Reasons behind poor access to funds by SMEs
In spite of the huge intervention funds from the government and SME funding initiatives by some commercial banks, MSMEs still find it difficult to access funds.
Garba Ibrahim, is a professional cameraman. With a camera he has been plying his trade. But then his dream is to own a studio where he can do all his audio-visual work.
“When I heard the government was disbursing N220 billion through CBN for MSMEs, I felt my dream of owning a studio will soon become a reality. I took a 12-weeks entrepreneurship course organised by CBN at Makurdi, registered a business name and applied for the loan. But till date, I have not gotten the loan. We hear the loans will be issued through commercial banks with single digit interest,” Ibrahim said
Ibrahim is not alone. Mr. John Oji who runs a poultry farm in Nyanya-Nasarawa State said he submitted a financing application to a micro-credit house and was assured of getting up to N1 million fund at a single digit in less than a week. “However, three days after, I was called to present cheques from three guarantors and evidence of ownership of landed property valued at N2 million.
“It became quite discouraging as I don’t have such means, so I gave up. I have tried four of such establishments and it has remained difficult either because of the collateral required or the interest is too high at double digit rate,” he explained.
A new method one of the SMEs operators, Mr. Musa Yusuf applied is obtaining a personal loan from the conventional bank. Mr. Yusuf who operates a laundry shop at Masaka town of Nasarawa state said he has a salary account with Stanbic - IBTC Bank and was told he could get a loan of N900,000 spread across four years.
He said: “I got the loan but the interest rate was up to 24% and that my salary must be steady every month as a public servant when they do their routine recovery. I was bothered at first but since the business is lucrative and I utilised the fund well, I think it is manageable.”
While Mr. Yusuf succeeded in obtaining a personal loan, Daily Trust checks at some of these banks indicate that they do not have provisions for SMEs loans except big companies with collaterals worth over N10 million.
In 2013, the CBN established the Micro Small and Medium Enterprises Development Fund (MSMEDF) of N220 billion. Also, a N200 billion Small and Medium Credit Guarantee Scheme (SMECGS) was established by the government.
In spite of the huge intervention funds from the Central Bank of Nigeria (CBN) and development institutions aimed at helping Small and Medium Enterprises (SMEs) to grow, a lot of them can’t access the funds.
The Executive Director, Lagos and South-west, of the First City Monument Bank (FCMB) Limited, Mr. Olufemi Bakre, stated at a media presentation of FCMBs capacity building programme for SMEs that a lot of the SMEs can’t access the funds because of poor booking-keeping culture and poor business practices.
According to him, most of the SMEs don’t know how to keep transparent books and proper records of their cash flow.
“The biggest problem with SMEs is their cash flow isn’t stable, it’s not provable or it cannot be traced. If I’m looking at your business and want to give you a loan, I won’t necessarily look at your passion but your cash-flow which will largely determine your ability to pay back. This is the most critical consideration, others follow,” he explained.
Recently, the Acting Director- General of the Bank of Industry, Mr Waheed Olagunju, disclosed that the bank would be disbursing N212 billion worth of loans to eligible entrepreneurs before the end of 2016.
Addressing concerns on difficulties some SMEs face in accessing this funds, Olagunju said there are specific conditions that must be met before these funds are accessed.
He said at a media parley recently in Lagos that the bank would not give out loans to people who will not be able to pay back.
He said 90 percent of people who apply for funds are people who do not have the intention of paying back but want to have “their share of national cake.”
He said the requirements are simple: you should have collateral and in the case of existing SMEs you must have a solid track record of success for at least five years.
He said the bank is always trying to restrategise and devise alternatives to ease the process of accessing the loans under BOI’s management.
He cited an example with the NYSC entrepreneurship fund in which the collateral required was only NYSC discharge certificate which will be withheld until the loan is repaid.
“You don’t need to know anyone in BOI to access loans if you meet the requirements unless you don’t want to do the right thing,” he said.
In another forum Olagunju said “If MSMEs are not registered with the CAC, they cannot talk of access to finance. You must be registered before you will talk about access to finance,” Olagunju said.
Mr Monday Ewan, Deputy Director, Policy Advocacy and Coordination Department of the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) says the reason MSMEs are finding it difficult to access the funds issued by CBN is because the commercial banks who issue the funds request for collaterals which most small businesses don’t have.
“In the survey we did with National Bureau of Statistics (NBS) in 2013, out of the 37 million Micro Small Medium Enterprises (MSMEs) in the country , about 36.6 million are micro enterprisesakara sellers, mechanics and so on who do not have collateral. So if you are telling them to bring any collateral for any loan, you are simply telling them that there is no money for them,” Ewan said.
He continued “They should remove those conditions so that small businesses can have access to the funds. For us at SMEDAN, we are saying for you to develop these small businesses, you give it as development finance. If you spend the money, it’s likely; you win some and lose some,” Ewan explains.
He said the government should come out with a policy to develop SMEs sector adding that SMEDAN has no funds to disburse.
“Government should do something to make sure small businesses access funds. The government should remove these conditions and we at SMEDAN will make sure the person uses the money as it ought to be used and make sure that they money is repaid. We have the structure to monitor and counsel them to make sure this money is paid back,” Ewan explains.
He said components of Business Development Service (BDS) which the agency renders include mentoring, capacity building and counselling. “Before we recommend small businesses to have money, we would have made sure that they have passed through all the rudiments of capacity building and training so that when the person gets the money, he or she is skilled on how to use it, Ewan said.
The moment you run out of cash, you are about to run out of business no matter what your accountant says. An asset generates a net positive cash flow while a liability generates a net positive cash flow
SMEs are key drivers of Nigeria’s economy