Business Archives - SME Finance

Development Bank of Nigeria Advocates Sustainable Banking for Nigerian MFBs

The Development Bank of Nigeria Plc (DBN), a premier development finance institution with a huge influence in the Micro Finance Banks (MFB) ecosystem, has set out to act as a catalyst in helping to raise awareness around sustainability initiatives as well as provide technical assistance for its PFIs.

Read More: Nigeria’s Debt Rises 8.3% To 31 Trillion Naira In 3 Months – DMO

To this end, the bank recently organized a webinar session themed, “Creating a Sustainability Community of Practice for Nigerian Microfinance Banks” for MFBs that are working with it as Participating Financial Institution (PFIs).

According to DBN’s MD/CEO, Tony Okpanachi represented by Chief Operating Officer, Bonaventure Okhaimo, “The initiative is focused on further deepening DBN’s efforts at increasing awareness on sustainability issues, and also positively influence its Participating Financial Institutions (PFIs) on Sustainable Development Goals (SDG).”

He explained that the goal is to create an MFB community for information sharing and learning on sustainability initiatives and the implementation of strategies for financial institutions in Nigeria.

According to him, “Currently, the overall awareness of sustainability and its transitions for the microfinance ecosystem has not been clearly articulated in Nigeria. This is because most MFBs regard lending as the most essential service to be rendered to end-borrowers. “This session is designed to enable DBN affiliated MFBs to have a more robust proposition about sustainability which will open them up to the myriad of advantages, including external funding, generation of deeper trust with stakeholders, and legitimization of their operations along the lines of Sustainability.”

While DBN is driving this initiative, it has also been recognized that the support of industry regulators will go a long way in facilitating the desired response from the financial institutions.

In this regards, the Special Adviser to the CBN Governor on Sustainability, Dr Aisha Mahmoud, while delivering her keynote address during the DBN session, stated that “Deliberations on emerging issues of sustainability are important for the financial ecosystem.”

She stressed that MFBs by the virtue of their mandate is already practising the social pillar of sustainability by lending to the underserved sectors of the economy, but there is a need to focus more on the environmental impact of their lending by looking into the activities and operations of their borrowers through a sustainability lens.”

She added that today’s successful businesses are those that integrate sustainability into their operations.

According to her “We cannot ignore the environmental pillar because it is as important as the social pillar. Due to our way of unsustainable consumption and production, we are constantly depleting natural capital. We need to shift our growth pathway from the current trajectory to the one that improves the quality of human life while living within the carrying capacity of the planet earth.

She further added that “Based on discussions with a few MFBs, organizations oftentimes think sustainability is an additional cost to the business, but we need a shift from that perception because sustainability is a win-win situation that connects people, planet, and the economy.

“Studies have demonstrated how businesses that integrate sustainability well, outperform those that do not, as it lowers the cost of capital, results in better operational performance, and positively influences the stock price”.

To help MFBs in this direction, DBN’s Sustainability Specialist, Lolade Awogbade, said, “the discussion in the community will provide MFBs with increased knowledge on internal and external sustainability strategies in implementing their initiatives.

“The internal strategies will be guided by Sustainable Development Goals that embraces strategies inclusive of waste management, energy, gender and diversity policies, and the likes. The external will be business strategies focused on social and developmental objectives such as women empowerment, poverty eradication, and financial inclusion.”

The Bank’s sustainability specialist also mentioned that investing in social and environmental sustainability initiatives will not only help finance companies in fulfilling their social mission but also differentiate them from competitors, give access to new market segments, access to new funding and improve their brand and corporate image.

Based on feedback from participants, DBN commits that it will roll out periodical activities in the coming months to keep the conversation going. This will be in the forms of webinars for idea sharing and knowledge management, as well as the exchange of materials and expertise on sustainability issues.

It is hoped that the lead being taken by the Development Bank of Nigeria in helping to promote the sustainability principles to MFBs will usher in a new consciousness on sustainability needs and how the Bank’s strategic partners can successfully incorporate this thinking into their business model.

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CBN Releases Guidelines For Agribusiness Loans

The Central Bank of Nigeria (CBN) has released procedures for Nigerian youths willing to benefit from its Accelerated Agricultural Development Scheme (AADS).

According to the apex bank, the Programme is to engage a minimum of 370,000 youths in agricultural production across the country over the next three years in order to reduce unemployment among the youths in the country.

Read More: SMEs Vital To African Agriculture – African Development Bank

As it targets youths between ages 18 and 35 years, AADS is designed to increase agricultural production towards food security, job creation and economic diversification, the apex bank said.

