There are so many financial packages available to the SMEs in Nigeria but they are mostly still starved of cash. Many people now say that finance is not a problem to SMEs any longer because of the availability of onlending facilities of different quantum, and targeting different segments of SME activity. That conclusion seems to have been drawn mainly among outsiders and people who cannot be described as operators in the SME sector. As far as the operators are concerned, finance remains a major problem. Dealing with the issue of funding in a growing economy, based on rudimentary financial markets, can be tricky. Moreso when there are institutional and cultural biases that impair financial access. It is even more so for start-ups. To fund a start-up, many factors have to be considered, including source, cost, potential relationships and tenor.
The first challenge the authorities had to deal with was transferring the available funds to the operators – getting the moneys earmarked for the SMEs to be disbursed to them. The drawdown rate was so low that the Central Bank began to seek alternative ways to dispense the cash. Several efforts were made to get them to draw down on the funds. It was difficult to say why the funds were not being disbursed to operators. Eventually it became clear that the banks themselves were afraid to lend to the operators. They added their own rigidities in the form of conditions precedent to drawdown and other conditionalities for operators to meet. The banks did not know much about the business of many operators. It is not in their DNA to do small time lending. The operators in the sector were also not well prepared to meet borrowing conditions.
The banks were afraid of the risk they had to bear in acting as middlemen between the central Bank and the borrowing SMEs. The banks have every reason to be afraid. The economic environment is so unstable that it is hard to do any business with high degree of certainty to succeed. The corporate sector has been ravaged by business failures – companies failing and shutting down for all manner of reasons. So, the informal sector, which is home to the SMEs could not be different. The banksmade sure only very serious operators got the facilities with their backing. Obviously, the CBN will not listen to stories about delinquent borrowers when the banks had agreed or covenanted to make good any losses arising from their onlending activity.
The situation became so bad that the Central Bank had to think seriously of what to do to get the funds across to the operators. That was the origin of the new national microfinance bank promoted by CBN. Of course, there was considerable opposition to the establishment of the bank. Many thought it was a mere repeat of things that had been done unsuccessfully in the past. They sighted the Peoples Bank, which was floated to canalize financial resources to the informal sector but failed woefully to achieve that objective. The bank was overwhelmed by the level of delinquency it had to live with and eventually had to be subsumed in other institutions.
In certain cultures, borrowing is even seen as a sign of weakness or something not to be proud of. This is why the concept of Other People’s Money is not yet imbibed among many of our entrepreneurs. They prefer to go it alone with their own funds. The idea of partnership has also not been fully developed. There is always something that goes wrong with our joint businesses. This is an area we need to improve upon. The so called scarcity of capital funds can be drastically reduced if people pull together and bring their funds into the business.
What many of our entrepreneurs should know is that it is better to borrow money from banks than source it from family and friends. The reason is that once you keep to the terms of a loan, the banks will not interfere with your business. Non-bank lenders will. They will not ever go away but the banks will, until there is need to look in. Funding strategies is a subject that our entrepreneurs need to spend some time to understand. It will help them a lot.
Emeka Osuji
