With the launch of the Micro, Small and Medium Enterprises Development Fund (MSMEDF) in August 2013, there seems to be a renewal of interest in the affairs of small and medium enterprises in Nigeria. The core objectives of the fund, according to its midwife, the Central Bank of Nigeria, may be summarized as the enhancement of access by MSMEs to financial services, the increase of productivity and output of small and medium enterprises, the promotion of employment and wealth creation, as well as engendering of inclusive growth in Nigeria. Needless to say, Nigeria’s recent impressive economic growth has scandalously been anything but inclusive. Perhaps the fund, if implemented according to the intentions of the creators, may reduce the pressure on small enterprises in the country.
It is important to note that this is not the first time effort has been made to support the MSMEs, both technically and financially. We may recall that the Babangida administration introduced a number of far-reaching and well-intended policies to canalize financial resources to these enterprises. The programmes introduced at the time included but were not limited to the formalization and regulation of the activities of various non-bank financial intermediaries like finance and mortgage institutions and other previously unregulated financial activities. This led to some expansion in that sector before they withered under the weight of political instability principally associated with the June 12, 1993 elections. So the idea of a fund, though addressing mainly the issue of finance which is but one of the numerous challenges of this group of operator, is welcome.
It is difficult to discuss MSMEs financing without looking at the financial architecture of the country. This is because MSMEs operate in the informal sector, which is the dominant part of the Nigerian economy, but unfortunately the sector is unregulated, undocumented and unprotected. They are faced with great difficulties relating to the sourcing of business finance. Why do they face great difficulties? It is because of the structure of the financial system we inherited from the colonial masters. The Nigerian financial system is formal, with all the trappings of formality: imposing office structures of banks with their well-dressed and properly educated workers, the requirement of some kind of education for very fruitful bank-customer relationship, collateral provision, which presupposes ownership of bankable assets and record keeping. On the other hand, the larger part of the economy is informal with all the disabilities of informality.
The informal operators work in the “jungle”, even if it is in the urban centres. Their domain does not promote proper behaviour. Contracts are entered into more with the intent of breaching than fulfilling it. They lack title to property and see government and its agents as oppressors. Most informal operators, which include the bulk of MSMEs, have no financial skills and to many, borrowing for whatever reason is not a good idea. In some climes or among some of their members, it is a disgrace or a matter of indignity to say that one is borrowing money to run one’s business. This is why the funds created for the MSMEs have to be administered with input from those who understand the DNA of the operators in this segment of the economy. The truth is that they need a lot of education and may not even come forward for the fund if not properly assisted. There seems to be some sign of low patronage of the fund so far. This is why the programmes being organized to enlighten potential entrepreneurs and existing ones may be vital to the success of the programme.
In other words, the Nigerian financial superstructure is formal while the economy (the substructure) is informal. With over 60 percent of our people operating in the informal sector we can simply say that the Nigeria economy is largely informal. If we see the informal operators as members of an underground economy as they are sometimes described, then we are saying that the Nigerian economy is a lack market economy. This means that the laws we are making are operated outside our economy. Those who manage the economy will tell you that much of their headache stems from the opaque nature of the informal sector (read the Nigerian economy). Nobody is sure how large it is rebasing notwithstanding. When you make laws you cannot implement on the bulk of your economic agents you are simply legislating on the fringes of the economy. This is a guarantee for failed policies, especially in the monetary sector.
Although several studies have shown that finance is not the most important problem faced by MSMEs, but finance is important. So a fund to address their needs is not out of place in the scheme of things including job creation and poverty reduction. However, other challenges such as ignorance of the law and the requirements of proper business conduct are equally as dangerous as lack of finance.
The absence of functional infrastructure is equally a critical disability. No amount of financial support will benefit a business whose mainstay is power and power is not available. It will be a matter of time before the finance is depleted by so many consequences that follow the lack of power. Similar analysis can be made for other critical public utilities, including security, water and efficient transport system. I believe it is safe to assume that government is not going to focus on access to finance in isolation. It should take that problem in tandem with other critical needs of the MSMEs. Moreover, these requirements for successful operation of the MSMEs need not be provided to them on individual basis.
The idea of Common Services remains effective in the search for enabling environment and promotion of small businesses, and we should not overlook it. This is more so important given the various components to which the fund is broken. While a portion is devoted to women there is an allocation for entrepreneurs with disability. Small businesses are hard to run and this why they have high infant mortality rate. They face so many challenges when they are run by people without disabilities, how much more when the operators have some physical challenges. We should avoid the mentality of prebendalism, where people are made to line up and collect things from government. This has been the bedrock and leading bane of our system. It has been the official process of most engagements in Nigeria; from contract awards to what should be market-oriented policies – people line up for handouts.
From time immemorial we have made handouts a part of this economy. From the time of the Family Economic Advancement Programme (FEAP) to the National Poverty Eradication Programme (NAPEP), we have always handed out cash mostly to the wrong people or ill-prepared but deserving people. Such handout economy provides its own fuel for poverty promotion rather than its eradication. This fund should not become another instrument for irregular conduct or just one of those palliatives elevated to the status of an empowerment programme. An empowerment programme should have elements of monitoring and review to enable adjustments and corrective action and not just the “carry go” mentality, if am allowed to put it in that Nigerian parlance, evident in handouts.
Emeka Osuji