The new guidelines show that the programme will focus on boosting production of two commodities in each state where the state has comparative strength.

In terms of mobilization and cluttering, the state government is to mobilize prospective young farmers with representation from all senatorial zones and provide agricultural land in contiguous locations in all senatorial zones. Minimum of 100 hectares per cluster and then, prospective entrepreneurs that meet the eligibility criteria will be grouped into clusters by commodity to be produced

In addition to this, the state government is to allocate 2-5 hectares of land per beneficiary while also providing access roads, water sources and other infrastructure that will enhance agricultural production on the land.

“States may charge a rental on land (Max. of N10,000 per ha) to defray the cost of land clearing and other infrastructure provided. Rental charges will be embedded in the Economics of Production (EoP) of the farmer,” according to the CBN.

In terms of financing, the apex bank has designated private finance initiatives (PFI) as its agents in disbursing the financing to the beneficiaries, which shall be in kind.

The guideline stipulates that the PFI purchase the inputs for on-selling to the beneficiaries, using CBN approved non-interest financing contract of Murabaha, Istisna’, etc at an all-inclusive rate of return of 9 per cent p.a.

For the financing of labour, the PFI shall use Service Ijarah or any other appropriate CBN approved contract for NIFIs with the same all-inclusive rate of return of 9 per cent.

“Financing tenor is 6 months for grains and broiler production (rice, maize, soybean etc); 18 months for cassava; 24 months for egg production and ruminants; 5 years for plantation crops etc.

“Average financing size of N250,000 per ha for arable crops; N500,000 per unit for livestock; and N1.5 million naira for plantation crops like cocoa, cashew and oil palm,” the guideline highlights.

On how to market produce after the cultivation, the apex bank said: “Anchors/Processors/Aggregators shall sign uptake agreement with Project Management Team (PMT), produce off-take shall be on cash and carry basis and contiguous nature of farms should reduce the logistics associated with aggregation.”

For eligible beneficiaries of the programme, CBN has pegged the age range between 18 and 35 years, adding that beneficiaries must sign an undertaking to abide by the terms of agreement of the Scheme.

Apart from AADS, the Central Bank of Nigeria (CBN) in its bid to ensure that agricultural businesses sustain their operations in the aftermath the COVID-19 pandemic, has also introduced other loan opportunities and fund interventions.

The Agri-Business/Small and Medium Enterprise Investment Scheme AGSMEIS Loan is an initiative to support the Federal Government’s efforts in the promotion of agricultural businesses and small/medium enterprises (SMEs) in the country, you can apply for the Loan with collateral for the AGSMEIS loan is been disbursed by NIRSAL Microfinance Bank and other Banks. Interested Nigerian engaged in Agriculture or other SME businesses can access up to N10 Million from the AGSMEIS Loan, at a single-digit interest rate of 9% per annum.

The Anchor Borrowers Programme (ABP), is also an initiative of the Central Bank of Nigeria (CBN) for the agricultural sector, it is in line with its developmental function of the apex bank.

The loan is targeted at smallholder farmers engaged in the production of identified commodities across the country. The Farmers should be in groups/cooperative(s) of between 5 and 20 for ease of administration. The ABP is not solely for farmers, businesses can also apply to become the Anchor (private large-scale integrated processors) and Inputs Suppliers.

Starting A Business: Should You Start With a Loan?

When starting a business, an entrepreneur is often faced with so many questions that demand answers. One of those questions centres on how the business should be financed. Should you borrow money to start a business?

This question may seem simple at first but to be able to give the best answer for your business, you have to consider the advantages and disadvantages first. So to help guide you to the best answer to this question for your business, we have highlighted some of the pros and cons of starting a small business with a loan.

Read More: 6 Financial Facts Every Entrepreneur Should Know

Advantages of starting a business with a loan

  • Covers Startup Costs – One of the biggest reasons for getting a business loan when starting a business is to be able to cover the huge costs associated with it. Personal funds are rarely enough, especially as unbudgeted expenses may arise hence starting a business loan can be instrumental in covering these expenses that the business incurs at startup.
  • Readily Available Capital – Beyond the initial expenses, as a new business, it takes time to turn a profit but all the while your expenses don’t disappear till you can pay for them, they keep increasing regardless. Statistics show that it is at this critical stage that many businesses die due to under-capitalization. Having a business loan to work with at this critical stage of your business is essential to your survival. It provides your business with readily available capital to make a pivot, and cover your operating costs when you don’t have sufficient cash flow to keep your business afloat.

