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Still on SMEs and non-disbursement of facilities (concluding part)

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We conclude our discussion of ways to improve the rate of disbursement of the many intervention funds, which have been put at the disposal of MSMEs, especially the agribusiness facility for which the CBN is contemplating alternative disbursement strategies. We had suggested that the problem of low drawdown of the facilities may not be wholly attributable to the vehicle of disbursement of the funds – the banks. In our view, which formed the basis of this continuing contribution, is that it is time to look harder, especially at the MSMEs, to be sure they are fit for the funds. And to take corrective steps if they are not.

It is a settled fact that the banks do not fully understand the nature of SMEs, and this has informed their underperformance in serving the sector. This lack of deep understanding is however not a result of lack of interest or incompetence on the part of banks. It is just the natural consequence of the structure and pathology of commercial banks. Even the most retail-oriented commercial banks are not better able to do so due to the level of “retail banking” entailed by SME financing. Accordingly, they may try but the end result is known aforehand – they will fail, even with the best in-house SME desks. This is probably where the issue of appropriate vehicle for dispensing the facilities comes in. Nonetheless, the floating of a national microfinance bank is not a logical follow up reaction to this challenge.

In seeking to improve the rate of drawdown of the facilities, another thing to check is the terms under which the banks access the facilities on behalf of their SME clients. On-lending facilities presuppose that the risk of loss is on the banks. The CBN is not prepared to write off the facilities given out through the banks. Each bank is therefore responsible for recovering the sums it hands out to SMEs. So caution is warranted and that is the beginning of the “go-slow”. If we recall that the microfinance industry developed from the vacuum created by the failure of the banks to lend to the informal sector, for all kinds of reasons including but not limited to the lack of acceptable collaterals, then we begin to piece the puzzle together. We have a quagmire: a sector that hardly qualifies for any meaningful financial facility now being served by banks that hardly understand the inner workings of the sector. The wheel stops turning or at best, turns very slowly.

The SMEs do not like matters of reading and writing. Apparently, many believe that the time spent in writing “grammar” should be used to make money and not wasted writing stuff. So records and reports are not relevant to them. For people who have yet to learn the virtues of proper book-keeping and other commercial records, this should not be hard to understand. People who carry feasibility reports in their heads and can summarize it at the banker’s table but never willing to put it down in writing, must be coming from distant lands from where the rest of us are. To be successful with them, it means that lenders must speak their language – have capacity to work without proper records. For this reason too, the banks are out; but a national MFB is not in.

The SME operators need to be told that the era of storing feasibility reports in the head are long gone. They need to begin to reform and quickly too. People have to be careful how they value what is found only in their heads because they may be the only ones that know of the existence of whatever it is in their heads. For starters, there is hardly any demand for goods and services that exist only in the head of some persons and not known to others.This is part of the drivers of the problem noted in 2014 MSME Banking Study by KPMG in which it was reported that most of the Tier 1 banks had less than five per cent of their loan portfolios in MSME lending. This low credit flow to the sector and the low disbursement of the Agribusiness loan are fuelled by the same factors – the unfit nature of the borrowers – signalled by a lack of bankable ideas and projects, little or no documentation and such. Even more pathetic is that businesses are established, not on the basis of niche and capacity but at personal whim. Such enterprises are unlikely to be fit for financial support of the type provided by CBN.

Misconceptions are dangerous in business, and that is part of the problems devastating the SMEs. There are operators who still believe that success in business is determined by the extent of physical exertions they deploy. But we all know that is old school. Technology and innovation have taken over. Those hanging on to such misconceptions run the risk of failure. It is akin to what happens to some retired people who go into private business but fail to realize that there is a difference between the private enterprises they are setting up and the big corporations they served and from which they retired. They erroneously presume they can carry into their private and much smaller businesses the influence and goodwill they enjoyed in their previous positions in corporations. This presumption is often false and could be fatal. There is value in prior experience and contacts but they get discounted and reshaped by new environments.

There is always the inclination for people to go into business in the areas of their past formal employment. This is understandable as they harvest some value, based on their past core competencies and experience. However, the influence and following, which executives possess while in office is discounted considerably once they leave that office of power and influence. Even presidents have woeful stories to tell about the draught of traffic to their new private offices when they leave their powerful public positions. A former President of the United States once revealed that his telephones stopped ringing soon after he left office.Being technically powerful in one’s last job may be a necessary but not sufficient condition for running a successful enterprise in that field without proper market research as a starting block. Markets shift; people move and products lapse. So do influence and power. Be sure there is a niche to be filled.

Nigeria has very low regard for formal education. This is evidenced by the fact that Senior School Certificate without cognate experience is good enough qualification for the highest office in the land, the office of president, but none of us is willing to entrust the management of our boy’s quarters to people with such qualifications. Today, one can run Nigeria with a doubtful school certificate but can hardly be allowed to drive any CEO with such qualifications – irony. It is a classic shame that the most important offices in the land are open to the least educated people while we expect a technology driven leadership.This malaise reflects in entrepreneurs that are unable to even understand the benefits of the financial interventions and where and how to access them. Ironically again, the more universities we build the less education we seek. More children; now about 14 million, are out of school. These are future entrepreneurs; certainly of the Dark Ages variety, that will be here in the years to come. When entrepreneurs fail to equip themselves in terms of enterprise structure, and leadership capabilities, banks will continue to structure them to the periphery of the intervention funds. A national microfinance bank will not change it, unless another Trader Money is due.


Emeka Osuji

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