‘Small businesses pose higher risks than bigger ones’

Ayo Olojede, Head, Emerging Businesses, Diamond Bank Plc, spoke with select journalists on efforts to promote sustainable growth among micro, small and medium enterprises (MSMEs), and the need for fund promoters to channel more resources into the sector. Clara Nwachukwu, was there. Excerpts

Why are SMEs tagged emerging businesses in Diamond Bank?

SME is an emerging business segment; it is still evolving.

It is a business segment where a lot of reforms are ongoing because of the recognition of its importance, so it is emerging to that extent.

It is just the same way that you say Nigeria is an emerging economy.
    
At what point do you consider a business as no longer emerging but emerged?
   
When you have a structure, a well structured organisation, and you have access to people to get financing for your businesses.

For you to run your business and understand what it takes to be able to run a business from the perspective of your managerial capacity, your sales capacity and how to manage your finance; then you are no longer emerging, you are now a fully structured business.

Like I explained earlier, when you compare Nigeria with America, what makes America a fully developed country and Nigeria an emerging one, is in that same context.

How do you define Micro, Small and Medium Enterprises?
 
There are no universally acceptable definitions for MSMEs; it all depends on the context of the country or the context of the environment. We have varying definitions.  

Even in the Organisation for Economic Co-operation and Development (OECD) countries, the definitions are also varied.

In Nigeria, you have the one that is from the Central Bank of Nigeria (CBN), but even that is not what is dictating the definition across various banks.

We are all working to our lines, and we have different variables that determine what the definition is.

It can be from the asset size, it can be from the number of employees, it can also be from a sales perspective.

You will find that a lot of banks will use the sales perspective because it is most convenient to measure.

In Diamond Bank, we measure our MSMEs as businesses that have sales turnover of below N600 million, and that is now further categorised into three because we recognise that there are different sizes of the business within that same sector.

So we have the very small, the small, and the medium. The micro is even smaller than that.

For us, the category of the small to the micro is businesses that have sales turnover of N60 million and below, that is N5 million per month.

The next category is about N180 million, and then between 180 million and up to N600 million per annum will now be the established or the ones which we described as established.

In Nigeria, typically, a one man business can be doing a sales turnover of about N1 billion.

If I used the number of employees, I will not categorise that kind of business as SME.

In fact, the N1 billion is already above my SME threshold.

So the most visible, the most convenient, the one that I can see and I don’t need to be looking for validation is sales, because whatever it is that you route through your account with me, or you route through other banks, if I am able to consolidate that I can get that.

But the number of employees is vague and assets too.

Some people, their assets are not more than their portfolio, and yet they are able to generate sales that are higher than even what we have defined.

That is why I say, ‘it is the most convenient and easiest to measure’.

Diamond Bank and SMEs have been in a romance for quite a while now, as well as many other banks. What exactly are the things you do for SMEs that distinguish you in the SME space?
    
The Diamond Bank approach to serving the SMEs is from the perspective of the challenges the SMEs face.

Typically, when you look at some of the challenges, let’s take business registration first; when you look at the available statistics for SMEs, there are about 37 million of them in Nigeria, and 99 per cent of them are at the micro level.

In fact, a further 96 per cent of these do not have registered businesses.

If you don’t have a business name registered, that creates automatically an access to finance gap, in addition to the fact that they are not able to track them.

How do we solve that challenge at Diamond Bank?

We work in partnership with lawyers to be able to provide heavily discounted service to help you register your business.

I am not sure of any other bank that is currently doing that.

What makes ours very interesting and value adding to the SMEs is the fact that we combine it with the service of helping them to obtain their Tax Identification Number (TIN).

You know that when you want to open an account with a bank, there is a corporate search. Every bank would conduct a corporate search, and they would charge you for that service.

If we help you to register your business we will wave that fee, and we will also help you to get your TIN.

There are no other banks that currently help customers to do that.

Another challenge that we have been able to identify is that a lot of businesses do not have business plans.