Nigeria’s small and medium-sized enterprises (SME), which should be a major contributor to its economic growth and stability, has been faced with a poor business environment, access to affordable credit, and appropriate incentives for growth.
The potential of Nigeria’s informal sector is enormous but is being choked by many bottlenecks hence there is a need for an enabling environment for the critical sector of the Nigerian economy.
“The Federal and State governments could partner with lenders such as banks, microfinance banks, trade cooperatives and other financial institutions to provide credit to SMEs,” Oluwasayo Folarin, mergers and acquisitions associate at The AES Corporation said.
He stated that the government should not directly fund the loan but can guarantee a portion of these loans, reducing the risk for lenders and enabling them to offer more favorable terms to SMEs.
“Access to capital is the most critical issue facing SMEs in Nigeria. Taking a script from the playbook of the Small Business Administration (SBA) of the United States, could set change in motion for Nigeria,” he said.
He stated that furthermore, similar to the 2023 National Export Strategy of the Biden-Harris Administration, the Nigerian government especially at the local and state level should partner with the private sector to revitalise policies that opens Nigeria SMEs and workers to the international market boosting the foreign earnings of the state and SMEs.
“It is important for governments at all levels in Nigeria which is Federal, State, and Local to prioritise and implement policies that foster the growth and sustainability of Small and Medium Enterprises (SMEs).
“With Nigeria’s headline inflation rate at 34.6 percent in November 2024 and Central Bank of Nigeria’s hike in the monetary policy rate leading to higher credit costs, these policies will cushion constraints on SMEs and strengthen Nigeria’s economy growth,” he said.
Muda Yusuf said the SMEs which are involved in production should be in clusters and in whichever cluster they are, the government should give infrastructure that can be subsidised because many of them are struggling with the cost of power, logistics, space where they operate from.
“SMEs require funding because banks see them as high risk customers and the collateral demanded from them are mostly impossible to meet. If the CBN in conjunction with the finance ministry can bring out a credit guarantee scheme to support SMEs, banks will be more comfortable,” he said.
Uzo Uchenna, a professor of marketing at Lagos Business School said the biggest need for SMEs is access to funding and there is a need for a review of policies as regards access to financing. Government should look into ways to provide greater access to funding
“Entrepreneurial education is needed for SMEs to understand what it entails to own and run a business. Some SMEs are family owned and there are problems with succession planning,” he said. “There should be a policy which entails training and education to run SMEs is very important.”
He said there is an urgent need for SMEs to have a more tax friendly environment. “There is a need to harmonise the tax regime and ensure there is one channel for taxation and new SMEs can have support which are tax benefits to help them grow.
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“SMEs need a retail environment that is friendly such as a retail policy that takes care of logistics, distribution, supply chain issues which is critical for growing MSMEs,” Uzo said.
A report by Omaplex Law Firm titled ‘Appraisal of Impact of 2023 Nigeria Fiscal Policy on SMEs’ said SMEs are crucial for the overall economic growth and development of Nigeria.
“The government’s fiscal policy, if properly crafted and effectively implemented, can significantly contribute to the success of SMEs by providing them with a conducive business environment, access to affordable credit, and appropriate incentives for growth,” the report said.
It stated that by nurturing the SME sector, Nigeria can harness its full entrepreneurial potential and foster a thriving, resilient, and inclusive economy.
Recommendations for Nigeria on how to improve SME policies
The Omaplex Law Firm provided policy recommendation for Nigerian SMEs, stating that in other to make the fiscal policy for SMEs more relaxed and favourable given the current situation of the economy, the recommendations are:
Consultation with SMEs
It stated that the Nigerian government should actively engage with SMEs through consultations, surveys, and feedback mechanisms to understand their needs, challenges, and expectations.
“This input will help design fiscal policies that are more aligned with the realities faced by SMEs,” the report said.
Tax Incentives
“Offer tax incentives and concessions to SMEs to reduce their tax burden and encourage business growth and investment. Lowering corporate tax rates, simplifying tax compliance, and providing deductions for specific expenses can positively impact SMEs’ cash flow and profitability,” the report said.
Access to finance
“Ensure that SMEs have improved access to affordable finance. Facilitate the creation of SME-focused loan schemes, grants, and credit guarantees,” it said. “Partner with financial institutions to increase the availability of credit for SMEs at reasonable interest rates.”
Support Innovation and Technology Adoption
“Encourage SMEs to embrace innovation and new technologies. Provide incentives for the adoption of digital tools and technologies that can enhance efficiency and competitiveness.
“Support SMEs in exploring international markets and export opportunities. This can be achieved through export promotion programs, market access facilitation, and trade missions,” the report said.
Cues from other countries
Kenya’s Micro and Small Enterprises (MSE) Act
The Kenyan government enacted the country’s Micro and Small Enterprises (MSE) Act to promote, develop and regulate micro and small enterprises. The MSE Act created the Micro and Small Enterprises Authority (MSEA) of Kenya, a government agency that provides support services, training and access to finance to informal businesses.
Pradhan Mantri Mudra Yojana (PMMY) Scheme in India:
As a new scheme that was started in April 2015, providing loans to small- and micro-enterprises, it has been able to support financing for informal businesses that often operate with cash and it facilitates them by allowing them to increase their scale and get more formalised businesses.
Rwanda’s Umurenge SACCO Programme
This is a strategy to promote financial inclusion in Rwanda and it involved the establishment of Savings and Credit Cooperative (SACCO) programmes intended to improve the access to and use of savings and credit services by the underserved and the poor, particularly those in the informal sector. Access to finance for informal commercial and domestic enterprises now stands at 51.3 per cent.
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