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Re-Addressing Banks’ Role In SMEs’ Funding

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Recently, the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, said that over N60 billion of the five per cent contribution from commercial banks’ annual profits to the Small and Medium Enterprises (SMEs) remain un-utilised and sitting idle.
The SMEs remain very critical in the development of any country’s economy as they contribute immensely to the national Gross Domestic Product (GDP).

In Nigeria, survey conducted by the National Bureau of Statistics (NBS) showed that there are about 97 million SMEs being operated by private concerns.

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Indeed, it is an important segment of the Nigerian economy, which contributes above 50 per cent and even employs nothing less than 80 per cent of workers.

Ironically, they don’t have access to credit because of the indifferent nature of the country’s commercial banks to the sector’s owners.

Statistically, reports from NBS showed that less than five per cent of SMEs get funding from Nigerian commercial banks and this does not augur well for a sector that is being described as the heartbeat of the economy.
However, one of the key factors identified as being the bane of the SMEs sector is difficulty in accessing soft loans from commercial banks.

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CBN’s Findings: According to the apex bank, most of the commercial banks are not lending its N60 billion of the five per cent contribution from their annual profits to the SMEs for reasons best known to them.

Basically, the contribution from the lenders followed CBN’s directive to banks to contribute five per cent of their annual profits for on lending to SMEs, which has so far yielded N60 billion.

Emefiele was quoted to have said that although the lenders were making the contributions, the funds remain unutilised, thereby contradicting the primary objective for setting it aside in the first place.
He stated that the funds were only being invested in Treasury Bills by the banks, while SMEs continue to suffer over poor credit access.

Emefiele said lending to the SMEs remained a focus of the CBN, saying that banks should put more efforts at ensuring more credit flow to the weak in the economy, whom he described as ordinary people without opportunities to borrow from banks.

Take-Off Grant: The CBN boss, however, announced the possible take-off of National Microfinance Bank from this month to ensure more credits flow to the grassroots and make improve Nigerians access to financing services easier.

He said the National Microfinance Bank would be instituted in partnership with the Nigerian Postal Service (NIPOST) and the Bankers’ Committee with a take-off capital base of N5 billion.
He said that NIPOST would provide the facility for implementation across its 774 local government areas where it has offices.

He said the initiative was part of the Bankers’ Committee efforts at boosting financial inclusion by taking banking to the grassroots.

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OPS’ Complaints: Speaking at an industry forum in Lagos, the Lagos Chamber of Commerce and Industry (LCCI) said it discovered that commercial banks were depriving SMEs in key sectors of the economy funds through high interest rate charges.

President, LCCI, Babatunde Ruwase, explained that investigations among its members in SMEG revealed that many local SMEs in mainly in agriculture, real estate, solid minerals could not finance projects profitably at an interest rate above 10 per cent.
According to him, access to and cost of fund in Nigeria has been and remain a big issue for many domestic SMEs and this is affecting their contribution to the country’s GDP.

Ruwase decried the fact that with commercial bank lending rate from 20-35 per cent, it would be difficult for the private sector, especially SMEs, to access funds for business growth.

“With commercial banks lending rate at between 20 per cent and 35 per cent, depending on the borrower and other factors such as acceptability of collateral, it is very difficult to successfully access fund by the private sector especially the SMEs.
“We note the efforts of government through CBN and the Bank of Industry (BOI) to extend intervention funds to operators.

“However, the range of beneficiaries and economic wide impact of government intervention funds remain very limited.
“Investors in many sectors cannot finance projects profitably at an interest rate above 10 per cent. These sectors are majorly agriculture, real estate, solid minerals, etc,” Ruwase added.

Multiplier Effects: The LCCI president noted that non-access to funding following the high interest rate to investors in these critical sectors had caused setbacks to economic growth, including infrastructure gap in the economy.
He stated that many of its members in the SMEs group as well as in these critical sectors of the economy were complaining bitterly.

Harsh Operating Environment: Ruwase observed that the country’s economic headwinds had made it difficult for businesses to thrive in Nigeria following the various economic policies of past government, which have brought harsh operating environment.
The LCCI helmsman pointed out that operating in such business environments had been tough in all ramifications for SMEs.

He noted that remaining in business on a long term basis for SMEs under the current business clime had been a source of worries for the OPS.

Ruwase stated: “SMEs are critical to economic development, especially in the creation of jobs and the promotion of inclusiveness in the Nigerian economy. So funding SMEs has remains a major challenge in Nigeria.

“Statistically, almost 80 per cent of small business owners self-fund their start-ups through savings, family, friends, or credit cards. While these sources are relatively easy to obtain, at a certain point, additional funds may be needed for expansion. This is where long-term debt is an option for growth and development of their business.
“Additionally, small business owners are constantly faced with deciding how to finance the operations and growth of their businesses with the question; do they borrow more money or seek other outside investors?”

Source: The Telegraph

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