MAKING THE MSMES WORK

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Government could do more to encourage the sector

At a recent lecture organised by Development Bank of Nigeria (DBN), the vice president, country Operations, Islamic Development Bank and a former Nigerian Minister of Finance, Mr Mansur Muhtar, listed eight key directives that can improve micro, small and medium scale enterprises (MSMEs) financing. These, according to him, include developing supportive legal/regulatory framework, strengthening financial information infrastructure, designing effective government support mechanisms and broadening the range of financing instruments. Others are addressing capacity building, facilitating trade and value chain integration, leveraging and partnering with private sector/other development actors, monitoring, tracking and adapting.

We hope the federal government will move from rhetoric to concrete actions on how to lift majority of our people out of poverty by looking at some of these areas. Globally, the MSME sector constitutes the spine of any country’s economy. As small industry operators, they weather and overcome stiff competition from foreign operators to grow and keep jobs for locals. Furthermore, the Small and Medium Enterprises Development of Nigeria (SMEDAN) has reported that MSMEs in the country currently represent 96 per cent of the businesses in the country and contribute 75 per cent of national employment. It is therefore not a sector that can be ignored without dire consequences.

Indeed, a country with over 37 million small businesses should not by any means ignore or look down on the almost limitless potential for inclusive and sustainable economic growth that could be harvested from MSMEs. Unfortunately, according to most estimates, fewer than five per cent of the MSME in Nigeria can access any form of funding support by way of loans or overdraft from financial institutions. The main challenge has always been finance since the conventional banks are not cut out for long term lending needed by MSMEs in the country. It is equally known that these banks are mostly comfortable to lend to short term business ventures as against start-ups which would need longer gestation period to pay back.

The recent plan by the Central Bank of Nigeria (CBN) to transform NIPOST into a microfinance bank with branches in all the 774 local government areas of the country, and using NIRSAL as a platform, is a welcome development. Launched in 2011 and incorporated in 2013 by the CBN, the Bankers Committee and the Federal Ministry of Agriculture and Rural Development, NISRAL is Nigeria’s incentive-based risk sharing system for agricultural lending. It de-risks the agriculture value chain, and enables banks to lend to the sector at rates of between 7.5 to 10.5 per cent. To the extent that MSMEs are critical to the economy as they account for about 60 per cent of the GDP, we support the efforts.

However, there are also concerns that the CBN had in the past established numerous programmes to support the MSMEs in the country but with very little to show for such efforts. For instance, in August 2013, the CBN launched the micro, small and medium enterprises development fund (MSMEDF) with a share capital of N220 billion. The fund aims to enhance the access of MSMEs to financial services, by channelling single-digit loans at nine per cent interest rate to them, through the Primary Finance Institutions (PFIs). When the intended end users could not access the facility, the National Collateral Registry (NCR) was introduced. Yet, the problem persists.

Meanwhile, NIRSAL may have to examine its role against that of the Energising Economy Programme (EEP), a World Bank supported initiative which aims to provide clean electricity supplies in mini grid forms to industrial clusters and big markets across the country. But if the federal government is serious about growing small businesses in Nigeria, we are of the view that tax breaks as often offered to foreign dominated firms should be extended to them to stabilise.