The Central Bank of Nigeria (CBN) has consistently reiterated its commitment to Small and Medium Scale Enterprises (SMEs) funding. The apex bank recently launched a N220 billion Micro, Small and Medium Enterprises (MSMEs) development fund to support SMEs’ financing. But, many stakeholders accuse the CBN and commercial banks of not doing enough for the sub-sector, report OKWY IROEGBU-CHIKEZIE and COLLINS NWEZE.
Despite being the building blocks for new businesses and wealth boosters for nations in the areas of economic turnaround, the operations of Micro, Small and Medium Enterprises (MSMEs) are hampered by poor access to credit facilities and infrastructure and capacity deficiencies.
After identifying the challenges, the Senate mandated its Committee on Banking, Insurance & other Financial Institutions to organise a roundtable session with the Central Bank of Nigeria (CBN), commercial banks, the Nigerian Deposit Insurance Corporation (NDIC), other relevant stakeholders and industry experts to finding immediate, sustainable and lasting solutions to expand MSMEs’ access to loans.
In fact, Deputy Senate Leader Ibn Na’Allah is at the forefront of a push for a conference to address rising interest rates.
Other stakeholders have been pointing accusing at the CBN and commercial banks of sticking to high interest rates despite the prevailing economic situation.
The stakeholders believe that development patterns across the globe have shown the role of SMEs in resource mobilisation, deployment of resources for growth and the emergence of industrial economy.
The SMEs play significant roles in the growth, development and industrialisation of economies in Asia, Europe and North America.
But, the banks, including the CBN, have admitted funding and poor infrastructure as the most serious challenges confronting the MSMEs and said they are taking major steps to address them
The apex bank has therefore set up guidelines for the management of the N220 billion development support, voted for SMEs’ financing.
According to it, the MSME sub-sector has many unserved and under-served clients, pointing out that an 80:20 ratio has been designed for on-lending to micro enterprises and SMEs to address funding requirements of this critical segment of the economy.
It (CBN) has opened a special Forex window for SMEs to assist operators import eligible finished and semi-finished items not exceeding $20,000 for an enterprise per quarter.
CBN spokesman Isaac Okorafor, said the apex bank’s special intervention was necessitated by a discovery by the apex bank that a large number of SMEs were being crowded out of the forex space by large firms.
Under the special arrangement, enterprises with employee strength of between 10 to 199 and asset base of between N5 million to less than N500 million will be offered the opportunity to import eligible items within the approved threshold.
On the N220 billion intervention funds for the SMEs, the CBN said women’s access to financial services should increase by 15 per cent yearly to eliminate gender disparity.
It said that 60 per cent (or N132 billion) of the fund has been earmarked for financial services to women.
The regulator said that in operating the fund, special consideration will be given to institutions that will provide financial services to graduates of CBN’s Entrepreneurship Development Centres (EDCs).
The banking watchdog said that a maximum of 10 per cent of the commercial component of the fund would be channelled to trading and commerce to ensure that the productive sectors of the economy continue to attract more financing necessary for employment creation and diversification of the economic base.
Banks and SMEs
Many commercial banks have been explaining their commitment to SMEs’. The Managing Director of Sterling Bank Plc, Yemi Adeola, described entrepreneurs as the backbone of the economy, adding that the programme is driven by the lender’s passion for helping budding entrepreneurs to attain great heights.
According to him, his bank has introduced innovative competitions and ideas that would encourage young entrepreneurs to think beyond the negative societial ills and build strong businesses.
The bank, he said, instituted the “Meet the Executive”, a programme meant to select three young local entrepreneurs that will not only get project-based grants, but would be introduced to local and international investors.
The FirstBank of Nigeria Limited also reiterated its commitment to providing cheap and long-term funding for the sub-sector. The bank said SMEs, with capacity to create millions of jobs for the population, remain the engine of growth for the economy.
It, however, reiterated the need to create successful SMEs that would help the economy achieve its full potentials.
The Skye Bank said it has not only provided an enabling environment for SMEs to thrive, but has been at the fore front of extending credit facilities to the operators as well as real sector businesses.
The bank spoke of its involvement in optimising value and benefits from the agricultural value-chain with the extension of credit facilities to operators in the agro-allied industry, ranging from cocoa processing, flour production, and animal husbandry, among others.
These projects are being implemented across the six geo-political zones of the country. Some of these companies produce for local consumption and export, thereby expanding the foreign exchange earnings base.
The lender said: “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 (WHO), thereby placing some Nigerian drug makers among world-class drug companies that can bid for drug supplies globally.”
According to Skye Bank, it has 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 claimed to be a major financier in the development of one of the biggest confectionery companies producing one of the best cream crackers in the country. The company, which the bank did not name, is said to be installing its fifth production line and that talks have started with equipment manufacturers for the sixth line. The new line has increased the customer’s capacity to produce 30,250 metric tonnes annually.
The First City Monument Bank (FCMB) has also been deepening its support to SMEs through the disbursement of more than N3 billion to such businesses in two years.
The development has led to an increase in the number of SME operators that have benefitted from the funding support of the bank across the country.
FCMB is one of the top participating banks appointed by the CBN to drive the N220 billion development fund instituted by the apex regulatory body to provide loans to SMEs.
Beyond funding, the FCMB has put in place, various initiatives and capacity building programmes that have fast-tracked SMEs’ growth, thereby up-scaling the lender’s contributions to the development of the country.
