Small, micro and medium enterprises (SMEs) are usually the core of an economic sector and are also responsible for driving innovation and competition. SMEs are non-subsidiary, independent firms or organizations that employ a fewer number of employees. Most small, micro and medium enterprises exist because of being less capital intensive and flexible in filling the need in niche markets. But their contribution drives the economic and industrial transformation of the country.
Globally, MSMEs are recognized as the critical stimulators of economic growth due to their potential to create jobs, boost production, generate income and reduce poverty. Like a place in Nigeria, most of its micro businesses are often owned and managed by independent owners but they play a major part in the Nigerian economy.
Micro, small and medium enterprises (MSMEs) outnumber large companies by a wide range margin and also contribute to the large employment ratio of the country. However, one of the setbacks of micro, small and medium enterprises (MSMEs)is adequate financing which is needed for these enterprises to play this pivotal role in our development trajectory.
What is an MSME?
According to the Ministry of Industry, Trade, and Investment, Nigeria has over 37.07 million micro, small and medium-scale enterprises, MSMEs, and they account for more than 84 percent of total jobs in the country. MSME enterprises in Nigeria also account for about 48.5 percent of the gross domestic product, GDP, as well as about 7.27 percent of goods and services exported out of the country.
Based on the total numbers of MSMEs in Nigeria, Micro Enterprises account for the bulk with 36,994,578 enterprises (about 99.8 percent), while small enterprises are about 68,168, and medium enterprises accounting for about 4,670 numbers. Lagos, Oyo and Kano State are the top three states in Nigeria with the highest number of MSMEs in Nigeria.
Micro, small and medium enterprises (MSMEs) are generally referred to as an enterprise with up to 9 employees, 10 to 49 or 50 to 249 employees. However, definitions of micro business, small business and medium business differs and depends on the country and their terms. So, MSME can also be classified as enterprises engaged in the manufacturing or production of goods in any industry or engaged in providing or rendering services.
In defining MSMEs, many of the things are put into considerations like; the number of employees, sales turnover, asset size, sector and others. Most definitions vary by region.
A Brief Introduction of the MSMEDF
The MSME Development Fund was launched on August 15, 2013, with a share capital of N220 billion by CBN. The Fund was established in recognition of the significant contributions of the Micro, Small and Medium Enterprises (MSME) sub-sector to the economy and the existing huge financing gap.
Ten (10) percent of the Fund has been devoted to developmental objectives such as grants, capacity building and administrative costs while ninety (90) percent commercial components have been released to Participating Financial Institutions (PFIs) at 2% for on-lending to MSMEs at a maximum interest rate of 9% per annum.
In line with the provisions of the Revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria, the eligible activities to be financed under the Micro, small and medium enterprises development fund include:
• agricultural value chain, services,
• cottage industries,
• artisans,
• Renewable energy/energy efficient product and technologies
• Trade and general commerce
• Technologies
• trade and commerce and any income-generating business as may be prescribed by the CBN from time to time. (Although only 10% of the Commercial component of the Fund is channeled to trade and commerce).
Accessing the MSMEDF in Nigeria
The objective of the fund is to channel low-interest funds to MSME sub-sector of the Nigerian economy through participating financial institutions (PFI). In addition to that, MSMEDF is to enhance access by MSMEs to financial services; Increase productivity and output of microenterprises; Increase employment and create wealth, and Engender inclusive growth.
The participating financial institutions (PFI) include all microfinance banks, Non-Governmental Organization Microfinance Institutions (NGO-MFIs), Financial cooperatives, Finance Institutions (DFIs) and Deposit Money Banks (DMBs) under the SMEs window.
In accessing the MSMEDF, micro-enterprises have a maximum loan tenor of one year while small, micro-enterprises (SMEs) have about one to five-year tenor while the moratorium can be negotiated. And according to the development finance department of CBN, the collateral requirements from the start-ups by PFIs (DMBs and DFIs) are educational certificates such as SSCE, National Diploma (ND), National Certificate of Education (NCE), National Business and Technical Examination Board CNABTEB), Higher National Diploma (HND), University Degree( and NYSC certificate where applicable) and a guarantor.
The startups who get to access the MSMEDF also have to present their Bank Verification Number (BVN). Micro Enterprises are entitled to a maximum of 500,000 naira loan limit. Small and medium-sized enterprises funded by the NFBs and FCs get 5,000,000 naira while SMEs financed by DMBs and DFIs are entitled to 50,000,000.
Conclusion
The lack of finance for MSMEs has been an issue discussed by the government, industry leaders and financial institutions at large. Most MSME businesses have challenges getting the required finances to improve and grow their businesses. It is important that the MSME sector has the necessary funds to help them develop in all areas of agriculture, manufacturing and services sectors because each of these sectors will continue to be very relevant to the overall GDP growth as well as employment generation.
Although, one of the reasons banks are reluctant in lending to MSMEs is due to the lack of collateral, low accountability and lack of financial records that will become bad debts for the banks. Not much success has been achieved in the case of bank lending, as most SMEs typically don’t even provide proper collateral that presents a sufficient buffer for the banks.
In an attempt to boost SMEs and MSMEs lending the CBN has made efforts by approving an intervention known as the MSMEDF to promote access of credit by SMEs in Nigeria. The MSME sector will act as a catalyst to bring about a socio-economic transformation in Nigeria.