Commercial banks are alleged to have increased the interest rates over and above the agreed amount. Thus, many of these MSMEs still suffer from financial constraints as a result of lack of access to funds occasioned by high interest rates
The Micro, Small and Medium Enterprises (MSMEs) all over the world are regarded as catalyst for economic development and sustained employment generation as well as wealth creation. Unfortunately, MSMEs in Nigeria have underperformed and are yet to make significant contribution to the economic growth of the country.
For this Newspaper, a key issue affecting the performance of the country’s MSMEs is lack of easy access to fund. In recent years, the federal government and the country’s Central Bank have tried to alleviate the problems of funding by establishing many credit institutions with the objective of improving access to finance by the MSMEs. Only last year, N220billion intervention fund was launched by Central Bank of Nigeria (CBN) to enable the sector access fund for its growth. And recently the federal government reduced the collateral requirement for commercial banks to access the intervention fund from previous 75percent to 50percent. This implies that the banks could now have easy access to the fund for distribution to MSMEs at reduced interest rates.
But these initiatives appear not to be paying off, as conditions for accessing these loans still seem to be stringent. The main objective of the fund is to provide wholesale credit at 3percent interest rate to the bank that in turn would lend to the small scale entrepreneur at 9 percent over a time frame of five years. These commercial banks, however, are alleged to have increased the interest rates over and above the agreed amount. Thus, many of these MSMEs still suffer from financial constraints as a result of lack of access to funds occasioned by high interest rates.
The informal finance sector is believed to provide more than 70percent of the funds to MSMEs. What this portends is that the operators of small scale enterprises have easy access to funds from this sector. Perhaps the government should find out the factors for making this possible and incorporate that into its policy for improving access to finance by MSMEs. But beyond this, the federal government needs to formulate policies that would encourage SMEs to begin to source funds from the capital market.
The MSMEs certainly have a critical role to play as the federal government contemplates alternative source of generating income and improving the economy. Indeed, current statistics put the number of MSMEs at 17.5 million with a total employment population figure of 32,414,884 million. Therefore, the federal government must pay more attention to this sector with a view to harnessing its great potentials for transformation of the country’s economy. And adequately financing the sector becomes very critical towards performing this role.
