The recent pronouncement by the acting Chief Executive officer, Bank of Industry (BOI), Mr. Waheed Olagunju, that the bank would be disbursing N212billion in loans to micro, small and medium enterprises (MSMEs) before the end of 2016 is a very welcome promise that must be delivered within the stipulated timeframe. The measure will create millions of employment opportunities, reflate the sagging economy and significantly reduce import dependence for basic goods and services all in one stroke. It is an opportunity to turn the tide against the vicious circle of unemployment, poverty and rising crime rates.
A survey by the National Bureau of Statistics in 2013 revealed that there are 37 million MSMEs in the country but 36.6 million of these are micro ventures such as barbing saloons, mechanics workshops, eateries, etc. If each of such enterprises employed just two workers, it means they provide employment for almost 80 million Nigerians or around 50 per cent of the country’s citizens. Easing access to funds will not only enhance the existing businesses but lead to the creation of millions more MSMEs.
We are compelled to make this call because previous programmes to provide funding for small businesses have been stalled by several factors including lack of political will, diversion of funds often for political campaigns and cumbersome application processes. For instance, since 2012, the Central Bank of Nigeria (CBN) earmarked N220 billion for disbursement to MSMEs across the country under its Micro Small and Medium Enterprises Development Fund (MSMEDF). The scheme was effectively scuttled when applicants had to go through commercial banks that would demand for N2 million collateral for a one million Naira facility even though it will be issued at single digit interest rate. The facilities available at a few commercial banks charge up to 24 per cent. Most major banks only entertain companies with collateral worth N10 million and above.
Most MSMEs in Nigeria do have serious problems especially with accounts, book-keeping, transaction records and are plagued with poor management practices. In fact, some of them are amateur one-man shows with no plans for continuity or growth. Others are even mere fronts for criminal enterprises such as armed robbery, car-jacking and kidnapping. These could all be overcome through proper screening and capacity-building through free training opportunities on basic business skills. There are many CBOs, NGOs and private foundations who specialise in this area including rehabilitation of drug-addicts and ex-convicts. Where necessary, funds for these may be deducted from the total budgetary allocation for the funding of the enterprises.
The major means of easing access to MSME funds is to eliminate the requirement for collateral. Considering the fact that most operators in this sector are youth with no working experience or property titles, this demand is largely unrealistic. It should be substituted with guarantees obtained from community, traditional and religious institutions to which everyone living in the country belongs. Attaching the small and medium scale entrepreneurs to the local leadership will offer the added advantage of community ownership the schemes.
We are not saying that the BOI and other MSMEs financiers should give out loans indiscriminately to those who will be unable or unwilling to payback. We agree with Mr. Olagunju that the majority of enterpreneurs who apply for the loans have no intention of paying back. There should, therefore, be strictly set standards and regulations for accessing the funds. Such criteria including registration with the Corporate Affairs Commission, evidence of skill acquisition, community testimonial, track record, etc, must be clear, simple and realistic.
Another way of disencumbering the process is to coalesce the various streams into one consolidated fund. We, therefore, suggest that the CBN’s MSMEDF and others such as the United Nations Industrial Development Organisation should be dissolved into the BOI finance window. The almost moribund Small and Medium Enterprises Development Agency (SMEDAN) should be re-engineered to process all applications, disburse the funds as well as mentor and monitor the beneficiaries.