Rethinking finance as the silver bullet for all MSME problems
There is no doubt that finance is to business what blood is to a human being, a certain famous musician once said that there is no romance without finance, that have proved to be indubitable, at least for today’s generation.
In the context of business, that line could read: no business without finance. Therefore, the place of money is so important in business, and for bringing ideas to life. Indeed, some have come to believe that it is the first element to assemble in the building blocks of an enterprise. That notion is not only wrong, it has been discredited and abandoned following several empirical findings, which show that finance is not the most important challenge of MSMES.
Recent policy actions in Nigeria, particularly in the area of providing financial assistance and soft loans to MSMES, tend to give finance a bloated role in the survival of small businesses. We seem to have fallen back into that long-rebutted argument that finance is the most important problem faced by the small business. The defeat of that argument was part of the building blocks that helped the transition from microcredit to microfinance. While microcredit is essentially concerned with the provision of credit, in the form of small loans, to small needy enterprises, microfinance encompasses a lot more. It combines microcredit with other ancillary services that are critical to a business, including microinsurance and capacity building resources.
Currently huge sums of money are being doled out, either as Trader Moni or Farmer Moni, from the Central Bank, together with several other low cost funds, to small business operators and individuals, to support their businesses. While this is a positive policy response, particularly in relation to the COVID 19 crisis, it has been executed without much needed regard to other elements of a balanced business ecosystem.
The sorry state of public utilities and general infrastructure cannot be ignored while we pop cash into the hands of individuals and businesses in the hope that it will turn their lives around. Once a road is bad, for instance, all the shops on the roadside lose their customers and ultimately shut down, spewing their occupants into the street; turning innocent citizens into hooligans and criminals.
All the elements of a complete economic system must be addressed alongside funding. Lack of functional utilities and common services accentuate the adverse effects of lack of finance such that those effects now become more important challenges than finance. This is a very simple but less intuitive point to understand, Funds are not used in isolation, unless they are meant for shopping, and that appears to be what is happening.
The absence of complementary facilities needed to energize capital puts recipients of such funding support at the risk of misusing them and not being able to pay back. The practical absence of technical support for MSMES has united with policy disarray (lack of coordination, summersault and do-nothing policies) to work harm on MSMES. Banks may devote funds for MSMES but they need conducive operating environment to be of optimal benefit to the beneficiaries.
Most MSMES studies identify poor business knowledge and nonavailability of other financial services in appropriate forms, as well as poor capacity of operators to tap opportunities, as more important than finance. A good business idea in a good operating environment will definitely attract the requisite capital. The critical need of the economically active poor, and indeed the MSMES, is in the form of credit and savings windows, security of life and property, a trustworthy government, rule of law, adaptive insurance schemes that are challenge and customer specific, and not just finance.
The problem of Handout or Eleemosynary Economics is that it is neither productive nor sustainable. It is susceptible to manipulation and hardly ever transparent. It gives room to unaccountable discretion, which is the fertile ground for corruption, even in normal societies where the rule of law operates. In our environment in which the law is malleable and sensitive to personality. It breeds Prebendalism and graft. Above all, eleemosynary economics is hard to stop. See what fuel subsidy removal is causing us. This handout culture has significantly dented this administration’s efforts to help the poor. Government to support the vulnerable people was marred by discretion without accountability (corruption).
In short, capacity building, infrastructure and common services are critical requirements for the effective use of financial capital. The key to achieving our objective of moving a hundred million Nigerians out of poverty in any number of years is in understanding why the people are poor. We either do not yet understand the root causes of this problem or we apply solutions that are not well thought, or are drenched in the brackish waters of politics. We should never tackle any problem without finding out its root causes. Poverty is more than the lack of finance.