By Peter Osalor
It is the responsibility of government to provide employment and security for the people, among other things. However, since government cannot provide full employment for the people, what it does is to provide the enabling environment for non-state actors to bridge the gap. These non-state actors include small and medium scale enterprises.
Small and medium scale enterprises are the “engine of growth and catalyst for socio-economic transformation of any country, especially in a developing country like Nigeria.
They are a veritable vehicle for the achievement of national macroeconomic objectives in terms of employment generation at low investment cost and enhancement of apprenticeship training.
The increasing demand for consumer products has created a large market for small and medium enterprises in the country. But running small and medium scale enterprises in Nigeria is a most difficult thing because of the harsh economic environment.
Small and Medium Enterprises have contributed immensely to the growth of Nigerian economy, adding that the sector also contributed to the national objective of creating employment opportunities, training entrepreneurs, and generating income and providing a source of livelihood for the majority of low-income households in the country.
However, a major challenge facing small and medium enterprises operators is lack of finance. Lack of capital has been identified as the most serious problems of establishing and running small and medium enterprise as other problem can be solved with adequate capital.
The federal government through the CBN introduced Microfinance Policy in 2005. The policy provided the legal and regulatory frame work for microfinance banking in Nigeria so as to create sustainable and credible micro finance banks that is capable of mobilizing and channelling funds to the MSME sub – sector. However, this policy led to the introduction of microfinance banks.
Today, the microfinance banks provide partial financing medium to address the inadequate access to finance confronting the Micro and Small Enterprises in Nigeria, through the Small and Medium Enterprise Equity Investment Scheme (SMEEIS)
This scheme is a voluntary initiative of the bankers’ Committee approved at its 246th meeting held in 1999 but which started operating in 2001. The initiative was in response to the Federal Government’s concerns and policy measures for the promotion of Macro Small and Medium Enterprises (MSMEs) as a vehicle for rapid industrialization, sustainable economic development, poverty alleviation and employment generation.
The scheme requires all banks in Nigeria to set aside 10 % of their profit After Tax (PAT) for equity investment and promotion of small and medium enterprises. The 10% of the profit After Tax (PAT) to be set aside annually is to be invested in small and medium enterprises as the banking industry’s contribution to the Federal government’s efforts towards stimulating economic growth, developing local technology and generating employment.
The funding, to be provided under the scheme shall be in the form of equity investment in eligible enterprises and or loans at a single digit interest rate in order to reduce the burden of interest and other financial charges under normal bank lending, as well as provide financial, advisory, technical and managerial support for the banking industry.
However, the scheme did not achieve the desired impact as most MSMEs were not interested in the equity participation for fear of losing control of their enterprises. Even then, most of them lacked the 60% equity contribution which resulted in delay of disbursement as the borrowers were deemed to be uncooperative. In addition to this challenge, most MSMEs lack proper bankable business plans, marketing strategy, thorough accounting systems and do not run their transactions through the banking system.
Other challenges include:
Management problems which include lack of manpower and training; Inadequate infrastructures; Socio-cultural problems; Unstable policy environment;
Multiple taxation and Unstable power supply.
Finally, if government can come out strong in tackling these challenges, we will have a better MSMEs sector, that will attract local and foreign investors
