The micro, small and medium enterprises (MSMEs) in Nigeria represent about 90 percent of the nation’s industrial structure. According to the data released by the National Bureau of Statistics (NBS), there are about 37.07 million MSMEs in Nigeria presently. The report further says that 36.9 million of them operate as micro ventures; 68,168 as small ventures while 4,670 are medium enterprises.
Indisputably, there is no nation in the world that can have a robust economy without paying adequate attention to its SMEs. This is because they contribute significantly to the GDP. Depending on a nation’s policy effectiveness, SMEs’ contributions to GDP vary from country to country.
According to the International Finance Corporation (IFC), 53 percent of firms in the United States of America (USA) are SMEs while 65 percent of those in Europe fall within the same category. In Nigeria, MSMEs account for 46 percent of the nation’s gross domestic product. At the current market price, what this means is that in 2015 fiscal year, their contributions to our GDP was N44 trillion out of the N95 trillion GDP the nation produced in FY15. Externally, they also contribute about 7 percent of our non-oil exports.
To fully comprehend the relevance of SMEs, let us imagine that all the 37.07 million MSMEs can employ about 3 employees each that alone will translate to 111.21 million Nigerians gainfully employed by MSMEs. The number of Nigerians they will employ if all the nation’s MSMEs were active to their full potential would be far more than the current Nigeria’s labour force which is 57.46 million people.
By implication, we are having unemployment crisis because not all the MSMEs can employ about three employees each. That means each SME employs only one person who is the owner of the business. In several studies that were conducted by the IFC and World Bank’s experts, about 73 percent of SMEs in emerging nations lack access to credit. This has led to a credit gap which is estimated at about $2.6 trillion for both formal and informal SMEs. Since SMEs are so strategic to our overall wellbeing, it will not be out of place to give attention to the Nigerian banks that finance MSME operations.
Globally, one of the constraints which prevent small businesses from attaining their full potential is access to finance. The advanced economies are no exceptions. According to the European Commission, even as developed as EU societies are, between 300,000 to 700,000 SMEs are not able to obtain loans from the formal financial system. The figure is staggering in Nigeria. And that explains why the Central Bank of Nigeria (CBN) came up with a N200 billion intervention fund for the Nigerian SME/manufacturing sector.
Source: 2015 Audited Financial Statements
For sometimes, a number of Nigerian banks have come up with different products and services to address MSMEs problems. This can be seen in their annual reports especially the recently released 2015 full year audited reports. However, our analysis will focus on two of the banks which are the Guaranty Trust Bank (GTBank) and First City Monument Bank (FCMB). They were selected after we have critically examined their business segments and the extent of attention given to SMEs in their reporting.
But why did we exclude other DMBs? This question is the same as asking: What portion of those banks’ assets, liabilities and profitability did SME operations account for? This is difficult to answer. And considering the contributions of SMEs to GDP and the numbers of jobs they create, we are of the opinion that SME reporting should be made a line segment by DMBs.
Source: 2015 Audited Financial Statements
For GTB, its SME banking “Incorporates current accounts, deposits, overdrafts, loans and other credit facilities, foreign currency and derivative products for small and medium-size enterprises and ventures.” Reporting the same thing under business banking, FCMB says its business banking “provides banking services to Small and Medium Enterprises (SME) and commercial registered businesses with an annual turnover less than N2.5billion.” As a result, we are able to understand what it is like to finance SME operations in this country compared with other DMBs that provide SME financing alongside with other categories of activities just as they do not have a line segment for reporting the financing of SME operations in the country.
SME financing in 2015
GTB made 5 percent of its net operating income from SME financing in 2015. That amounted to N10.8 billion out of the N229.2 billion realised across all its business segments. Profit before tax was 1 percent of the total PBT. In other words, the bank realised N1.2 billion as SME segment PBT. As difficult as SME financing is in Nigeria, GTB made N1.6 billion profit after tax (PAT), which represents 2 percent of the total segment profits in 2015. However, FY15 PAT declined by 37 percent compared with the figure realised in similar period in FY14. With over 300,000 SME customers, the bank granted N18.7 billion loans in 2015 and mobilised N168.5 billion deposits from them. SME segment expenses relative to total expenses was 71 percent compared with 86 percent in 2014. By implication, the bank expended 86 kobo to generate a naira revenue in 2014 and that ratio was reduced to 71 kobo in 2015.
For FCMB, SME interest income was N14.6 billion in 2015 and that accounted for 23 percent of all the segments’ interest income. Total segment revenue stood at N21.3 billion, representing 24 percent of the N89.7 billion revenue the bank made from all the business segments. SME assets and liabilities stood at 12 percent and 28 percent of the total assets and liabilities respectively. However, the bank made a loss of N2.7 billion as loss before tax. That was not the case in 2014 when FCMB made N1.7 billion as profit before tax. In addition, it cost the bank 66 kobo to earn a naira revenue in 2015 compared with 45 kobo in 2014. Therefore, the sudden increase in the cost of doing business in this segment and the sharp descend into loss for the bank between 2015 and 2014 indicates the impact of the economic downturn on SME financing on banks in 2015.
Ways to improve SME financing in Nigeria
There is no doubt that Nigerian banks have invested a lot of their resources in promoting SME operations in the country. Some have established SME Academy like Sterling Bank, Fidelity Bank has Fidelity SME Forum on Inspiration 92.3FM, while others have upgraded their SME desks. While these are commendable, there are still other ways to improve the understanding of this important sector. Enhancing better understanding can be done by commissioning more studies on the sector in order to unearth vital information that can make DMBs better understand SMEs operations holistically.
That is why BRIU is asking DMBs and other stakeholders in the MSMEs space to commission SME Surveys and other special studies on the different segments of this important sector. This survey will unveil more information about the operators especially information on the ownership structures of businesses and premises, business formalisation, location, business cycles including threats and opportunities, property registration, and the likely events that can trigger their sudden collapse.
