Olowo: Absence of Governance Structure Most Critical Factor Driving MSMEs’ Mortality

Dike Onwuamaeze

The Executive Secretary/CEO, Financial Reporting Council of Nigeria (FRC), Dr. Rabiu Olowo, has identified absence of good governance as the most critical factor responsible for the high mortality rate of Micro, Small and Medium Enterprises (MSMEs) in Nigeria.

Olowo stated this in Lagos, in his keynote address titled ‘Governance as a Tool for MSMEs Longevity: The Impact of Partnership between Regulators and Enterprises’, which he delivered during the FRC, Lagos Chamber of Commerce and Industry (LCCI), and Centre for Business Integrity (CBI), collaborative efforts to promote the adoption of SMEs Corporate Governance Guidelines (SME CGG) 2024, by business membership organisations (BMOs).

The FRC boss at the collaboration themed: ‘Thriving in Tough Times: Governance Certification as a Key Strategy for MSMEs Success’ said, “It is on record that over 50 per cent of MSMEs in Nigeria fails in their first year of operation, while more than 95 per cent fail in their first five years of existence.

“This implies that new MSMEs are birthed every year, so why the early/premature death/extinction?

“Reasons for the early death include, but not limited to, lack of or limited access to funds, poor infrastructure, very low market demand for their products and services, weak succession planning, regulatory uncertainty, low adoption of formal business practices and over-dependence on the founder’s persona and operational involvement.

“But more critical and foundational challenge is the lack of good governance structures and practices, which would easily have mitigated the earlier listed challenges.”

He said that “good governance is essential for MSMEs to achieve longevity and sustainability. With good governance structures in place and implementation ensured, the MSMEs succeed in building trust with stakeholders, they can make informed decisions and manage risks existing and potential effectively.

“By adopting good governance practices, MSMEs can improve their performance, increase transparency, and enhance accountability.”

Declaring that governance is a strategic tool for MSME longevity, Olowo asserted that “governance is not a luxury—it is a necessity. It is the invisible infrastructure that drives continuity, inspires investor confidence, and unlocks value beyond the present generation.”

According to him, “governance enables MSMEs to build structures that outlive their founders, improve internal controls and accountability, make informed and strategic decisions, attract investment and retain talent, prepare for succession and institutionalise legacy.”

He explained that the SME Corporate Governance Guidelines (SME-CGG) 2024 is not just another document but a transformative tool tailored to the realities of MSMEs in our economic landscape.

According to him, the overarching intention of FRC for MSMEs is predominantly developmental, “recognising the fact that, from the MSMEs of today, business giants/conglomerates of tomorrow shall emerge.” 

He said that the partnership between FRC and LCCI, being witnessed today, is a strategic move to promote good governance among MSMEs generally and MSMEs who are member organisations of LCCI.

“We have it on good information that LCCI is desirous, committed and poised to direct its members to adopt the SME CGG-2024, as its corporate governance reporting framework.

“This collaboration can provide numerous benefits, including: improved access to information and capital: MSMEs can access relevant information and resources to enhance their operations and governance practices.

“Training and capacity-building programmes can be organised to equip MSMEs with the necessary skills and knowledge to implement good governance practices.

“The partnership can provide a platform for MSMEs to network with other stakeholders, including regulators, investors, and customers,” Olowo said.

He recommended that focusing on the following key areas will ensure the success and longevity of MSMEs. These areas include the development of a governance framework that outlines best practices for MSMEs, including board composition, audit committees, and risk management.

Others are capacity building to enhance their governance practices as well as establishing a system to monitor and evaluate the effectiveness of governance practices among and across MSMEs.

He also tasked the MSMES to establish a reporting system, preferably digital, where MSMEs can report periodically and thus FRC can monitor progress made by MSMEs.

Olowo explained that under the Renewed Hope Agenda of President Bola Ahmed Tinubu, MSMEs are recognised not just as business entities but as engines for economic transformation and national development.

“The administration has made it clear: the sustainability and growth of MSMEs is a top priority,” he said.