Small and Medium Enterprises (SMEs) are critical to the development of any economy as they possess great potentials for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries. In Nigeria, there has been gross under performance of the SMEs sub-sector and this has undermined its contribution to economic growth and development. The key issues affecting the SMEs in the country can be grouped into four namely: unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology (FSS 2020 SME Sector Report, 2007).
Among these, shortage of finance occupies a very central position. Globally, commercial banks which remain the biggest source of funds to SMEs have in most cases, shied away because of the perceived risks and uncertainties. In Nigeria, the fragile economic environment and absence of requisite infrastructure has rendered SME practice costly and inefficient, thereby worsening their credit competitiveness.
To improve access to finance by SMEs, the Central Bank of Nigeria has approved the investment of the sum of N500 billion debenture stocks to be issued by the Bank of Industry (BoI) with effect from May, 2010. In the first instance, the sum of N300 billion will be applied to power projects and N200 billion to the refinancing/restructuring of banks existing loan portfolios to Nigerian SME/manufacturing sector.
So far, the Guidelines for the N200 billion re-financing and restructuring of banks loans to the manufacturing sector has been issued by the Bank, while those for the power sector will be issued at a later date.
The objectives of the N200 billion re-financing and restructuring of banks loans to the manufacturing sector are to: Fast-track the development of the SMEs and manufacturing sector of the Nigerian economy.
Improve the financial position of the deposit money banks.
Complimentary to the above, the Bank has also established a N200 billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS), for promoting access to credit by SMEs in Nigeria. The Scheme shall be wholly financed by the Central Bank of Nigeria (CBN) as stipulated in the Guidelines.
The objectives of the SMECGS are to:
- Provide guarantee for credit from banks to SMEs and manufacturers.
- Increase the access of promoters of SMEs and manufacturers to credit.
- Set the pace for industrialisation of the Nigerian economy.
The overall goal of these two initiatives are to increase output, generate employment, diversify the revenue base, increase foreign exchange earnings and provide inputs for the industrial sector on a sustainable basis.