SMEs must improve on risk management

Making money and keeping it have always counted among the most serious challenges of humanity, especially those in the business of making money, but one is more serious than the other. Reading through the stories of the rise and fall of many financial empires, one cannot but notice that the source of their decline is usually not their inability to make money but failure to effectively manage money made. Keeping the money, one has made is sometimes harder than making it. This has been the bane of many entities, including nations.

I learnt long ago, while working for different corporate organisations, that it is not the amount of money they pay you that determines whether you retire rich or poor. It is more of what happens to that money while in your hands. This is why one sometimes finds young officers, without any bribery or corruption, buy their first houses before their big bosses – effective management. An important part of resource management is resource protection. It is not enough to deploy resources in their best uses and earn optimal returns. Effective deployment happens only when such resources are safe and protected.

It appears the Small and Medium Enterprises sector has not learnt much from the bankers in regard to risk management, especially loss prevention strategies. While the bankers have expanded their risk control and management dragnet to cover every imaginable risk, including damage to their reputation, SMEs are still on the defensive against risk. In other words, they just react to events of risk rather than take serious steps to prevent them.

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Don’t get me wrong on the effectiveness of the risk management efforts of our banks. Granted a lot is yet to be done, going by the level of non-performing loans in that sector, and even the frequency of fraud. However, much has been done by the banking industry to keep depositors’ funds safe. Small business owners need to wake up to improved risk management.

SMEs cannot continue to bear the hardship occasioned by employees waiting and plotting to steal everything, except those nailed into the floor or chained to the nearby iroko trees and electric poles


The risk of loss through pilfering has become very high among small businesses, draining resources amid other serious leakages. It is as if every worker is looking for what to steal, and will definitely do so if the opportunity arises. This situation appears to be an overflow from the rampant stealing going on in the public sector but the private sector cannot survive under such haemorrhage. The need for a decisive response to pilfering in small companies is now urgent.

SMEs cannot continue to bear the hardship occasioned by employees waiting and plotting to steal everything, except those nailed into the floor or chained to the nearby iroko trees and electric poles. In-house stealing of cash, raw materials, spare parts and equipment have become very serious and endemic. From the comments of stakeholders I interact with, the sector needs to be supported with more risk awareness and management efforts from all of us, given the fragility of the sectors and the limits to its capacity.

What one finds at the moment is that many SMEs are not even aware of some of the major risks they face until such risks crystallise. To a large extent, this should be understandable given the history and nature of the sector, particularly the way they come into existence and their challenge of low initial capital. Besides, as organisations differ, so do their internal chemistry, including staffing, culture and leadership.

Entrepreneurs face different risk matrices, which may vary in degree and composition, from one enterprise to another. Accordingly, there may be as many divergent strategies as there are companies. However, what is indubitable is that we are not dealing with low-level dishonesty in the SME sector with the commitment it deserves. Granted the informal sector has its own challenges of identity, integrity and such, there appears not to be any coordinated or sector–driven effort to effectively confront the problem of pilfering.

Meanwhile, it may be useful to take a cursory look at some time-tested strategies that have helped organisations to combat fraud of all kinds among employees.

The first approach is based on the old adage, “prevention is better than cure”. We believe it is better to avoid trouble than to invite it and then go ahead to fight it with a sledge or any hammer at all. To prevent the entry of employees with questionable backgrounds to the company is the first law of fraud prevention. In this regard, it is essential to ensure that every employee is double-checked for good conduct before they are hired. This is an ideal approach, which also requires that companies have effective working systems established and made truly functional. Unfortunately, the “Nigerian Factor” seems to have come heavily against this settled truth and taken the upper hand. That Nigerian factor is that even in companies with established procedures (which many SMEs don’t have) that require proper screening, it is not diligently followed through. At best the system works at the initial stages when it was emplaced and then be subsequently sidestepped, often by those whose duty it is to ensure its religious implementation.

There was a case of an oil service company that has a proper procedure for screening diesel supplied by contractors. After a while, those charged with the screening started accepting diesel without screening and talking them straight to site where manual screening by touch and feel was used to extort money from suppliers. Somehow, strangely, senior management knew of it and did nothing. Why would this happen when virtually everyone knows the dangerous implication of such an act? It is simple. Most SMEs employ members of their immediate and extended families, and friends and associates of the owners of the companies. There is nothing wrong in this since they are often the family’s way of reacting against unemployment. However, this makes it difficult to implement very impersonal system-driven rules of management, if not well handled. At the end of the day, these organisations end up with people who neither contribute optimally to the growth of the company nor imbibe its good culture. It is essential therefore that while trying to fulfil their obligations to their primary stakeholders – family; SMEs must promote cultures that advance their ultimate objective of developing into successful companies in the future. Ignoring pilfering by family members is not in line with this objective.



This piece is largely excerpted from my book “Leading Essays on Microfinance” to be publicly presented on November 8, 2019 at NIIA.