Rea­sons be­hind poor ac­cess to funds by SMEs

Daily Trust - - BUSINESS - By Vic­to­ria Onehi, Chris Agabi, Si­mon Echewo­fun Sun­day & Fran­cis Arinze Iloani

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

Photo: en­ter­prise54.com

SMEs are key driv­ers of Nige­ria’s econ­omy

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