With e-Commerce redefining retail trade worldwide, banks in Nigeria are increasingly courting SMEs in order to tap into a very lucrative market. But can the banks rise up to the liquidity challenge that could arise? Clifford Agugoesi reports
NIGERIAN banks lately are showing interest in small and medium businesses (SMEs) because of the renewed interest by government to reposition SMEs as a new engine of growth for the economy. The government wants the banks to aid SMEs and other entrepreneurs directly through bank-assisted loans and government guaranteed loans. But SMEs themselves feel that banks are paying lip service to this vital service.
This came to the fore at last month’s 2015 eBiz Fair organised by Connect Nigeria, the third edition in these series of exhibitions and forums, in Lagos.
To Chief Ozigbo of R.O. Ozigbo & Co., the banking sector had not lived up to expectations as far as lending to SMEs is concerned. “They will ask you for collateral and weary you on endless paper-work and in the end you do not get anything,” he said.
Olaniyi Adeosun of Massony Limited, who is, himself, a former banker, noted: “Banks do not help entrepreneurs…I have sat down and I have studied this through and I can tell you Nigerian banks have problems. They will tell you to bring collaterals. It is a big problem for Nigerian entrepreneurs,” Adeosun said.
What should banks do in the circumstance? Stated Adeosun: “I expect that Nigerian banks should do some serious critical thinking at the strategy level, which means you must take the details of your customers; you must be able to understand their needs. If you understand their needs, you must be able to play around with the problem that they have. If entrepreneurs get more business there is a tendency that the banks are going to make money…
“In going back to your locations as banks engage your managements, engage your strategists, and let them know these customers and their problems. Beyond all of that, by the time we get out of this hall the question is: What benefits would we be taking home? Now, if people that are sitting down here do not have access to funds, the essence of sitting down here would have been wasted.”
All the banks at the fair claimed they had products and services that catered to the needs of the SMEs. The MD of Bank of Industries (BOI), Obaro Osa, stated that BOI, one of the five development finance institutions in the country, aimed to empower entrepreneurs financially in order to have an impact on the economy. “We believe that if we support entrepreneurs and their businesses are doing well, they will employ more people, level of employment will be enhanced and the overall macro-economic objective of the country will be achieved,” Osa said.
The BOI also offers training to SMEs. “Last year the BOI signed an MOU with about 10 commercial banks. We have realised that most of the upcoming entrepreneurs do not have the knowledge to package and market their enterprises,” Osa said.
“The BOI was able to shortlist two business development support partners, (BDSPs) who are working with us, who can help you to put down your request so that ease of approval and processing could be enhanced. Currently these are working and the quality of proposals is improving because of what the BDSPs are doing to fine-tune the process. On a sincere note, we can finance anything as long as you will add value and create jobs in the Nigerian economy,” he said.
The head of Financial Services at FirstMonie, Mike Ogbalu, reeled statistics to highlight the need for more money for SMEs:
· 2.5 million adults in Nigeria do not have formal bank accounts
· 170 million people in Nigeria
· 134 active telephone lines
· 93.5 million represent the adult population (EFInA)
· 45.5 million represent the adult population that is formally included today in the financial sector
· 36.9 million are adults that are financially excluded
· 58.7 million adults own a mobile phone
· 63.9 million people are in the rural part of the country
· 47.3 per cent of Nigerians have access to financial services within a 5km radius
Ogbalu explained: “We have before us a major opportunity because we have a lot of people who are currently excluded; we have a whole lot of cash outside of the formal banking system. Now, it creates an opportunity not just for the financial services providers, but for the entrepreneurs who are going to facilitate transactions within the emerging financial services.
“Mobile is very critical and we at First Bank have created a brand called FirstMonie which is creating the future where most of the things we that we will be doing will be done electronically and from our mobile devices. It creates a major opportunity for people. Today, we have about 13,000 agents all over the country.”
He admitted they had experienced some churn because of the ’get-rich-quick-mentality’ that is the bane of many a Nigerian businessman. ”Incidentally here in Nigeria you find that a lot of people just think that you can get on a business and you make all the money you want to make within one day or within one month, but really if you look the world over businesses that are sustainable are not businesses that immediately you touch it you start to making money. It takes a little bit of perseverance, discipline, staying power and that is why not everyone that has got into business has made it.”
According to Ogbalu, the huge potential of mobile is going to create a whole lot of successful entrepreneurs and businesspeople of the future. “By 2030, two billion people who do not have a bank account will be storing money, making payments with their phones and by their mobile money providers such as FirstMonie, would be offering full range of financial services from interest-bearing savings to credits, to insurance all of which is a major opportunity for SMEs,” he said.
Apart from increasing financial inclusion and making transactions much more convenient, faster and flexible, one big opportunity offered for mobile financial services, from the perspective of FirstMonie, is in the creation of SMEs. “So out of actually facilitating the entry into new financial services, entrepreneurs are going to be created. This is particularly true with the creation of avenues for income generation along the mobile money value chain. Specifically, thousands of SMEs are created from merchant and acceptance points,” Ogbalu said.
FirstMonie has forged partnerships corner shops. “So it creates a lot of merchant and acceptance points. It creates agents; it creates canvassers. All these are jobs. It also represents new businesses starting off. They not only provide sources of livelihood, but productive engagement for large rural population and even the urban dwellers,” Ogbalu added. He admitted that today the biggest challenge to SMEs was access to cred.
