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Funding, high interest rate bane of SMEs devt

Posted: Apr 8, 2015 at 2:42 am   /   by   /   comments (0)
• Obasanjo    • Sambo

• Obasanjo • Sambo

By Phillip Oladunjoye

Senior Correspondent

Small and Medium Enterprises in the country may still have to wait a bit longer for their prayers to access fund at a single digit interest rate to be heard.

The sub sector, which has been inundated with series of challenges, in which access to finance and high interest rates have been identified as the major ones was further thrown into a state of uncertainty with the recent increase  of Monetary Policy Rate (MPR) from 12 to 13 per cent.

For instance, the Ogun State Chairman of the Manufacturers Association of Nigeria (MAN), Mr. Wale Adegbite, lamented over the increase, saying with the recent development, the lending rate in the financial sector would go up.

Adegbite, who stated this in Ota, said the increase in the lending rate by the regulator would made manufacturers to borrow at a high rate which would increase their cost of productions.

“The nation suffers infrastructure deficiency already and transferring the high cost of production to consumer would worst the situation of thing because of what the people are going through,” he said.

According to him, it would make the manufacturers to be less competitive compared to imported products and reduce their profit margins. The Chairman said that the devaluation of the nation’s currency would make manufacturers that import raw material to spend more in the process.

“When manufacturers spent more in importing raw materials, it would automatically reduce funds available to invest in buying machineries,” he said, noting that the step by the CBN to increase MPR and devaluation of naira would have an adverse effect on the employment rate and increase poverty in the country.

Lamenting on the high interest rate charged by commercial banks, Senator Victor Oyofo described it as the bane of industrial development in Nigeria.

Oyofo, who was at the recent 9th Abuja international trade fair expressed concern that the high interest rate on loan was a major challenge that slowed down the development of the country.

He expressed worry that a lot of small businesses had died due to the high interests charged on loans they obtained from different banks.

“How could our economy grow when people had to pay so much interest before they could get loans from the banks in order to invest? Truly, many investors are scared to go to the Nigerian banks to borrow money.

“This is because when they remember the huge interest that they would pay on the loan they are taking, they would be deterred to go and borrow from banks,” he said.

He called on governments at all levels and stakeholders in the agricultural sector to focus on the sector in order to produce raw materials and food for the nation’s teeming population.

The president of ABUCCIMA, Solomon Nyagba, said for Nigeria to develop economically, it should encourage SMEs as well as invest on its productive sector.

Abia State governor, Theodore Orji, who was the guest of honour at the occasion, enjoined the federal government to ensure that the interest rates charged by banks were reduced to enable more investors to invest in the economy.

Orji who was represented by his Deputy, Chief Emeka Ananaba, also advised the federal government to focus its attention more on the SMEs to ensure fast industrialisation of the country.

The Entrepreneurs’ Organization of Nigeria, a global thought leader on entrepreneurship, also called on the Federal Government to give more support to entrepreneurs, saying it is the only way to transform the economy.

Education Chair of the organization, Lere Baale, made this call while addressing participants at a leadership insight and experiences seminar held at the Green Legacy Resort, Abeokuta, Ogun State, which had former president Olusegun Obasanjo as speaker.

Baale, who is also the Chief Executive Officer of Business School Netherlands, said entrepreneurs, as calculated risk takers, need the support of Government to provide an enabling environment to encourage risk and ventures.

“Political leaders drive economic direction through policies, laws and regulations that encourage investment and it is the responsibility of the leadership and government to provide this all important platform for economic growth and transformation,” he explained, adding that Entrepreneurs’ Organization of Nigeria (EON) as the only peer-to-peer network of entrepreneurs in the country is determined to inspire entrepreneurship through series of programmes developed to provide the tools and resources business leaders need to sustain themselves especially in the present harsh economic reality.

Former president, Olusegun Obasanjo, in his presentation attributed the nation’s economic plight to failure on the part of the leadership. He said the three factors majorly responsible for effective and responsible management of the economy or any worthy institution is leadership, leadership and leadership.

