There are strong indications that more than 50 per cent of the 40 million micro, small and medium enterprises (MSMEs) in the country could not access any of the N1.65 trillion intervention funds allotted to MSMEs sector because of faulty business structures, bad record keeping and high interest rates.
The federal government, in recent times, has floated intervention funds which total value runs into several billions of naira specifically for the SMEs sector, such as: N220 billion for Micro, Small and Medium Enterprise Development Fund; the N330 billion Real Sector Support Facility and the N1.1 trillion Covid-19 stimulus fund.
But the major requirements of good business structure and record keeping have denied about 20 million of these SMEs access to these intervention funds.
Undoubtedly, SMEs are critical to the development of any economy as they contribute 50 per cent to the country’s Gross Domestic Product (GDP) and 85 per cent employment to the informal sector, while it possesses great potential to reduce poverty through employment creation and income generation.
In spite of the intervention funds, the funding gap in the MSMEs sector is very huge with several businesses struggling to survive while a vast majority of MSMEs have been denied access to procure grants and loans needed to revamp the SME sector because of the above challenges.
Speaking on the MSMEs intervention funds, the president, Lagos Chamber of Commerce and Industry, (LCCI), Mrs. Toki Mabogunje, said the feedback from the wider business community revealed that the access to tntervention funds for MSMEs was not encouraging.
She commended the sustained intervention of the CBN in the real sector through its numerous intervention programmes including the N220billion for Micro, Small and Medium Enterprise Development Fund; the N330billion Real Sector Support Facility and the N1.1 trillion Covid 19 stimulus funds while she posited that the CBN should undertake further review of its strategies to eliminate the bottlenecks associated with accessing intervention funds for the SMEs.
The LCCI president said the environment must support businesses, preserve investments and create job opportunities while she stressed that the genuine commitment in implementing key reforms would not only stimulate the output growth but would also put the nation on the path of macroeconomic stability over the medium term.
Mabogunje pointed out that the situation was taking a huge toll on capacity utilisation, recovery and sustainability of businesses in the production sector.
Similarly, economic expert and former director-general, LCCI, Muda Yusuf, explained that the funding gap in the MSMEs space is still huge while he hinted that the gap was estimated at over N600 billion in a recent study by PWC.
He argued that the fact that many MSMEs seek funds from microfinance banks, finance companies, money lenders at outrageous interest rates is a reflection of this funding gap while he noted that the rates could be as high as 60 per cent per annum or more in some of these institutions.
He lauded the efforts of the CBN in supporting MSMEs through the intervention programmes, saying, for an economy that has over 40million MSMEs, the CBN can only do so much but it is fair to say the CBN is doing its best in this delivery although the credit delivery framework could be better.
Yusuf lamented that most of the MSMEs operates informally while presenting themselves as credible candidates for credits. He revealed that many do not have records of their transactions and most of them have no financial records and clear convincing business models.
He added that most of them need the help of business development experts and services providers to help build their capacity and tailor their business models in these areas.
Further to this, Yusuf said, the commercial banks are often not excited about the intervention funds because they bear the credit risk which implies that they will bear the responsibility for loan defaults while he stated that with the perception of MSMEs as high credit risk, this could be an impediment to MSMEs financing.
Similarly, business development expert, Timi Olubiyi, said SMEs face credit discriminations from banks because of opacity of information, lack of business structure which he noted was quite common with SME operators who do not have in place audited financial statements.
He noted that for these reasons and more, it is usually difficult for SMEs to show credit quality to banks and other financial institutions, hence, they’re seen to experience more stringent credit terms than the large companies which are are seen as less risky.
Olubiyi further stated that banks and credit institutions perceive MSMEs in Nigeria as risky structures not very resilient but fragile in terms of activity, solvency and management particularly the startups and micro business in Nigeria.
He said other factors that affects access to finance for MSMEs are; asset use for collateral requirements, cumbersome application process, short loan maturities, high interest rates among others.
While stressing that social and fiscal policy should be targeted at the SMEs to provide low interest credit facilities and tax breaks particularly cutting taxes to increase disposable income as most SMEs run their businesses on loan facility as the current situation has impeded their capacity to service the current loans.
Managing director of TBWA Concept, Mr. Kelechi Nwosu also said, SMEs need to upskill their business knowledge and understand the prerequisites to apply for funds/loans while ensuring that they report the progress of such loans. He noted that MSME operators need to learn business management and marketing skills to evolve with the changing consumers’ motivations.