Disadvantages of starting a business with a loan

  • Personal Liability – Most businesses that start with a loan are often required to provide personal guarantees before they can access the loan. While this is important to de-risk the bank’s investment it implies that once your business defaults, you as a business owner would bear personal liability for the loan and your personal assets may be taken to pay off the loan.
  • Debt Pressure – Loans you have taken at the start of a new business have a tendency to put untold pressure on you as the decision-maker for the business. Banks and other lending institutions usually don’t care if your business has turned a profit before you’re required to start your loan repayment. This can be terrible for your business because your loan investment didn’t have enough time to grow your business as intended before you have to pull them out to repay your loan. This can have fatal effects on your business.
  • Additional Costs – loans are not given for free, if you decide to take up a loan to start your business you would have incurred additional business costs in interest rates, loan processing fees etc. While this may not be deadly, additional costs like these would lower your profitability and increase the expensive costs of running

Now that you have the top pros and cons for starting a business with a loan what do you think? Is it a good idea to start your business with a loan?

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3 Reasons You Should Get a Business Loan

Loans are expensive whether you’re getting one for your small business or personal needs. They often come with high-interest rates and other additional fees that make them very risky. But you need them, they are essential to a small business or any business for that matter for many reasons. But because loans are expensive, it is super important that you’re crystal clear about the reasons you need a loan and why it is worth the risk. Here 3 broad reasons why your business needs a loan:

Read More: Beyond Finance: Why SMEs Need More

  1. Equipment and Inventory Purchase– When your business lacks some key machinery or inventory necessary for the smooth running of your operations, your business suffers, you lose revenue and it makes it difficult to fulfil your customer’s needs. To avoid this, your business may need to get new equipment or replenish its inventory but your available cash may not be able to cover such huge expenses, in this case, you can choose to finance such a purchase through a loan. A business loan can be used to get new equipment or upgrade an old one, it can also be used to replenish your inventory and ensure you’re able to meet up with the demands of your customers so you don’t lose revenue. By choosing to finance such expensive purchases through a loan, you can avoid inflicting any damage to your cash flow.
  2. Expansion or Investment in Growth Opportunities– As your business grows, what it needs would continuously increase; you may need to change its location if it gets too small for your employees or customers (if it is a retail outlet) or if you simply need to open a new branch elsewhere to meet up with demands. You may also begin to identify other growth opportunities, sometimes outside your current line of business too. But financing this expansion and new opportunities requires a new influx of cash that your business alone cannot cater for, so you seek loans from a bank or other sources of loan. Using loans instead of relying solely on your business funds to cover the expenses of expansion would help you keep your existing business in good health as you grow.
  3. Working Capital– A business loan can be sourced to help the business meet up with its day to day operations needs. When a business is running short of cash to pay suppliers, employees, utilities or rent, getting a short term loan to meet all these needs is a great idea especially when the business owner expects to be able to repay the loan within a short time.

There are of course more reasons a business may source for business loans than I can list here. But whatever your reason for getting a business loan is, make sure it is clear and the financing received will be spent on meeting the need otherwise the loan, may become even more costly for your business.

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Sparkle Partners Visa To Empower SMEs

Sparkle, a digital ecosystem providing financial, lifestyle, and business support services to Nigerians across the globe, on Friday, September 4 announced a new collaboration with Visa. The partnership will enable Sparkle to provide issuance of Visa cards to its users, benefiting consumers, entrepreneurs, and SMEs across Nigeria.

Under the strategic collaboration with Visa, Sparkle customers will have greater freedom and flexibility in how they make payments. For instance, Sparkle customers will be able to make in-app payments with the embedded Visa virtual card. Sparkle application users will also be able to make eCom/mCom payments with their Visa virtual card and with Visa-branded companion plastic cards attached to their Sparkle profile.

For Sparkle, which was founded by entrepreneur, Technology pioneer and financial-inclusion advocate, Mr Uzoma Dozie, and whose mission is to help Nigerians fulfil their financial and lifestyle needs, the partnership is a major milestone.

Read More: How To Get A Business Loan Through SMEDAN

The partnership with Visa also highlights Sparkle’s commitment to enabling best-in-class global solutions for its digital-only proposition.

The partnership also means that Sparkle customers will benefit from a range of other digital payments initiatives from Visa, for example, by scanning the interoperable EMVCo Quick Response (QR) code or just entering an Alias such as phone number or merchant till number to pay for goods at merchant outlets. Sparkle customers can receive cross-border remittances from family and friends who are Visa cardholders into their Sparkle Account.

Mr Uzoma Dozie, Founder and Chief Sparkler, commented:

“Our partnership with Visa will bring a wide range of benefits to Sparkle’s customers, individuals, entrepreneurs and SMEs.

