Small and Medium Enterprises (SME) the world over, drive the growth of the economy, but Nigeria with its population of over 170 million has not been able to tap the benefits of the sector. This is due to a dearth of financing by supposed lenders in the sector.
Operators believe that if the required funds are accessed, the economy will experience substantial growth much more than what obtains now. Besides, with the growth of the sector, unemployment at all levels will be reduced. The funding requirement of the SME sector is in deficit of N9.6 trillion.
However, in recent years, the Bank of Industry (BoI) has striven to address the issue by entering into agreement with some Money Deposit Banks (MDBs) to buoy credit advancement to entrepreneurs in SMEs.
BoI signed a Memorandum of Understanding (MOU) with 10 SME – friendly banks. The banks were carefully chosen to partner with BoI in the financing of its SME customers. The banks are Access Bank, Diamond Bank, Ecobank, Fidelity Bank, First Bank, First City Monument Bank, Skye Bank, Stanbic IBTC Bank, Standard Chartered Bank, and United Bank for Africa.
“The BoI is also exploring other alternative modes of funding such as continuation of sector-specific intervention funds by the Central Bank of Nigeria (CBN), Ministry of Agriculture, Solid Minerals and others; managed funds from various state governments and foundations; long-term loans at very low interest rates from multi-lateral/international development institutions”
Under the arrangement, BoI and the banks will collaborate in the provision of long-term loans to qualified SMEs based on BoI’s Risk Acceptance Criteria (RAC) and the provision of working capital to the SMEs by the banks also based on their individual RAC.
BoI Managing Director Mr. Rasheed Olaoluwa said: “The synergy that has evolved between BoI and the SME-friendly banks is unprecedented. It will undoubtedly foster greater access to finance for SMEs, financial inclusion for Nigerians and engender wealth and accelerated job creation for Nigerians.
“Nigerian businesses cannot be built on debt alone. It has long been part of the bank’s vision to find ways to provide needed equity capital and business advice to promising Nigerian businesses”
“It is also our expectation that the typical SME that will benefit from this partnership will be a good corporate citizen and meet their financial obligations to the partnering banks. This will stand them in good stead for consideration for larger loan amounts with the hope that they will in the near future metamorphose into large enterprises.”
To address the challenges of poor packaging of loan requests and non-bankable business plans, which are believed to be responsible for the low level of financial support to the sector, BoI in fulfillment of its mandate of providing long-term finance and business support services to large, medium and small projects, signed a service agreement with 122 Business Development Service Providers (BDSPs).
At the signing of the agreement in Lagos, Olaoluwa said the BDSPs would collaborate with BoI to identify credible SMEs that require finance. They would also develop bankable business plans and proposals for SMEs to facilitate their access to finance, including providing post-finance services such as mentorship, hand-holding, financial advice and inculcation of best practices among others.
However, in doing so, BoI is aware of SMEs’ age-long poor record keeping and weak financial management, which make it difficult to evaluate their financial performance and invariably. They inhibit their ability to access loans from banks or attract investors. This was why the bank has since re-positioned its systems, processes and services by riding on the back of robust technologies and products. This was in the hope of taking advantage of the new digital and mobile world to offer its customers the benefits of speed, mobility and convenience that come with it.
Addressing the issues
BoI’s chief, Olaoluwa, has never hidden his intention to turn things around at Nigeria’s foremost development finance institution. On assumption of office on May 19, last year, he resolved to use the bank as a vehicle to drive Nigeria’s industrialization by focusing on the SME sector. This is because of his belief that the sector is the engine of economic growth on account of its potential to create jobs, boost production and reduce poverty.
To unleash the industrialisation drive, the bank under Olaoluwa’s watch, unveiled a number of innovative financing options, technologies and products to position the MSME sector to play its catalyst’s role in industrialisation. Some of them included seed and angel funding, value chain finance, venture capital and crowd funding, among others.
The BoI is also exploring other alternative modes of funding such as continuation of sector-specific intervention funds by the Central Bank of Nigeria (CBN), Ministry of Agriculture, Solid Minerals and others; managed funds from various state governments and foundations; long-term loans at very low interest rates from multi-lateral/international development institutions.
Just last week, BoI partnered Grow Africa Equity Partners Limited to raise a $60million Venture Capital Fund (VCF) for small and medium enterprises (SMEs). The VCF aims to provide equity capital, along with strategic and operational support to early stage and fast growing businesses involved in technology, agriculture, consumer goods and services sectors.
