Economic View

On funding economic development

In what ways can access to finance for micro-, small and medium-sized enterprises (MSMEs) be improved?

OLUKAYODE PITAN: MSMEs are often described as the engines of growth in Nigeria and Africa as a whole. This is true, but the nation’s economic development cannot be sustained solely through the development of small businesses. The success of larger businesses, with benefits of scale, provides an economic ecosystem for smaller enterprises to thrive. The difficulty with supporting mainly MSMEs is that they have very high non-performing loan (NPL) ratios; in order to maintain a positive rating, banks must find a balance and provide more loans to large enterprises. In the longer term, we are hoping to see a national microfinance bank or SME bank emerge, driven by both public and private sector players.

What areas of the economy will the Bank of Industry target with the syndicated loan from the African Export-Import Bank? 

PITAN: Bank of Industry loans are given at single-digit interest rates, below the current inflation rate. This means that they essentially entail subsidies; however, it is unsustainable to subsidise every business. Hence, these loans will be used to develop a select number of priority areas, including light manufacturing, female-run businesses, creative industries, agro-processing, solid minerals, and oil and gas. These areas were selected due to the extent of their locally added value, and they happen to be key in terms of the employment they generate. With further financial support, businesses in these segments can expand, while drawing on locally sourced raw materials and reducing foreign reserve outflows. 

How do Nigerian entities cooperate to develop value chains in industry?

PITAN: It is crucial to finance enterprises along the entire value chain because this ensures that all sectors can develop effectively without any major bottlenecks. Since the Bank of Industry has a specific mandate to fund industry, we work together with entities such as the Bank of Agriculture to ensure that farmers who provide the inputs for industrial enterprises are also able to access affordable credit. Other examples of value chain development involve working together with large corporates to identify key providers, and to support suppliers of raw materials and power. 

How can technology be leveraged to improve the efficiency of funding programmes for industry?

PITAN: Nigeria is trying to do more in this space because there is great potential for additional employment. IT hubs are one of the most effective ways to build a stronger IT infrastructure and promote the emergence of successful start-ups. The key to conducting such programmes is to have both capable and experienced IT entrepreneurs who can provide technical support, as well as baseline funding at affordable rates. In this regard, successful past programmes that boosted the Nigerian film and fashion industry can serve as a model. IT can also be leveraged to improve the creditworthiness of SMEs and other companies that struggle to access lending. With technology that helps to analyse and build credit histories, lending is made more effective and affordable, with a more accurate risk profile for entities on the financing side of the transaction.

What are the benefits of growing female entrepreneurship in Nigeria?

PITAN: Female-led businesses have the potential to grow exponentially. Women in Nigeria typically have a much harder time raising money than men because they often do not have the collateral to put up for loans. Nonetheless, research demonstrates that female-headed enterprises have lower NPL rates, and women are more likely to reinvest their profits in a business and in their families. The focus on developing these businesses is also driven by the understanding that, without actively involving the entire population, the country cannot attain the double-digit growth necessary to attain both the social and economic goals that Nigeria is aiming for.