Bridging the gap of SMEs financing for economic growth

The latest survey conducted by the National Survey on Micro Small and Medium Enterprises (MSMEs) has revealed that the figure of active small businesses in Nigeria has risen to 41, 543,028 which sounds like good news, but the challenges notwithstanding. I critically looked at these issues and efforts by the financial institutions to bridge the gap financing gap in the country. Excepts…

It is no longer news that Small and Medium Enterprises (SMEs) are generally regarded as the engine of economic growth and equitable development in developing economies. In fact, they are labour intensive and capital saving. Specifically, small businesses are perceived as the key to Nigeria’s economic growth, poverty alleviation and employment generation.

In recent years, much emphasis has been laid on the growth of small and medium scale industry, so as to reduce the rate of poverty and unemployment in the country. And since the adoption of the economic reform programme, there has been a decisive shift from grandiose capital intensive and large scale industry project based on import substitution to small scale businesses with immense potential for developing domestic linkage for industrial development.

According to World Bank, SMEs represent about 90 per cent of businesses and more than 50 per cent of employment worldwide, while formal SMEs contribute up to 40 per cent of national income GDP in emerging economies.

The global lender in an estimate said that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world.

SMEs economic potentials

Due to the great economic potentials of small businesses in Nigeria, attention has been drawn to the sector, while financial analysts believed that they provide employment for approximately triple the number engaged by large scale manufacturing.

A major reason whythe federal government shift in policy with a greater emphasis towards small scale business in the achievement of set-reliance.

Various statistics have shown that small scale businesses constitute over 10 per cent of all registered companies. They are considered to have specific importance to the economic development of the country for a number of reasons.

For instance, these enterprises provide an opportunity for employment on a large scale and therefore, make the possibility of the equitable distribution of national income more realistic. The enterprises also provide the means of creating more opportunity at a relatively low cost. Thus, in a labour abundance economy, like Nigeria, and in the present economic situation in the country, SMEs are even more relevant in the mobilization of capital and human resources that otherwise be left idle.

Challenges

For many Nigerian youths, who graduated from universities without good job opportunities, embracing entrepreneurship remains the best option. Already, many of them, rather than roam the streets, are unleashing creative talents in creating jobs not only for themselves, but for others through different skills, but there is always a restriction which is access to funding.

But there has been gross underperformance of the SMEs sub-sector and this has undermined its contribution to economic growth and development.

It is, however, worthy to name a few key issues affecting the SMEs in the country, which includes; unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology.

But existence and survival of these SMEs to a large extent depend on adequate financing, which would enable them to assume the centre stage in the industrial development agenda of Nigeria.

In Nigeria, the fragile economic environment and absence of requisite infrastructure have rendered SME practice costly and inefficient, thereby worsening their credit competitiveness.

World Bank, also, identify access to finance as a key constraint to SME growth, “it is the second most cited obstacle facing SMEs to grow their businesses in emerging markets and developing countries”, the global lender stated in a report.

Banks role in SMEs growth

Since SMEs are important to the Nigerian economic growth, it is imperative to reconsider the problem hindering the growth of the sector. Although, there have been numerous opinions and commentaries on the role banks should play in financing and advising the small scale enterprises. But available facts have indicated that some lenders are doing the little they could do to create opportunities for the SMEs through access to credit and bank loans to grow their businesses.

However, the fact remains that small businesses still lack adequate support from financial institutions to realise their dreams and enable them to contribute effectively to the economy.

Although, the First Bank Nigeria Limited over the years has identified SMEs as critical to the country’s economy as they possess great potentials for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries.

To improve access to finance by SMEs, the lender in its specialized SME proposition convened its one-week-long SME Week, which held during the third quarter of 2019. The programme enabled customers and non-customers of First Bank participated in a wide range of events and activities designed for the SMEs.

The activities range from the SME Masterclass themed, “Designing and Implementing a Growth Strategy for your Business” to specialized one on one sessions with renowned business coaches and the launch of seven (7) unique pillars which make up the bank SME propositions available via SMEConnect – The FirstBank SME portal.

Presently, the bank has an SME portal, a platform through which SMEs can access its unique propositions that have been designed to equip them with the essential tools needed for the growth of their business.

According to First Bank, the SME portal is also designed to help SMEs identify various gaps that hinder their business growth leveraging our innovative Business Diagnostics Tool, with a view to proffering tailored solutions and creating opportunities for business improvement, profitability and sustainability.

Following extensive research by the Bank over the years, we identified these seven (7) strategic pillars to be essential for the sustainability and growth of the SMEs. These include – access to infrastructure, access to talent, capacity building, policy and regulation, access to resources, access to market as well as access to finance. This has duly informed our strategy and propositions for our SMEs going forward.

According to Gbenga Shobo, Deputy Managing Director, First Bank of Nigeria Limited, “FirstBank has over the years, been at the forefront of supporting Businesses, especially the SMEs as we recognise that the SMEs are the engine of the economy. We are committed to ensuring that we leave no stone unturned as we connect with them in their continued contribution to national development in terms of the employment opportunities they create as well as their contribution to the nation’s GDP amongst many economic values.”

“The FirstBank SME Week is driven to promote the Bank’s SME proposition, thereby having SMEs across the country optimally enlightened on how to plugin. We believe this will help SMEs bolster their contribution to the growth and development of the economy” he concluded.

Becoming an industrial hub in Africa

With the Nigeria massive the population of about 200 million people, Africa’s largest economy can become an industrial hub at least in Africa. The opportunity abounds but the coordinated strategy seems to be lacking. Although financial institutions like First Bank leads in creating platforms to stimulate and advance the growth of small and medium scale businesses, but the government needs to create a clear vision and a more aggressive path.

Creating the path was expounded by Chairman of First Bank Nigeria, Ibukun Awosika when she observed that “Path to a sustainable economy for Africa, particularly Nigeria, is feasible only if efforts are made and sustained to build as many Small and Medium Enterprises (SMEs) as possible because SMEs constitute the bulk of most African economies, and comprise business enterprises that employ fewer people.

“To build a sustainable business, you need to be clear on where you want to go and why you started,” Awosika said.

Meanwhile, different products of the First Bank attest to the positioning of the bank to deliver unequal service to the small and medium scale business sector.

For instance, the Economy and You, a program which highlights essential capacity development for startups were conceived to deliver information that will inspire and support the growth of SMEs in Nigeria.

In fact, the bank is the biggest lender to the SME sector in Nigeria, supporting70,703 SMEs over the last three to seven years, with a total sum of N170.3 billion as loans from 2017 till date.

Also, through partnerships with organized small scale industries association, the bank has a single-digit lending rate for members, smashing the high-interest rate the phenomenon, the very first steel ceiling that inhibits the inclusion of small businesses in the corporate lending circle. This has been widely recognised as a major step to advancing the Nigerian SME to the next level.

Conclusion

Despite the supports from some financial institutions, it is worthy of note that commercial banks’ credit has not contributed significantly to the growth of Small and Medium Scale Enterprises in Nigeria. There is a need, however, for more commercial banks to support the growth of SMEs so that they can be properly positioned to play a catalytic role in rapid industrial take-off and development in Nigeria.

Although, it is obvious that various programmes have been put in place by the Federal Government to enhance SMEs access to finance, as well as SMEs friendly financial institutions, non-financial institution and NGOs that have made considerable efforts to palliate the financial challenges confronting SMEs development yet, not much has been achieved in an attempt to position the sub-sector in the mainstream of economic development like their counterparts in other continents of the world and some other African countries.