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Are start-ups worried about cost of funds or access?

Recently, BusinessDay sampled the opinions of entrepreneurs to determine which between cost and access is the bigger problem for MSMEs.

The opinions were divided, with the majority thinking that both access and cost of funds have equal weight.

“Interest rate is very high,” Adepeju Jaiyeoba, lawyer and chief executive of Mothers Delivery Kit, which reduces maternal mortality in rural communities, said.

Ibrahim Maigari Ahmadu, chief executive of, Nigeria’s first livestock online marketing and listing platform, said interest rate was high just as there were many gridlocks to access to funds.

“Nigerian commercial banks are risk-averse. They put so many bottlenecks on the way when you want to access funds,” he said.

“Interest rate is very high, which is a major inhibiting factor. Collaterisation is structured to knock you out,” he said.

He explained that the risk averseness of banks prevented them from funding the agriculture sector as they were not certain about what to get.

 Nigeria’s benchmark interest rate is among the highest in Africa at 13.5 percent. Ethiopia’s is 7 percent;  Kenya’s is 9 percent;  South Africa is 6.25 percent;  Zambia is 10.25 percent, and  Cameroon is 4.25 percent.

Similarly, Rwanda is 5 percent; Mauritius, 3.5 percent;  Algeria is 8 percent, and Senegal is 4.5 percent.

Interestingly, the National Bureau of Statistics (NBS)’s recent MSME report shows that 85 percent of businesses could not have access to external financing within 2013 and 2017.

In fact, only 5.3 percent of SMEs had access to bank credit, even with 40 percent of them having relationships with banks.

“Both access to funds and costs are big issues for me,” said Attah Anzaku, CEO of AgroEknor, exporter to Europe, Asia and the Americas.

“Even if you have the access, cost is crippling,” he added.

The Central Bank of Nigeria (CBN), realising that many banks would not want to lend to the real sector, raised the loan-to-deposit ratio from 60 to 65 percent in 2019. There are indications that it may be further raised to 70 percent this year.

Oladapo Abiodun, former chairman of Small and Medium Enterprises Group (SMEG) of the Lagos Chamber of Commerce and Industry (LCCI), said cost and access to funds were intertwined, adding that tenor of funds was an often ignored but important issue.

“The funds we have are not suitable for the kind of economic environment we have. The economy requires long-term funds, which are unfortunately not available,” Abiodun, who is also the CEO of an exporting firm, Comtrade Foods Limited, said.

He explained that most SMEs could hardly afford to provide collaterals required by commercials banks.

“In many climes, government intervenes to guarantee such funds and even provide the needed mentorship,” he said.

Muda Yusuf, director-general of LCCI, said access for funding was much more difficult for MSMEs but cost of funding was a much bigger challenge for medium and large enterprises.

“For micro and small businesses, because they are perceived as high risk, collaterals is tougher and many of them cannot provide such,” he said.

“For them, the big issue is not just the cost but access. If you ask them to pay 30 percent per annum, they will pay, after all some micro and small businesses borrow from microfinance banks at 5 percent per month or more, which amounts to 60 percent per year or more,” he added.

He explained that bigger firms could provide collaterals due to their size but worry about high funding costs.



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