Personal savings, family, cooperatives top finance sources for Nigeria MSMEs, says report
By Onome Amuge
Majority of entrepreneurs in Nigeria depend on personal savings as the main source of financing for their businesses, according to a new report by FATE Foundation, a non-profit providing entrepreneurship knowledge to Nigerian startups.
Whereas 74 percent of entrepreneurs surveyed by the FATE Institute, the research, policy and advocacy arm of FATE Foundation, cited personal savings as their main source, 37 percent mentioned support from family and friends.
For institutional sources, however, the entrepreneurs rated cooperative societies as highest source of funding at 41 percent, followed by microfinance banks at 27 percent, while only 19 percent of the entrepreneurs said they received funding from commercial banks.
The report, “Bridging Access to Finance Gap for Nigerian Entrepreneurs”, also showed that out of N22 trillion commercial bank credit to the private sector in 2021, only 0.38 percent was disbursed to small businesses.
The report was launched alongside a second report, “State of Entrepreneurship in Nigeria 2022″, both marking FATE Foundation’s expansion of its impact towards enhancing entrepreneurial development in Nigeria.
The reports centre on the reasons for finance gap in Nigeria, discuss access to finance models, and proffer recommendations on bridging the gap.Key data highlights from the “State of Entrepreneurship in Nigeria 2022” report showed that 8,611 businesses were surveyed across the 36 states in Nigeria including the FCT.
Eighty percent of the businesses surveyed were either nano at 41 percent or micro at 39 percent businesses; with 50 percent of the businesses surveyed being five years old or less.
Further breakdown of the figures showed that 51 percent of the entrepreneurs surveyed were aged 30-39. Male-led businesses stood at 61 percent with female-led businesses being 39 percent.
Fate Foundation noted that for the second time in a row, perception of opportunities ranked highest on the entrepreneurial index, while enabling environment ranked the lowest. Of this, Imo State had the highest overall index with a score of 0.82, followed by Bauchi with a 0.72 score. On the other hand, Taraba State and the FCT ranked overall lowest with index scores below 0.40.
“Bridging Access to Finance Gap for Nigerian Entrepreneurs” report highlighted the demand-side challenges to MSMEs financing to include high cost of borrowing; low level of trust; and limited awareness of enablers such as the moveable collateral registry. On the other hand, the supply-side challenges include limited financial literacy and investment readiness; poor data insights on credit-worthiness; and learnings from previous funding programmes.
In its policy recommendations on bridging the gaps, FATE Foundation called for better mapping and dimensioning of the MSME segment for funding; expansion of credit reporting coverage; and leveraging tech for digital identity on credit-worthiness.
Launching both reports at the Policy Dialogue at the Ecobank Pan-African Centre in Lagos, Fola Adeola, chairman of FATE Foundation, explained that the reports provide an assessment of the entrepreneurship landscape in Nigeria using five key indicators: Business Performance, Skills Acquisition, Innovation & Technology, Perception of Opportunities, and Enabling Business Environment.
Adeola said the “Bridging Access to Finance Gap for Nigerian Entrepreneurs” report takes a deep-dive approach to understanding the access to finance problem in Nigeria and proffering recommendations on the way forward.
“Both reports were developed to provide data insights and recommendations to guide the government and ecosystem players on policy and programme design/implementation to improve outcomes around accessing finance,” he said.
Adenike Adeyemi, executive director, FATE Foundation, harped on the need for an intentional approach to bridging the access to finance gap by leveraging technology, improving the digital footprint of entrepreneurs, and assessing the impact of current funding programmes.