Besides organising training sessions for owners of SMEs, the bank has brought its professional expertise closer to the people by having dedicated loan officers at some of its branches nationwide.
These officers are trained and equipped to provide SMEs with the best and most effective advice and support.
Stakeholders speak
President, Manufacturers’ Association of Nigeria (MAN), Frank Udemba Jacobs, lauded the CBN for playing its developmental roles in the economy.
According to him, the apex bank has a handful of development funds dedicated to SMEs.
He named some of the funds as the N220 billion Micro, Small and Medium Enterprises Development (MSMED) Fund; the N300 billion Real Sector Support Facility (RSSF) and the Anchor-Borrowers Initiative for the Agricultural sector which the Federal Government plans to extend to other sectors, including manufacturing in the recent Economic Recovery and Growth Plan (ERGP) document.
Jacobs, who confirmed that that the funds are given at single digit lending rate, hailed the CBN for its support so far to the SMEs. On corresponding support by commercial banks, he said the banks also support but that the difference is that commercial banks guarantee these development funds and as such may put measure to minimise risk in terms of collateralisation to hedge against default of repayment.
He said: “Unfortunately, most of the small businesses do not have the kind of collateral being demanded by the commercial bank as a result these funds remain significantly un-accessed. Worthy of note is also the recent approval of preferential allocation of FX for SMEs. This is novel even though grossly inadequate.
“The Collateral Registry Act and the Credit Reporting Act, which were recently signed into law by Acting President Prof Yemi Osibanjo will help improve SMEs access to this development fund.
“With the two Acts, small businesses can use their moveable assets such as cars, inventory, equipment etc as collaterals for loans especially from these development funds”.
Identifying the Collateral Registry and the Credit Reporting initiatives as the brainchild of the CBN, the MAN chief said it would be wrong to brand the CBN as unfriendly to SMEs.
On the claim that a cartel has hijacked commercial banks to stall the growth of the economy and small businesses, Jacobs said it would be impossible for a group of individuals to hijack all the commercial banks.
He said: “It is also difficult that any group of Nigerians will want the economy to remain in recession as it has been since 2015. I feel Nigeria is bigger than any single group of individuals”.
On his part, Muda Yusuf of the Lagos Chamber of Commerce & Industry (LCCI) confirmed the existence of CBN’s several intervention funds as part of its development finance functions.
He listed some of the interventions funds as: MSMEs, manufacturing, power sector and Aviation. According to him, the government has further made available MSME intervention fund of N220 billion, part of which has been earmarked for the anchor-borrowers scheme to support agriculture.
Though he lauded the initiatives, he, however, identified access to the funds by operators as a big challenge.
Yusuf said: “The utilisation rate has not been impressive, which is why it important to identify the constraints to access. The first major factor is that under the present framework, the banks bear the credit risk of the interventions funds.
“This has weakened the zeal of many banks to disburse the funds because of associated risks, especially for the real sector of the economy and the SMEs.
“The conditions for lending are therefore typically very stringent, making access difficult. This is an impediment that should be addressed if the financing opportunities in the intervention would be unlocked”.
He canvassed a framework to de-risk the lending, possibly through credit guarantee schemes put in place possibly by the CBN. Yusuf asked government to consider the option of lending to SMEs as an economic development initiative and not strictly a commercial undertaking.
The LCCI Director-General urged lenders to come into the space with a developmental mindset rather than a commercial mindset. He said the CBN and the government have major roles to play in fostering this mindset.
On other SMEs’ challenges to lending, the LCCI chief pointed out the limited knowledge of many sectors of the economy by the commercial banks.
Yusuf said: “It is difficult for banks to lend to a sector that they do not have good knowledge of. This is perhaps why it is difficult to source domestic capital for sectors like the solid minerals, hospitality, entertainment and ICT, etc.
Yusuf further stated that productivity remain an issue for many SMEs in manufacturing and agriculture.
According to him, poor productivity heightens the risk of failure and the risk of loan defaults which invariably affects the disposition of the banks in lending to real sector.
According to him, infrastructure is a critical factor hampering SMEs, thus limiting operator’s access to credit facilities.
Another critical factor limiting operator’s access to credit is the crowding out effect of government borrowing in the financial markets.
Yusuf wondered how private sector operators can compete when the government is borrowing at over 20 per cent.
According to him the current yields on Treasury Bills and Federal Government Bonds have created a major disincentive to lending to private sector, especially the real sector and the SMEs that are typically perceived as very risky.
He pointed out that the phenomenon has created a profound disconnect between the private investors and the banking system. Arguing that the private sector percentage contribution to the Gross Domestic Product (GDP) in Nigeria (at 14.2 per cent according to a recent World Bank data) remains one of the lowest in the world, Yusuf said that the average for sub-Saharan Africa is 45.8 per cent, 96.5 per cent for the middle-income economies and 146.6 per cent for the high-income economies.
He said: “Another challenge of access to credit is that many SMEs cannot prepare a business plan, yet this is often a requirement by the banks for lending.
“But the reality is that the inability to prepare a good business plan does not diminish the entrepreneurial competencies of these SMEs.
“Indeed, the most successful micro and small businesses cannot articulate a business plan in writing, although a few engage consultants to do this for them when the need arises’’.
