The small businesses, the entrepreneurs, and the Micro, Small, and Medium Enterprises (MSMEs) are the lifeblood of Nigeria’s economy.
In any thriving economy, the SMEs and MSMEs drive job creation, this sparks innovation that keeps the gears of Nigeria’s economy turning.
However, they face a massive hurdle of access to funding, which analysts consider as a critical missing link for developing economies.
Currently, MSMEs make up a huge chunk of Nigeria’s businesses (96%), and employ a significant portion of Nigeria’s workforce (over 80%). According to the National Bureau of Statistics (NBS), and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), this set of businesses also contributes substantially to the country’s GDP (About 48%).
But despite their vital role, many struggle to secure loans from traditional banks. It’s a risk, banks say, citing lack of collateral and proven track records. Sadly, many of these promising businesses do not even make it past their first five years.
The Central Bank of Nigeria (CBN) and SMEDAN reports highlight this stark reality. CBN in its ‘MSMEs and Access to Finance in Nigeria (2020)’ report, revealed that only 5.5 percent of MSMEs had access to credit from formal financial institutions.
While SMEDAN in its ‘National Survey of MSMEs in Nigeria (2020) found that 70 percent of MSMEs in Nigeria relied on personal savings or informal sources of funding, rather than formal financial institutions.
Read also: Nigeria’s SMEs: The unsung heroes driving our economy forward
Obafemi Darabidan, head of department, Covenant Capital, said Nigerian micro, small and medium scale enterprises (MSMEs) require patient capital with reasonable single-digit interest rate to scale their businesses.
He made this known during the recent one-day SME Funding conference held in Lagos highlighting how critical access to funding is to Nigerian small-scale businesses. “So, we wanted to put up a conference that will point people in directions where they can actually source cheaper capital and also patient capital.”
This is where Impact Credit Guarantee Limited (ICGL) steps in. A subsidiary of the Development Bank of Nigeria (DBN) set up in 2019 through a project with the World Bank.
ICGL is changing the game by providing guarantees on loans for eligible MSMEs. Essentially sharing the risk with banks, making it easier for these businesses to get the funding they desperately need.
“Our guarantee facility is designed to provide comfort to lenders, thereby increasing their appetite to lend to MSMEs. This, in turn, enables MSMEs to access the funding they need to execute their business plans, create jobs, and contribute to the growth of the economy,” Anthony Asonye, the managing director of ICGL, said.
Asonye added that the impact is real for small business owners across the country. “Since its inception, ICGL has provided guarantees for over ₦278 billion in loans to MSMEs, enabling them to access funding that would have otherwise been out of reach,”.
As Nigeria charts its course for robust economic growth, the strategic role of ICGL in empowering Nigeria’s micro, small, and medium enterprises cannot be overstated. By pioneering innovative solutions to the persistent funding challenges faced by these vital businesses, ICGL is actively unlocking the vast potential within Nigeria’s MSME sector, driving the economic progress Nigeria urgently needs.
“By strengthening risk de-escalation for PFIs, DBN as a wholesale development finance institution has from inception disbursed over N786 billion in loans to 494,819 MSMEs in addition to creating 1.2 million jobs,” Tony Okpanachi, managing director/CEO, Development Bank of Nigeria (DBN), said, emphasizing the broader impact of ICGL, which is subsidiary of the DBN.
Looking ahead, Okpanachi disclosed that ICGL’s continued commitment to providing crucial credit guarantees will not only bridge the financing gap for countless more MSMEs but also empower a new generation of entrepreneurs, injecting dynamism and prosperity into the heart of the Nigerian economy.
