Changing Times: are SMEs in Nigeria finding it easier to Access Credit?
With millions of employees working for Small and Medium Nigerian enterprises, the need for funds to start and sustain businesses can never be downplayed. Wole Ajao explores some avenues for gaining access to this much-needed capital.
Manuel was in a dilemma. In the same week, he had his wedding holding, he suddenly received news of the passing of his father in law. This meant more expenses but he was broke. And with his March salary due in two weeks, he had to find an alternative source of funds. Borrowing from colleagues was out of it, as a recent workplace email ensured most people became allergic to lending. Information still flowed freely, and someone recommended a digital bank which was becoming the new fad in lending.
“I went to their website and applied. I later received an email requesting for my BVN number and other details,” he recounted. “I did not even need to meet any of their staff. Some days later I received an alert in my account with the full funds I had applied for and can repay monthly.” Cynics would express surprise at his ease in releasing such details without meeting the source of the queries. But in an era of e-commerce, pay on delivery and other fads, e-loans are also trending.
An analyst attributes it to the introduction of the Treasury Single Account (TSA) system by the current administration. According to him, the implication of all government funds going into one single account meant that banks that were previously accustomed to chasing accounts of federal agencies and parastatals had to return to the conventional practices of focusing on the single customer, his account and other needs. Fierce competition from other banks, amongst other factors has made it expedient for banks prioritise customer relations, customer satisfaction and loans.
Already, a growing number of banks are offering loans at subsidised rates to established and fledging businesses who require well-structured finance that accommodates consideration for their peculiar cash flows patterns. Those engaged in farming, trading, food and fashion all fall into this category.
However, despite the micro, small and medium enterprises (SMEs) employing 84 percent of labour force, contributing 50 per cent to our Gross Domestic Product (GDP) and contributing seven percent of our total exports as a country, of all the bank loans given in the last five years in Nigeria, less than one percent of the total lending by Banks. A view reinforced by Toyin Adeniji, Executive Director, Micro Enterprise, Bank of Industry (BOI), who said that 37 million Nigerians are commercially active but have never had the opportunity to access loans. Some analysts would argue, however, that the days of cut-throat interest rates that drove SME owners away are gone.
This is a departure from previous years where financial institutions were cut throat interest rates drove most Small and Medium Scale business owners elsewhere.
Have things changed?
The question lies alongside the plethora of loan providers. With SMEDAN (Small and Medium enterprises Development Agency of Nigeria) recently approximating the number of employees of SMEs at 59 million, the need to clarify sources of finance for these 37 million SMEs becomes more expedient, as prospective SME owners consider a wholehearted or partial leap of faith into the alternative income pool that is composed of 37 million businesses. This in inevitable as global financial trends will continue to produce innovative enterprises and solutions to the innumerable challenges the need for growth stimulates.
Some of the available options are:
Bank of Industry (BOI)
According to BoI’s Executive Director, Shekarau Omar, in 2019, it has provided N3bn to SMEs via Jaiz Bank, with an agreement that the funds would be disbursed to the target group as loans that would grow their businesses and stimulate growth of the SME sector. The bank added that it was ready to work with financial institutions that were willing to support the sector to achieve its potential of job creation and poverty reduction. This was steeped in its convictions that the sector held the key to economic growth.
Development Bank of Nigeria
After disbursing N31 billion in 2018, the Development Bank of Nigeria (DBN)said it was working to ensure N100 billion disbursement at the end of 2019, and this would be scaled up to N389 billion at the end of 2023, when the bank marks five years in active lending operations. DBN said the Partnering Finance Institutions (PFIs) had grown from two in 2017, when DBN started operations to 22 at the end of 2018, adding that the target for 2019 was to raise the number of PFIs to 30. These PFIs would in turn lend to SMEs through a stringent process that took risk management and non-performing loans seriously. This reinforces its previous membership of the SME Finance Forum, a global membership network that brings together financial institutions, technology companies, and development finance institutions to share knowledge, spur innovation, and promote the growth of SMEs.
