THAT SMALL BUSINESSES MAY THRIVE
Small-scale businesses remain the backbone of the economy. They deserve support
Globally, the Micro, Small and Medium Scale Enterprises (MSMEs) sector constitutes the spine of any country’s economy. As small industry operators, they weather and overcome stiff competition from foreign operators to grow and keep jobs for locals. Today,
MSMEs account for 90 per cent of businesses, 60 to 70 per cent of employment and 50 per cent of the Gross Domestic Product (GDP) worldwide, according to the World Bank. In Nigeria, the Small and Medium Enterprises Development of Nigeria (SMEDAN) reports that MSMEs currently represent 96 per cent of the businesses in the country and contribute 75 per cent of the national employment. Unfortunately, this is a sector that has been neglected in Nigeria. On a day set aside by the United Nations for the MSMEs, it is important that all relevant authorities in the country move from rhetoric to concrete actions on how to lift the majority of our people out of poverty.
Vice President, Country Programmes, Islamic Development Bank, Mansur Muhtar, listed eight key directives that can improve Micro, Small and Medium Scale Enterprises (MSMEs) financing in Nigeria. These, according to Muhtar, a former Nigerian Minister of Finance, include developing supportive regulatory framework, strengthening financial information infrastructure, designing effective government support mechanisms and broadening the range of financing instruments. Others are addressing capacity building, training and awareness needs, facilitating trade and value chain integration, leveraging and partnering with the private sector.
Indeed, a country with over 37 million small businesses should not by any means ignore or look down on the almost limitless potential for inclusive and sustainable economic growth that could be harvested from MSMEs. Unfortunately, according to most estimates, fewer than five per cent of the MSME in Nigeria can access any form of funding support by way of loans or overdraft from financial institutions. The main challenge has always been financing since the conventional banks are not cut out for long term lending needed by MSMEs in the country. It is equally known that these banks are mostly comfortable to lend to short-term business ventures as against start-ups who would need longer gestation period to pay back.
The Central Bank of Nigeria (CBN) had in the past established numerous programmes to support the MSMEs in the country but with very little to show for such efforts. For instance, in August 2013, the CBN launched the Micro, Small and Medium Enterprises Development Fund (MSMEDF) with a share capital of N220 billion. The Fund aims to enhance the access of MSMEs to financial services, by channelling single-digit loans at nine per cent interest rate to them, through the Primary Finance Institutions (PFIs). When the intended end users could not access the facility, the National Collateral Registry (NCR) was introduced. Yet, the problem persists.
The Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL Plc.) is also an idea of the CBN which once mooted the idea of using it to transform NIPOST into a microfinance bank with branches in all the 774 local government areas of the country. While NIRSAL is still active, nothing has been heard about the NIPOST idea. Launched in 2011 and incorporated in 2013 by the CBN, the Bankers Committee and the Federal Ministry of Agriculture and Rural Development, NIRSAL de-risks the agriculture value chain and enables banks to lend to the sector at rates of between 7.5 to 10.5 per cent.
MSMEs remain the backbone of our society by sustaining the livelihoods for the very poor among us. They deserve support. If the federal government is serious about growing small businesses in Nigeria, we are of the view that tax breaks as often offered to foreign dominated firms should be extended to them. Other incentives should include the ability to raise capital.
