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Problem and Prospect of SME Financing In Nigeria

Problem and Prospect of SME Financing In Nigeria


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SMEs can be categorized according the size or amount of investment in assets ,total annual turnover, and The number of employees. The National Council of Industry  describe a medium scale enterprise as any firm with operating assets less than ₦200 million, and employee level not more  than 300 persons. A small-scale enterprise is viewed as that firm with total assets less than ₦50 million, and employee level less than 100. Annual turnover is not considered in its definition of an SME.

The National Economic Reconstruction Fund defines a SSE as that firm with total assets less than ₦10 million; no reference is made annual turnover or the number of employees. SMEs play significant role in the growth and development of the nation such as contributing to the development of entrepreneurship and provide employment (Ayozie and Latinwo, 2010; Udechukwu, 2003; Ogujiuba et. al., 2004; Henrique’s and Klock 1999); they are easy to start with less technology and yields  quick returns.

SMEs also facilitate the acceleration and   achievement of wider economic and socio-economic objectives, and poverty alleviation (Ayozie and Latinwo, 2010; Udechukwu, 2003). Small and Medium Scale Enterprises assist in the attainment of Sustainable Development. However in Nigeria the rate of development of SMES is slow with minimal contribution to the GDP.

The sub-sector is confronted with a number of constraints and insufficient financial facilities as the major constraint.. The availability and adequacy of finance is conceived as important for the development of Small and Medium Scale Enterprises (SMEs).

However the Nigeria situation shows that SMEs have limited access to financial resources when compared to larger organizations and which consequently affect for their growth and development .SMEs are burdened with   higher transactions cost in obtaining credit than the larger firms. Moreover. Poor management and accounting record have impeded the  ability of SMEs  to raise finance

investment in Small and Medium Scale Enterprises (SMEs) is relatively large

Because of the need for fixed assets such as land, civil works, buildings, machinery and equipment and movable assets. Invariably, Small and Medium Scale Enterprises requires   long-term loans for their operations so as to avoid the problem of mismatch between project gestation and loan maturity.  SMEs are equally faced with the problem of cost of funds which also impacts significantly on the ability of the firm to compete and survive. Long gestation period  in an unstable environment  with poor financial policy  subjects SMEs to  high failure rate, and expose the firms to high risk of investment of bank credit .Many SMEs operate on a small scale as family businesses as a result they are not easily open to banks hence the limited finance being made available to the sector. SMEs.  Depend on a variety of sources of financing, consisting of internal and external sources. Bank credit or loan constitute is major source of external funding to SMEs.  But in the Nigerian context, bank credit facility is low and sometimes non-functional. For example  according to CBN REPORT of 2010 only 0.15% of commercial banks‟ total credit was granted to Small Scale Enterprises in the last quarter  and sometimes lesser than that even in the post consolidation era..


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SMEs Funding Challenges and Interventions

Due to the problem of lack and inaccessibility of funds/loans from the banks by SMEs, the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) was initiated by the bankers committee of Nigeria which made it compulsory for all banks to set aside 10 per cent of their Profit After Tax (PAT) for equity investment and promotion of small and medium enterprises. The funding constituted an equity investment in eligible enterprises and or loans at single digit interest rate as a measure to alleviate the burden of interest payment associated with normal bank lending operations. However the scheme has not lived up to expectation as a result of the low participation of banks

SMEs are also affected by limited requisite infrastructures. Such as roads, power supply, ICT facility ports, finance facilities, and the introduction and pursuit of policies such as concessionary financing to encourage and strengthen their growth. The limited infrastructure has also affected the level of financing, growth and survival of small and medium scale enterprises in Nigeria.



1 The setting up and consolidation of the bank of industry by the government has facilitated the growth and development of SMEs

2 The setting up of Small and Medium Enterprises Development Agency of Nigeria (SMEDAN), by the government has also facilitated the growth and development of small and medium scale enterprise.

3 The release of bailout funds for the establishment and development of SMEs in Nigeria by the government through the Central Bank hs contributed immensely to the development and growth of SMEs in Nigeria

4 The government introduces the refinancing and restructuring policy which was to help SMEs to access funds for operations and development.


Summarily problem affecting small scale enterprise includes the following



Lack of easy access to funding/credits, this is majorly linked   to the reluctance of banks to extend credit


2 Discrimination from banks,

  1. High cost of Business plan packaging appropriate business proposals

import tariffs, which at times favor imported finished products

  1. Lack of access to appropriate technology

7 High dependence on imported raw materials

8 Weak demand for products,

9 Unfair trade practices characterized by the dumping and importation of substandard goods

  1. Weakness in organization, marketing, information-usage, processing and retrieval,
  2. High incidence of multiplicity of regulatory agencies, taxes and levies .
  3. Widespread corruption
  4. Absence of long-term finance to fund capital assets and equipment under project finance for SMEs
  5. The lack of scientific and technological knowledge and know-how, i.e. the prevalence of poor intellectual capital resources, which manifest as: s.



  1. Lack of process technology, design, patents, etc.,
  2. Inability to meet stringent international quality standards,


  1. The inability to penetrate and compete for export.


  1. Lack of initiative and administrative skill


  1. Lack of appropriate and adequate managerial and entrepreneurial skill


5 Enterprises Credit Guarantee Scheme (SMECGS),  was also setup for promoting access to credit by SMEs in Nigeria. The Scheme shall be wholly financed by the Central Bank of Nigeria (CBN).


The objectives of the SMECGS are to:

 Provide  credit from banks to SMEs and manufacturers.

 Increase  promoters access to SMEs and manufacturers to credit.

 Set the pace for industrialization of the Nigerian economy.


Th objects of these  initiative were to increase   output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis.


The objectives was to

 Enhance  the development of the SMEs and manufacturing sector of the Nigerian economy.

Help  Improve the financial position of the deposit money banks.

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Ifiokobong Ibanga

Ifiokobong Ibanga is the founder of InfoGuideNIgeria.com. You can get in touch with him on Instagram @ifiokobong. If you need a personal assistance on this topic, kindly send a message. Much Love!

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