AfDB (African Development Bank)
Through the AFAWA (Affirmative Finance Action for Women in Africa) programme of the African Development Bank (AfDB) female entrepreneurs in Nigeria and 20 other African countries will have access to a $61.8 million funding facility from Women Entrepreneurs Finance Initiative (We-Fi). According to AfDB, the rationale for the funding is to improve access to over 40,000 women-owned/led small and medium enterprises (SMEs) in African countries where women entrepreneurs face greater challenges in accessing finance, markets, knowledge, and mentoring programs that would grow their businesses.
The range of SMEs product financing from First Bank PLC includes that for Import finance, Oil and Gas contract finance, cement distributorship finance, FMCG finance and others, bespoke versions are the thrust of the first bank finance to SMEs which they say is grounded in their belief that SMEs are key drivers of the economy.
Beyond its highly successful Market hub platform, Gtbank’s hub advance and cash overdrafts are some of its other offerings to prospective businesses who can get as much as a 2million collateral free loan once the right paperwork in in place. Requirements include business registration, registration on the GTBANK SME hub and no prior loan commitments to any bank. The bank also launched other SME loan products including Fashion Credit, Food Credit and Cashflow Advance.
Three current accounts and around eight loan options are reinforced with mentoring, capacity building and business advisory services. This multifaceted approach to solutions for SMEs culminated in its Fidelity plus account, marketed as a low-maintenance fee current account that comes with free Sage One accounting software, free business advisory services and access to loans.
Apart from a range of loans for entrepreneurs, there are also a number of on-going projects in the enterprise space driven by Stanbic IBTC Bank. From its Blue Lab in Yaba-an innovation Lab purposely-built for co-creation, annual capacity-building sessions for entrepreneurs, and an Africa-China banking centre that facilitates business interactions between clients and Chinese suppliers. Its Trans Regional Conference also brings together African businesses, with prospects being sponsored to China via the bank’s strong links with the Industrial and Commercial Bank of China (ICBC). Such linkages allow the establishment of new trade networks outside the continent. Providing funds and linkages go hand in hand for the bank which prides itself as moving forward.
As part of its expanding scope in the West African region, Ecobank joined the SME-friendly zone with the provision of sustainable banking products and services aimed at boosting business growth for SMEs. This culminated in the creation of its emerald business club and provision of a forex window services to businesses. Priding itself on being the bank with the easiest loan process, an SME operator simply had to present to any ECOBANK branch a duly completed Form Q; application letter to purchase forex through the scheme; foreign bank transfer details and a pro forma invoice from offshore supplier/ beneficiary.
Loans, an SME hub and debit card are some perks the bank has made available for business owners. Union bank also makes available forex to businesses, with requirements not so stringent. SMEs are able to access up to US$20,000 per quarter for importation without opening Letters of Credit or Bills for Collection under the Form Q scheme.
After the introduction of U Business in late 2000, early this year, United Bank for Africa solidified an agreement with the Japanese Government to accelerate the development and growth of Small and Medium Scale Enterprises across Africa. Discussions for this handshake across continents commenced at during the World Economic Forum in Davos, Switzerland, with reports indicating that both parties shared a similar interest for the African continent. The agreement that will see both the Japan External Trade Organisation and the Nigerian lender promote activities that will transform lives and grow businesses and trade across Africa and the world. Already, the agreement was reinforced with a visit from the Japan External Trade Organisation, led by its chief executive officer Hiroyuki Ishige to the UBA house. Described by UBA chairman Tony Elumelu as investors with a solid track record, their input is poised to boost UBA’s pledge of supporting Entrepreneurship in Nigeria and across Africa.
Adewole Ajao is a funsultant, writer, uber colonial expert, and media sector specialist currently based in Nigeria. He can be reached on 08057323409