MSMEs’ financing gap widens to N13tr amid low consumer spending

Micro, small and medium-scale enterprises (MSMEs) will require an estimated N13 trillion ($32.2 billion) to bridge the financing gap currently in the sector, a new study has revealed.

This comes as limited commercial lending, poor infrastructure and lack of proper documentation continue to threaten access to credit.

According to PwC’s 2024 MSME survey, over 50 per cent of MSMEs have reported falling sales due to high prices and very low consumer spending power.

In the survey, 567 MSMEs, across 13 sectors and 29 states, participated and most respondents said they rely primarily on family, friends and bank loans, but face high interest rates, complex processes and collateral requirements. Most also said they pay multiple and excessive taxes and suffer inadequate financing.

Over 60 per cent of MSMEs struggle with unreliable and high electricity expenses due to grid reliance.

MSMEs are extremely vital contributors to economic growth. However, they operate in a challenging macroeconomic environment. The findings from the survey reveal that a significant majority (67 per cent) of MSMEs have experienced declining demand over the past two years.

When asked about the reasons for this decline, 38 per cent of respondents pointed to the high cost of their products, while 36 per cent cited the reduced purchasing power of consumers. Additionally, 12 per cent noted that consumers were switching to cheaper alternatives while 10 per cent attributed the decline to changing consumer preferences.

These challenges are compounded by macroeconomic headwinds such as inflationary pressures, currency depreciation and slow economic growth. Headline inflation continues to rise month-on-month, driven by increasing food prices, naira devaluation, high import bills, rising energy and logistics costs.

MSMEs continue to face sustained inflationary pressure due to the above-mentioned factors and exchange rate pressures, which are all likely to further increase the cost of inputs for MSMEs, which will, in turn, raise the prices of final goods and services, further impacting demand.

The business owners surveyed reported that the top factors hindering their growth include poor access to finance, poor electricity, multiple taxes and levies, inadequately skilled labour, insecurity and government policies. Funding is a critical enabler of the growth and development of small and medium enterprises, with 35 per cent of businesses surveyed citing inadequate access to finance as their number one challenge.

Infrastructure challenges, particularly electricity, account for the biggest costs to the daily operations of MSMEs. Unreliable power supply is a major challenge for 21 per cent of businesses. These challenges have hurt the business environment, contributing to significant economic costs for MSMEs and the broader economy.

Other structural challenges include multiple taxations (12 per cent), inadequately skilled labour (11 per cent) and insecurity (10 per cent). Most business owners acknowledge that they cannot go to commercial banks as they cannot afford the interest rates placed on loans with a greater percentage unable to even meet the needed requirements in the first place.