Small and medium-sized enterprises (SMEs) are crucial to the development of any economy. They possess great potential for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries. World Bank research reveals that, on average, formal SMEs contribute to 50 per cent of GDP in high-income countries. Also, in OECD countries, SMEs with fewer than 250 employees employ two-thirds of the formal workforce
According to the Central Bank of Nigeria (CBN), four key issues have hindered Nigeria’s SME growth: unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology. Globally, commercial banks have in many cases shied away from lending to small businesses because of perceived risks and uncertainties in recent years. In Nigeria, previous double-digit interest rates have been a further deterrent for businesses seeking out loans.
To improve access to finance for SMEs, Governor of the CBN Lamido Sanusi has announced the establishment of a N200 billion micro business and SME (MSME) development fund before the end of the year. He affirms that the fund will be a veritable source of funding for small businesses in the country.
According to the Governor, “MSMEs play a major role in Nigeria’s economy with about 95 per cent of firms in the organised manufacturing sector recognised as SMEs, which account for about 75 per cent of industrial employment, yet contribute a mere 10 per cent to GDP.”
In addition, the Minister of Trade and Investment Olusegun Aganga has announced that the Ministry’s NIRP (Nigerian Industrial Revolution Plan) is to provide the framework for fast-tracking the country’s industrial revolution and attracting investments into the critical sectors of the economy.
Efforts to kick-start small businesses are not just coming from the government. In the private sector, Nigeria’s banks are also now pushing financial and business support packages to budding entrepreneurs. Diamond Bank in particular has shone in this sector and its initiatives have garnered international praise, lauded as the best bank for MSMEs in the country. It has entered into partnership with the IMF to expand access to finance for SMEs across the country and Shell to increase support in oil-producing communities. Diamond Bank has also recently signed a memorandum of understanding with a Russian company that is experienced in consumer lending for the under banked and SMEs.
The small business department at Nigeria’s Zenith Bank is building up its portfolio. Its reserve for investment in small-scale businesses currently exceeds N3.7 billion (€17.9 million) and the bank is on the look out for viable projects and business opportunities with good returns and strong growth prospects. In addition to funding, Zenith Bank provides SMEs with business advisory and project management services to help new businesses start with good corporate governance practices from day one.
“As a Nigerian institution, we are supporting the government’s efforts in growing agriculture, manufacturing, infrastructure, and power sectors. These are areas that the government is looking at aggressively,” says Godwin Emefiele, Group Managing Director and CEO of Zenith Bank Plc. “That is why you see the government, the Ministry of Agriculture and the CBN setting up various financing schemes where banks are given guarantees for loans to agriculture companies, or loans granted to SMEs. The CBN has agreed to award short-term liquidity to those who need to finance some operations, especially small manufacturing companies. Most manufacturing companies have embraced this initiative and Zenith Bank has guaranteed some loans to these customers.”
At the Guaranty Trust Bank, Group Managing Director and CEO Olusegun Agbaje also highlights the agricultural sector as ripe for increased lending. “We should look at agriculture the way we look at any other commercial business – as an enterprise that will make money and will pay back,” he says. “What we are concerned about is that any loan we give out gets paid back. So once the agricultural sector becomes commercially valuable, and the value chains are quite clear, we will move away from the primary part of it and go to where there is added value; banks are always looking for new areas to put money into.”
As businesses take off and prosperity spreads, Nigeria’s emerging middle class is opening up a potentially huge future market for personal banking services.
“The middle markets and SMEs are areas where I envision much growth, as well as in agriculture. Nigeria has a very vibrant and growing middle class, as is evidenced by the shopping malls you can see springing up in the cities. People are starting to exhibit lifestyles similar to those in more developed economies. The middle class is very young and there is going to be tremendous growth in that area,” says Faith Tuedor-Matthews, Group Managing Director and CEO of Mainstreet Bank.
“The government is investing heavily in the agricultural sector. As part of the efforts to reduce risk in that sector, they are subsidising loans to finance the agricultural value chain through a collaborative effort with the banks. We expect to see a lot of employment coming out of this sector in the future. Also, significant banking growth in the retail segment will be spurred through retail outlets and chains, such as hotels, supermarket chains or auto dealerships, issuing credit facilities to consumers through the use of credit cards. As people’s level of sophistication rises, you will find out that banks will begin to face competition from outlets outside the financial services segment.”
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