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Insight & Analysis - Startup - May 10, 2021

Expert Explains why Loans to Nigerian SMEs are very low

In a June 2020 publication titled MSME Survey Report, PwC Nigeria made a number of worrisome revelations about the challenges faced by Nigerian small businesses when it comes to accessing loans. The report specifically mentioned that bank loans do not make up the main funding options for SMEs. As a matter of fact, only about “5% of SMEs have been able to access adequate finance for working capital and for funding business growth/expansion,” the report said.

PwC also estimated the financing gap for Nigerian MSMES to be as much as N617.3 billion per annum. And this was before the pandemic, meaning that this gap has most likely widened over the past year.

Earlier in the year during an exclusive interview with Babatunde Akin-Moses, the CEO of fintech firm SycamoreNG, we asked him to shed more light on this loan situation. Below is what he said:

Why Loans to Nigerian SMEs are still low

There are a number of reasons this is the case and some of them are structural. For one, the way our financial system is set up right now, the main lenders are the commercial banks and they are very risk-averse. So, if you need a loan, you must bring a landed property as collateral. This is unlike what obtains elsewhere. Take for instance, if you are in other countries, once you have a job, you can easily get a mortgage. But here in Nigeria, even if you are working, you need to be working for an upstream oil and gas firm or basically earning a lot of money before you can access a significant credit facility without having to present a landed property as collateral. You can see how that’s a major problem in a country where there are 100 million poor people.

Also, the Nigerian banking system is very formal in nature. That’s why borrowers are required to fill many forms for instance. You also have to understand the terms and conditions. And not a lot of these SMEs possess the required knowledge to access these loans. That’s why when you look at some of these credit facilities that are supposed to be for small businesses coming from the Development Bank of Nigeria, the CBN, and the BoI, some SMEs do not end up getting them because of requirements such as business plan, financial statement and all that stuff. Now, I’m not saying that asking these SMEs to present their business plans and financial statement is wrong. No. I am just pointing out that there is often a knowledge gap which a lot of SMEs encounter that end up preventing them from accessing the facility that they need.

How to Bridge the Loan Gap 

  • This gap can be filled by the banks moving a lot closer to the SMEs.
  • SME owners should endeavour to get the right skills needed to access these credit facilities. 
  • Also, the land ownership system in Nigeria needs to be made easier so that people can own landed properties in a much easier way than it is today.

EDITOR’S NOTE: Re-read our exclusive interview with Babatunde Akin-Moses by following the link below.


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