Globally, small and medium-scale enterprises (SMEs) have been identified as important part of the integral economic system to achieve stability. This is because they serve as significant drivers of economic growth.
According to International Finance Corporation (IFC), SMEs make an average of 50 per cent contribution to the GDP in both Europe and the USA and 40 percent in Asian countries. In Nigeria, 96 per cent of firms in the manufacturing sector are SMEs. They account for 70 per cent of employment, yet, contributing a mere 1 per cent to the GDP.
In a statement during a recent courtesy visit to BusinessDay, Minister of Trade and Investment, Olusegun Aganga highlighted lack of access to finance, poor business development service and high operational costs as major challenges facing small and medium enterprises development in the country, and among these; lack of access to finance occupies a very central position.
Globally, commercial banks which remain the biggest source of funds to SMEs have in most cases, shied away because of the perceived risks and uncertainties. In Nigeria, the fragile economic environment and absence of requisite infrastructure has rendered SME practice costly and inefficient, thereby worsening their credit competitiveness.
Funding for small and medium enterprises (SMEs) has, for many years, been the bane of growth of the sector which has been identified to be a key factor in the development of any nation’s economy.
‘‘The best business ideas will not survive without proper financing. It is a valid concern for entrepreneurs, as financing is the lifeblood of a business. What is most important is to realize that if one has a bankable project, it would get financing,’’ Yvonne Oyetakin, Head of Corporate Strategy at First Bank said in a presentation on ‘Start-up cost and financing opportunities for SMEs’.
She explained that the idea is to make sure the business owner has something that is structured; a marketable business plan (being able to articulate what the business is about) including business objectives and past history of finance/creditworthiness. ‘‘Financiers want to see that the entrepreneur is committed to the business, thus demonstrating good financial history is a plus in loan application,’’ she said, noting that as financial intermediaries, banks also have to manage risks.
‘‘We do recognize that there is huge funding gap in the sector and some of the issues in terms of accessing funds for SMEs are a lack of collateral and financial information. We have developed a product in our overall value proposition to provide an egometric analysis of the corporate individual (this helps us in doing some sort of evaluation of the customer’s business) without necessarily looking for collateral,’’
Lanre Odufuwa, Head of Business Banking at Stanbic IBTC Bank said in an interview. He added: We evaluate the customer based on his ethics, level of intelligence and understanding business skills (book-keeping, financial planning). The key thing for us being, ‘‘Is the business owner trustworthy enough to lend to without collateral?’’ he queried. Since 2011, the bank has extended loan facility to the tune of N4 billion to over 2000 small businesses under the SME quick loan scheme, BusinessDay can reveal.