Under the arrangement, BoI made an investment commitment of $6million to aid provision of equity capital for fast growing businesses. “Nigerian businesses cannot be built on debt alone. It has long been part of the bank’s vision to find ways to provide needed equity capital and business advice to promising Nigerian businesses,” Olaoluwa said.
He explained that the partnership with Grow Africa is one of the avenues for realizing this vision and that the bank remains committed to the pursuit of its core mandate of providing long-term financial support to small, medium and large companies/projects in Nigeria’s key sectors, adding that the investment commitment was informed by the track record of Grow Africa’s partners, the developmental impact of their existing portfolio and their strong pipeline for potential new investments.
The Chairman of Grow Africa Equity Partners Limited, Adedotun Sulaiman, noted that with the right type of support, Nigerian businesses can become global leaders. Sulaiman, who also chairs the Boards of Interswitch, Secure ID, IDEA, New Horizons and others, said: “Over the past 10 years, I have provided capital and advice that have helped several businesses grow from ideas into multi-billion Naira industrial leaders. Through this partnership, I hope to see many more entrepreneurs realise their dreams of creating leading companies and delivering massive value to Nigeria.”
For instance, BoI in partnership with Kinesis Consulting Limited developed an SME Accounting Application (SAAPP), which allows users keep proper records of transactions and generate requisite financial statements. SAAPP, The Nation learnt, is a user-friendly, simplified and menu-driven accounting tool that does not require formal accounting knowledge by the entrepreneur. With the software, SME customers will be empowered with business information on their mobile phones.
Because of its unique features and benefits, the application enjoys the buy-in of operators and stakeholders. For instance, SAAPP will allow BoI SME customers to easily generate basic financial statements such as balance sheets, which report on the SMEs’ assets, liabilities and ownership equity; profit & loss accounts, which report on the SME’s operation in terms of income (sales), expenses and profit or loss; cash flows such as SMEs’ operating, investing and financing activities.
“A survey conducted by the Nigerian Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) showed that there are 17.28 million SMEs in Nigeria employing 32.41 million people and accounting for an estimated half of Nigeria’s Gross Domestic Product (GDP)’”
One of the key features of SAAPP is the integrity of the financial statements generated on it. Once financial statements have been prepared, they cannot be altered at will. Consequently, it is the same statements that will be produced for submission to the tax authorities, statutory government agencies and financial institutions. The App also contains a link that enables the SMEs mail their financial statements directly to BoI. The App is programmed for installation on a maximum of three devices per business entity and is available at a pocket-friendly price of N20, 000.
BoI has also gone a notch higher, unveiling an online loan application portal for the convenience of its prospective SME customers. With the portal, customers no longer need to come physically to the bank to submit their loan applications. This has the advantage of shortening the bank’s loan processing Turn-Around-Time (TAT). The portal has document uploading capability as well as allows the loan applicant select the preferred BoI state office location where the application will be processed. The online loan application portal can be accessed on the Bank’s website.
The bank is charged with administering the several sector-specific intervention funds and schemes introduced by the Federal Government in the hope of breathing life into dead or dying key sectors of the economy, particularly the industrial sector, which is recognised as holding the key to sustainable economic growth.
The expectation was that government through BoI would leverage on these special intervention funds to address the dearth of long term investible funds required by manufacturers and industrialists particularly MSMEs to transform the industrial sector into a vibrant and globally competitive one capable of guaranteeing bountiful returns to all stakeholders and the economy.
With BoI’s online loan application portal, local designers seeking for funds for expansion now have a seamless way to access the recently launched N1billion Fashion Fund for players at the micro, small- and medium-scale levels. The Fashion Fund joins two other SME funds recently launched by the bank namely, the N5billion Cottage Agro Processing Fund and the N1billion NollyFund.
Olaoluwa explained, the Fashion Fund is in fulfillment of the bank’s commitment to develop special funds and credit products to deepen penetration of and enhance support to specific SME clusters. “We see an opportunity to support Nigeria’s leading fashion businesses to increase their production volumes and quality, thereby making them more competitive in both the domestic and international markets,” he said.
The BoI boss observed that African prints, known as Ankara fabrics, have become very popular in the fashion world due to the ingenuity and industry of Nigerian designers such as Dakova, Frank Oshodia, Tiffany Amber and Deola Sagoe, among others. He said amazing designs are now created using local fabrics and are featured in both local and international fashion shows.
