The Lagos Chamber of Commerce and Industry (LCCI) has projected better days ahead for the micro, small and medium enterprises (MSMEs) in Nigeria in 2016.
In its 2015 economic review, which also incorporates the 2016 forecast, the chamber says certain moves made by traditional banks in 2015 will likely guarantee the development of small businesses this year.
“The targeted N300 billion by the Nigerian banks to boost lending to small businesses and the agriculture sector in 2016 will spike SMEs development and employment and thus increase non-oil export,” Muda Yusuf, director-general, LCCI, said, in an e-mailed 2015 economic review.
In November last year, the Central Bank of Nigeria (CBN) through its Monetary Policy Committee (MPC) resolved, among other issues, to reduce the Monetary Policy Rate (MPR) from 13 percent to 11 percent (which represents the lowest since 2009) as well as the Cash Reserve Ratio (CRR) from 25 percent to 20 percent.
According to the LCCI, the decision by the MPC to reduce monetary rates was informed primarily by the desire to stimulate the economy, given the weak and fragile domestic macroeconomic environment, declining private and public expenditures as well as the slump in crude oil price.
The chamber said cost and access to funds in 2015 were major challenges for businesses, especially MSMEs.
“Through the year (2015), lending rate of commercial banks, including fees and charges, ranged between 22 percent and 34 percent, depending on the customer profile, tenor and collateral quality,” Yusuf said.
“Meanwhile, the relaxation of monetary conditions is yet to impact on the cost of funds in the economy,” he added.
The Central Bank of Nigeria (CBN) recently fumed at banks’ reluctance to lend to small businesses, notably those in the real sector, saying that this does not bode well for an economy seeking diversification.
“Our strong comparative advantage in agriculture and MSMEs has not fully been fully explored, leaving these sectors too poorly developed to deliver value,” said Godwin Emefiele, Central Bank of Nigeria Governor, represented by Olaitan Mudashir Adeola, acting director of development finance, at the private sector forum in Lagos.
“A meagre 3.5 percent of bank finance flows to agriculture and 0.2 percent to SMEs, and virtually nothing to exports. This is in spite of the fact that agriculture contributes about 22.9 percent to GDP; MSMEs contribute 48.47 percent and 7.27 percent of exports,” Emefiele said in his paper entitled, ‘Accelerating Entreprise Competitiveness and Growth in Nigeria’.
Also, the CBN more recently asked commercial banks to lower their risk acceptance for SMEs or risk losing its Cash Reserves Ratio (CRR), defined as a portion of banks’ deposits kept with the CBN at zero interest rate.
Emefiele warned banks at the 7th annual Bankers Committee retreat held in Lagos that “If they refuse, we will take the money you should have gotten through the CRR and lend them out to the SMEs.”
“We cannot continue to give you that money only for you to use it to buy treasury bills,” he said.
Emefiele said the commercial banks have not played an active part to support the SMEs and stressed that whether the banks choose not to cooperate with the CBN or not, the apex bank will go ahead with plans to increase finance to the sector in a bid to diversify the economy away from oil.
Start-Up Digest can confirm that, apart from cost and access to finance, SMEs in the country are also stifled by tenor of funds.
“Most available funds in the banks are short term. This will not guarantee growth of SMEs, particularly those in the real sector such as manufacturing and agriculture, where returns on investment are not that fast,” said Etere Ibire, an investment analyst in Abuja.
