Introduction
Despite their significant economic contribution, a large proportion of Nigerian Micro, Small, and Medium Enterprises (MSMEs) continue to operate largely informally, often lacking structured corporate governance frameworks. To address this, the Financial Reporting Council of Nigeria (FRC) issued the SME Corporate Governance Guidelines 2024 (the SME Guidelines) in May 2024 to support SMEs in establishing robust business processes and preparing for future growth. While not mandatory, the Guidelines provide a reference framework for embedding good corporate governance practices, offering MSMEs an opportunity to strengthen internal systems, enhance transparency, accountability, and overall performance.
- Introduction
- Historical Background – The Nwa Boi Apprenticeship System
- The Realities of the Nigerian MSME
- Lack of Adequate & Formal Contractual Standards
- Succession
- Lack of Transparency & Accountability
- Highlights of The SME Guidelines
- Bridging the Gap: Adapting SME Guidelines for Informal Enterprises
- Conclusion
- Authors:
This article uses the Igbo Nwa-Boi apprenticeship system as a case study and microcosm of Nigeria’s MSME ecosystem to examine how the SME Guidelines can be adopted in practice, particularly given the prevalence of informal onboarding, verbal contracts, undefined remuneration, succession challenges, limited documentation, and cultural expectations of post-settlement support that characterizes many Nigerian MSMEs.
Historical Background – The Nwa Boi Apprenticeship System
The Igbo apprenticeship system, known as Igba Boi or Nwa Boi, originated in pre-colonial Igboland, where commerce thrived through family networks, kinship ties, and community trust. In this system, a young apprentice (“Boi”) is typically engaged informally to train under an established businessman (“Oga”) over six to eight years, undergoing intensive, hands-on learning. Upon completion, the apprentice receives seed capital, or “settlement,” in cash, goods, or both, to establish their own business. The system expanded after the Nigerian Civil War, guided by the Igbo principle of “lekọta nwanne gị nwoke” (“take care of your brother”), helping thousands of displaced Igbos rebuild livelihoods and dominate sectors such as spare parts, electronics, building materials, and general merchandise. Over time, Igba Boi became recognised not only as a cultural practice but also as one of Nigeria’s most effective informal frameworks for venture capital provision and startup incubation.
The Realities of the Nigerian MSME
The average Nigerian MSME, notwithstanding its successes, is fraught with varying challenges traceable, primarily, to the absence of efficient corporate governance practices or the poor implementation of same, if any. These challenges are also visible in the practicalities of the Nwa Boi system and they include the following:
Lack of Adequate & Formal Contractual Standards
Like many Nigerian MSMEs, engagements for employment or training in the Nwa Boi system is mostly based on largely informal agreements containing sparse clarity on various important provisions of the informal training contract. On one hand, the master provides food, healthcare, shelter, mentorship, guidance and exposure to enable the apprentice to develop practical entrepreneurial skills. In turn, the apprentice provides the requisite labour for the business. At the end of the agreed period, the apprentice is “settled” with networking opportunities and funds to start his own business. Beyond the foregoing, many of these training contracts lack clear legal terms that protect the respective parties, properly drafted, understood and executed with all parties in consensus ad idem. Thereby creating room for ambiguities, disparities, disputes, and abuse.
Succession
Nigerian MSMEs are traditionally built on stakeholder or founder capitalism, where apprentices and trainees, after years of training and skill development, are “settled” (paid severance) to establish their own ventures rather than remain within the master’s business. While this generates a steady pipeline of new entrepreneurs, it often leaves the original business without a second generation of internal leadership, as founders’ offspring frequently show little interest in continuing the trade, leading to gradual business decline once the owner can no longer manage it. The situation is further compounded by apprentices’ reluctance to inherit their master’s enterprise, anticipating continued family influence or claims to profits, which makes direct succession unattractive. In this context, settlements remain the culturally accepted exit pathway, and these succession challenges underscore the consequences of operating without formal corporate structures.
Lack of Transparency & Accountability
Like many MSMEs, businesses within the Nwa-Boi system also face persistent challenges with transparency and accountability, which can have long-term consequences and create room for misunderstandings and disputes, particularly regarding financial arrangements. Apprentices may be unclear about compensation or settlement timelines, while masters may adjust expectations over time based on business performance, personal discretion, or family needs, leaving apprentices uncertain about the terms and duration of their service. This ambiguity can strain trust, reduce motivation, and sometimes prompt apprentices to leave prematurely.
