Chal­lenges of SMEs op­er­a­tion in Nige­ria

Daily Trust - - BUSINESS - By Chris Agabi

Yusuf Ibrahim, 35, a gro­cery dealer at Lugbe, Abuja sat trans­fixed at his gro­cery store. Ibrahim seemed to be wor­ried about some­thing im­por­tant. He didn’t even seem to no­tice his cus­tomers who stopped by to col­lect some fruits.

“Mal­lam”, a cus­tomer called. The shout jolted Ibrahim out of his deep thoughts and he of­fered an apol­ogy for his ab­sent­mind­ed­ness.

Ibrahim’s numb­ness struck a chord in this re­porter, who, af­ter the gro­cer was done at­tend­ing to his cus­tomers, asked him what the mat­ter was. He wouldn’t ini­tially oblige, but af­ter much prod­ding, he of­fered a re­sponse. “I lost a chunk of my goods to ac­ci­dent and I don’t know how I’ll raise money to bounce back. I will need some N500,000, at least, but I don’t know how I’ll raise the money,” he said.

Ibrahim hadn’t both­ered to in­sure the goods while trans­port­ing them from Benue State to Abuja. He claimed ig­no­rance about that win­dow of se­cur­ing his risks. He was also ig­no­rant of pos­si­ble credit lines for small-scale en­ter­prises like his from agen­cies like the Bank of Agri­cul­ture and Cen­tral Bank of Nige­ria, and the agri­cul­tural in­ter­ven­tion funds, which he could ac­cess at low in­ter­est rates, that are be­ing dis­bursed by ac­cred­ited com­mer­cial banks. His ig­no­rance on many fronts com­pounds his predica­ment.

Ibrahim, a fa­ther of three, has been in his trade for 10 years. But con­se­quent upon the ac­ci­dent that de­stroyed his goods, it would seem he will be start­ing afresh, a re­al­ity that is driv­ing him near berserk.

An en­ter­pris­ing en­tre­pre­neur, Ibrahim, un­for­tu­nately, suf­fers from a qual­ity vi­tal to driv­ing entrepreneurship. He lacks ac­cess to use­ful in­for­ma­tion on how to mit­i­gate his risks and run a sus­tain­able busi­ness, as well as ac­cess to in­for­ma­tion on ac­cess­ing fi­nanc­ing to grow his busi­ness. To him, fi­nanc­ing a busi­ness be­gins and ends with the con­ven­tional banks, which are con­sid­ered no-go ar­eas by many small and medium scale busi­nesses be­cause of their high rates on loans.

Ibrahim’s story de­fines the prob­lem of many busi­nesses in the small and medium scale seg­ment in Nige­ria, though cre­ativ­ity and hard work are not in short sup­ply among them.

It is in­con­testable that a strong SME sec­tor is fun­da­men­tal to the eco­nomic pros­per­ity of any na­tion, par­tic­u­larly grow­ing economies like Nige­ria.

In­deed, it has been es­tab­lished that SMEs have helped coun­tries, es­pe­cially in Europe, the Amer­i­cas and Asia, forge strong com­pet­ing economies. But Africa, in gen­eral and Nige­ria, in par­tic­u­lar, haven’t se­ri­ously ex­ploited and sup­ported this im­por­tant sec­tor to grow, though it re­mains a huge con­trib­u­tor to em­ploy­ment and the gross do­mes­tic prod­uct (GDP). SMEs con­trib­ute about 60 per cent of Nige­rian jobs, ac­cord­ing to sta­tis­tics.

SMEs cause the stim­u­la­tion of eco­nomic ac­tiv­i­ties such as sup­ply of var­i­ous items and dis­tribu­tive trades for items pro­duced, cur­tail­ing ru­ral ur­ban mi­gra­tion, en­hance­ment of stan­dard of liv­ing of the em­ploy­ees of SMEs and their de­pen­dents, as well as that of those who are di­rectly or in­di­rectly as­so­ci­ated with them.

SMEs in Nige­ria have per­formed be­low ex­pec­ta­tion due to a com­bi­na­tion of prob­lems rang­ing from at­ti­tude and habits of SMEs op­er­a­tors them­selves, en­vi­ron­ment-re­lated fac­tors, in­ad­e­quate gov­ern­ment sup­port, in­sta­bil­ity of gov­ern­ments, in­abil­ity to at­tract fi­nan­cial credit or re­sources, and fre­quent gov­ern­ment pol­icy changes.

