In a recent survey on the ‘Impact of Covid-19 on Nigerian MSMEs’, researchers for the FATE Foundation found that three of every 10 micro, small and medium enterprises (MSMEs) in Nigeria will not make it through the pandemic. A World Bank Nigeria Development Update released last month titled ‘Nigeria in Times of COVID-19: Laying Foundations for a Strong Recovery’, said Nigeria will have 7 million newly poor people by the end of 2020. Placing these findings side by side, it becomes clear that a good proportion of the newly poor population predicted will be people who worked or work in the MSME sector.
Toyin Adeniji, executive director at Nigeria’s Bank of Industry (BOI), in this interview with BUNMI BAILEY explains how MSMEs can improve their chances of survival including how sustainable credit is the key to achieving and maintaining any financial inclusion target.
How would you assess the impact of Covid-19 on MSMEs?
Various studies have reported that over 90 percent of Nigerian MSMEs have been adversely affected by the COVID-19 pandemic.Issues they experience include reduced sales activities due to reduced purchasing power of consumers, reduced production volumes as a result of the social distancing rules, limited cash flows due to the low sales activities, high redundancies of both human capital and equipment, higher costs of production and a lot more. All these issues have led to higher unemployment rates, inflation and a general downward turn of the Nigerian economy.
Is there any way business-owners could have been better prepared to minimise the effect of the pandemic on their businesses?
This pandemic is unprecedented, and many could not have anticipated its impact. Being prepared for this pandemic would have implied having cash reserves, large quantities of raw materials, expanded supply chain networks, multiple routes to market, etc. All of these are capital-intensive for MSMEs, especially those in the informal sector. However, what this has done is to teach all businesses the need to build resilience into their operational activities to ensure continuity.
How can MSMEs increase their odds of survival right now?
Innovation. MSMEs need to think outside the box in order to survive. This could mean exploring other ways of utilising existing assets to generate income, explore ways of converting fixed costs to variables or even partner with other complementary businesses to provide product bundles. Another way is to embrace technology. The importance of technology has been brought to the fore by this pandemic. MSMEs therefore need to take advantage of technology applications, especially e-commerce platforms, to enhance their business activities.
What is the role of technology in running a viable sector?
Technology promotes product/service diversity as it allows MSMEs to expand operational and geographic reach. This allows MSMEs to reach previously unserved populaces and promote product specialisation tailored to the varying needs of their expanded customer base. Technology fosters the development and implementation of innovative products and solutions. It contributes to increased efficiency of a business from a financial and non-financial standpoint. It reduces cost of operations, supports a more efficient supply chain network and ultimately increases the bottom-line of the MSMEs. There’s also the speed advantage.Technology allows MSMEs to deploy products and services in a much quicker manner.
How much does technology contribute towards financial inclusion in Nigeria?
Nigeria has a wide geographic spread and one of the many limitations of reaching the unbanked is the high cost of setting up multiple infrastructure across the country. The use of technology significantly reduces the cost of that set-up for the provision of financial services, especially to Nigerians in the hard-to-reach areas of the country. Technology also fosters innovative solutions that can be tailored in several ways to meet different target pools. This innovation is required to address financial exclusion in Nigeria and the very diverse cultures and practices existing across the country because a uniform product may not provide the same or desired effects in various parts of the country.
This has been proven through the Government Enterprise and Empowerment Programme (GEEP). GEEP is a micro-credit social intervention programme of the Federal Government of Nigeria. The programme, which is being executed by the Bank of Industry, is targeted at four economic segments across the Nigerian populace – market traders, artisans, youths, and farmers. Through GEEP, we have reached over 2.2 million beneficiaries (over 50 percent are female beneficiaries) across the country using tight, highly structured, and technology-driven relationships with intermediary networks. For GEEP, technology has been utilised from customer acquisition through loan application, credit underwriting and loan repayment. The programme’s wide network of field agents leverages technology to enrol applicants for the micro-credit product. Interactions with applicants are mainly done at the stalls of these applicants. This has allowed the applicants to access credit at their convenience. The programme has also leveraged the use of bank accounts and mobile wallets to disburse loans to Nigerians who hitherto would have spent significant sums of money to get to a financial institution to access funds.
Technology has also been utilised for repayment using innovative solutions like voucher card repayments and digitised repayments through technology platforms. We’re able to customise the product to meet the specific needs of the customers irrespective of the regions they live and thrive in because of technology. We owe our rapid scale to tech. Today, the programme is the largest social intervention programme in the world and technology contributed significantly to that achievement. Ultimately, GEEP has shown that to drive financial inclusion in Nigeria, the importance of technology cannot be exaggerated.
How have these efforts impacted on the outcomes of MSMEs in Nigeria?
The bank is structured along directorates to ensure that loan products developed are aligned with the characteristics of businesses at the various stages of growth of their businesses. So, the Micro Enterprises Directorate caters to micro entrepreneurs who operate both in the formal and informal economic segments. These customers will typically require loans of up to N10 million. The SME Directorate focuses on more structured small and medium entrepreneurs who can access loans of up to N1 billion. Through these two directorates, MSMEs can access both financial and non-financial services that will support their growth and ultimately drive economic development
What is the motivation behind empowering women in BOI?
Various reports have cited that about 60 percent of Nigeria’s over 40 million MSMEs are owned or led by women. Other reports also say less than 35 percent of these women-led/women-owned MSMEs have been able to access credit. So, that is a huge pool of Nigerian MSMEs that are excluded from credit to drive growth in their businesses. MSMEs are said to be the missing middle of the Nigerian economy and women-owned/led businesses must be supported no less than their main counterparts. As a Development Finance Institution, BOI has identified this gap and has consciously developed and implemented financing products specifically for women. Through the bank’s Gender Desk, women-owned/led MSMEs are able to access affordable credit and favourable terms that support the growth of their businesses.
What steps can be taken by the government to ensure the financial inclusion of people at the bottom of the pyramid?
The government is fully aware of the need to ensure financial inclusion in Nigeria and have already adopted various initiatives to drive this. There is the Financial Inclusion Secretariat at the Central Bank of Nigeria which is focused on the achievement of the financial inclusion target. The execution of GEEP is another initiative of the Federal Government aimed at further deepening financial inclusion. The Federal Government needs to continue along these paths and continue to provide the enabling environment for these initiatives to thrive.
How does increased access to credit contribute to Nigeria meeting its 80 percent inclusion target?
Credit is the bedrock to financial inclusion in any economy. However, sustainable credit is actually the key to achieving and maintaining any financial inclusion target. Every citizen desires access to more funds either for business or personal use and so, when affordable and easy-to-reach credit solutions are implemented to the financially excluded target, the uptake of the products automatically enrols the beneficiaries in the financial services space. However, the financial solutions MUST be affordable, easy to reach and easy to repay to ensure sustainability of the product. There should also be the “promise of MORE” to ensure that inclusion is not a “one touch event” that ends when the loan is repaid.
The “promise of MORE” should also be complemented with other financial and non-financial solutions such as financial literacy, access to insurance, payment services, etc. In short, there should be a wide bouquet of services that allows the beneficiary to continue to employ financial services such as: the formalised use of financial identification (such as the Bank Verification Number – BVN) for other forms of identification; complementary credit and insurance products (especially health insurance) to the target markets, business and financial literacy programmes as well as access to markets, especially through digital platforms.
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