Obasanjo said “We are witnessing a downturn in the economy now because the leadership has failed in its responsibility to deliver factors that will encourage entrepreneurship.

“If leadership is not okay, followership will be wrong and as they say in the military parlance there is no bad soldier but bad officers. So, the leadership must work to ensure the economy is well managed; that there is social cohesion, that the expectations of the youths and business leaders are met while also pursuing vigorously policies, laws and regulations that ensure sustenance of any investment in the economy.

He urged the Entrepreneurs’ at the seminar not to be deterred by the myriad of challenges facing businesses today especially in Nigeria but to always see the abundant opportunities in the country waiting to be explored.

Apart from this, the Small and Medium Scale Enterprises, which have severally been described by economists as the engine of development of any economy all over the world, is also shackled with numerous challenges, highest of which, according to analysts, is lack of access to cheap fund.

For instance, Vice President Mohammed Namadi Sambo, decried the high rate at which commercial banks charge interests, which he noted hamper access to financing by small and medium scale entrepreneurs.

The vice president, who made this observation at the Mecca Guest Palace Hotel, in Mecca, Kingdom of Saudi Arabia, when he received a delegation from the Islamic Development Bank (IDB) led by its Chairman, Dr. Ahmed Mohammed Ali, said lack of access to financing remained one of the stumbling blocks to the growth and development of Small and Medium Scale Enterprises (SMEs) in Nigeria.

He said there had been situations where international financial institutions channel funds through local banks for on-lending to SMEs only for the banks to turn around and charge high interest rates.

The SMEs, he explained, thereafter end up supporting the banks by increasing their liquidity, urging the Islamic Development bank to evolve ways through which the small scale entrepreneurs could have easy access to cheap funds to finance their businesses.

The Vice President further stated that the Federal Government has a robust national master plan for small and medium scale enterprises, and that he sought ways to see how the IDB would provide direct financing support for the small and medium scale entrepreneurs in the country.

Sambo also noted that the current rebasing of Nigeria’s GDP has shown Nigeria as one of the fastest growing economies, saying there was therefore the need for the bank to take advantage of this favourable economic climate to further support the nation in its quest towards rapid socio-economic growth and development.

The Vice President added that with the successful completion of 10 new thermal power plants in the country, there was also the need for adequate Gas infrastructure to support industries in the country, calling on the bank’s support in financing both gas and transportation infrastructure to allow for local processing and transportation of gas within the country.

Sambo also called for the bank’s support in realizing several other power and agricultural projects and programmes, which the administration was currently executing, including the Gurara Phase II 260mw hydro power project; the 3050mw larger Mambila hydro-power project, the Itisi Dam Irrigation and Hydro-power Project and the Zungeru 700mw hydropower project.

The Chairman of the Islamic Development Bank, Dr. Ahmed Mohammed Ali, said the bank has interest in many sectors of the economy, including education, healthcare, project financing, power and gas and that at the moment, the bank was engaged in a gas pipeline project that would connect the southern and northern parts of Cote D’ I’voire, which was at pilot stage and that they hope to also work with Nigeria in the future if the project works.

He also noted that the Islamic Development Bank is currently financing a number of projects in a number of countries across the world including Nigeria, adding that the bank has invested about $68 million on corporate projects in Nigeria and about $100 million to support the small and medium scale enterprises in the country among others.


Some respite

In order to give respite to operators of Small and Medium Enterprises in the country, some state governments and concerned stakeholders have made some commitments to ensure that SMEs are adequately funded with a bearable ways of servicing their loans.

For instance, the Enugu State Government recently made a commitment on how SMEs should be funded when it said it had reduced interest rate on the N2 billion Micro, Small and Medium Enterprise (SME) Development Fund to six per cent.

The Commissioner for Information in the state, Mr. Chuks Ugwoke, who disclosed this, said the gesture would reduce the total on-lending rates from nine to six per cent, including charges by the participating financial institutions.

He said the reduction would encourage owners of small businesses in the state.

“The SME fund is designed to finance commercial agriculture and its value chain, including food processing, poultry, fishery and piggery,” he said.

