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On financial support for SMEs



At no other time than now does Nigeria need to properly organise and fund its small and medium scale enterprises for the purpose of driving the economy. Small and medium scale enterprises, SMEs are generally defined as all businesses with turnover of less than N100 million per annum and/ or less than 300 employees, among other definitions. The role of these SMEs in enhancing economic growth and development has been widely acknowledged globally. Economic wealth the world over is created through enterprises and the expansion of their output greatly enhances economic growth. SMEs contribute to the economy by creating value through the production of goods and services thus enhancing the gross domestic product. They also generate employment by creating the much-needed jobs in the economy as well as expanding the export sector largely through linkages with large firms that produce for the foreign sector. Across many countries, SMEs account for over 90% of all businesses, particularly in Asia and Africa where economic growth has been largely propelled by the activities of these enterprises. The growth of the economies of Asia in particular is a clear case of how critical SMEs can be in driving economic growth. Given the advanced state of SMEs in that part of the world, they also push outward the technological frontier by their innovative role in process and product technologies as well as making substantial investments in plant and machinery. Despite all these, SMEs all over the world are bedevilled with a wide range of challenges that inhibit their contributions to national economic growth.

In Nigeria, SMEs have largely underperformed relative to their counterparts in East Asia. According to a Central Bank of Nigeria (CBN) report on SMEs, the key issues affecting their performance in Nigeria are four, namely unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology. The CBN report further asserts that the shortage of finance occupies a very central position among these four. Hence the issue of enhancing the financing of SMEs has been receiving attention in many quarters – among policy makers, bankers and other key stakeholders. Recently, the United Nations Industrial Development Organisation (UNIDO) Representative to ECOWAS and Regional Director, Jean Bakole called on financial institutions to facilitate increased access to financing by SMEs in the country since, according to him, entrepreneurship is a necessary ingredient for stimulating economic growth and employment opportunities. This is more so given that Nigeria’s SMEs sector is acknowledged to be the largest employer of labour in the country presently.


Efforts have been made by governments in the past to address the SME funding issue. A number of schemes have been put in place to address this issue. For example, the CBN had approved the investment of the sum of N500 billion stocks issued by the Bank of Industry (BOI), part of which is for the refinancing/restructuring of banks’ existing loan portfolios to SMEs. The Federal Government on the other hand has also put in place a number of interventionist policies, designed to make it easy for small and medium sized businesses in Nigeria to obtain business finances in the form of grants and small-interest loans. These include the You Win programme, the SMEDAN Loans project and the YES Programme of the Nigerian Bank of Industry (BOI) among others. Also the Small and Medium Enterprises Equity Investment Scheme (SMEEIS), which was initiated by the Bankers Committee of Nigeria made it compulsory for all banks to set aside 10% of their Profit After Tax (PAT) for equity investment and promotion of small and medium enterprises with a view to alleviating the burden of interest payment. However, the scheme was largely unsuccessful as a result of the low participation of banks.

Other government institutions that have helped in facilitating financing schemes for SMEs include the BOI, the Nigeria Agricultural Cooperative Rural Development Bank (NACRDB), and others. The role of the World Bank and the African Development Bank (AfDB) in this regard cannot also be discountenanced.

However, there have been challenges confronting the SMEs in accessing the financing options put in place by government and the banking system. Some of the barriers include high interest rates, complicated procedures, requirements for collaterals / guarantees and the overall unfavourable lending policies of the financial institutions. On the demand side, many of the SMEs largely have a lack of knowledge of all the available financing sources, have insufficient management and generally lack insufficient demand for their output, in a number of cases. An NBS/SMEDAN survey indicate that only 4.2% of 17.2 million MSMEs have been able to access loans or overdrafts from financial institutions while new entrants or start-ups find it practically impossible to access funds from banks.

The call for the facilitation of increased access to funding by SMEs is therefore quite appropriate. The preponderance of programmes and schemes in the past appear to have encountered different obstacles in delivering the much-needed funds to the SMEs. New financing options need to be designed to correct the shortcomings of previous schemes. These should be rooted in the nation’s cultures and backgrounds as a people such that their operations will be hitch-free. Also, the interest rates need to be made friendly for the operations of the SMEs, as the current interest rate structure is quite high. Though the CBN is currently focused on enhancing price stability by keeping the monetary policy rate, MPR static at 14%, for some time now, it should also be conscious of the fact that national productivity needs to be enhanced and hence should consider lowering the MPR, given that the rate of inflation has come within the range of about 11%, with the hope that it becomes single digit in no distant time. The monetary and the fiscal authorities need to work together to ensure that the SMEs receive the much-needed financial lifeline for their operations for the enhancement of the nation’s economic development.

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