Against the frequent complaint that growth and development of small and medium enterprises (SMEs) in the country are constrained by unavailability of finance at cheap interest rates, it is good news that such a challenge will soon become history. The other day, reports indicated that deposit money banks (DMBs) have commenced disbursement of “more than N26 billion enterprise development intervention fund under the Agriculture and Small and Medium Enterprises Investment Scheme (AGSMEIS)” set up by the Bankers Committee.
The AGSMEIS is the product of an agreement by member-banks of the Bankers Committee to set aside five per cent of their annual post-tax profit to assist in making funds available to SMEs, either as equity (interest-free) or loan, at single digit interest rate.
Many factors make disbursement of the fund commendable, that is, if properly implemented. The first is that the scheme will make available and accessible cheap funds to small businesses thus, filling the gap that has been a serious source of lamentation by such target businesses. According to reports, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, stated that “small loans like N100,000, N200,000 and N500,000 at not more than five per cent will be disbursed.” The size of the amount will make it possible for the credit facility to be accessed by many small businesses. Second, the target businesses will include, among others, those in tiling, masonry and house decoration. Such neighbourhood businesses have potentials for creating employment and even opportunities for apprenticeship/internship. They will therefore impact positively on the labour market. Three, there is said to be a provision in the scheme for the training of beneficiaries of the fund on how to manage their businesses on a daily basis. The enterprises will benefit from better management, with chances of survival and growth. Four, given that the tenor of the loans under the scheme is said to be within seven years with also a moratorium, the entrepreneurs will have enough time to productively utilise the money before final repayment becomes due. Consequently, the entrepreneurs will not be under pressure to repay the borrowed funds.
Indeed, the chances of repayment, with little or no defaults, will be increased. Five, since the scheme aims at increasing the number of small businesses operating in the country and generating about 100,000 jobs within one quarter of the year 2018, early commencement of fund disbursement will assist in the realisation of this critical objective. Six, training of loan beneficiaries and providing them with equipment and working capital that will enable them to embark on their businesses will be tremendous empowerment for positive results.
However, for the scheme to be successful, multiple challenges exist for the banks and the small businesses that will patronise the credit facility. A key challenge for banks is their level of commitment on the scheme. Will they, for instance, give as much attention to applications/projects under this scheme that promises low or uncertain returns as to those with high and probably assured returns? If such serious attention is unlikely to be generated, then the fund will end up like the previous ones that did not achieve the intended objectives. A second challenge is whether banks will be able to re-train themselves to effectively manage small scale credits? There are significant differences in the, for example, appraisal and administration of small and large-sized credits.
Deposit money banks in the country are more knowledgeable and skilled in large instead of small credits. Thus, to be able to make this scheme work well, banks are confronted with acquiring and up-scaling their small credit management skills and practices. This will require extensive training and re-training of the relevant personnel irrespective of whether or not management of the scheme will be outsourced to a third party. Third, going by the stated small size of the loans to be made available and the idea of creating many small enterprises through the scheme, banks or their scheme’s management agents are likely to be faced with numerous fund requests. Are they prepared, especially, in terms of capacity, to cope with this expected daunting task, even if technology will be deployed to assist? If the fate of applications for the fund is to be undetermined for months, untimely death of the scheme will be heralded by loss of confidence by many of the potential beneficiaries. Four, perhaps, the most important challenge to the banks is whether they ever learnt lessons from similar schemes they previously mid-wifed without sustainability? It is not the commencement of fund disbursement that matters; what matters are repayment/recovery of the funds when due and sustainability of the scheme to ensure attainment of its growth and developmental objectives in the economy. While therefore, early commencement of disbursement of the funds is commendable, it is when sustainable beneficial outcomes are produced that banks will be said to have done a good job.
As for the small businesses, imperative challenges are discipline and diligent management of the credits. Many of the entrepreneurs complained of inability to access cheap funds to power their businesses. Now that such fund has been made available and hopefully, accessible, it behoves them to make the best use of this opportunity. They must, from the on-set, think of repayment as much as they think of borrowing. They should not forget that their creditworthiness with small credits will have much to reveal of them when the need for larger amount of credits arises.
Finally, if banks and the small business entrepreneurs can play their parts diligently, transparently and responsibly, achieving the lofty objectives of the scheme will not be difficult. That is what this economy requires and deserves for the well-being of the citizenry.