Also, Heritage Bank Limited said it has introduced a strategy which would allow Small and Medium Enterprises (SMEs) to work in group in order to access funding from the bank.

The Group Head, SMEs, Heritage Bank, Bayo Ogunnusi, who disclosed this, said the strategy was conceived because of the high cost of doing business in the country and the need to stimulate growth in the national economy.

“It is novel in that we try to work with SMEs as a group. If you approach the bank as a group of SMEs for loan, the interest rate can be renegotiated. Of course, interest rate is also a function of the risk that you perceive,” he explained, noting that banks have since renewed their interest in SMEs since the 50 per cent Cash Reserve Requirement (CRR) was imposed on public sector deposits.

He said banks now need to focus on SMEs but noted that a lot of banks don’t know how to deal with SMEs, saying that Heritage Bank has the expertise, knowledge and know the way SMEs operate.

“Our objective is to grow the business and not just to fund it.  Of course, a lot of people walk into banks and say they want money and by the time you get to their business, you find out that they are not doing anything.”

Ogunnusi maintained that as a bank that supports small businesses, any SME in whatever sector is welcome to the institution, adding that it does not segregate.

“Somebody can be selling recharge card on the road today and in five years’ time, he could become a major dealer in MTN if properly mentored, structured and properly developed,” he reasoned.

Similarly, the Chief Executive Officer, Auldon Limited, Mr. Paul Orajiaka, who said he was almost frustrated from continuing with his business due to paucity of fund advocate  single-digit interest rate for the development of start-up businesses.

Orajiaka, who spoke during Enterprise Day organised by Lagos State Government, stressed that for SMEs to grow, state governments across the country must provide enabling environment and infrastructure.

He pointed out that single-digit interest rate would enhance the growth of start-ups.

“At one point, I almost gave up because it was difficult building my business especially without funding from banks. It was near impossible to continue, but my frustration and anger at the banking system coupled with lack of support, only made me further persevere, be more passionate and determined to ensure that the business grew.

“These virtues I adopted failed to disappoint; instead, it gave me the needed impetus and momentum to get my company going and keep going. No doubt, it is almost an uphill task succeeding as an entrepreneur in this clime, so it would be unfair to blame some Nigerian entrepreneurs who fail to surmount the numerous challenges which stifle their growth. Single-digit interest rate should be adopted by banks to aid SMEs growth,” he recounted his experience, calling on entrepreneurs and artisans, especially those trained by state government, to take advantage of the state’s micro-credit fund to grow their businesses and create employment for others.

Meanwhile, to stem the financing challenge of the Small and Medium Enterprises, the Federal government directed the board of the Bank of Industry to increase its current credit portfolio to the Micro, Small and Medium enterprises sector.

Minister of Industry, Trade and Investment, Olusegun Aganga, who gave the charge during the inauguration of the Board of Directors of the Bank of Industry in Abuja, noted that the current arrangement where less than 15 per cent of the bank’s loan funds were being set aside for the development of the MSMEs Sector was no longer acceptable, adding that the board should carry out an upward review of the loan funds in a manner that would enable the sector create more jobs and generate wealth.

“The core mandate of BoI is to provide financial assistance for the establishment of large, medium and small projects as well as expansion, diversification and modernization of existing enterprises and the rehabilitation of ailing industries.

“I would like to use this occasion to remind BoI that the future of the MSMEs rests squarely on how responsive you are to the funding needs,” the minister said, advising the board to adopt the practice in China and Indonesia where significant portions of loan-able funds without collateral were extended to the MSMEs in those countries and about 97 percent of the loans were repaid.

The Minister said the Federal government would continue to give policy guidance to the bank towards achieving its mandate, while also directing the newly inaugurated board to forward quarterly progress report of the bank’s activities to the Ministry.

Chairman of the board, Alhaji Abdulsamd Rabiu, said the BoI would continue to work with the government to industrialize the country.

He said the bank had identified key sectors of the economy for support in the course of providing access to finance.

Similarly, the Small and Medium Enterprises Development Agency of Nigeria SMEDAN said it was willing to partner with the banking sector towards the development of the Micro Small and Medium Enterprises sub-sector of the economy.

