Even though Small and Medium Enterprises are supposed to contribute to the Gross Domestic Product of any thriving economy, the problem of funding, especially securing bank loans, has over time hindered them from doing this in Nigeria. Udeme Ekwere writes about alternative sources of funding for SMEsIn many growing economies of the world, there has been a deliberate emphasis on nurturing Small and Medium Scale Enterprises to a point where they can play a critical role in economic development.This is because many nations have come to realise that small businesses are essentially the drivers of economic growth and have tried to formulate comprehensive public policies to encourage, support and fund them.In Nigeria, the government has come to understand that this sector is vital, and has come up with various initiatives aimed at ensuring their sustainability. This is largely because SMEs represent about 90 per cent of firms in Nigeria.However, while SMEs in countries such as China, Indonesia, Thailand and India, contribute almost 40 per cent to the Gross Domestic Product, Nigerian SMEs are tottering.Of course, if they are well run, there are a lot of other benefits that SMEs can offer to their home countries. The most important is that they contribute to the economies in terms of output of goods and services. They aid the creation of jobs at relatively low capital cost, especially in a fast-growing service sector.Experts have said that other benefits of small businesses to an economy are that they provide a vehicle for reducing income disparities, and develop a pool of skilled and semi-skilled workers as a basis for future industrial expansion.Others include the fact that SMEs improve forward and backward linkages between economically, socially and geographically diverse sectors of the economy, and offer excellent breeding ground for entrepreneurial and managerial talents.However, despite all the benefits that this sector provides to the economy, there are various challenges that these businesses are facing, which have made their operations somewhat challenging, thus working against the reason for which they were created.Of course, the global economic meltdown, as well as the internal crises in the Nigerian financial institutions, mostly the banks, has made it virtually impossible for these small businesses to access funds to boost their operations.The Managing Director, Topmost Allied Products, Mrs. Tope Motunrayo, says that apart from the other intrinsic challenges, which come with running a small business in Nigeria, the problem of sourcing funds remains the primary challenge.She says, Small businesses that are making it in Nigeria are really struggling to survive. You know that banks are no longer giving out loans, and even if they do, the interest rates would be so high that the SMEs would not be able to pay back.And so, it has indeed become a struggle for small-scale businesses, especially in the last five years because the problem of accessing funds is a tough one, as every business after start up, seeks to grow and improve upon its activities and this is virtually impossible without adequate funding.According to her, even the funds that are set aside by the Federal Government through the Bank of Industry to support small businesses have very stringent rules, which make it very hard for most small-scale companies to access them.She adds that even other financial institutions that used to give funds to businesses, have not been doing this, saying that it is an issue that the FG has to look into to save SMEs from total collapse.The MD, Lambeth Trust and Investment Ltd., Mr. David Adonri, says that financing SMEs is a very risky venture considering the high mortality rate in the sector.This, according to him, is what makes several financial institutions shy away from funding such businesses.He says, Considering their peculiar nature and fragility, SMEs are supported with venture capital finance provided by government agencies like Small Enterprises Development Agency of Nigeria and specialised financial institutions.But because of prohibitive rate of interest, SMEs can hardly survive if operated with funds borrowed from regular banks, and the alternative market of the capital market offers an avenue for SMEs to derive their equity finance but currently, the entire primary market for equities is dormant.He adds that this calls for urgent attention from the FG as well as other agencies which are saddled with the responsibility of improving the activities of small and medium scale enterprises.In view of the inability of SMEs to access financial market - based funding, administrative intervention under prevailing circumstances has become imperative. It is for this reason that the funding provided recently by the Central Bank of Nigeria for SMEs is commendable, he notes.According to Adonri, institutions should be restructured to meet the credit needs of SMEs at affordable cost, because, SMEs play pivotal roles in employment generation. Therefore, the infrastructure, funding and fiscal policies required by them to flourish must be attended to by relevant authorities.The former Chairperson, Small and Medium Enterprises, Lagos Chamber of Commerce and Industry, Mrs. Modupe Onabanjo, notes that government and financial regulators have to re-empower microfinance institutions to play their role.She notes that in functional societies, MFBs are set up with the primary aim of funding small businesses and giving the much-needed boost to improve their business.Onabanjo says, Since these MFBs are not really playing this role now, it is left for the SMEs to source for funds from the BOI. The good thing is that the bank takes the business through the various steps that they need to be able to access funding.Also, there are some international organisations that provide funding for some businesses, such as Arthur Andersen and the like, however, an important criteria is that the business owner has to ensure that they are armed with all the adequate documentations needed to be able to access this fund.Onabanjo advises that micro enterprises, which are smaller than SMEs, should link themselves up with trade organisations, which usually have cooperative societies.Such cooperative societies could come in handy to assist these business owners with loans, which they will be able to use to boost their business at low interest rates, she explains.
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