To reposition Small and Medium Enterprises (SMEs), the Bank of Industry (BoI) has signed a service agreement with 122 Business Development Service Providers (BDSPs). This may signal a new dawn for SMEs, as it promises to address the challenges of poor packaging of loan requests and non-bankable business plans, which are responsible for the low level of financial support to the sector, Assistant Editors, Chikodi Okereocha and Okwy Iroegbu-Chikezie report.
It’s the most revolutionary step in development banking aimed at improving access to finance by Small and Medium Enterprises (SMEs). If more credit gets to SMEs, we will create more jobs.”
There were the words of the Executive Director (SMEs), Bank of Industry (BoI), Mr. Waheed Olagunju, at the signing of the service agreement between BoI and Business Development Service Providers (BDSPs) in Lagos, last week.
Its Managing Director, Mr. Rasheed Olaoluwa said loans to SMEs accounted for less than 10 per cent of BoI’s total loan portfolio. This is not because there are no loanable funds for SMEs. He identified poor packaging of loan requests and non-bankable business plans as responsible for the low level of financial support to the SME sector. He said it was in recognition of these challenges, as well as in fulfilment of BoI’s mandate of providing long-term finance and business support services to large, medium and small projects, that the bank decided to engage the services of BDSPs.
At the signing of the agreement, Olaoluwa said the BDSPs would collaborate with BoI to identify credible SMEs that require finance. They would also develop bankable business plans and proposals for SMEs to facilitate their access to finance.
That is not all. The BDSPs, who emerged after a rigorous and painstaking selection, would, according to the managing director, provide post-finance services, such as mentorship, handholding, financial advice and inculcation of best practices. They would also support the SMEs to develop synergies and sustainable relationship with large enterprises, industrial buyers, and suppliers along the value chain.
In opting for a strategic repositioning of SMEs through the agreement with BDSPs, the BoI chief said the bank was encouraged by the importance of Micro, Small and Medium Enterprises (MSMEs) to the economy. He said, for instance, that figures from the National Bureau of Statistics (NBS) showed that there are over 17 million MSMEs in Nigeria, accounting for over 90 per cent of all firms and employing over 30 million people. The enterprises, he added, also account for about half of Nigeria’s Gross Domestic Product (GDP).
He pointed out that the launch of the National Enterprise Development Programme (NEDP) by President Goodluck Jonathan underscored the strategic importance of MSMEs to economic development. He said BoI’s role under the NEDEP is to provide long-term finance to viable MSME projects, and that as part of effort to discharge such role, the BoI chose to engage the services of BDSPs.
For the BDSPs, however, it was not a smooth ride. They emerged after a rigorous selection. Olaoluwa said: “On July 14, 2014, we published in some national dailies a Request for Proposal (RFP) from prospective BDSPs. Three hundred and thirty-one applications were received nationwide.”
He said at the end of the evaluation, a total of 122 firms were shortlisted as BDSPs in three categories based on their capacity and their preferred areas. While a total of 28 BDSPs had capacity for national coverage, 74 are to operate on zonal basis, leaving 20 BDSPs with state coverage.
Explaining how the BDSPs would be remunerated, the BoI boss said there was an initial token fee to be paid by the SME to the BDSP before the submission of the business plan and loan application to BoI. This would be based on a graduated scale. For instance, while an initial token fee of N10, 000 would be paid for a loan of less than N10 million, N25, 000 is for a loan amount of between N10 million and N50 million. A loan amount of between N50 million and N200 million attracts initial token fee of N50, 000.
“This initial token fee is designed to ensure that SMEs show some commitment to their projects and help to eliminate frivolous applications,” Olaoluwa explained, adding that the total success fee shall be 0.5 per cent of the approved loan amount and shall be payable by BoI as follows: 50 per cent of the total fee payable after the collection of the loan offer letter by the SME; balance of 50 per cent of the total fee payable immediate after the disbursement of the loan by BoI.
To keep the BDSPs on their toes, there are some specific performance benchmarks they must satisfy, failing which they may be delisted by BoI. For instance, they must make full disclosures to BoI on the SMEs and any BDSP that misrepresents facts while processing any loan application shall be blacklisted. Also, business plans and loan applications submitted shall be in accordance with BoI’s RAC and other applicable criteria which shall be communicated to the BDSPs by BoI. Besides, each BDSP is expected to achieve a minimum of 10 successful applications yearly, and any BDSP that fails to achieve a success rate of at least 40 per cent in terms of successful loan applications may be disqualify from the renewal of the agreement.
With this initiative, BoI has taken a major step to address the deficiency of lack of capacity inherent in most of our SMEs,” the MD said, pointing out that to facilitate regular dialogue and exchange of ideas between BoI and the BDSPs, a closed online user group platform has been created on BoI’s website.
He, however, clarified that regardless of the appointment of BDSPs, customers are at liberty to apply for loans directly to BoI through any of the bank’s physical offices across tthe country, or digitally inclined customers who are also at liberty to apply through BoI’s online application portal. He expressed optimism that through this partnership, the job and wealth creation objectives of the Federal Government under the NEDEP will be realised.
Some of the successful BDSPs share Olaoluwa’s optimism over the prospect of bountiful job and wealth creation through the platform of the service agreement. Describing the agreement as “heart-warming and the beginning of a new way of doing things,” Mrs. Folasade Odunaiya, Executive Director, IBFC Alliance Limited, one of the BDSPs, said: “We have a government that is interested in uplifting small businesses to create more jobs.”
She, however, called on BoI to take a look at the commercial side of the agreement as the fee is small.
The Managing Director of Resort Consult Limited, a BDSP, Mr. Femi Ekundayo, agrees with her. “It’s a challenge,” he said, adding however, that the BoI-BDSP partnership is a call to national service. While calling on BoI to empower the BDSPs through training, he noted that the principle of inclusion is what BoI had done.
Indeed, Ekundayo and other experts believe that the successful co-creation of this SME-business development eco-system signals the beginning of a new dawn for SMEs. Apart from addressing the age-long challenge of lack of capacity in most SMEs in Nigeria, it is expected to help address the low level of financial support to SMEs.