Director General of the agency, Alhaji Bature Umar Masari, stated this while receiving management of JAIZ bank led by its Managing Director/Chief Executive officer, Muhammad Nurul Islam, in his office in Abuja.

Masari, who welcomed the Bank’s policy of non interest banking, said non-interest banking stimulates the growth of MSMEs, adding that Micro, Small and Medium Enterprises are critical to the economic development of any society, as such, the role of banking in actualising this for the nation cannot be over emphasised.

The Director General informed the JAIZ management of the agency’s programme; the National Enterprises Development Programme (NEDEP), saying the programme is aimed at generating 3.5 million to five million direct and indirect jobs in 2015.

He said NEDEP is focusing on Skills Acquisition; Entrepreneurship Training and Business Development Service (BDS) and Access to Finance, noting that two agencies namely the Industrial Training Fund (ITF) and the Bank of Industry (BoI) are also partners in the implementation of the programme. He said the entrepreneurship training component of NEDEP is being executed under the One Local Government One Product, (OLOP) platform.

Bature said for NEDEP to succeed, all Nigerians must rally round and support the programme, hence the agency’s recent voyage to the Bank of Agriculture BOA in Kaduna for possible collaboration and support to MSMEs in Nigeria. He said the agency is also discussing with some banks on way of enhancing counterpart funding of its training programmes, adding that SMEDAN was ready to collaborate and partner with SMEs friendly institutions as it was poised to leverage on the JAIZ bank non interest banking policy to empower MSMEs in the country.

Masari pledged that SMEDAN and JAIZ would identify areas of collaboration so as to enhance both parties commitment to the development of MSMEs in the country.

Managing Director and Chief Executive Officer of JAIZ bank, Muhammad Nurul Islam, who noted the giant strides recorded by SMEDAN in the development of the MSMEs sub sector in the country, said it was in recognition of the agency’s performance that the bank decided to come and seek partnership with SMEDAN. Muhammad Nurul Islam said the JAIZ bank has enough facility to assist MSMEs in Nigeria. “Our non interest banking facility to MSMEs would boost sustainable job and wealth creation,” he said, assuring SMEDAN of the banks credibility.

He said JAIZ bank is a veritable outfit for MSMEs in Nigeria to realise their potentials in business development and job creation thereby reducing poverty and dependency syndrome.

He said clothing; shelter, medical, food and employment are five major critical focus of the bank.

Also, the Central Bank of Nigeria, CBN, also attested to the importance of SMEs when it said that the Micro, Small and Medium Enterprises MSMEs have the potentials to boost production, create jobs, reduce poverty and ensure inclusive economic growth and development in the country if adequately funded.

The CBN governor, Godwin Emefiele, who said this at the signing of Memorandum of Understanding, MoU with the 36 State governments on “MSMEs Development Fund” in Abuja recently, said that in spite of global recognition, MSMEs in Nigeria had not received adequate financing required to play their pivotal roles in national development.

He said a joint report by the International Financing Corporation, IFC, and McKinsey indicated that financing gap of the critical sector of the Nigerian economy was N9.6 trillion as at 2010. The governor said the CBN initiated the funds as an innovative way of improving access to finances at single digit interest rates by MSMEs in order to unlock their potentials and unleash them for growth. He said the state governments would be able to access up to N2 billion each for on-lending to eligible beneficiaries through participating financial institutions in their states.

The CBN Governor, Mr. Emefiele assured, would ensure that the funds got to people at the bottom of the country’s economic and social pyramid at a maximum of nine per cent interest rate. He also said 60 per cent of the funds would be given to women, who often turn out better yields than their men counterparts. According to him, the CBN would be committing considerable human and material resources to monitoring the disbursement and utilisation of the funds in a robust and verifiable manner.

“Participating financial institutions will be required to submit periodic returns on disbursement as well as analysis of the social impact of these funds on our people,” he said.

He implored the state governors to assist the CBN to achieve its goals by ensuring that the funds were deployed in an efficient manner to beneficiaries.