The Bank of Industry (BoI) has said though the Small and Medium Enterprises (SME) are key to national development, funding has remained an impediment to lend necessary support to that sub-sector.
The BoI noted that poor banks reluctance to service SMEs
largely has to do with the perception of SMEs by creditors and investors as high-risk borrowers due to insufficient assets, low capitalization, vulnerability to market fluctuations and high mortality rates.
The banks managing director, Rasheed Olaoluwa who spoke at the conference of Finance Correspondents of Nigeria (FICAN) in Lagos at the weekend also noted that absence of bankable Business Plans and lack of clear Business Models are equally some of the challenges.
Olaoluwa further said that information asymmetry arising from SMEs’ lack of accounting records makes it difficult for creditors and investors to assess the creditworthiness of potential SME proposals.
He observed that finance has been identified in many business surveys as a critical factor for the survival and growth of SMEs in both developing and developed countries.
“Access to finance allows SMEs to undertake productive investments to expand their businesses and to acquire the latest technologies, thus ensuring their competitiveness and that of the nation as a whole.
Poorly functioning financial systems can seriously undermine the macroeconomic fundamentals of a country, resulting in lower growth in income and employment” he added.
The MD noted that despite their dominant numbers and importance in job creation, SMEs traditionally have faced difficulty in obtaining formal credit or equity.
He said “For example, maturities of commercial bank loans extended to SMEs are often limited to a period far too short to pay off any sizeable investment.
This is due to the short-term nature of their funds, with the attendant mismatch if granted as long-term facilities to SMEs.
Meanwhile, the tendency is for access to competitive interest rates to be reserved only for prime customers, while loan interest rates offered to SMEs remain high”.
Accordingly, bank credit in Nigeria is characterized by limited availability of medium – to long-term credit tenors, short moratorium, and high collateral requirements, Olaoluwa noted.
Citing recent surveys of SMEs and banks by the World Bank and other stakeholders, Olaoluwa said the survey identified several factors limiting access to bank finance for SMEs.
According to the results of the survey of Nigerian SMEs in 2011, only an estimated 9.5 percent of Nigerian SMEs had a loan or line of credit in 2011, and bank financing of working capital and fixed assets was estimated to fill respectively only 3 percent and 2 percent of outstanding needs.
Based on later survey of MSMEs in 2014, only 6.7 percent of enterprises in Nigeria reported having a loan or active line of credit, compared to the global Enterprise Survey average of 36.5 percent, he said.
Speaking further on the survey, Olaoluwa stated that in terms of segmentation, only 3 percent of micro enterprises had access to finance, while for SMEs, it was 7 percent; and for large enterprises it was 44 percent.
Moreover, access rate bySMEs lags well behind other countries such as Brazil (30%), Ghana (36%), China (30%), Kenya (24%) and South Africa (21%).