Challenges of SMEs operation in Nigeria
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.