Another area of challenge is in micro-insurance, as SMEs get exposed to all manner of risks, some of which are anticipated while others are not. “We are partnering with our other subsidiaries and we are introducing products which again are along the lines of mobile will be able to hedge the risks that SMEs face,” Ogbalu said. “SMEs are the future and mobile money is the gateway,” he said.
The Head of Channels at Union Bank Plc, Ayodele Mebode, spoke on the benefits of banks to SMEs. Courtesy of the injection of $500 million into the bank by Union Global Partners, Mebode said his bank was now in a position to offer quality banking services to its customers, which would see improvement in quality customer experience, refurbished banking networks and upgraded technology.
The bank is also clear on what SMEs can do and what challenges they have. “The role of SMEs in our economy cannot be overemphasized. They play a major role in our economy in terms of job creation, enhancement of trade, employment generation, industry, wealth creation. It is also a source of dynamic competition and technology innovation. Some of the key challenges we have with SMEs are basically lack of finance, inadequate infrastructure, low productive capacity, insecurity and low level of entrepreneurial and managerial skills,” Mebode said.
Head, Small Businesses at Skye Bank Plc, Ayodele Olojede, said Nigeria had been identified as one of the fastest growing economies in the world and the prospects of the growth of the internet was definitely a critical factor in this. “’When you now also consider the fact that SMEs constitute about 80-90 per cent of businesses in the country that provide services and unemployment in the economy, then you would agree that SMEs can be leveraged as a business segment that can truly bring about economic development,” she said.
Olojede pointed out that is one reason why the bank chose SMEs as a segment to focus on. Beyond giving loans, she said there were a lot of other initiatives that Skye Bank had for e-Commerce to grow and support SMEs. “We recognise that e-Commerce is a platform through which SMEs can expand the possibility, the reach of their market by accessing markets even beyond Nigeria. However, the observation or feedback from the SMEs themselves in the use and adoption of this platform has not been as fast as we would love it to be.” Oloyede stated that those not using e-Commerce platforms currently were dissuaded by affordability, availability, security and other considerations.
“So, it is in recognition of this that we at Skye Bank Plc are coming up with a launch in the next few weeks, an e-Commerce platform that is different from what is currently obtainable in the market,” she said. She did not give details “so other banks do not copy us. But it is going to be done in such a way that will be supporting the use of the platform even as we face all the challenges that have been identified”.
“Having a successful business goes beyond an idea; there are some habits, there are some discipline, there are some governance and some structures that you need to be able to provide and go by in business for you to become successful. And it is in recognition of that fact that we are coming up with some workshops and business seminar series that will start in March and are going to be sector-based so that we can have an expert who will be able to come up with solutions for SMEs in each particular sector.
“We also recognise that a lot of SMEs are sole proprietorships without registration, so we also have a value add that we are going to come up with and provide a heavily discounted price at Skye Bank.”
Oloyede said her bank had other initiatives around partnerships and strategic alliances, and was one of the SME-friendly commercial banks that signed a memorandum of understanding with the BOI, adding: “We are very actively driving the sale of the six-digit funds that we are providing and is going to be over a period of five years. SMEs have complained that they cannot access funds over a long period of time.” Her bank, though, has circulated the list of BDSPs among its branches nationwide so SMEs could walk in and access them.
Data Platform Lead at Microsoft Nigeria Femi George advised SMEs to embrace cloud computing so as to be more productive and achieve this on a faster, cost effective and cost efficient manner. “Cloud is basically leveraging prefabricated services, compute power or storage … in order to speed up your service,” George said.
The Head of Enterprise Marketing at Etisalat Nigeria, Bidemi Ladipo, noted that SMEs had issues with capacity building and must do something about it if they hoped to survive in a competitive environment. “But there is an economy of scale that is there. I think you should try and leverage on that. What technology can do is illustrated by what our partnership with First Bank is all about,” Ladipo said.
“When we talk about mobile money and wallet services, it has been useful to a lot of people and for some of us in business, they wonder why they should be active in this when it is not going to bring immediate benefits to them?
“So that is what Etisalat is coming to do in the space with our Internet products, with our SME products. We have a bundle with FirstMonie whereby you can actually open an account a free account on an Etisalat sim card and you can start to accept money on that account. You can even function as an agent where you start to accept money for others whereas you are exchanging your own goods and services, people that need to put money in their account you can start doing that. You can start doing services like DSTV. You can start doing a whole of financial services out of your store. Beyond the traditional business you are having you start making additional streams of income. These are ways you can differentiate yourself,” Ladipo added.
Generally, it would seem all banks, because they have different risk appetites, approach lending to SMEs uniquely. What is even more encouraging, going by our findings, is the fact that collateral is not a compulsory criterion in all cases requiring SMEs to access funding from banks and other financial institutions. They must pay attention to proper packaging of their proposals and not be discouraged with the requirements for providing collateral.
As things stand at the moment, business membership organisations (BMOs) are angling for stronger voice on all issues bothering on the CBN’s interventions concerning SMEs. SMEs have not been able to access the N220 billion provided by the apex bank that is envisaged could provide the needed tonic to SMEs, as a result of many factors, including poor awareness creation by banks and the SMEs themselves.
The Director of Membership and Public Relations at the National Association of Small and Medium Enterprises (NASME), Nerus Ekezie, said all interventions from the apex bank that did not carry along BMOs at both conception and execution points would fail.happy wheels