Funding for Small and Medium Enterprises (SMEs)

Recently, the Nigerian-British Chamber of Commerce (NBCC) called on the Federal Government to adequately fund small businesses in order to achieve price stability and increase aggregate output in the Nigerian economy. According to the chamber, the Federal Government should develop policies that will enhance accessibility of funds to these enterprises in order to leapfrog Nigeria’s industrial development and create much-needed jobs for the teeming unemployed.
We are totally in support of this call, even as we advice that the Federal Government embrace it in all entireties. It is a fact that small and medium enterprises are the engine of economic growth in any developed and developing society. The major advantage of the sector is its employment potential at low capital cost, even as the labour intensity of the SME sector is much higher than that of the large enterprises. Unarguably, the role of these enterprises in the economic and social development of Nigeria cannot be overemphasised.
Most importantly, the SME sector is a nursery of entrepreneurship, often driven by individual creativity and innovation. As the engine of economic progress, small and medium enterprises are also the main driving force behind poverty reduction, wealth creation, income distribution and reduction in income disparities. Moreover, in a country like Nigeria with an adverse balance of payment situation, the growing contribution of the small scale industries sector in the export portfolio goes a long way in generating foreign exchange and smoothening out the adverse balance of payment situation.
This is important to the economy in that large percentage of their production inputs are sourced locally thus, reducing the pressure on the limited foreign exchange earnings, thereby helping to eliminate some of the deficit in the balance of payment. Even at that, it is praiseworthy that successive administrations were not oblivious of the place of SME in the country’s development. Hence, the establishment of micro-finance banks to act as source of funds for them. Such policy is geared towards enhancing the operation of small-scale businesses through fiscal monetary, and export incentives that included tax holidays and tariff concession.
In terms of monetary support, the Central Bank of Nigeria (CBN) introduced credit guidelines requiring commercial and merchant banks to allocate a portion of their loanable funds to small businesses.     In spite of these efforts, experts have worried that funds for small and medium enterprises had always been misappropriated because majority of the loans were granted in most cases on political rather than on commercial or project viability considerations.
In the end, those with little or no political connections are sidelined.  Due to this, many SME’s resort to informal sources of finance, which include personal saving and borrowing from friends, families and credit associations?  More painful is that formal financial institutions like commercial banks are still very unwilling to grant credits to SMEs.  Another inhibiting factor is the improper implementation of policies and inability to recruit trained manpower and adequate equipments to aid the extension services to support the SMEs. Added to this, is the challenge of inadequate infrastructural facilities such as electricity, potable water, feeder roads, that have remained drawbacks to growth of these enterprises. With evidence of success in countries like India, Indonesia and Malaysia where SMEs constitute more than 40 percent of the Gross Domestic Product, those in Nigeria could become models if enabling policies are well implemented.