Nigerian banks have been told to provide risk funds to small businesses to scale their operations.
Risk funding means providing finance to enterprises considered as high-risk. Most risk funds are medium to long term and allow businesses time to repay.
Experts say banks shy away from this type of funding because they feel it is risky and there is a possibility of loss of money. But entrepreneurs are asking financial institutions to begin to creatively fund the micro, small and medium enterprises (MSMEs) to enable them to scale.
“There are not many people providing risk funds,” Onyeka Akumah, founder and chief executive officer of Farmcrowdy, a digital agriculture platform.
“In doing your due diligence, you still need to do risk-funding,” he said at an SMEs session at the just concluded Nigerian Economic Summit in Abuja.
“All the big names started with just 10 people or below. I started Farm Crowdy with six people. Today, we have 75 staff and 75,000 farmers,” he said.
Launched in 2016, Farmcrowdy empowers rural farmers by providing them with improved seeds, farm inputs, and training on modern farming techniques. It also provides a market for the sale of their farm produce, giving farmers the capacity to farm more acres and increase food production and security in Africa.
“This could not have happened if I did not have the first $60 million that came. This could not have happened if I could not access $1 million twice, and there could not have been a discussion with the Bank of Industry (BOI) if there was nobody who believed in me,” he said.
Degun Agboade, chairman of the National Association of Small and Medium Enterprises (NASME), said someone needs to lead the pack in funding risks in the country.
“The fact remains that somebody has to do the dirty job,” he said.
“Government has to provide money to help our teeming MSMEs,” he further said.
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 6.75 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.
Most funds in Nigerian banks have short tenor of six to 12 months, meaning they are far from being growth funds.
A 2019 report by the Small and Medium Enterprises Development Agency (SMEDAN) and the National Bureau of Statistics (NBS) shows that 85 percent of businesses could not have access to external financing within 2013 and 2017.
Kayode Pitan, managing director of BOI, said the bank has been in the forefront of funding high-risk businesses, stressing that it is the biggest financier of the creative industry.
“The BOI has been the biggest financier of that sector. Many of them came with us with only scripts, but we restructured their proposals and funded them,” he disclosed.
“We lost some money in the process, but we also created winners,” he said.
He explained that Nigeria needs to revamp its education system to produce graduates with the right 21st century skills.
“As a country, we need to look at our education system,” he noted.
“Are the students trained for modern times and for the future?” he asked.
He said technology has become critical for MSMEs, but it can become a liability if many graduates are illiterates.
“Character is credit,” he said.
“If you have character, most seed capital will come from your family. But sometimes, your family will not invest in you because they know you. So, why will someone else invest in you when people close to you do not trust you?” he queried.
Nigeria’s 41.5 million MSMEs have thrived amid paucity of funds and poor infrastructure.
Many are celebrated home and abroad owing to the solutions they have created. And many Nigerians are becoming entrepreneurs in large numbers.
According to the report, the number of MSMEs grew from 37million in 2013 to 41.5million in 2017.
The NBS and SMEDAN report, earlier quoted, said 2,877 medium businesses shut down between 2013 and 2017.
According to Agboade , MSMEs must improve the quality of their products to be able to compete effectively.
“Quality is key,” he said.
“We need to address the issue of quality. The National Quality Infrastructure set up the Nigeria National Accreditation Service, but this company is struggling because there is a document that needs to go to the Federal Executive Council, which is yet to get there,” he claimed.
In July, the Central Bank of Nigeria (CBN) mandated deposit money banks in the country to give out 60 percent of their money as loans.
The apex bank has increased that to 65 percent in a bid to improve lending for MSMEs.
“Lack of adequate finance has been the major challenge limiting MSMEs growth in the country. The CBN’s compulsion on banks to lend more will oil MSMEs – which is the engine of growth,” Femi Egbesola, national president, Association of Small Business Owners of Nigeria (ASBON), said.
“The problem with the directive is for the banks to comply. The policy has been on since July and we are yet to feel the impact,” Egbesola said.
Ibrahim Maigari Ahmadu, chief executive of Liverstock247.com, Nigeria’s first livestock online marketing and listing platform, said interest rate is high just as there are 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 prevents them from funding the agriculture sector as they are not certain about what to get.
