What SMEs need apart from intervention loans
Small and medium-sized enterprises (SMEs) play a major role in most economies, especially in developing countries. According to the World Bank, they represent around 90% of companies and more than 50% of jobs in the world. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies and these figures are significantly higher when informal SMEs are included. The World Bank predicts that “600 million jobs will be needed by 2030 to absorb the growing global workforce, making SME development a high priority for many governments around the world.
As access to finance is a major obstacle to the growth of SMEs, its financing has become essential. This has spawned a myriad of programs ranging from incubators to accelerators, both locally and internationally, providing loans, grants and other resources to ensure the sector is equipped to create jobs and boost the economy. overall. Federal grants and other forms of support have also been provided to SMEs. Since the outbreak of the Covid-19 pandemic, SMEs have been a priority as beneficiaries of loans and other stimulus packages. CBN’s 50 billion naira Targeted Credit Facility (TCF), intended to support SMEs and households whose economic activities have been disrupted by the COVID-19 pandemic, is just one of several packages. that have been put in place to specifically address them.
While there is data to support the impact of SMEs on our economy, it is true that while small businesses help the economy, not all small businesses will contribute to the dream – or even survive its early years. According to The Better Africa report, by Weetracker, an African digital media company, the 5 countries that experienced the highest closure rates among start-ups between 2010 and 2018 were Ethiopia at 75%, Rwanda at 75%, Ghana at 73.91 %, Zimbabwe at 66.7% and the Democratic Republic of the Congo (66.7%). Nigeria’s start-up failure rate averaged 61% during the same period. This means that if small business loans are given randomly to businesses in Nigeria, 61% of those businesses are doomed and the money given is completely wasted.
The the small business loans offered by CBN are a good step in the right direction. However, determining whether this ends up in the hands of startups viable enough to scale and create jobs or the greater percentage that will fail, depends to a large extent on how they are selected. In sayamortization of loans, it must be clear methods of choice the recipients. CBN 50 billion naira Covid-19 intervention fund for SMEs in collaboration with the microfinance bank NIRSAL, simply noted that he would assess and perform due diligence requests before sending them to CBN requests for final approval, to CBN for review. The results will tell their story.
Why the economy needs more than loans
CBN granting intervention loans is only part of the search for the solution – and that too doesn’t say much about the amount of loans granted and their effect on the economy as a whole. If it’s too little to make a real difference, then it might only buy many of these companies a few more months of strenuous survival, after which all will be lost.
The overall operating environment must be able to stimulate growth either through favorable tax incentives for specific industries, a moratorium on other forms of lending, or simply the provision of basic infrastructure such as electricity and internet services. fast.
Another important thing is to make sure that there is a ready market for business in the country. Even with good federal loans, a business without a loan market will spend its funds on ineffective marketing. This ready market, however, has a lot to do with the ease of local production to ensure competitive prices, further reducing the proliferation of imported items, and more.
In other words, the economy will benefit even more from its overall development. Loans could help, but overall there is little likelihood of sustained exponential growth until the elements that should be in place to accelerate the development process do not exist.