The year 2015 promises to be an exciting one for Small & Medium Enterprises (SMEs) in Africa’s largest economy as the Bank of Industry, Nigeria’s oldest and largest development financing institution charged with providing financial assistance for the establishment of SMEs, has partnered with 10 SME-friendly commercial banks to alleviate their funding issues.
This move is timely given the dire need for boosting every conceivable source of non-oil revenue for the government and the economy. SMEs play a most crucial role in contributing to national GDPs, reducing unemployment and generally stabilizing the economy. In the European Union (EU) and other developed regions, these businesses, the vast majority of which are actually micro-enterprises, account for more than 90 percent of existing enterprises and constitute the backbone of every market economy. In Nigeria, at least 9 out of every 10 businesses are SMEs, and they employ over 30 million people and account for an estimated half of Nigeria’s Gross Domestic Product (GDP) according to the National Bureau of Statistics.
The 10 banks partnering with the BOI are Access Bank Plc, Diamond Bank Plc, Ecobank Nigeria Limited, Fidelity Bank Plc, First Bank Nigeria Limited, First City Monument Bank Limited, Skye Bank Plc, Stanbic IBTC Bank, Standard Chartered Bank Limited and the United Bank for Africa Plc. Areas of collaboration would include provision of the long-term loans to qualified SMEs by BOI based on its Risk Acceptance Criteria (RAC), provision of working capital to the SMEs by the SME-friendly banks also based on their individual RAC and financing sectors such as agro-processing, solid minerals and metals, light manufacturing, logistics and the like. The loans are expected to be in accordance with BOI term loans with a 3 – 5 year tenor for 6 – 12 months at 9 – 10 percent interest rate.
Mr. Rasheed Olaoluwa, Managing Director of the BOI, hinted that the rationale for this synergy was necessitated by the common knowledge that a significant hindrance to SME growth and development in Nigeria is the lack of access to affordable finance. This move, therefore, is critical to supporting SMEs in theory and action.
“BOI therefore decided on a multi-pronged approach to addressing the problem of poor loan packaging and access to finance. The first approach was the recent accreditation of 122 Business Development Service Providers (BDSPs) located all over the country. Another strategy was to approach SME-friendly commercial banks to partner with BOI in co-financing the SMEs. We wrote on August 12, 2014 to ten commercial banks that are renowned for their SME-centric activities to partner with us in the financing of our SME customers,” he said.
However, he also admitted that a key reason for not accessing finance was because of poorly packaged loan requests and business plans that were neither bankable nor showed the potential to become cash-flow positive businesses.
Olaoluwa further revealed that the MoU was geared towards the development of a virile SME sector in Nigeria and a platform for the realization of the economic transformation objectives of the Federal Government. With upwards of 17 million SMEs, he noted that the importance of these units to Nigeria’s economic development cannot be overemphasized.
“The synergy that has evolved between BOI and the SME friendly banks, which is unprecedented between a development finance institution and commercial banks, will undoubtedly foster greater access to finance for SMEs, financial inclusion for Nigerians and also engender wealth creation and accelerated job creation for Nigerians. It is also our expectation that the SMEs that will benefit from this partnership will be good corporate citizens and meet their financial obligations to the partnering banks. This will stand them in good stead for consideration for larger loan amounts with the hope that they will in the near future metamorphose into large enterprises,” he concluded.
By Emmanuel Iruobe