SME Operators Seek Specialised Banks For Better Funding Access

BY OLUSHOLA BELLO AND KINGSLEY OKOH, Lagos

Operators in Nigeria’s Micro, Small and Medium Enterprises (MSME) sector have called for the establishment of specialised banks dedicated to serving small businesses, citing persistent disbursement delays and limited access to financing under existing intervention schemes.

This is as the manufacturing sector continues to face mounting pressure, with the soaring cost of bank loans frustrating factory expansion and undermining the country’s industrialisation drive, with industry stakeholders warning that the deepening financing crisis is threatening investment, production and job creation.

With the Central Bank of Nigeria (CBN) maintaining the Monetary Policy Rate (MPR) at 26.5 per cent, commercial lending rates have climbed above 25 per cent, making access to affordable credit increasingly difficult for manufacturers.

Commercial banks, wary of long-term lending, have tightened credit conditions, leaving many manufacturers unable to secure the capital needed to expand operations, acquire new equipment or boost production.

Speaking with LEADERSHIP, the national president of the Association of Small Business Owners of Nigeria (ASBON), Dr Femi Egbesola, urged the federal government to create dedicated sector banks for Micro, Small and Medium-enterprise MSMEs while highlighting that only 15.47 per cent of SMEs get bank loans and just 3.37 per cent actually tap into the bank loan portfolios.

He addressed critical issues relating to funding gaps while stating that the Bank of Industry (BOI) and Bank of Agriculture are already existing, even as he pushed for the establishment of SME specific banks to benchmark lending, cut disbursement glitches and provide funding to the informal sector and production economy that creates about 50 per cent of jobs.

Egbesola added that the MPR freeze at 26.5 per cent would hit dependent sectors, such as manufacturing, already absorbing higher electricity tariffs, costlier transport, pricier raw materials and a volatile production environment.

He said there’s a quieter danger when banks won’t lend, or won’t lend affordably, adding that businesses won’t just stop borrowing, but they will borrow elsewhere. According to him, digital lenders and unregulated money lenders will now charge far steeper rates than the formal banking sector.

He explained that the shift would not close the financing gap but would shift the risk, potentially setting businesses up for unsustainable debt loads.

Given that SMEs make up a substantial share of Nigerian enterprises and account for millions of jobs, he warned that a prolonged credit squeeze doesn’t remain confined to small-business balance sheets; it ripples through household incomes and national productivity.

ASBON Boss further affirmed that Inflation would drive prices up in the first place, as poor infrastructure, logistics bottlenecks, high energy costs and other structural problems remain stubbornly elevated.

The MSMEs chieftain further appealed to the federal government to establish sector-specific banks for SMEs to bridge the funding gap.

He said only 15.47 per cent of SMEs have access to bank loans, while only 3.37 per cent of SMEs have access to bank loan portfolios.

He affirmed that the central Bank retaining the Monetary policy ratio at 26.5 would make loans unattractive for SMEs, ecosystem players, and the manufacturing sector, while noting that commercial banks are not designed to extend loans without charging high interest rates.

He described MSMEs as the engine of growth, accounting for 50 per cent of job creation within the production economy’s value chain, and warned that if the sector is stifled, the economy will shrink further.

The MSME national president suggested that the creation of SME banks by the federal government will bolster the growth of the SME sector and enable the government to benchmark loans for SMEs, entrepreneurs, and informal operators, without glitches in loan disbursements.

ASBON Boss further said that, to retool the economy, there is a need to liberalise the business environment for SMEs to promote trade and investment.

Industry operators said the financing gap has become one of the biggest obstacles to Nigeria’s industrial growth, forcing many factories to shelve expansion plans, scale down production, and, in some cases, resort to importing finished products instead of manufacturing locally.

The Manufacturers Association of Nigeria (MAN) estimates that more than 60 per cent of manufacturers now depend on internally generated funds because bank loans are either too expensive or inaccessible. For capital-intensive industries such as steel, pharmaceuticals and automobile assembly, the funding challenge is even more severe.

The impact is reflected in key economic indicators. Manufacturing’s contribution to Nigeria’s Gross Domestic Product (GDP) has remained at around 9 per cent for several years, while capacity utilisation has remained below 55 per cent.

Also, MSMEs are bracing for another stretch of expensive credit as commercial lenders are expected to keep charging borrowers between 30 and 35 per cent, a rate that industry voices describe as fundamentally mismatched with what an ordinary Nigerian MSME can absorb.

The SMEs’ Stakeholders voiced that profit margins had already been squeezed thin by inflation and rising overhead costs, and that layering on debt at that price was not a growth strategy but a liability.

Economists and market watchers affirm that the decision to hold the Monetary Policy Rate (MPR) at 26.5 per cent would keep loans out of reach of the entrepreneurs who employ the bulk of the country’s workforce.

Though some believe that the policy stance is built around taming inflation and holding the naira steady, operators in the MSME, manufacturing, retail, agriculture, hospitality, and tech sectors have declared that the predictability of the CBN MPR decision means another quarter of loans priced out of reach.

Also speaking on the challenge, the director-general of MAN, Segun Ajayi-Kadir, lamented the high cost and limited availability of credit for manufacturers, blaming the prevailing interest-rate environment for worsening the sector’s financial burden.

He said, “With the MPR at 26.5 per cent, commercial banks generate spreads by charging manufacturers higher loan rates.

“In addition, manufacturers claimed not to have felt a significant impact from government infrastructure on their productivity. This is somewhat understandable, as capital expenditure takes time to generate substantial benefits for the real sector.

“Similarly, manufacturers objected to improvements in foreign-exchange sourcing, which have left them producing below their potential. Unlike the case of infrastructure, this cannot be excused, as the pass-through of naira liberalisation should have matured after more than three years.”

Ajayi-Kadir urged the CBN to reduce the Monetary Policy Rate to below 20 per cent to stimulate industrial investment and production through credit directed at the manufacturing sector.

He also called on the apex bank to prioritise foreign exchange allocation for manufacturers importing critical machinery, spare parts and raw materials required for local production.

Also speaking, the chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, described Nigeria’s real sector as being trapped in a structural financing deficit characterised by prohibitive lending rates, short loan tenors, stringent collateral requirements, weak risk appetite among banks and inadequate patient capital.

According to him, the current monetary policy environment has compounded the problem.

“With the Monetary Policy Rate at 26.5 per cent and the Cash Reserve Requirement for deposit money banks at 45 per cent, commercial lending rates are generally incompatible with the expected returns on many productive investments,” he said.

Yusuf estimated that Nigeria’s financing shortfall runs into tens of trillions of naira, placing the country’s real-sector funding gap at over N50 trillion.

He said, “Nigeria’s real-sector financing deficit is too large and too structural to be left entirely to conventional commercial finance. Available evidence suggests that the financing shortfall runs into tens of trillions of naira, with CPPE placing a prudent indicative range at over N50 trillion, subject to more comprehensive empirical validation.

“The policy choice should therefore not be between unrestricted CBN intervention and complete retreat from development finance. There is a credible middle path. Nigeria needs a transparent, rules-based and commercially disciplined development-finance architecture in which the CBN enables rather than dominates; refinances rather than retails; shares rather than assumes credit risk; and crowds in rather than crowds out private capital.

“Closing the financing gap is critical to Nigeria’s industrialisation, agricultural transformation, food security, export diversification, employment creation and long-term economic competitiveness.”

Stakeholders maintained that unless affordable long-term financing becomes available, Nigeria’s ambition to build a globally competitive manufacturing sector and diversify its economy away from oil will remain difficult to achieve.