Grant, loan and bootstrapping for SMEs

As the impact of the Coronavirus Disease abates, small businesses in Nigeria still face a fragile economic environment, and need support, EHIME ALEX writes

By 2030, no fewer than 600 million jobs will be needed to absorb the growing global workforce, according to the World Bank. This makes the development of Small and Medium Enterprises a high priority for many governments around the world.

The sector has been said to account for the majority of businesses worldwide and is an important contributor to job creation and global economic development. It represents about 90 per cent of businesses and more than 50 per cent of employment worldwide, said the World Bank.

The Bretton Woods institution added, “Formal SMEs contribute up to 40 per cent of national income (Gross Domestic Product) in emerging economies.”

But there are myriad challenges facing the sector’s growth, of which access to finance is key. For instance, the SMEs are less likely to obtain bank loans than large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises.

A report by the International Finance Corporation estimates that 65 million firms, or 40 per cent of formal Micro, Small and Medium Enterprises in developing countries, have an unmet financing need of $5.2tn yearly, which is equivalent to 1.4 times the current level of the global MSMEs lending.

In Nigeria, the internal problems of SMEs include inadequate  working capital, stiff competition from larger companies, difficulties in sourcing raw materials, low capacity utilisation, lack of management strategies, poor educational background of operators and huge financial problems.

Described as an engine room that propels a country’s industrial growth, for the sector to develop, the government should be focusing on making low-interest funding more accessible to the players.

Support schemes

In the past, the Federal Government of Nigeria, with the support of the World Bank and the African Development Bank, tried to assist SMEs through various credit schemes and loans structured to fund the sector. A few mentions are World Bank SME loan scheme, AfDB Export Stimulation Loan scheme, CBN Rediscounting and Re-financing Facility, National Economic Reconstruction Fund, Bank of Industry and the Graduate Employment Loan Scheme initiated by the National Directorate of Employment. 

However, SMEs can be funded through other ways, including bootstrapping, loans from banks, moneylenders and grants from government institutions and non-governmental institutions.

At a recent event, the Chairman of the Association of Nigerian Development Finance Institutions, Mr Olukayode Pitan, called for increased collaboration among Development Finance Institutions to address the country’s economic challenges.

Pitan, who is also the Managing Director of the Bank of Industry, said, “Indeed, we are charged with enabling various sectors and segments of the economy such as agriculture, industry, infrastructure, export and import, as well as mortgage.”

Recently Access Bank Plc partnered the Ministry of Humanitarian Affairs, Disaster Management and Social Development to roll out a loan scheme for poor farmers aged 18 years to 55 years and other vulnerable groups. According to the Group Head, Emerging Businesses, Mr Ayodele Olojede, the initiative tagged ‘Government Enterprise and Empowerment Programme 2.0’ is to be implemented across the 36 states and the Federal Capital Territory.

The GEEP 2.0, a loan scheme designed by the Federal Government, gives credit access to poor and vulnerable individuals, including persons with disability as well as persons at the base of the economic pyramid, who are engaged in small-scale commercial activities under government’s three flagship schemes: FarmerMoni, MarketMoni and TraderMoni.

According to Olojede, FarmerMoni is for Nigerian farmers aged between 18 to 55 years in rural areas that operate in the agricultural space. “They are provided with loans of up to N300,000 for gainful agricultural production and value addition activities. This scheme has 12 months, including a three month moratorium and nine months repayment period.

“Tradermoni targets under-privileged and marginalised youths aged between 18 to 40 years in Nigeria by providing them with loans of N50,000, while MarketMoni targets under-privileged and marginalised women aged between 18 to 55 years, including widows and divorcees. They get non-interest loans of N50,000 payable within six to nine months,” he added.

NIRSAL Microfinance Bank recently reiterated its commitment to continue to support businesses to fast-track the growth of SMEs in the country, the Managing Director, Abubakar Kure, said on the sidelines of a novelty football match to mark the third anniversary of the bank.

The bank will continue to work with relevant stakeholders to fast-track the growth of SMEs across the country, Kure added.

The National Association of Small and Medium Enterprises, while soliciting the support of advertising practitioners to grow their businesses, said there was the need to boost competitiveness among SMEs in Nigeria and promote their access to market.

“This is critical in enabling our members to have what it takes to produce quality products and develop standard operating procedures for their own products, operations and activities,” the National President, Dr Adbulrashid Yerima, said. “The support is important to enable SMEs churn out products that can compete favourably in the global market.”

Supportive foundations, schemes

The Tony Elumelu Foundation has empowered 200,000 entrepreneurs across 54 African countries with seed funds of $5,000 each. The foundation is said to have empowered 9,631 entrepreneurs from across 54 countries of Africa with seed funds of mostly $5,000 each.

Also, Africa’s Business Heroes, the Jack Ma Foundation’s flagship philanthropic programme, is in Africa to support entrepreneurs. The programme, which is open to entrepreneurs from all 54 African countries, sees the top 10 finalists share $1.5m grant yearly.

The Lagos State Employment Trust Fund has a capital base of about N11.1bn and is said to have disbursed loans worth N8bn to no fewer than 12,000 Micro Small and Medium Enterprises.