The Lagos State Employment Trust Fund (LSETF) is a N25 billion Fund established by the Lagos State government to empower Micro, Small and Medium Enterprises, MSMEs, and improve the skills of entrepreneurs, with a view to boosting employment. In this interview, Mr. Babatunde Oyebode, Executive Secretary of LSETF, speaks on this and sundry issues. Excerpts.

By Yinka Kolawole

How is LSETF different   from traditional lending institutions?

No, it is not like traditional lending. We do not require collateral; we only require that you provide the relevant documentations that you are fit and proper person to borrow.

And even the banks in recognition of this have said to us there are people that we know who run genuine businesses who cannot get loans from us, can we refer them to you and we say of course you can. This is a sign that even the banking industry realizes that we are doing it in a way that even they can’t do it.

It’s important that you lend responsibly because this Fund is not an endless pot of money. The Lagos State government has provided seed capital of up to N25 billion over a four year period. We are also raising additional funding from private sector institutions. But it’s a finite sum, it is seed capital.

Babatunde Oyebode

Raising additionalfunding

The State has competing needs for its money. So after that N25 billion is fully contributed we don’t expect any more money from the State government. Therefore the ability to continue this into perpetuity as a going concern is heavily dependent on the ability of the institution to recover the loans it gives out.

If we do not recover the loans we give out, then we would have failed. To ensure we do that, we need to ensure that there is some rigour and discipline in that process.

If we do not have any rigour in the process, then it will become come one come all affair. In no time we would have expended all of that capital and we’ll be right back to square one. The rigour we put in this process is to identify those who are genuine entrepreneurs.

The hallmark of this scheme is that we are solving two problems – access to capital and cost of capital. We’ve identified the second one as providing single digit interest rate.

But the first one is that we are actually doing this without recourse to any form of collateral which is the biggest hurdle that small businesses face in accessing funding. What we are requiring is that the businesses provide the minimum documentations that guarantee us that you are indeed worthy of this facility. We ask for tax information, this money has come from just one person – the taxpayer. It’s come from the dutiful contributions of Lagos State residents who pay their taxes as at when due.

So it is only right that those who will benefit from this scheme are either existing tax payers or those who have shown intention or willingness to pay tax by registering. Your LASSRA registration is what gives us comfort that you are indeed resident in Lagos because our jurisdiction is Lagos State.

Some applicants complain of partner banks turning them down. Are partner banks obligated to disburse loans to successful applicants?

The banks are mandated to disburse the funds once the beneficiaries meet all the conditions. And those conditions are our conditions and some that we’ve outsourced to the banks. For example, the banks will insist that you must provide BVN and if you don’t have it, then you have to register for that. We have asked the banks to do a KYC (Know Your Customer) due diligence exercise on the people. So they must do KYC as they would for anyone opening a bank account. We asked to also conduct mandatory credit checks to ensure that those we are lending to are not people who have previously defaulted on their obligations. So what happens normally now is that once we say to the bank this is the amount we’ve approved for this person who has met all our requirements.

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The banks now will tell the people to meet their own side of the requirements and also provide an equity contribution of 5 percent of the loan amount which again gives us comfort that indeed they are doing business and can put some capital down.

So once you meet those conditions, we are then confident to tell the banks they are free to disburse to the people. And once we do that, the banks must disburse. So what you find are instances where some of the beneficiaries have not fulfilled all our requirements.

What’s your target for this year and the breakdown of demographics – male, female, age and local governments?

Our target this year is to support 23,000 MSMEs, being our first year and of course, we expect to ramp up these numbers subsequently.  As at today, we have so far approved up to N1.7 billion loans for 1,400 beneficiaries. Those beneficiaries are at different stages of fulfilling the requirements for the disbursement. But we expect that by the time we are reviewing this strategic funding in 2019, our target is to have disbursed loans to at least 100,000 businesses and all our programmes should translate into creation of up to 1 million jobs.

We track our demographics very closely – we are very keen to support young entrepreneurs and also very keen to support women. For the micro-enterprise programme, the gender split is about 52-48 percent, but for our SME programme the number splits around 65-35 percent in favour of men.

We have actually focused a lot on dealing with female groups. We are talking to a number of institutions that target women to ensure that female participation increases. From an age perspective as well, one of the reasons we launched the micro-enterprise start-up programme was in realization that young people are often disadvantaged because they don’t even have the initial capital to start business.

We are also very active now all the popular social media platforms, places where we feel that young people utilize to communicate to ensure that we can reach them. We also intend to go to NYSC camp, universities, polytechnics, to take this message there because we are very keen on young people.

What are the priority sectors you are focusing on and how do you deal with those who are illiterates?

One of the challenges we face with this kind of things is that there is very little baseline data. So what we’ve done is we decided to be sector agnostic at the start, we will not focus on any specific sector. We will collect our own data. And from that we start to recognize what sector gives us bigger impacts.

Of course, there are certain sectors that will always come into play – agriculture, ICT, retail and wholesale trade. So there are some sectors that you would support – education, transport – but we want to know which ones actually create more jobs, which ones are more resilient.

All those kind of things will come out from our own primary data. So at this stage, as long as you are not doing anything illegal we are happy to consider and support. And again it’s because we are an equal opportunity organization, we are here to support everybody.

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Now in dealing with the less literate or the illiterate class, you find that people are often very literate in non-formal languages. We are communicating in all major languages in our stakeholders’ sessions; we speak pidgin, Yoruba, English. We have people from the different tribes – south-east, south-south, the north come to address the crowd in languages they understand. But we also recognize that it’s useful to use acquisition partners, because those acquisition partners help to bridge the illiteracy gaps. For example, if you are dealing with market associations, I think we under-estimate how literate these people are because they’ve run businesses successfully and so you can get through to them easily.

Do you have a feedback mechanism for the loan beneficiaries and how do you monitor the beneficiaries?

We are very strong on social media, we are monitoring them real time. And this provides us instant feedback. We also have liaison offices where people are encouraged to send feedback. We’ve even gone as far as having a whistleblower framework and the details of our whistleblower hotline is on our website – email, phone number. So you can actually go there anonymously and provide us with information if anything irregular has happened. But ultimately, even going around the state provides us invaluable feedback. We’ve been to six LGs and people give us genuine feedback. Even the criticisms are heart-felt and genuine and they will make us get better. In terms of monitoring, we are working with a number of financial institutions and we do not pretend that we have the capacity. It also ensures that we operate a lean organization.