Access to
finance is the major challenge confronting Small and Medium Enterprises
(SMEs) and banks hold the key to addressing that challenge, according to
experts who spoke at the 2015 Annual Conference organized by the
Finance Correspondents Association of Nigeria (FICAN) in Lagos at the
weekend.
In recent years, deposit money banks
(DMBs) have continued to dominate Nigeria’s financial system. Bank
credit has therefore constituted the main source of formal financing for
Nigerian companies amidst relatively under-developed corporate bond and
alternative securities markets.
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| SMEs |
Bank credit in Nigeria is characterized
by limited availability of medium- to long-term credit tenors, short
moratorium, and high collateral requirements.
Rasheed Olaowuwa, managing director/CEO,
Bank of Industry (BoI), said banks generally have been reluctant to
service SMEs for a number of well-known reasons. One is perception of
SMEs by creditors and investors as high-risk borrowers due to
insufficient assets, low capitalization, vulnerability to market
fluctuations and high mortality rates.
Other reasons include inability to meet
collateral and equity contribution requirement, absence of bankable
business plans and lack of clear business models, and lack of relevant
skills and experience in the businesses they undertake. This factor
accounts for the high mortality of SMEs as an estimated 80 percent of
them fail within five years of operation.
Recent surveys of SMEs and banks by the
World Bank and other stakeholders have identified several factors
limiting access to bank finance for SMEs.
According to the results of a World Bank
survey of Nigerian SMEs in 2011, only an estimated 9.5 percent of
Nigerian SMEs had a loan or line of credit in 2011, and bank financing
of working capital and fixed assets was estimated to fill, respectively,
only 3 percent and 2 percent of outstanding needs.
Based on later survey of MSMEs in 2014,
only 6.7 percent of enterprises in Nigeria reported having a loan or
active line of credit, compared to the global Enterprise Survey average
of 36.5 percent. In terms of segmentation, only 3 percent of micro
enterprises had access to finance, while for SMEs, it was 7 percent; and
for large enterprises it was 44 percent.
Moreover, access rate by SMEs lags well
behind other countries such as Brazil (30 percent), Ghana (36 percent),
China (30 percent), Kenya (24 percent) and South Africa (21 percent).
In order to boost access to finance for
SMEs, BoI is partnering with 10 SME-friendly deposit money banks to
provide working capital for its SME customers at a negotiated interest
rate of Monetary Policy Rate (MPR) + 6 percent. The banks are Access
Bank, Ecobank, Diamond Bank, Fidelity Bank, First Bank, First City
Monument Bank, Skye Bank, Stanbic IBTC Bank, Standard Chartered Bank and
UBA.
HOPE MOSES-ASHIKE
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