Why banks failed in development of SMEs in Nigeria’

Abdullahi Edward Tomasiewicz is a loan adviser in Kano State, having amassed experience from the Kano State Ministry of Trade and Industry as small industry’s credit/loan adviser. In this interview, he speaks about the performance of the Small and Medium Scale Enterprises (SMEs) in

How would you rate the performance of SMEs in Nigeria?

Terrible! For me, all the initiatives that have been taken by the states and the Federal Government have missed the mark. They missed the mark because they hinged their procedures on the people satisfying bank criteria. The programmes have been run as banks’ exercise. Moreover, banks have, historically, not supported the small and medium sector. The statistics are there. Their requirements are such that for someone to start an application, it will cost him money and time to do things he is not familiar with. He has got to satisfy their registration and all the documentation that they require and it cost time and money to do so. This is why the system hasn’t worked up till today.

What’s your view about having single digit interest rate on SME loans?

The reason that they haven’t been successful is because they have been administered by the state governments in most cases, and the recipients haven’t been monitored properly and most of them have been receiving the funds as political favours rather than as potential investors in a potential business.

Does that mean the banking sector has no business in SMEs?

They have a business but they don’t perform it. As I have said, it is not their cup of tea. This is not to say that they can’t do it; but they won’t do it. It shouldn’t be their responsibility. The government is in charge of development, not banks, and if you want to have successful SMEs development, that is the responsibility of the government to find a system that makes it work.

What do you think are the strategies to make it work?

The system that will make it work is to create an independent advisory panel. I suggest this advisory panel be composed of all senior officers from all MDAs at the federal level who are posted to state chapters. These are the representatives of the Central Bank, CAC, PENCOM, VAT and NHIS. They should constitute an advisory committee. Under this, you have a secretariat which maintains the files, training and requirements for all the applicants.

How would this advisory committee be funded?

The funding will come from the allocation of the state governments’ budget; like for the seven North West states which collectively have 186 LGAs. This scheme is designed around the idea of giving available funding of N100m per LGA annually, 186 LGAs, that is about N18.6bn. N18.6bn is 1.5 per cent of the combined budget of these seven states, which is N1.279tr.

Therefore, 1.5 per cent of the state governments’ budget will be paid to this advisory committee; it is co-funded for them to give out according to their needs.

Look at Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). It has roughly 35 per cent of its funding available for overheads and salaries, with 65 per cent as loanable funds. If you apply that to this, of the N18.6bn available in these seven states, N3.5bn will go for overheads and salaries. That means you have N15bn available for loan applicants in seven states, and that’s just this year. Next year you do the same thing again. So you see, the money is there because you created it out of nothing. You have taken it out of the political circle so that nobody has any undue influence over who gets a loan application approved

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