 2020, according to Vision 20:2020, the nation’s economic blueprint. However, the development of MSMEs in Nigeria and their contributions to the economy are hampered by the fact that access to finance still constitutes a major obstacle to growth.
He explained that for over a decade, the firm had been supporting SMEs, adding that access to finance is critical to SMEs’ success and that it has evoked passion, debate and in extreme cases, frustration.
He said: “Of the six broad constraints that limit the growth of SMEs in Nigeria, lack of access to finance has drawn more venom especially from SMEs than any other.”
He said the majority of the financial institutions claim that lending to SMEs is risky and that some of these SMEs are not ready for the rigours that go with access to finance. According to him, while it may be fair to acknowledge that this position is somehow true, from the lens of an enterprise development agent, this is an opportunity in waiting.
He asked: “Why is there no concerted effort to de-risk the sector? Why are the financial institutions constantly introducing banking products and outpacing each other in branding their institution as SME focused bank rather than understanding the SMEs and deepening their absorptive capacity to access capital? Why are we not coming up with policies that favour those supporting the sector?
Analysts say over the years, traditional sources of financing for MSMEs have revolved around personal savings, loans from friends and family, and other informal sources.
This scenario presents a conundrum as the impact of these sources of funding altogether represents only a fraction of the available potential when banks and the government become major contributors of MSMEs financing.
SMEs in Nigeria
FirstBank of Nigeria Limited has reiterated its commitment to providing cheap and long-term funding for the subsector.
Its Executive Director, Retail Banking South, Mr. Gbenga Shobo, said SMEs remain the engine of growth for the economy creating millions of jobs for the population. He, however, reiterated the need to create successful SMEs that would help the economy achieve its full potential.
He spoke during the bank’s maiden edition of its SME Conference titled: “SMEConnect”.
He said: “Definitely, there is a lot of large buzzword right now as a lot of banks are saying they want to do SMEs finance. But we have been relatively successful in financing SMEs. A recent survey showed that FirstBank, more than double than any other bank, had given SMEs finance in the last four years.”
Shobo said SMEs in Nigeria have to grow; because that is the only way the economy can grow because the subsector is the key driver of any economy. “So, it must grow and that is why we are doing the national conference and after that, we are going to have regional conferences. After that, we are going to have industry specific conferences to make sure that we take the SMEs to another level,” he said.
He said experience in SMEs financing is what separates the lender from others.“We have the most SMEs; we have had them for a long time; we understand their needs better than anybody else and clearly that informed the way we approach them. The SMEs, most other banks don’t even focus on them. We have relationship managers who focused on them. We have products that support SME operators that do not have collateral, which a lot of other banks don’t have. I think what we haven’t done well in the past is the capacity building and that is where we want to focus on now. As I said earlier, we like double the other banks in terms of support to SMEs,” he said.
He said the bank listens to SMEs to know their problems and address them. “We are the number one SMEs’ bank in Nigeria, but we do not want to stop there. We want to create value for our SMEs. In listening to them, survey and focus discussions and all that, we found out that capacity is a big problem. When I say capacity, I mean being able to develop proposals which banks can finance or, indeed, which anybody can put money to finance for them. A lot of people have dreams on what they like to do, but how do I actualise those dreams? You find out that a lot of SMEs cannot do that successfully. That is one,” he said.
CBN policy on SMEs
The CBN has set up guidelines for the management of the N220 billion MSMEs fund it launched last year to support SMEs’ financing. The CBN said the fund will be managed by a Special Purpose Vehicle (SPV) while it will commence the management of the fund pending the establishment/appointment of the SPV or Managing Agent (MA).
It said a large number of un-served and under-served clients are in the MSME sub-sector, stressing that to address the funding requirements of this critical segment of the economy, 80:20 ratio for on-lending to micro enterprises and SMEs has been designed.
The CBN said women’s access to financial services should increase by 15 per cent yearly to eliminate gender disparity. It also said to achieve this, 60 per cent, that is, N132 billion of the fund, had been earmarked for providing financial services to women.
The regulator said in operating the fund, special consideration would be given to institutions that will provide financial services to graduates of the Central Bank of Nigeria’s Entrepreneurship Development Centres (EDCs).
Also, the Senior Manager at KPMG Nigeria, Adetorera Banjo, said the survey, with theme: ‘Strengthening access to finance for Micro, Small and Medium Enterprises (MSMEs) in Nigeria’, identified the three top challenges facing MSMEs as: non- conducive enabling environment (80 per cent), inconsistent government policies (56 per cent) and lack of access to finance/ capital (45 per cent).
Besides poor infrastructure and financing constraints, taxation, corruption and regulatory bottlenecks are other issues that impede growth in the MSME segment. For instance, India imposes indirect taxes on transit of goods from one state to the other within the country; the government has made effort to introduce a uniform pan-India tax on goods and services long bureaucracy and political compulsions have not let that happen so far.
Many of these problems are faced by MSMEs in developed economies as well, albeit in different order of severity than their emerging markets counterparts. These challenges also vary by region, sector and size of the firm.
