3 tools for SMEs to survive in Nigeria’s financial landscape
According to the World Bank, Small and Medium Enterprises (SMEs) account for most businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and over 50% of employment worldwide. A survey conducted by PWC shows SMEs contribute 48% of Nigeria’s GDP and account for 96% of […]
According to the World Bank, Small and Medium Enterprises (SMEs) account for most businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and over 50% of employment worldwide.
A survey conducted by PWC shows SMEs contribute 48% of Nigeria’s GDP and account for 96% of businesses and 84% of employment. However, despite the SMEs’ contribution to economic growth, they continue to struggle to scale their businesses. Hence, we need to do more than we currently do to improve their chances of success and make it more likely for them to scale.
To this end, here are three major areas we must consider.
1. Access to world-class financial services
It is easy to assume that all small and medium-sized businesses need to grow is access to finance, which they often equate purely with money. However, SMEs need a lot more than cash to grow. A vital key to their success is access to world-class financial services, and this includes bank loans, investment services, insurance, tax, and accounting services. A combination of these services ensures the stability and growth of SMEs.
Beyond access to funds from banks as loans, SME owners will need to ensure that they operate in ways that guarantee or increase the likelihood of growth for their businesses. They will need to understand the importance of securing their assets against loss, writing business plans that enable them to access funds, keep proper accounting records, and make appropriate tax deductions to ensure they do not default.
For SMEs to survive and thrive in Nigeria’s financial landscape, they will also need access to more initiatives built specifically to encourage them to expand their offerings. At Wema Bank, for example, we have designed solutions that cater to these needs. The Business Support Facility gives customers access to loans ranging from N100,000 to N5 million at competitive interest rates. We also help them access the CBN’s Micro, Small and Medium Enterprises Development Fund to grow and expand their businesses at single-digit interest rates.
Additionally, we offer the Female Support Loan for women-business owners from all corners of the country, the Pharma Loan for pharmacy store owners, Medi Loans for private hospitals, clinics, and diagnostic laboratories, and a unique loan facility with the Development Bank of Nigeria aimed at promoting inclusive growth.
But like I said, SMEs need more than access to financial resources to survive and grow in these challenging times. For instance,
ALAT by Wema Bank has a business version called ALAT for Business – our revamped corporate internet banking platform designed to help business owners manage their business accounts better and stay on top of their finances wherever they may be.
2. Access to practical business education
Many SMEs fail within their first or second year in business. This is a proven fact that everyone now appreciates. However, what often remains unsaid is why most fail so quickly, and there are usually many reasons at play. One of the most prominent is the lack of proper business education or access to practical business information that works specifically within these climes. Ideas are great, but the execution is even more critical, and many SME owners do not have access to the resources they need to execute properly. Hence, the likelihood of failure.
Often, when business owners search online for the knowledge and information they need to operate, they stumble upon resources written for predominantly Western audience or businesspeople in developed countries with far different operating environments. However, this should not always be so.
One of the most critical services financial institutions can offer their customers is access to practical information that helps them make better financial decisions. Moreso, where the said customer is a business owner.
Businesses thrive when founders understand the terrain they are operating in, and we equip them to develop strategies that will keep their business afloat, identify opportunities, and navigate regulatory bottlenecks. Hence, the need for financial institutions like Wema Bank to invest in providing their customers with this practical business knowledge.
One way we do this at Wema Bank is through our SME Business School. This programme is supported by the Frankfurt School of Finance and Management, Germany, one of Europe’s highest-rated business schools. It is facilitated by world-class consultants teaching a collection of relevant courses that equip business owners with the management knowledge they need to run their business effectively, avoid poor business structure decisions, and solve problems such as dealing with technology-driven market disruptions, access to finance, and understanding how the tax system works.
The Wema SME Business School holds at least twice every year, online and in-person classes. It comes at no cost to participants, who are issued certificates upon completion.
3. A business-friendly regulatory environment
One of the most significant contributors to the success or failure of SMEs is the regulatory environment in which they operate. The Nigerian SME ecosystem has witnessed a high level of growth in recent years, especially with the rise of financial technology startups. SMEs have also been leveraging technology to improve their business offerings and processes.
However, there is still a lot more we can do in Nigeria in terms of regulation. The main reason regulations exist is to provide a framework that encourages success and minimises failure rates. Nigeria’s 131st out of 190 ranking and 56.9 score on the Ease of Doing Business scale shows we still have some ways to go.
Although, it is worth pointing out that the Nigerian regulatory landscape has become more intentional, especially with reforming the business and financial laws such as the Companies and Allied Matters Act and the Finance Act. The Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) also encourage SME growth by creating a framework for regulatory sandbox operations for financial technology companies in Nigeria. The SEC’s crowd funding rules remain a welcome initiative for providing SMEs with access to business funding. However, as I already mentioned, there’s still a lot more that needs to be done to encourage the growth of SMEs.
Nigeria Startup Bill that is currently under development needs to be seriously considered by all stakeholders. Its passage into law will go a long way in smoothening the pathway for existing and potential SME owners, particularly those running technology-enabled businesses. The CBN’s conception of a digital currency, the e-Naira, also needs to be examined and given full support as initiatives like this will show that Nigeria is indeed ready for business and innovation and will attract the attention of foreign investors.
The point of all this is that everyone has a part to play in the success of SMEs in this country, from the business owners to the financial institutions, the government, and even the customers. There is something for everyone to do and something that everyone can do well.
Mabawonku is the Chief Finance Officer of Wema Bank Plc