For many years now, Small and Medium Enterprises (SMEs) in Nigeria have been held back by lack of access to finance. This is in spite of the fact that they have the potential to create jobs through the production of goods and provision of services. To address this problem, the World Bank recently approved a $500m financial lifeline for   SMEs from the lending window of its subsidiary financial institution, the International Bank for Reconstruction and Development.
One of the objectives of this intervention, according to the World Bank Board of Executive Directors which approved the facility, is to support the growth of SMEs in Nigeria as well as lend a helping hand to federal government’s efforts on job creation in the private sector through improved access to financing. The project is to run for seven years and will be implemented by the Federal Ministry of Finance.
Undoubtedly, this is a big boost for SMEs in the country. If the credit is effectively and efficiently disbursed, it will help ease the cost of doing business in Nigeria. Officially, there are 17 million SMEs in the country. Many of them are heaving under the numerous challenges of the nation’s economic sector, while their impact is hardly felt. So many others have gone under as they could not cope with the inclement business environment in the country. A major aspect of these challenges is the limited access to finance for their operations.
Statistics show that only 6.7 percent of SMEs in Nigeria have had access to bank loans or any other active line of credit in the current year. When loans are available, the interest rate is so high and the repayment period too short.
We commend the World Bank for this financial support for the growth of SMEs in Nigeria. There are certain areas in which financial intervention is badly needed. These include the need to strengthen the capacity of women entrepreneurs. Over time, women entrepreneurs in Nigeria have been held back by a wide knowledge gap, limited access to markets and funds, and the problem of land ownership rights.
While details of the $500m credit are being worked out, we urge the federal government and the Small and Medium Enterprises Development Agency of Nigeria(SMEDAN),which supervises SMEs, to articulate the challenges facing small and medium businesses and how best to address them using the available finances.
One critical area that needs to be looked into is the high cost of operating businesses in the country. The implications of such high costs are far reaching. They contribute to the collapse of industries and stifle their ability to keep pace with innovation. In addition, it is necessary to address the issues of social and regulatory costs. Social cost includes limited mentorship motivation for small and start-up businesses. Many small and medium-scale business owners complain that these social costs partly contribute to the inactivity and slow pace of growth of firms.
We also believe that if SMEs are to play their expected role in the value chain of the economy, regulatory costs such as excessive charges by banks and government agencies, as well as problems that have to do with infrastructure, such as poor power supply and bad roads, should be urgently addressed. It has become essential to institute policies that are business and people-friendly.
Considering the important contribution of SMEs to the nation’s Gross Domestic Product (GDP), (accounting for over 60 percent), the effectiveness and transparency of the disbursement of the funds will determine the impact of this financial intervention on the Nigerian economy. If the government is interested in developing the non-oil sector and generating income from it, the best way to do this is to empower SMEs through easy access to credit and specific business-friendly policies.
In this regard, the N220billion Micro, Small and Medium Enterprises (MSME) Development Fund recently launched by the Central Bank of Nigeria (CBN) must be properly administered to achieve its desired objectives. The aim of the fund is to provide wholesale credit at 3 percent interest to financial institutions, for onward lending to MSMEs at 9 percent interest over a maximum period of five years.
Many SMEs are complaining about their inability to access the loan, while allegations have been made by some that the banks have raised the interest rate beyond the 9 percent approved by the CBN.
We urge the banks to hasten the processes for lending this fund to the MSMEs so that they can get back on stream and contribute their own quota to economic growth and job creation.  If government is sincere about diversifying the economy, this is the time to pay genuine attention to the non-oil sector and support SMEs to generate revenue and jobs.
Altogether, if our economy is to compete globally, priority should be given to SMEs by creating an enabling environment for them to thrive.  Let the relevant authorities do what is necessary to reduce the cost of doing business and make credit available and affordable to genuine businesses so that they can survive, and grow. The $500 million from the World Bank should be seen as the lifeline that SMEs in Nigeria direly need to address the problem of underfunding.

World Bank’s $500m for Nigerian SMEs