Financing small business is recipe for growth, says Oyebode
How would you describe the Lagos economy and the drive to get residents productive?
We need to understand that Lagos State within the context of Nigerian economy is clearly a sub-national economy and currently the fifth largest in Africa. The economy of Lagos State is very dynamic. It is a service and trade based economy.
So, you will find a lot of services and trade hubs operating across parts of Lagos. Because the economy is a consumer based one that has approximately 20 million people and occupies only four per cent of the country’s land mass, the population density of Lagos is significant and in such consumer economies, you will find out that commerce and trade is always a big part of the economy and services, just because we have educated-qualified people.
So, I will categorically say that today’s Lagos economy is primarily a service and trade driven one.
As Lagos grows, so does Nigeria, especially because Lagos is a coastal area and is also the hub of international trade. Imports will come into Lagos before going into other parts of the country. Exports also go through Lagos and because it was the former capital of the country, there is already some infrastructure here that you can leverage to facilitate trade and business activity.
What do you think is actually needed to boost employment and small businesses in the country?
I think there are a number of things. On one side, we need to deepen infrastructure. We have to ask ourselves, what are the things that facilitate expansion in the economy. For example, improved power will ensure that businesses are more productive and they can open for longer hours and therefore, they can manufacture more products and need to hire more people; roads and rail will also mean that the efficiencies you get from moving goods cheaper can go into paying people better salaries. I think those two are very important.
Education is also critical because today, we even have jobs available but we don’t have the right skills to take up those jobs. I would say that formal and vocational education are two things we have to focus on. The fourth I would say is ensuring that we are export focused. For an economy like ours, even though we have 180 million people, we are really a poor country because income inequality is really huge here.
We have to ensure that we can produce goods for other countries to buy and then, you are getting revenue from the consumptions in the other market. It is critical that we do a lot of that and the one big thing that we really need to start changing is that we seem very focused on producing what we consume and consuming what we produce.
What does it take to recruit people into the LSETF?
First, the law that sets up the agency – the Employment Trust Fund Law of 2016, was very clear. Our role is to facilitate job and wealth creation in Lagos State and we do that in a number of ways. Our most popular programme is our loan programme where we lend up to N5 million at an annual interest rate of five per cent for up to three years and we are providing funding for SMEs to grow and expand, thereby employing more people.
It is not just a loan programme. It is a scheme targeted at people who are going to put that money to productive use, expand their businesses and employ more people. The employment goal is very important because that is what we are targeting.
We also run a programme where we train and place unemployed residents in a number of trades. So, from construction to garment manufacturing, hospitality, entertainment, healthcare and more, we are training and placing unemployed Lagos residents into jobs because the skill gap is a big challenge but we are not just bridging that skill gap, we are also ensuring that before we even go to train people, the industry that will hire them has given us the roles and the skills they are looking to hire people for so that we don’t fall into the challenge that government has usually fallen into where they train people and then at the end of the training, there are no jobs to put those people in.
We are also very interested in supporting innovations with early stage businesses in the tech-community in Lagos State. When you go to places like Yaba, from Herbert Macauley to Queen Street, you will find a hub of young entrepreneurs who are the face of businesses tomorrow.
We have also recognised that it is not enough for us to support the businesses of today, but also support the businesses of tomorrow- the guys who are using artificial intelligence to disrupt how we do things, those using digital media channels to sell products, and so on. When you think about e-commerce, 10 years ago, we were not buying anything online.
You have to see the shirt or product you want to buy before buying it, but now we are all shopping online even outside the country. We are all using Whatsapp and other platforms to chat. Years back, it was emails at best or telephone calls. The world is evolving right now and we must equip our youths otherwise, we will be left behind in this second wave of development.
What is the LSETF loan profile at the moment?
We lend to both micro and small businesses and in total, today, we have disbursed N4.8 billion to 5, 816 beneficiaries, but we have approved a lot more than that and we are presently going through the next phase of disbursement. We have approved N6.5 billion to 9,938 beneficiaries. In most instances, I would say 90 per cent of the beneficiaries are micro enterprises and as you can imagine in terms of the amount, they take about 45 per cent of the loan amount because they need a much smaller loan amount for their businesses.
In LSETF, we don’t discriminate. We lend you money from as low as N40,000 to as much as N5 million but of course, if you want to take a loan of over N500,000, you must have a registered business, two guarantors, and show evidence that you have paid taxes. You must be a lot more formalised than a business that is asking for a loan of say N300,000.
Do you break even operating at an interest rate level of five per cent?
The question is very interesting, but the difference is that we are a state institution. If you take a look at the banks today, they take money from depositors. In many instances, if you put money in fixed deposit at 12 per cent, for the banks to make a profit, they must lend at 12 percent plus X. LSETF is being funded primarily by the government and we also accept donations from well meaning individuals and corporate associations, so, we don’t carry cost of funds, which is a very major cost.
Also, we are operating from one main location and our other liaison offices are within local government and we also don’t carry some infrastructure costs like branch extensions that banks carry.
So, from the cost perspective, we operate a low cost model and our role is not necessarily to be profitable but we have kept our operations to ensure that it is sustainable. We are more sustainability focused than a profit oriented institution.
Do you plan to tap into the CBN intervention funds?
We are currently speaking with the Central Bank on a number of collaborative opportunities. Talks are in a very advanced stage and we are about to pilot something with their Bankers Committee. CBN is a very strong ally and we are talking to the Development Finance department of the body and I see a very productive partnership coming out of that. You will also remember that we have already started doing some works and we can demonstrate the effectiveness.
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