In 2012 Nigeria had about 17.6m micro, small and medium-sized enterprises (MSMEs) employing about 32.4 m people and contributing 46.54% of nominal GDP. A recent survey by the International Financial Corporation and McKinsey suggests that 80% of these MSMEs are excluded from financial markets. Suffice it to say that between 2003 and 2012 commercial bank loans to small-scale enterprises dropped at an exponential rate. Analysis of the annual trend in the share of commercial bank credit to small-scale industries indicates a decline from about 7.5% in 2003 to less than 1% in 2006, and a further decline in 2012 to 0.14%.
A number of reasons have been proffered for this financing gap. The banks attribute their risk-aversion stance for not lending to MSMEs to demand-side constraints, which include the lack of managerial capacity, inadequate collateral and poor record-keeping, among others. However, there also exist supply-side issues such as high transaction costs and lack of understanding by the banks of the nature and operations of MSMEs. Other constraints to the MSME sub-sector in Nigeria include infrastructure deficit, especially in power and transport; policy inconsistencies; bureaucracy; multiple taxation and levies; weak intellectual property protection and contract enforcement; and insecurity. The CBN has been working towards developing a more robust regulatory and supervisory framework and creating initiatives for improved access to finance for the sub-sector. Some of these include the Revised Microfinance Policy, Regulatory and Supervisory Framework; Certification Programme for Micro-Finance Banks; Designated Non-Financial Businesses and Professionals; Competency Framework; Payment System Transformation; development of a Moveable Collateral Registry; and the Financial Ombudsman Bill, which is currently before the National Assembly.
To further de-risk and encourage lending to the MSME sub-sector, the CBN has also intervened with initiatives such as the Power and Airlines Intervention Fund to help address the constraints of electricity; Small and Medium-sized Enterprises (SME) Credit Guarantee Scheme; SME Refinancing and Restructuring Facility; Youth Empowerment Programme; Entrepreneurship Development Centres and National Youth Services Corp Venture Prize Competition; Financial Inclusion strategy and Tiered Know-Your-Customer (KYC) requirements. The CBN is also leading the efforts of the Bankers’ Committee to set up an industry-wide biometric database for all bank customers to address issues of KYC, anti-money laundering and access to credit. This will help fast track the use of channels such as biometric automated teller machines and point-of-sale terminals.
In order to ensure that the banking industry has professionals with the requisite skills to maintain the stability of the financial system, an industry Competency Framework was developed in June 2012 by the CBN. The objective is to guide banking operations and address issues relating to the quality of human capital in leadership positions. The framework identifies 35 key control functions, in which major influence is exerted on the conduct of a financial institution to define and standardise the necessary skills and competencies required for both operators and regulators in the industry. A gap analysis on industry competency using the framework was recently conducted which revealed results competencies ranging from 3% to 85%. The banks have been made aware of the results and remedial actions are being proposed to focus on low competency ratios to get them to an acceptable level.
The CBN is also launching the N220bn ($1.39bn) MSME Development Fund. The fund is principally designed to enhance MSMEs’ access to finance, with the following major objectives: (i) provide wholesale financing windows for participating financial institutions (PFIs); (ii) improve the capacity of the PFIs to meet credit needs of MSMEs; (iii) provide funds at reduced cost to PFIs; (iv) enhance access of women entrepreneurs to finance by allocating 60% of the fund to them; and (v) improve access of non-governmental organisations and monetary financial institutions to finance.
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