He added that many Nigerian Fashion designers have received training in some of the best fashion schools in the world, and therefore have the intellect, talent, creativity, skills and drive to take Nigeria’s fashion industry to the next level on the global fashion stage. According to him, the growth in Nigeria’s urban population, the macro-economic environment, increasing purchasing power of the emerging middle class and a strong appetite for consumer goods are positive factors in favour of a flourishing fashion cluster.
However, these funds are the latest addition to the long list of similar funds intended to give the industrial sector the required push. Some of the earlier special intervention funds that have been introduced, targeting one segment of the industrial sector or the other include the N100 billion Cotton Textile and Garment (CTG) Fund, for the revitalization of the CTG industry along the entire value chain; N10 billion Rice Intervention Fund, to ensure Nigeria attains self sufficiency in rice production; and Africa Development Bank (AFDB) $500 million Line of Credit, for the development of export-oriented Small and Medium Enterprises (SMEs).
Others are: Federal Ministry of Women Affairs and Social Development (FMWASD) N90 million Business Development Fund, to provide soft loans to women entrepreneurs; Central Bank of Nigeria (CBN) N220 billion Intervention Fund, for Micro, Small and Medium Scale Enterprises (MSMEs); National Automotive Council’s N16.91 billion Fund, for the development of the automobile industry sub-sector; and N2 billion Sugar Development Council Fund, to ensure Nigeria attains self sufficiency in sugar production by 2020.
How to check the high mortality rate of SMEs
Olaoluwa identified financial illiteracy, poor technological skills as the reason behind the high mortality rate of Small and Medium Enterprises (SMEs). To check the failure rate, the bank, he reiterated the reason behind the accreditation of some BDSPS to help some start-ups in packaging their documentation such as feasibility studies and doing business plan that can enable them obtain loan from the bank. “We not only want to support SMEs in terms of financial, but also in imparting knowledge to help the businesses grow. We upgraded our banking application from Equinox to a more robust version called Rubikon, which provides a strong platform for the automation of our processes to deliver improved services to our customers.
Why SMEs are critical
The consensus of experts and stakeholders is that the future of Nigeria lies more on the leveraging of MSME’s. The sector, according to experts, is strategically positioned to provide up to 80 per cent of jobs, improve per capita income, increase value addition to raw materials supply, improve export earnings and step up capacity utilisation in key industries. This was why BoI focused on providing innovative, dynamic and wide range of financial services to the sector.
The bank believes that increased integration of these smaller businesses into the mainstream economy will provide a creative solution to Nigeria’s crisis of unemployment. MSMEs generate employment opportunities per unit of capital investment because they are generally more labour intensive. The bulk of Nigerian businesses fall within the small scale businesses, which account for over 90 per cent of all companies in the country.
A survey conducted by the Nigerian Bureau of Statistics (NBS) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) showed that there are 17.28 million MSMEs in Nigeria employing 32.41 million people and accounting for an estimated half of Nigeria’s Gross Domestic Product (GDP). However, access to affordable finance remains one of the major challenges inhibiting the MSMEs’ growth and development.
According to the CBN, only 4.2 million MSMEs have access to finance. CBN Assistant Director, Development Fund Department, Mr. Jonathan Tobin, said because of banks and other lending institutions’ aversion to lending to small businesses in the informal sector, about N9.6tn is needed to bridge the financing gap in the MSMEs sector.
Tobin, who spoke last week in Abuja at a workshop on Micro, Small, Medium Enterprise Development Fund (MSMEDF) organised by the Banker’s Committee of the CBN, said from 2002 till date, lending by Money Deposit Banks to the sector has reduced significantly.
The BoI chief, however, was not unaware of this, which was why he prioritized the need to address the imbalance caused by Money Deposit Banks’ aversion to financial inter-mediation for industrial firms and small businesses through the roll out of various financing options and interventions.
In doing so, however, he has consistently argued that the problem of many SMEs is not access to cheap funds as claimed by many existing and intending small businesses, but the inability of such entrepreneurs to develop and defend bankable projects. He also identified poor packaging of loan requests as being responsible for the low level of financial support to the sector.
He said it was in recognition of these challenges, and in fulfillment of BoI’s mandate of providing long-term finance and business support services to the sector, that the bank engaged the services of BDSPs and introduced other technologies and innovative financing strategies and products tailored to the needs of operators in the sector.
Original content culled from The Nation Newspaper