Also, there is a huge fund­ing gap to the SMEs. The Cen­tral Bank of Nige­ria (CBN), re­cently said the fund­ing gap in the small and medium en­ter­prises (SMEs) sec­tor is about N9.6 tril­lion.

The CBN Di­rec­tor of Com­mu­ni­ca­tions, Ibrahim Muazu, had stated this at the one-day Fi­nance Cor­re­spon­dents As­so­ci­a­tion of Nige­ria (FICAN) 2015 An­nual Con­fer­ence, ti­tled, “Banks and SMES in Nige­ria: Prospects, Chal­lenges and Suc­cess Sto­ries,” held at the week­end.

Muazu, how­ever, ex­pressed CBN’s com­mit­ment to bridg­ing the huge gap, adding that the N220 bil­lion in­ter­ven­tion fund for Mi­cro Small and Medium En­ter­prises (MSMEs) in­sti­tuted by the CBN is a part of the com­mit­ment to that ef­fect.

The CBN’s spokesman also noted that a max­i­mum of 10 per cent of the com­mer­cial com­po­nent of the fund is be­ing chan­neled to trad­ing and com­merce to en­sure that pro­duc­tive sec­tors of the econ­omy con­tinue to at­tract more fi­nanc­ing nec­es­sary for em­ploy­ment cre­ation and diver­si­fi­ca­tion of the coun­try’s eco­nomic base.

“The broad ob­jec­tive of the N220 bil­lion MSMEs fund is to chan­nel low in­ter­est fund through par­tic­i­pat­ing in­sti­tu­tions like banks and mi­cro­fi­nance banks, state gov­ern­ments and small busi­nesses that need it to cre­ate jobs and em­power grass­roots pop­u­la­tion,” he said.

The Pres­i­dent, As­so­ci­a­tion of Small Busi­ness Own­ers (ASBON) Dr. Femi Egbesola, how­ever, that the draw­down cri­te­ria for SMEs on the in­ter­ven­tion funds are un­re­al­is­tic and are be­yond the reach of small busi­ness own­ers.

Egbesola said that com­mer­cial banks au­tho­rized by the CBN to dis­burse the funds do not re­gard SME op­er­a­tors as se­ri­ous peo­ple in vi­tal need of such funds.

He urged the CBN and com­mer­cial banks to re­think their SMEs’ fund­ing strat­egy be­cause of the huge ben­e­fits in­creased credit ac­cess by small busi­nesses will add to the econ­omy.

Largely, the sup­port­ive busi­ness en­vi­ron­ment for SMEs, he pointed out, is still weak in Nige­ria.

Eco­nomic ex­perts have con­sis­tently sub­mit­ted that the Cen­tral Bank, other com­mer­cial banks and the Nige­rian gov­ern­ment should di­rect their en­er­gies to­wards grow­ing SMEs.

It does ap­pear, these calls are gain­ing trac­tion as some fi­nan­cial in­sti­tu­tions like the banks are pro­vid­ing use­ful sup­port to SMEs.

Banks like Fist Bank, FCMB, Ster­ling Bank, Diamond Bank Her­itage Bank, Ac­cess Bank and oth­ers are build­ing ca­pac­ity among SMEs far re­moved from pro­vid­ing them fi­nanc­ing. Diamond Bank and Her­itage Bank, for in­stance, have com­mit­ted about N250bn and N230bn re­spec­tively to fund­ing SMEs.

The fund­ing streams for SMEs by the banks and CBN over the last years are es­ti­mated at N1.5trn, yet the de­sired im­pact hasn’t been felt.

The fund­ing in­sti­tu­tions, in ad­di­tion to fund­ing, also pro­vide ca­pac­ity de­vel­op­ments and other sup­ports to the SMEs. Specif­i­cally they pro­vide in­for­ma­tion and train­ing on how they can run prof­itable busi­ness, mit­i­gate their busi­nesses against head­winds, proper book keep­ing and how to ac­cess cheaper funds. The banks have adopted sev­eral chan­nels to do these. These chan­nels in­clude SMEs con­fer­ences, work­shops, spe­cial train­ings, ra­dio and TV pro­grammes.

For in­stance, Her­itage Bank and the Entrepreneurship De­vel­op­ment Cen­tre of the Pan African Univer­sity (PAU) have part­nered over the years to drive growth in the SMEs.

The First City Mon­u­ment Bank (FCMB) also spon­sors an SME pro­gramme on ra­dio and also or­gan­ises work­shops for SME op­er­a­tors. First Bank, too, from time to time or­ga­nizes train­ings for SMEs op­er­a­tors across the coun­try, among other ef­forts.

Small scale traders

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