Nigeria’s micro, small, medium firms face N2trn funding black hole

By Moses Obajemu

A funding black hole of N2 trillion is preventing Nigeria’s micro, small and medium enterprises (MSMEs) from unleashing their globally acknowledged potentials on the country’s economy and it would appear that the various federal government close-to-election schemes such as TraderMoni through which N12 billion is said to have been disbursed to 1.2 million petty traders, Government Enterprise and Empowerment Programme (GEEP), and MarketMoni  pale into nothingness compared to the magnitude of the funding challenge that lower by expansive sector truly requires.

For decades small businesses in Nigeria have been at the receiving end of a harsh economic climate that had seen funding become scarce and unreachable for millions of enterprising Nigerians with ideas and projects they wished to unleash on the economy. Various administrations at federal and state levels have paid lip service to their plight and instead had turned them into puns for votes  especially during election season, when dubious schemes are suddenly activated for the purpose of winning votes.

business a.m has however learnt that not less than N2 trillion is required to meaningfully cater for the funding needs of the country’s MSMEs which are currently estimated to represent 96 percent of the businesses in Nigeria compared to 56 percent in the U.S and 65 percent in Europe, and contribute 75% of the national employment.

Of the over 37 million MSMEs in Nigeria, over 30 million are micro-enterprises. Thus, growth in this sector is directly correlated with growth in the economy as a whole and in the level of employment throughout Nigeria.

Sadly, they contribute approximately one percent of GDP compared to 40 percent in Asian countries and 50 percent in the US or Europe. However, a number of challenges are inhibiting the potentials of MSMEs in Nigeria. They are low access to credit or affordable finance, poor access to business development service, inadequate infrastructure and high cost of doing business.

Affirming the N2 trillion funding needs of the MSMEs, Tony Okpanachi, managing director/chief executive officer of Development Bank of Nigeria (DBN), said multiple funding sources are needed for the country to be able to raise this huge sum.

He said the efforts of his bank and other intervention funds dedicated to SMEs development are still not enough to meet this huge funding needs and called for more organizations to join the effort.

While government believes that it is making effort the N2 trillion said to represent the funding black hole, analysts say it shows how far government is from seeking to fully confront this monster in funding.

While announcing the potential launch of TradiMoni, vice president Yomi Osibanjo had said, “The policy of the Federal Government is to support businesses, not just big business but particularly small, medium-sized businesses and micro businesses. The whole idea is that we want to ensure that we give whatever support whether it is cash, advice or even registration to all of our small and medium enterprises.

“In the next few weeks, we are starting a micro-credit scheme which we call Trader Moni. It is a different scheme from MarketMoni. The TraderMoni is for the smaller traders, those who are doing small, little things, where in many cases, their inventory isn’t more than N5000 – N10,000. We want to give those types of people some credit as well, and once they pay back, we will give them some more money as well.

“We want to make sure that the very poor trader, no matter how poor you are, so long as you are trading or working, the Federal Government will support you by giving you some extra money to do whatever you are doing. So that every Nigerian who wants to work, who wants to do something, can get the opportunity to do some work. If you are not benefitting from GEEP, our micro credit loans scheme, you can benefit from this new micro-credit scheme we are about to start.”

The scheme had since featured prominently in the run up to the elections which come up next month and March.

A recent publication by the Central Bank of Nigeria (CBN), in conjunction with the International Finance Corporation (IFC) titled, ‘The Credit Crunch’, showed that 87 percent of MSME respondents have had successful loan applications in the past. On the other hand, 69 percent of MSMEs who wanted loans but did not apply felt that they would be rejected because of the collateral requirements and other associated conditions attached to the loan approval process.

The World Bank Enterprise Surveys in 2013, lends support to this: financial institutions often demand for immovable assets like land/buildings from MSMEs as collaterals 73 percent of the time, whereas, 78 percent of the capital assets owned by these businesses are vehicles, machinery, equipment and account receivables, which can also be used as movable collaterals.

The World Bank identified three key enablers for a responsible credit system: credit bureaus, collateral registry and a unique identification. All three of them are interwoven in the roles they play within the credit system. Within the last four years, the CBN has been working to either put these structures in place or enhance the existing ones.

The oldest of these three in Nigeria is the Credit Bureaus, which have been at the heart of the credit reporting system for over eight years, though only 15 percent of MSMEs surveyed in the ‘Credit Crunch’ report know about their existence and importance.

There are currently three credit bureaus in Nigeria and their existence enables financial institutions and any other organisation that is in a position to provide credit, to assess the credit history of a potential debtor.

The credit history of an individual or a business, on its own, has the potential to provide a strong case for that individual or business’ credit worthiness.

In an environment where the credit reporting system is operating at its maximum, it is common to find loans being granted solely based on the credit history and the entity’s capacity to pay back the loan; no collaterals required

While the CBN has worked with the IFC in the last four years to strengthen the credit reporting system and establish the National Collateral Registry, the uptake and seamless operations of these two still need to be improved on.

All the deposit money banks are already registered with the credit bureaus and make use of their services, but the microfinance banks are still growing in registration with the credit bureaus