We are excited to work with Visa as we strive to re-define e-commerce by removing barriers to business using technology and data.

Working with a global partner like Visa allows us to deliver a bespoke and personalized service for our customers by tapping into large networks so they can fulfil their full potential.”

Mr Otto Williams, Vice President, Strategic Partnerships, Fintech and Ventures, CEMEA at Visa, said:

“The rapid pace of technology innovation has driven a powerful shift in business and consumer expectations in finance,”

“Whether it is changing the way people invest, manage money, receive loans, or send real-time payments to friends and family.

Visa is a natural partner for fintech including Sparkle, providing them with new ways to reach their customers through Visa’s vast network and global scale.”

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CBN Issues Guidelines For Mobile Money Licence

The Central Bank of Nigeria (CBN) has stated that it is now ready to grant more licenses to payment service firms. However, the bank has set a minimum capital base of USD 13 million for interested businesses to have before they can get the approval to operate.

That Five billion naira (the present day Naira equivalent) needs to be set aside for a separate payments company, which will be run as an entity that is independent of the parent firm’s existing operations.

Read More: Enugu State Offers Collateral-Free Loans

In addition to the USD 13 million necessity, the CBN has said that payment banks should mostly operate in rural areas and unbanked locations. They should accept deposits from individuals and small businesses, but are not permitted to grant loans. The interoperability this service provides, enables customers to transact with more users across more use cases.

The CBN, Nigeria’s apex bank, is licensing mobile operators as part of its policy to boost financial inclusion and in hopes to replicate the Indian and Kenyan examples of mobile money triumph.
In 2018 when the CBN first suggested mobile money guidelines for discussion, telcos argued that they are not banks, and should not be treated as such. That means, they do not need a capital base before they can offer mobile money services in the country.

The CBN’s new circular on the licensing points out that it could mandate payment banks to recapitalize for specific risks. This position is a long way from the former which totally hesitated to welcome telcos into the payments sector.
The 2019 State of the Industry Report on Mobile Money released in March by The GSM Association (GSMA), showed that sub-Saharan Africa is the epicentre of mobile money adding over 50 million registered accounts to take its total to 469 million in 2019. The transaction value was at $456.3 billion representing 27.5 percent of the $690 billion transacted globally last year.

The region’s dominance also reflects in transaction volume and value as sub-Saharan Africa accounted for over 60 percent of the $690 billion transacted through mobile money services last year.

Although East Africa remained the capital of mobile money activities accounting for 53 percent of total accounts in 2019, West Africa saw strong growth recording 21 million new accounts representing 35 percent while Central Africa saw 6 million new accounts – about 10 percent.

The GSMA predicts that adoption across sub-Saharan Africa will remain strong and that the region will surpass the half-billion mark by the end of 2020.

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Baxi 2.0 To Empower Nigerian Communities

With the growth of digital payment transactions in Nigeria rising to 10.3 trillion in January 2020, according to the Nigerian Interbank Settlement System (NIBBS), a Technology Company, Capricorn Digital Limited, owners of Baxi, has kicked-off a campaign to deepen financial inclusion to at least 70 percent of Nigerian communities.

The Baxi platform has a nationwide agent network with high concentrations at rural communities and areas that are not sufficiently served to carry out financial transactions. Its mobile nature encourages vast usage, high revenue stream and creates empowerment opportunities. A platform that provides an easier way to earn for every transaction on a wide range of products with real-time access to the value of an investment.

According to Degbola Abudu, the CEO, Capricorn Digital, “the campaign will boost the economic empowerment in Nigerian communities in times like these where the job climate is on the low due to the coronavirus crises around the globe”.

He noted that it will engineer growth in digital payment activities.

According to him “Baxi 2.0 is geared towards empowering the Nigerian masses and is also in alignment with the company’s vision which is to have a retail presence in every street and a digital presence in every household in Nigeria”.

“Baxi 2.0, which is an upgrade to Baxi, stems from the idea to build a more rewarding payment platform that not only enables efficient and easy payment of bills and services but also integrates more people into the digital payment space by introducing features and benefits that are valuable and drives individuals and small businesses who seek to be financially included, dependent and entrepreneurial to be empowered to do so.

“The app is compatible with the android and iPhone operating systems (iOS), including the Baxi POS, which is an android operating system enabled device. It is available for downloads on google and apple play store,” it added.

“The product targets at least 70 percent of the country’s population, focusing on financially including the unbanked individuals, young and old, who seek to make payments for everyday basic needs such as airtime vending, electricity bills, TV bills, and Agency banking in a seamless and stress-free fashion,” he explained.

