Why SMEs still groan despite N15.06trn credit allocation to private sector
It is no longer news that many Small and Medium Enterprises (SMEs) are still grappling with the challenges of access to loans and capital despite huge credit allocations to the private sector in the first quarter of 2018.
In a banking sector report recently released by the National Bureau of Statistics, credit allocation to the private sector by banks hit a total of N15.60trn in Q1 of 2018.
A breakdown of the report revealed that the Oil and Gas sector had the highest credit share of N3.42trn followed closely by the manufacturing sector which had N2.07trn within the period under review.
Further analysis of the report by the apex statistics institution of the country shows that trade and general commerce received N1.05trn, construction had N647.9bn, agricultural sector got N501.6bn, power and energy got N426.5bn while credit to government was N1.41trn.
Similarly, finance, insurance and the capital market received a total loan of N999.4bn, information and communications got 865.32bn, education N73.48bn, real estate sector received N784.2bn, transportation and storage N291.67bn while other sectors got N384.8bn.
The Senior Special Adviser Technical, Nigeria Association of Small and Medium Enterprises (NASME) and the CEO of Global Spring Consulting Ltd, John Chris Mamuda, said small and medium scale business operators still haven’t felt the impact of the huge allocations by banks, noting that banks preferred to finance sectors that give them quick and fast gains.
“Yes, this is a gain to the private sector without impact on our national development. The Deposit Money Banks (DMBs) are driven by profit motives therefore they are looking for quick wins and transactions that have short-term cash cycle and huge profit margins,” he said.
Mamuda added that the speculative sectors of the economy benefited from the credits more and not the real sectors that have direct bearing on the means of livelihoods of the citizen.
“It should be understood that most of the beneficiaries of these credit facilities are foreign-based companies that have seen prospects in some areas and in the private sector and came through direct foreign investment without any substantial capital and without any injection into the economy, taking advantage of the credit facilities for huge profit gains,” he also said.
Commenting on why oil and gas and manufacturing sectors still retained highest allocations to the private sector, Mamuda said they were quick win sectors of the economy whose transaction cash cycles were short, with profitable transaction gains dominated by foreign companies that explored some weak policy regimes to make gains, as different from national priorities and aspirations.
He added that “Agriculture and mining businesses have long-term gestation periods and therefore are not attractive for credits and therefore we need to conduct a self-reassessment of our national priorities and aspirations, and ask ourselves whether our policies, programmes, processes, credit facilities and approaches are really geared towards the realization of the economic diversification agenda of the Muhammadu Buhariled Federal Government.”
He maintained that the staggering amount released for the first quarter of the year has not contributed much to the GDP which is worrisome to the Small and Medium Scale Enterprises with regards to job creation contribution to economic growth.
A grocery store owner in Mararaba, Nasarawa State, Malam Abdullahi Bala, shared an experience he had with a bank. He said, “I requested for a loan of N500,000 after someone referred me to a bank for their personal loan package. I was asked to open a corporate account with a list of many registration documents, provide collateral, which could be landed property, and get a guarantor who operates a salary account with them.
“The list was just too much for me to fulfill immediately and I needed the fund urgently, so I gave up,” he noted
Improved customers’ confidence, drop in treasury bills driving private sector credit Research In a research conducted by analysts at FSDH Research, showed banking sector credit to the private sector in 2018 appreciated because of improvement in macroeconomic and business environment; improved consumers’ confidence; and the drop in the yields on the Nigerian Treasury Bills (NTBs) which were seen as the main drivers of the expected credit growth.
According to the research, the provisional figure that the National Bureau of Statistics (NBS) released for Q4, 2017 showed that the banking sector credit to the private sector dropped from N16.1 trillion in Q4, 2016 to N15.7 trillion in Q4 2017. Although the total credit as at the end of 2017 was higher than the figure of N13.1 trilion in Q4 2015, the impact of the devaluation of the local currency may be responsible for the growth in 2017 over 2015.
It further stated that the sector with the highest credit allocation as at Q4 2017 was mining and quarrying, and petroleum marketing which accounted for 28% of the total banking sector credit to the private sector. This was followed by manufacturing 14%; general services 18%; and trade 7%. It noted that agriculture, which contributed about 29% of the Gross Domestic Product (GDP) in Nigeria in Q3 2017, attracted 3% of the total credit.
“Agriculture sector in Nigeria is faced with many problems. Thus, the sector is unable to attract the required credit. Some of the problems are: inadequate storage facilities; poor transport network; inadequate research to develop improved seedlings; and weak integration between the sector and the manufacturing sector in providing manufacturing inputs,” the report stated.
Rising crude oil prices, enhanced business environment stimulating bank allocation - Expert
A financial expert and current head, Department of Banking and Finance at Nasarawa State University, Keffi, Prof. Uche Uwaleke, attributed the reason for oil and gas sector maintaining its highest receipt of bank’s allocations to the private sector to the rising price of crude oil which has now surged to about $77 per barrel.