In Europe and other developed nations across the globe, the small and medium enterprises (SMEs) have been responsible for stimulating industrial growth through innovation and competition. Alexander Chiejina writes on what the Bank of Industry in facilitating SME development and its challenges
In developed nations like the United States of America, Britain, Japan, the micro small and medium enterprises (MSMEs) sector play a critical role in the development and growth of its industrial sector and the economy at large. This is in view of the vast potentials the sector offers in creating jobs for the teeming population within the informal sector.
For instance, in Europe, Small and medium Enterprises (SMEs) comprise approximately 99 percent of all firms and employ about 65 million people. In many sectors, SMEs have been responsible for driving innovation and competition. Globally, SMEs account for 99 percent of business numbers and 40 percent to 50 percent of Gross Domestic Product (GDP).
With Nigeria been one of Africa’s most influential countries given its population size, levels of trade and size of markets within the continent and the West African sub-region, the country has the potential to play a more substantial role in regional trade if its MSMEs are well developed viz-a-viz financing and capacity building programmes. This in turn will diversify and promote sustainable growth of the country’s economy.
Sadly, with Nigeria’s dependence in oil, the non-oil producing sectors have been saddled with enormous challenges ranging from harsh operating environment to infrastructural problems, and varying government’s economic policies. This move has led to the suffocation of Small and Medium Enterprises (SMEs) as well as Micro Small and Medium Scale Enterprises (MSMEs) in Nigeria.
Given this glaring reality, the Bank of Industry (BOI), established in October, 2001 following the reconstruction of the Nigerian Industrial Development Bank (NIDB), was charged with the responsibility of diversification of the Nigerian economy from a monolithic oil dependent type to an industrial nation viz-a-viz funding and provision of advisory services
According to reports from the BOI, the bank presently extends at least 85 percent of its loanable resources to the SMEs sub-sector of the manufacturing sector. At present, the Bank’s lending policy is positively favorable towards SMEs, as well as stands ready to be involved in programs targeted towards trade finance and efficiency improvement of the sector.
The Bank is also actively involved in lending to large /corporate enterprises in various sectors of the economy. One of such enhanced financing is ‘Cooperative Cluster Financing’, which is designed to reach the relatively small operators without access to collateral properties.
Though seen as a major paradigm shift, the Bank has as at date approved over N1.360 billion under its Cooperative Financing window to more than 220 Associations involving about 25,000 employment opportunities. This entails the creation of new products/ businesses/cum expansion of existing businesses that are driven through group guarantees as major security option.
Going further, the bank is engaging in continuous advocacy with the state and Federal governments towards improving the operational environment of the MSMEs. This programme ensures matching the funds provided by state governments for onward lending to projects from the partner-states.
Amongst the Bank’s Entrepreneurial Development Programme include organising Boot- Camp workshop primarily to sensitise indigenous existing and potential entrepreneurs to business opportunities, financing, and inculcating successful management skills in local business owners to forestall large scale business failure; Empowerment of the Nigerian entrepreneurs through exposure to international best practices and establishment of global partnership in support of the MSMEs; and collaborating with various Multilateral Development Agencies in the training of local entrepreneurs.
Interestingly, the Bank has over time developed specialised skill and expertise in the Management of special funds which include: The National Automotive Development Council (NAC) Fund, Business Development Fund for Women Entrepreneurs (BUDFOW), Cotton, Textile and Garmenting Development (CTRG) and Rice Processing Fund.
As a further testimony to BOI’s efforts in development of a virile and competitive Industrial Sector, the Bank was considered a collaborator in the implementation of the CBN N500 billion direct intervention fund in the real sector made up of N300 billion for power and aviation sectors and N200 billion for refinancing/ restructuring of banks loans to the manufacturing sector.
Inspite of the intensive and extensive work with the SMEs over the period, BOI found out that finance is not the only major constraint for their development. Other major impediments include infrastructural inadequacies, poor packaged proposals by prospective borrowers, inability of project promoters to contribute equity, policies instability, and lack of entrepreneurial skill/ human capital.
In the agricultural sub-sector, the efficiency in converting the geo-locational comparative advantages of most states into competitive ones had hampered the financing of SMEs due to the inadequacy of post harvest supports as well as legal documentation in terms of delay and cost involved in processing C of O, and poor attitude to loan repayment by borrowers.
Based on BOI’s experience in real sector financing, availability of first class infrastructure in all its ramifications especially power and security, development of modern entrepreneurial skills through human capacity and empowerment, the provision of well articulated incentives that would encourage all the stakeholders particularly concessions to investors by way of reduced cost of land documentation will would induce industrialization in Nigeria.
Following successes achieved in other countries across the globe, the SMEs sector can be seen as a training ground for local skills to be developed. This will lead to a slump in entrepreneurs’ migration from rural areas to urban areas for manpower. Also, its development objectives will serve as a resource base for skill acquisition for multinationals thereby replacing existing foreign sources.
By Alexander Chiejina
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