Head, SME Banking, Stanbic IBTC Bank, Obinna Ukachukwu in this nterview speaks on issues relating to financing of small and medium enterprises, stressing the need for creation of capital for the sector.
By Babajide Komolafe
STANBIC IBTC Bank is one of the banks’ with significant involvement with Small and Medium scale Enterprises (SMEs). What would you consider the greatest prospect or opportunities for financing SMEs in the country?
Objective statistics shows that SMEs are over 90 per cent of the businesses in Nigeria and they contribute up to 45 per cent of GDP. This is despite being underfunded and unstructured. This pool is a big opportunity to get value from funding SMEs in country.
When you consider that the current value being derived from SMEs is despite the fact that most of them are subsistence/micro businesses, then you can begin to imagine how big this opportunity will become if they scaled up just one level.
And what would you consider as the biggest challenge for banks in terms of financing SMEs in the country?
The fact that SMEs do not have the ability to scale to an extent where bank debt will make a meaningful impact. This prevails because of the following: Lack of proper financial education of SME operators; Lack of good corporate governance and business structure; Lack of access to equity – our markets for equity is not very developed.
In your view do you believe SMEs recognize and address this challenge?
A few of them do, whilst many of them believe that the banks should solve their problems, this is mostly because they do not understand that the nature of bank loans do not accommodate an appetite for funding start-ups or for giving loans that behave like equity.
How is your bank helping SMEs to address these challenges?
We organize free SME business trainings / capacity building programs open to both customers and non-customers nationwide.
We have also invested in setting up a business incubator that would cater for handholding businesses and mentoring entrepreneurs on business best practices as well as provide market access.
Despite increased attention and support for SMEs by banks, CBN, most SMEs out there still have this perception that the banking industry is not favorably disposed to SMEs. What can be done to correct this impression?
SMEs need constant education on how the economy runs. If the banks lower their appetite for risk and fund the businesses with poor structure and governance, the loans will go bad, shareholders’ funds will be eroded, and the cycle will hurt SMEs even more.
We, however, still need to work at developing alternative sources of funding apart from commercial bank debts. Banks collaborating to set up various pockets of SME entrepreneurship funds might help meet the need for patient capital which commercial bank debts can then ride on.