SMEs and the Nigerian economy

Nigeria's poorly funded SMEs account for 60% of GDP

Chief John Odeyemi

Until recently, banks in Nigeria were relatively unwilling to finance the millions of Small and Medium Scale Enterprises (SMEs) dotting Nigeria’s challenging business landscape. Reasons for this include poor quality of financial records maintained by most SMEs, insufficient protection of lenders’ interests under existing commercial laws, and the difficult business environment SMEs operated under.

Various SME development and advocacy organizations including the Nigerian Association of Small Scale Industrialists (NASSI) and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) have constantly encouraged banks to enhance the access to finance to SMEs to help grow the economy while also helping business methods by focusing on training and enhancement of business methods of these businesses.

The recommendations are against the backdrop of the partial success of the 2005 Micro-Finance Policy, Regulatory and Supervisory Framework for Nigeria introduced by the Central Bank of Nigeria (CBN), which transformed the 607 community banks operating across the country into micro-finance institutions to enable them extend micro-loans to individuals, businesses, and organizations, which would otherwise be unable to access funding from formal financial institutions. However, most of the micro-finance banks are struggling to survive, following the neggative impact of the 2008 global financial crisis that stifled their access to funds.

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Chief John Odeyemi, Chairman of Ecobank and National President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), disclosed recently that SMEs engaged in the distribution trade constitute about 50 percent of the sector, while 10 percent are into manufacturing, 30 percent in agriculture and 10 percent in the service sector. According to Chief Odeyemi, SMEs account for over 60 percent of Nigerian Gross Domestic Product generated mainly in the agricultural, service and distributive trade sectors. He also disclosed that SMEs engaged in distributive trade are more viable than those in the manufacturing and agricultural sector, making it easier for them to access funds from financial institutions.

The expected social and economic outcomes from funding of SMEs is to raise household incomes, create employment, improve food security due to increased trade, manufacturing, agricultural productivity and the generation of market surpluses, as well as improved access to markets, while institutionalizing credit products at more affordable rates for individuals and small businesses across the country, in a sustainable manner.