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MAN calls for establishment of DFIs to spur SMEs

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Following difficulties encountered by small and medium scale enterprises (SMEs) in accessing funds, the Manufacturers Association of Nigeria (MAN) has called on the Federal Government to give priority to the establishment of a development finance institution that would cater to the peculiar interests of the SMEs.

MAN says such a development bank will make finance access among manufacturing SMEs easy and consequently create more jobs.

“The Federal Government’s plan to initiate the establishment of a development finance institution that will take care of the real sector credit demand should be given top priority attention,” says MAN, in its January to June 2014 Economic Review, released to Start-Up Digest.

“This is necessary in view of the constraints that have been associated with the Bank of Industry’s capability to resolve this critical issue in the productive sector of the economy,” MAN further says.

During a dialogue session with manufacturers in Lagos last March, Ngozi Okonjo-Iweala, coordinating minister for the economy, had said the Federal Government would set up a development finance institution to ensure that players in the real sector as well as SMEs access credit at single –digit rates, without much trouble.

This has become necessary as access to finance among SMEs is becoming a major problem, as inter-bank interest rates hover between 20 and 35 percent.

Badaru Abubakar Mohammed, national president, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) has particularly faulted the decision of the Central Bank of Nigeria to raise the Monetary Policy Rate (MPR) from 12 to 13 percent.

MPR is the benchmark  interest rate.

According to Mohammed,  the current lending rate, which hovers between 22 and 35 percent, is too high for any productive venture and has significant implication on the global competitiveness of Nigerian firms and their products.

According to World Bank data, manufacturers in Thailand access loans from commercial banks at 6.9 percent interest rate. There is SME Development Bank and the Export-Import Bank of Thailand that provides soft loans to manufacturers.

Like many European countries, lending rate is still low in Austria, at 0.5 percent as at May 2013. Some banks provide loans for manufacturers for up to 20 years and allow up to six months free from repayment.

In a December 2014 economic review, the Lagos Chamber of Commerce and Industry (LCCI) said feedback from business operators, especially the medium to small size firms across all the sectors, confirmed that access to credit and high cost of fund were some of the most challenging issues in 2014.

“Over the last few years, the monetary authorities have pursued a tight monetary policy resulting in interest rate going as high as 25-30 percent,” said Remi Bello, president of the chamber, in an e-mailed statement.

The LCCI said high interest rate has adverse implication on production, employment and growth.

“Beyond high interest rates and strict credit requirements, there are issues with government administration of assisted/intervention loans,” Bello said. He believes that the preference for bank guarantees as a form of collateral is one major concern expressed by industrialists.

ODINAKA ANUDU