February 8, 2021

Low level of financial knowledge threatens 33.6m MSMEs


A map of Nigeria

…48% of economic growth prospect under threat  

•NASME advocates business support services  

•Formal education not same as  financial literacy —BoI

By Yinka Kolawole

Nigeria’s hope of  quick recovery from recession and significant increase in economic growth is under  threat from  micro, small and medium enterprises (MSMEs) sector which accounts for 48 percent of the nation’s Gross Domestic Product (GDP), as 33.6 million small businesses (62 percent) struggle  with the challenge of poor financial literacy.  

Nigeria has about 41 million MSMEs which are businesses with less than N100 million annual turnover. 

These businesses however contribute  about 48% of  the nation’s Gross Domestic Product (GDP), accounting for 96% of businesses and 84% of employment in Nigeria.

Consequently, the MSME sector has been a major focus of  the various efforts of the federal government and the Central bank of Nigeria (CBN)  to return the country to the path of positive economic GDP growth.    

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These include the N50 billion Targeted Credit Facility for Households and SMEs by the Central Bank of Nigeria (CBN) and the N75 billion MSME Survival Fund by the Federal Government.

Investigations  however reveal that these interventions might have a limited  impact  in boosting economic activities and reversing the negative GDP growth which pushed the country into economic recession last year, due to the prevalence of poor financial literacy which makes it difficult for most of the MSMEs to access external funding and grow their businesses.  

Confirming this challenge,   a nationwide survey of MSME entrepreneurs shows that the vast majority of MSMEs in Nigeria have limited financial literacy, and most of the entrepreneurs surveyed recognised that greater financial literacy would assist them in running their businesses more efficiently.  

The survey also  revealed  that, among other factors,  limited levels of financial literacy among entrepreneurs are a significant factor responsible for the equally low levels of access to external finance.

The survey was conducted by FATE Foundation, a foremost MSME focussed non-governmental enterprise development organisation, in association with Association of Chartered Certified Accountants (ACCA) Nigeria.

This follows  engagement activities by  FATE Foundation and ACCA Nigeria with entrepreneurs to understand their levels of financial literacy, including a survey of 6,200 which focused on those who have specifically undertaken financial literacy training about the benefits of having done so.

The survey revealed that most entrepreneurs recognise that greater financial literacy would assist them in running their businesses more efficiently.   



The survey found that 82 percent of the entrepreneurs surveyed had no accountancy knowledge or background. Some 73 percent of respondents recognised they needed greater financial literacy skills, while 65 percent said this would help them run their businesses better. Only 20 percent of respondents said that financial literacy was not important for their business operation.

Financial Vanguard analysis of the survey implies that with an estimated 41 million SMEs in Nigeria, almost 30 million SMEs (73%) recognised their need for financial literacy, while just about eight  million SMEs (20%) believe they do not need it. Also, more than 33.6 million (82%) of entrepreneurs had no accountancy knowledge.

The report stated: “There were strong benefits to entrepreneurs from having attended financial literacy courses. Among those who had taken a financial literacy course: those who regarded themselves as having ‘excellent’ financial literacy skills rose from 3 percent to 5 percent; those considering themselves as having ‘very good’ financial literacy skills jumped from 6 percent to 20 percent; and those who rated themselves as ‘good’ rose from 24 percent to 38 percent.

“Conversely, those with ‘poor’ financial literacy skills dropped from 19 percent to 5 percent and those with ‘non-existent’ skills fell from 8 percent to 3 percent.

“Record keeping improved among those who undertook financial literacy training. Among those who had, the proportion who recorded all items of revenue and expenditure rose from 30 percent to 55 percent, while the proportion who did not record all these items fell from 30 percent to 23 percent.

“Restricted levels of financial literacy appear to affect decision-making capacity. Only 11 percent of respondents, prior to undertaking the training, had used key financial reports ‘very often’ to make business decisions, with another 26 percent saying they ‘often’ used these reports. One in four never used key financial reports when making business decisions.

“Most of those respondents who had attended financial literacy courses said they had gained from doing so. Some 79 percent regarded the training as being either ‘beneficial’ or ‘very beneficial’, with only 18 percent regarding it as ‘slightly beneficial’ and a mere three percent saying it was ‘not beneficial’.”



Reacting, President, National Association of Small and Medium Enterprises (NASME), Prince Degun Agboade, acknowledged the low level of financial literacy in the sector and called for business support services.    

“I concur with the outcome of the survey that financial literacy is low among MSMEs. And this affects their performance negatively.  

“Deliberate business support services should be provided for MSMEs which will enhance financial inclusiveness,” he said.

In his comment, Michael Oye, a Project Manager at Bank of Industry (BoI), noted that entrepreneurs tend to think that formal education equates to financial literacy, which is not the case.  

He stated: “While people with a science or mathematical background are comfortable with numbers and can get the calculations right, this does not translate to business success. Financial literacy goes beyond the knowledge of calculations, even though that is an essential part.

Also analysing the survey report, Stephen Amodu, formerly Head, Risk Management, Monitoring & Internal Control,  Lagos State Employment Trust Fund (LSETF), said that despite large amounts of information on financial literacy being freely available to entrepreneurs, most tended to focus on activities other than acquiring financial literacy.  

Amodu, who is currently Head, Retail Credit Risk with Union Bank of Nigeria, also noted that entrepreneurs are impatient for commercial success and don’t see financial literacy knowledge as an important component towards achieving this.  

He stated: “Indeed, some outsource the finance role, while others do not pay attention until they encounter problems.  

“Stakeholders discussed the fact that donors and partners are more interested in reaching numbers that looked good in reports to their boards rather than paying for in-depth, quality financial literacy training that will require time and expenditure. This helps to explain the prevalence of poor-quality financial literacy training currently being provided to some organisations in Nigeria.  

“Another challenge is poor transparency. Many entrepreneurs are reluctant to disclose the true state of their business finances.”



Based on the findings that emerged through both direct engagement with entrepreneurs and the survey that was undertaken as part of the project, the researchers made following recommendations:

“There is clear and strong evidence that financial literacy underpins business success, hence the need for significant increase in financial literacy for entrepreneurs, including those in charge of MSMEs.

“The research reveals a culture of denial among many MSME entrepreneurs. Action is needed to persuade a greater number of entrepreneurs that financial literacy is a key that opens the door to wider investment opportunities.

“Key areas in the provision of financial literacy training should include the development of business plans and understanding the different types of external funding available, as well as their suitability for businesses.

“Entrepreneurs should be able to take a financial literacy class to develop applications for obtaining external finance.

“Continuous support should be available for entrepreneurs after they have accessed financial literacy training in order to ensure effective and continuous development.”