On funds for small businesses

Against the frequent complaint that growth of small and medium enterprises (SMEs) in the country is hampered by non-availability of finance at cheap interest rates, it is cheering news that such challenge will soon become history. Reports indicate that deposit money banks (DMBs) have commenced disbursement of “more than N26 billion enterprise development intervention fund under the Agriculture and Small and Medium Enterprises Investment Scheme (AGSMEIS)” set up by the Bankers Committee.

The AGSMEIS is the product of an agreement by member-banks of the Bankers Committee to set aside 5% of their annual post-tax profit to assist in making funds available to SMEs, either as equity (interest-free) or loan, at single digit interest rate.

Many factors make disbursement of the fund commendable, if properly implemented. The first is that the scheme will make available and accessible cheap funds to small businesses thereby filling the gap that has been a serious source of lamentation by such target businesses.According to reports, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, stated that “small loans like N100,000, N200,000 and N500,000 at not more that 5% will be disbursed.” The amount will make it possible for the credit facility to be accessed by many small businesses. Second, the target businesses, according to Emefiele, will include, among others, those in tiling, masonry and house decoration. Such neighbourhood businesses have potentials for creating jobs/employments and even opportunities for apprenticeship/internship. They will therefore impact positively on the labour market. Three, there is said to be a provision in the scheme for the training of beneficiaries of the fund on how to manage their businesses on daily basis. The enterprises will benefit from better management, with chances of survival and growth.

Four, given that the tenor of the loans under the scheme is said to be within seven years with a moratorium, the entrepreneurs will have enough time to productively utilise the money before final repayment becomes due. Consequently, the entrepreneurs will not be under pressure to repay the borrowed funds. Indeed, the chances of repayment, with little or no defaults, will be increased. Also, since the scheme aims at increasing the number of small businesses operating in the country and generating about 100,000 jobs within the first quarter of this year, early commencement of fund disbursement will assist in the realisation of this critical objective. Finally, training loan beneficiaries and providing them with equipment in addition to working capital will be a tremendous empowerment for positive results.

However, for the scheme to be successful, multiple challenges exist that must be overcome by the banks and the small businesses. A key challenge for banks is their level of commitment to the scheme. Will they, for instance, give as much attention to applications/projects under this scheme that promises low or uncertain returns as to those with high and probably assured returns? If such serious attention is unlikely to be generated, then the fund will end up like the previous ones that did not achieve the intended objectives. A second challenge is whether banks will be able to re-train themselves to effectively manage small-scale credits? For example, there are significant differences in the appraisal and administration of small and large-sized credits. Deposit money banks in the country are more knowledgeable in large credits than they are in small ones. Thus, to be able to make this scheme work, banks would need to improve their small credit management skills and practices.

This will require extensive training and re-training of the relevant personnel irrespective of whether management of the scheme will be outsourced to a third party. Going by the stated small size of the loans to be made available and the idea of creating many small enterprises through the scheme, banks or their scheme’s management agents are likely to be faced with numerous fund requests. Are they prepared to cope with this daunting task and would they invest in the relevant technology to assist? If applications for the fund are delayed for months, untimely death of the scheme will be heralded by loss of confidence. Perhaps, the most important challenge to the banks is whether they learnt lessons from similar schemes they previously engaged in but ended up being unsustainable.

It is not the commencement of fund disbursement that matters. What matters are repayment/recovery of the funds when due and sustainability of the scheme to ensure attainment of its growth and developmental objectives in the economy.

For the small businesses, the real challenge is discipline or diligent management of the credits. Many of the entrepreneurs have often complained of inability to access cheap funds to power their businesses. Now that such fund has been made available and hopefully, accessible, it behooves on them to make the best use of this opportunity. This is time to build the credibility necessary for future businesses.

Finally, if banks and the small business entrepreneurs can play their parts diligently, transparently and responsibly, achieving the lofty objectives of the scheme is guaranteed. And that is what the Nigerian economy requires and deserves for the well being of the citizenry.