BY NKIRUKA NNOROM
The country will be faced with another round of banking sector crisis if the banks will continue to lend to the Small and Medium Scale Enterprises (SMEs) with the present state of infrastructures and power, says Mr. Mustafa Chike-Obi, Managing Director, Asset Management Corporation of Nigeria (AMCON).
Chike-Obi, who spoke to Vanguard in his Lagos office, said instead of clamouring for banks’ lending to the SMEs, the government should tackle the lingering problem of power in order to reduce costs for manufacturers.
According to him, whereas Nigerian businesses spend as much as 30 per cent of their earnings on power, their counterparts in other parts of the world spend meager two to five per cent.
He said, “Here is the issue; you have to balance the fact that you want the banks to lend against the fact that you don’t want them to do it again in a reckless fashion so that you don’t have another problem of non-performing loans five years from now. So, they have to balance your desire for them to lend with your desire for them to have good risk management practice, so that we don’t have problem again. So, it is a balancing act. They should lend, but they should lend where they are comfortable.
If we want to go by the popular demand, ‘let’s lend to SMEs,’ then in five years from now, we will have another crisis. If I lend you money, I should know that in five year time, unless there is improvement in power and security issue, it won’t make sense. If your bank should lend to these people, five years from now, we will be talking about another problem.”
“Businesses like small manufacturing companies will not progress as far as they have to pay for their own power. Small manufacturing companies, small businesses are going to continue to have hard time in this country until there is reliable cheap power. That’s why most of these businesses are folding up,” he lamented.
Continuing, he said, “Let’s fix the infrastructures first. Let’s reduce the cost of doing business. That’s what we should be working on. We should have a rail system. If the government can do that, you will cause those small business owners to make money and the banks will have plenty of assets. When you have done all those things- people have power, then a small tailor will survive, small restaurant will survive. Nicon Hilton will survive, small enterprises will survive; otherwise, we won’t.
Chike-Obi maintained that the claims that banks don’t give credit facilities to the SMEs was not totally true, saying that year-on-year, the private sector lending went up by 44 per cent in 2011.