The lack of formal accountability also affects training quality and skill transfer, as there is no standardized framework for assessing progress or documenting critical business knowledge. Masters may prioritize immediate profitability over long-term capacity-building, limiting the apprentice’s ability to successfully establish their own venture upon settlement.
Highlights of The SME Guidelines
The introduction of the SME Guidelines is a commendable milestone for the entrenching of corporate governance principles within the Nigerian MSME ecosystem. Primarily, the SME Guidelines contains recommendations which MSMEs may adopt in line with their readiness and stage of development. The Guidelines aim to help MSMEs achieve structures that will facilitate and enhance growth, profitability, increase the longevity and sustainability of MSMEs, while increasing business confidence and access to capital and trade for adhering entities. Summarily, the SME Guidelines recommends that MSMEs adopt a formal governance framework that outlines the roles of the stakeholders – encouraging formal documentation and defining of the role of stakeholders. It also recommends the establishment of a succession plan and process.
In addition, the SME Guidelines recommend that MSMEs maintain credible books of accounts while also recognizing the needs and rights of stakeholders such as shareholders, employees, customers, and generally any party enjoying relations with the enterprise. Further, the Guidelines makes clear provisions for the governance of family run entities, recommending the formulation of a constitution as well as written procedures to set out the vision, values, and policies regulating the family’s relationship with the business and coordination between family members and other stakeholders. In addition to other subjects, it also recommends a full and comprehensive disclosure of all matters material to investors and stakeholders.
Bridging the Gap: Adapting SME Guidelines for Informal Enterprises
The SME Guidelines provide a veritable launch pad to addressing the challenges faced by Nigerian MSMEs as it proffers recommendations that respect the cultural norms of the system, preserve its strengths, and integrate elements of modern governance. As noted in the SME Guidelines, MSMEs must entrench proper documentation process. Currently, the absence of formal contracts leaves both masters and apprentices vulnerable to misunderstandings, disputes, and delayed settlements. Structured agreements, even in simple written form and under the guidance of legal counsel, can provide clarity around the obligations all parties. In the same vein, while many MSMEs already have basic record-keeping mechanisms, there is a need to ensure that this process is improved on to enhance trust and provide practical training for the apprentice.
Similarly, the need to inculcate effective succession planning mechanisms is also worthy of note. In practice, many apprenticeship-based businesses falter when the founder becomes incapacitated or unavailable. This, therefore, necessitates the need to structure MSMEs in such a way that succession becomes more attractive. While the creation of more entrepreneurs is a commendable feature of the Nwa-Boi system & Nigerian MSME regimes, MSME founders and apprentices must consider a situation where successfully trained apprentices are retained as shareholders within the master’s business. This way, both master and apprentices can work together to improve the business. This would also ensure clarity in the roles of all parties.
Conclusion
Above all, policies must meet the people & businesses where they are. However, without awareness and proper legal guidance integrating the SME Guidelines into the practice of MSMEs would be nearly impossible. Hence, business owners must obtain relevant guidance that would help to instil practices that improve transparency, accountability and fairness. Government must also undertake necessary awareness campaigns to highlight the benefits of adopting basic governance standards without undermining cultural practices, which will help these businesses maintain their critical role in Nigeria’s economy. By bridging the gap between cultural tradition and modern governance, Nigeria’s MSME ecosystem can preserve one of its most effective informal business models while enhancing sustainability, accountability, and intergenerational wealth creation.
Authors:
Innocent Mbey, an Intermediate Senior Associate in WTS Blackwoodstone’s corporate commercial unit
Merry Ikatari, an Associate in WTS Blackwoodstone’s corporate commercial unit
Daniel Okpalifo, an Associate in WTS Blackwoodstone’s corporate commercial unit
WTS Blackwoodstone, is an international business law firm, that delivers innovative solutions across diverse client needs, specializing in core practice areas such as International Tax, Tax Advisory & Compliance, Corporate and Commercial law, and Transactional Services for companies operating in Nigeria. As the Nigerian partners of WTS Global, operating in over 100 countries, WTS Blackwoodstone aligns with a global tax practice that offers a comprehensive range of tax services.