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How to Choose the Best Location for your Business

Choosing an excellent business location is not always as easy as people think. It is more complicated than just picking out a space and paying for it, there are many factors that a business owner has to be mindful of while making such a critical decision.

Say you need a new business location for whatever reason; the first thing you do is create a mental picture of what that location should look like. The clearer the picture is, the easier it would be for you make a choice. There are many reasons a business would need a new location like warehousing, store front, office space, or factory. Let’s say for you it is to establish a retail business maybe a store you should be able to picture the kind of space that would be just perfect for that and then proceed to looking for something that fits that picture.

You might be interested in Register Your Business With SMEDAN, Access N50,000 Grant

From the list of space your realtor has made available, you found a perfect store front but it is has one problem, it is not very close to your target customers. Remember because you need a retail store the best location must be very close to your customers because this would make it super convenient for them to patronize you.  This may not be an issue if you’re searching for a factory space or a warehouse because it does not require proximity to your customers.

For you to be able to make this decision, however, you should know who your target customers are and what locations you can site your business to have proximity with them.

Another factor to consider is the building and environment is a good match for your business. Does that building have all the minimum requirements for your business to thrive and even grow? You have to check if your building has electricity, proper ventilation and other necessary utilities. And beyond the building, is the environment conducive for your business? Does it give you access to high foot traffic which is critical for a retail store instance? Also look at other businesses in the environment would they help attract customers to your location (if it’s necessary) or drive them away?

You want to be able to pick a space that matches the personality of your business or that you can at least decorate to match your brand. You cannot site a trendy fashion startup in Ikorodu for instance and expect to attract the luxury conscious customers that Lekki or VI commands.

Of course, the cost is also critical in choosing a business location, is it within your budget? You should have a budget that determines what locations you can afford paying the rent and other utilities bills on (don’t overlook the cost of utilities). Especially when you’re just starting out, you don’t want to pick a location today that your business may not be able to pay for in the next two years. Make sure it is well within your reach.

While making your final decisions you should think about the future too, would this location be able to support your business if you double or triple your staff or customers in the next five years or will you have to start this process all over again?

These are all important factors in determining whether you make a good choice for a new location or not. The success of your business may well depend on how good that decision is.

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Growing Your Business: 5 Essential Business Skills You Can Learn Today For Free

Growing Your Business: 5 Essential Business Skills You Can Learn Today For Free

Running a business is difficult, it is even more difficult for business owners who lack the necessary skills for the effective day-to-day running of the business operations.

The business environment is constantly evolving and the skills that were relevant to running your business successfully a decade ago may no longer be as important to your success today.

To ensure that your business does not lack the essential skills necessary to exist and remain relevant in today’s business environment you need to learn and re-learn some of these essentials skills that can help you stay on top of the changes and help your business adapt quickly.

I have highlighted some of the most important business skills you need to give your business an edge that you can learn online for free:

  1. Marketing
  2. Financial Management
  3. Legal and Taxation
  4. Sales and Negotiation
  5. Business Writing

 

  1. Marketing: No matter how good a product is, it cannot market itself. Marketing is an essential aspect of our daily business operation one that many SMEs have relegated to the background.  Perhaps, taking a few courses on marketing will help business owners see the importance of marketing to their businesses and some of the many ways it can be leveraged to achieve their business objectives.

Here are a few marketing courses you can take today for free:

 

  1. Financial Management: Without proper knowledge of financial management, you would not be able to tell the state of your business at any time. As a business owner, you should be able to show a proper understanding of your finance as well as make plans and monitor your financial resources to help you achieve your organizational goals. Here are some courses that cover various areas of financial management that you can take for free:

 

  1. Business Law and Taxation: Law is the backbone of any business. An entrepreneur or business owner that does not have a proper understanding of the legal environment under which s/he operates sets the business on the path of failure. Proper knowledge of the rules and regulations concerning contracts, financial transactions, taxation as well as the various do’s and don’ts that guide both industry-specific operations, as well as businesses, generally play important roles in the success of a business. Here are some free resources that would help you stay grounded on the business laws and policies important to your business:

 

  1. Sales and Negotiation: With Sales and negotiation being an integral part of business life it is easy to see why businesses whose owners or teams are skilled in the selling and negotiation are more successful than others. You simply cannot skip on negotiation or sales in your business no matter the size or industry. To help you up to your sales and negotiation skills, here are a few free courses you can take today:

 

  1. Business Writing and Communication: Learn how to convey your message simply and effectively via emails, memos, reports, or proposals. Here are a few courses you can get started on for free:

There are tons of courses available online that are both general and specific to your industry that you should take advantage of. By taking these free courses you should be able to build a solid background for your business to succeed upon.

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