In the Gross Domestic Product (GDP) report in the second quarter of 2018 released by the National Bureau of Statistics, the non-oil sector witnessed the highest positive growth since 2016 which signals that the economy is still largely driven by the Small and Medium Enterprises, accounting for about 60% of GDP.
In most cases, small businesses depend on lending from either the Federal Government through the Central Bank of Nigeria (CBN) and Bank of Industry (BOI) or through the commercial banks.
However, requirements and duration to access loans make it difficult for businesses to get the facility in time, which sometimes forces them to resort to borrowing from microfinance banks which in the last count were 1,120 spread across the country.
However, the high lending rate by the microfinance banks has gradually served to discourage Small and Medium Scale Enterprises from borrowing, thereby slowing the pace of economic growth.
The Senior Special Assistant, Technical to the Nigerian Association of Small and Medium Enterprises (NASME), Chris John Mamuda, lamented the high rate of lending which, he said, has forced many businesses to fold up.
“The microfinance banks are lending to Micro, Small and Medium Enterprises (MSMEs) at an exorbitant rate of more than 22% and most of the loans are short-term and micro credits. The microfinance banks cannot lend on working capital issues. Therefore the lending is not substantial,” he said.
Mamuda added that aside the challenge of high interest on lending by micro finance banks, most businesses are small in size and lack good financial management practice.
Most MSMEs, he said, also lack business management skill and verifiable business which makes it difficult for them to access loans like the Anchor Borrowers Programme by the Federal Government.
The NASME senior special assistant, therefore, urged that development banks and financial institutions create fund that would support microfinance banks, and also build capacity to support MSMEs.
“Microfinance banks should develop relevant financial products targeted at MSMEs, as they don’t have access to long-term fund for onward lending to the MSMEs,” he added.
The National Association of Microfinance Banks (NAMB) has decried the inability of the Central Bank of Nigeria (CBN) to release funds under the Microfinance Development Fund (MDF).
President of the association, Rogers Nwoke, made the call recently and urged the CBN to provide wholesale liquidity to support micro credit delivery to small and medium scale businesses.
“If the Microfinance Development Fund (MDF) provided for in the National Microfinance Policy is the same as the Micro Small and Medium Scale Enterprise Development Fund (MSMEDF), how come less than 5% (about N11bn) of the N220bn has been disbursed to less than 20% of the 1,028 microfinance banks in Nigeria? Has the well-desired and well-intended fund provided the needed liquidity to the sector?” he queried.
He added that the Federal Government and investors should create friendly policies that would encourage investment in microfinance business by way of incentives, whole fund and capacity building.
The Central Bank of Nigeria (CBN) has acknowledged that Nigeria has about 37 million SMEs that contribute about 60% of the GDP thereby making their financing imperative.
The Deputy Director of Financial System Stability, Aisha Ahmad, said at an event that the banks are, however, yet to achieve their needed objectives as they contribute only 1.1% of the total credit by deposit money banks which sometimes made access to finance difficult.
She added that, “the apex bank is doing everything possible to address the challenges of access to funds by microfinance bank’s across the country through direct intervention and other policies so that there will be room for the SMEs to borrow and further drive economic development.”