Nigeria: How to Access SME Funds
Nigeria, September, 30 2018 -
Daniel Adeleye shares useful tips on how small and medium scale entrepreneurs can access some of the intervention funds earmarked for the sector by the Federal Government through some of the quasi-governmental agencies like the Bank of Industry (BoI) and others
According to a recent survey conducted by the National Bureau of Statistics and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) the SME sector currently represents 97 per cent of the enterprises in Nigeria and employs over 32million Nigerians.
But, it is, however, instructive to note that one of the major challenges that have limited the access of small and medium scale enterprises to credit facilities is their inability to present bankable proposals to financial institutions.
The difficulties most SMEs face in their quest to secure funding for their businesses, is as a result of their inability to supply the right information required by banks to process their loans application.
Thus having recognised this, the BoI has continued to organise series of capacity building programmes to empower owners of small businesses across the country.
Thankfully, BoI under its paradigm shift launched in 2006 has continued to dedicate 85% of its resources to funding of the SME sector.
In order to address the problem of lack of access to finance for the development of the sector, the federal government, through the BoI, has developed a counterpart funding scheme and currently has a partnership with the states of the federation.
This scheme has generated a funding pool of approximately N9billion for MSME development alone in the past few years.
The scheme being spearheaded by the Federal Ministry of Trade and Investment is aimed at harnessing the vast opportunities in the MSME sector to drive inclusive economic growth through skills acquisition, entrepreneurship training, business financing, employment generation as well as wealth creation. And in order to harmonise all SME development activities across the country and achieve maximum impact, the Federal Ministry of Industry, Trade and Investment is promoting the establishment of SME council in all the 36 states and the Federal Capital Territory, Abuja.
The SME council are structured to comprise relevant state government official, those of the organised private sector and representatives of SME promotion, development and facilitation agencies.
ABC of accessing BoI funds
BoI fund items like manufacturing, agricultural and so on. To access the Bank’s facilities, prospective applicants are required to take one of many steps.
Among other things, an applicant is expected to submit a proposal by writing a formal application letter, completion of BoI’s questionnaire.
Applicant must produce a photocopy of Certificate of Incorporation, Certified True Copy of Memorandum and Articles of Association, form CAC 2.5(CO2) and forum CAC 2.3(CO7) of the company.
Prospective applicants are equally required to provide the most recently audited accounts in the case of existing businesses in the last three years and a report of feasibility study, land and building documents with an unexpired tenure of 25 years minimum, statutory Certificate of Occupancy original copy for sighting, approved building plan, bill of quantities or contractors estimate\valuation report on building as applicable as well as a satisfactory tenancy agreement long enough to cover the tenure of BOI’s facility, in respect of suitable rented property.
Other requirements include providing a proforma invoice for items of machinery and equipment from the source indicated in the feasibility report; enumerate price and source of raw materials, present a tax clearance certificate of the company along with names of at least two directors for the last three years, with eight recent passport photographs, international passport or driver’s license of each and that of the company secretary.
Besides, BoI, there is also the Micro, Small and Medium Enterprises Development Fund (MSMEDF) which has been earmarked a proposed seed fund of N220billion, with a minimum of 60% (N132billion) of the Fund committed to providing financial services to women in order to address their peculiar financial exclusion challenges.
Guidelines for accessing MSMEDF
This guideline specifically sets out the modalities for operating the N132billion women component of the MSMEDF.
The Fund’s two main objectives namely: social/developmental objectives/grants.
10 % of the MSMEDF has been earmarked for administrative objectives in the following categories: Managing Agent’s Operational Activities of three percent (N3.96b) and Interest Drawback Programme of two percent (N2.64b).
Besides, microenterprises which have a mandate to manage 80% of the commercial component of the Fund have N95.04 billion while SMEs are expected to manage the remaining 20% of N23.76billion.
The Fund shall be managed by a Special Purpose Vehicle (SPV) under the terms and conditions defined in the general guidelines for the MSMEDF. In addition the Department of the Fund that shall administer the Women component of the MSMEDF shall be headed by a woman.
Requirements for Microfinance Banks/Finance Companies
For a microfinance bank/finance company to be eligible for support from the Fund, it is expected to satisfy the following conditions as obtained from its latest CBN examination report:
Compliance with regulatory capital
Compliance with prevailing prudential ratios: liquidity 20%; capital adequacy ratio 10%; adjusted capital to net credit ratio; micro credit to other loans ratio; and 80:20.
Average deposit growth rate of 20 % per annum
Favourable profit trend for three years.
Risk management framework acceptable to the regulators
Corporate governance culture acceptable to the regulators and as indicated by number of non-performing insider-related facilities; degree of separation of ownership from control/management; adherence to sound ethical values.