Ahmed champions wider access to cheap finance for MSMEs

The difficulties facing Micro, Small and Medium Enterprises (MSMEs) in Nigeria have increased significantly in recent months, worsened by the disruptive effects of the Russia-Ukraine war on the  economy and the consequent impact on the cost of doing business.

Consequently, financial institutions in the country, particularly the Development Bank of Nigeria, need to expand funding windows to provide even more affordable financing to a wider cross section of small businesses across the country, according to Zainab Ahmed, minister of finance, budget and national planning.

Ahmed, speaking at the third DBN Annual Lecture Series held in Abuja on Thursday, said the Federal Ministry of Finance, Budget and National Planning and its agencies stand ready to utilise the fiscal tools at their disposal to support the DBN and other public and private sector actors working towards the common goal of ensuring MSMEs can become the key drivers of economic growth.

She said the partnership between the government and sustainable and financial institutions would create a livelihood that enhances jobs for segments of the working population that are prone to vulnerability.

Citing a report by the International Financial  Corporation, the minister said 70-95 percent of new employment opportunities in emerging economies are created by MSMEs.

“To ensure their effectiveness and contribution to the economy, it is imperative to ensure that they are supported,” she said.

She also observed that in January 2022, MSMEs accounted for 96.7 percent of businesses in Nigeria and also contributed 46.3 percent to the country’s gross domestic product (GDP).

On the flipside, she noted that MSMEs only account for 6.3 percent of the country’s gross export.

“The relatively low contribution of MSMEs to exports is of great concern to us given the significant contribution to the nominal GDP and for this reason, urgent steps are being taken to alleviate the binding constraints limiting SMEs’ contribution in cross-border trade,” she said.

On the main policy tools implemented by the finance ministry in supporting the growth of the MSME sector through the annual finance act, Ahmed said the ministry has successfully facilitated the approval and implementation of three finance acts and has reached the advanced stage of the 2022 Finance Act.

“Finance acts are designed to address relevant taxes, excise duties and we have used them to introduce measures to reduce tax burden for MSMEs and created opportunities for more participation in the export market,” she said.

The minister highlighted key provisions in the Finance Act to include amendment of Section 40 of the Companies Income Tax Act (CITA) to grant tax exemptions for small businesses and lower the taxes for medium-sized businesses; zero company income tax for companies that have a turnover of 25 percent and a reduced tax of 20 percent for medium-sized companies with turnover of N25 million to N100 million as enacted in section 16 of the 2019 Finance Act; and an initial tax holiday of four years to MSMEs engaged in primary agricultural production as enacted in section 23 of the Finance Act of 2020.

In addition to this, she disclosed that Section 23, subsection 7 of the Company Income Tax Act has also provided tax exemptions for profit generated by small businesses, adding that dividends received by companies in the manufacturing sector in the first five years are now tax exempted.

The minister further disclosed that dividends received from investments in wholly export-oriented businesses are also tax exempted, while companies exclusively supplying inputs for manufacturing or products from exports also benefit from tax exemptions.

She said the federal government has so far enhanced the economic sustainability plan of some SMEs through certain provisions that include N250 billion grant containing 50 billion MSME derisk facility instrument; N50,000 grant  for 100,000 MSMEs; financial backing of N191 billion in loans for 34,144 enterprises; and capacity building support to 125 MSMEs and loan guarantees to 1,748 businesses to the tune of N6.2 billion.

Tony Okpanachi, managing director/CEO, Development Bank of Nigeria, noted that MSMEs contribute 48 percent to Nigeria’s GDP, according to a survey conducted by Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in collaboration with the National Bureau of Statistics (NBS).

Okpanachi, however, pointed out that the country’s inflation spike, rising and unstable exchange rate, the global disruptions on international trade exacerbated by the Russia-Ukraine war, among others, have led to uncertainty, market volatility  and radical changes in the companies’ well established strategies across the globe.

This, according to him, has adversely affected many business enterprises, leaving the future of work in a state of flux.

He further noted that MSMEs find themselves frequently affected by unpredictable external factors such as natural disasters, climate change issues, disease outbreaks, technological and cyber changes, trade disputes, policies, etc, which have had an immense impact on local businesses in today’s increasingly turbulent world.

To address the situation, he said governments, corporate bodies and individuals, mostly MSMEs, must find ways to adapt to the changing times  and the volatility of the market, deal with uncertainty and figure out how to convert the challenges into productivity.

“It is therefore imperative for us as a bank to champion the conversation on how MSMEs can prosper despite the odds by exposing ways through which MSMEs can adapt in these times. Hence, the DBN annual lecture initiative to address the financing constraints faced by MSMES and drive innovative and strategic solutions in the management of their businesses,” he stated.

The pioneer managing director of the wholesale financial institution, thereafter, assured that DBN will continue to work with its Participating Financial Institutions (PFIs) to eliminate the financing constraints faced by SMSEs, which he described as a critical sector of the economy.