Reasons SMEs Are Denied Funding Access

Lack of data, absence of business plan and corporate governance are denying operators of the micro, small and medium enterprises (MSMEs) access to finance, experts have said.

The experts, however, agree that there is need to strengthen the capacity of operators of businesses in this category, adding that unless certain steps are taken to push MSMEs in Africa’s largest economy, the challenge of unemployment may linger.

Folahunmi Aina, special assistant to Yemi Kale, statistician-general of the National Bureau of Statistics (NBS), said many operators do not have adequate data about the business they do, stressing that no bank will be willing to invest in any business it is not sure of its numbers.

“There is also the problem of awareness. Some SMEs do not have access to micro finance because they are not aware,” said Aina, at the event themed ‘Accelerating Enterprise Growth and Competitiveness in Nigeria- Building Capacity for sustainable Development’, organised by African Management Services Company (AMSCO)   and the National Planning Commission of Nigeria (NPC) in Lagos.

Nigeria currently has 37 million MSMEs, which account for 48 percent of the country’s gross domestic product(GDP) and create 60 million jobs, according to a recent survey conducted by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in collaboration with National Bureau of Statistics (NBS).

Irrespective of the importance of this segment of the economy, less attention is given to it in the area of funding, especially long-term financing.

Waheed Olagunju, executive director for SMEs at the Bank of Industry (BoI), said solutions to SME problems have always been supply-driven. According to Olagunju, most SME owners, in trying to access funds, find it hard to answer questions relating to the supply gap, technology and market, among others, adding that many of them do not have business plans or those that are funding-worthy.

“The easiest way to lose money is to venture into an area you know nothing about. In lending, the issue of integrity comes in. People come to our bank with the mindset that they want to collect their share of the national cake, but this is not right. You need to prove to us that you are genuine,” he stressed.

He said the bank has 122 business development service providers (BDSPs), Nolly Fund, Cottage Agro Processing (CAP) Fund, among others, to ensure this class of business has funding ready access. Friday Okpara, director, strategic partnership and liaison, SMEDAN, said banks often demand collaterals which SMEs may not be able to provide, adding that the use of cash flow should be a better way of assessing small businesses than collaterals.

“Most SMEs have poor record keeping and a lot of them do not have corporate governance and business plans. But you do not bring a consultant to do a business plan for an SME because it is still the SME operator that will implement it,” Okpara said.

He suggested that SME owners should have better record keeping and business plans, while also ensuring they implement due corporate governance practices, if they are desirous of accessing funds.

Paul Malherbe, CEO & MD, AMSCO, enumerated three key issues that require special attention for Nigeria to reach its private sector development agenda to include: change of focus from youth education to youth entrepreneurship, increased interventions that promote gender empowerment and directly developing SMEs with limited skills.

“Our business landscape can only improve if we don’t wait but rather place our lens on collaborations to develop human capital at SME level, matching the right skills to the right jobs, training the management of those businesses and helping them access financial capital to reinvent themselves,” said Malherbe.

Kamakhya Singh, chief finance officer, Lapo Microfinance Bank, said some banks have the capacity to lend to SMEs but do not have the liquidity, stressing the need for small business owners to be mindful of the demands of micro finance banks and be able to meet them. 

Source:  Business Day, Nigeria

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