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Most stakeholders, individuals and operators in Nigeria’s Micro, Small and Medium Enterprises, MSME, ecosystem are oblivious of the operational definition and categorization of businesses in the space.

The implication of this gap in knowledge is the general dissonance and misalliance in both policy crafting and execution on the part of policy executives in the public and private sectors, on one hand, and on the other hand, the inability of the targeted MSME operators to leverage the policies, incentives and opportunities in the sector.

Consequently, the efforts at repositioning and mainstreaming the sector as catalyst to overall economic development falter always. This becomes more worrisome when it is generally agreed globally that this sector is the engine of growth for any economy, both developed and developing. 

The importance of the categorization to the MSME entrepreneurs is in the determination of and positioning for the various opportunities available in the space including funding, grants, loans, trainings and other non-financial supports which are also category-specific.

Finding a global definition for MSMEs has often proved very problematic due to the varying sizes and depth of individual country economies which have resulted in varying MSME definitions by different institutions and countries.

As a matter of fact most global institutions do not even recognize the micro category while in Nigeria the Small and Medium Enterprises Development Agency of Nigeria, the MSME authority, has even created the Nano (smaller than micro) category.

As the International Finance Corporation, IFC, (2010) noted, defining MSMEs depends on the local banking context and economy size so while international organizations like the World Bank including the IFC tend to set high sales, assets and staff employment thresholds for MSMEs in developed countries definitions vary by country according to the size of the economies and structure of the corporate sector.

On the other hand thresholds set by local institutions (banks and government agencies) in developing economies like Nigeria tend to be lower.

The variables used by the World Bank are number of employees, total assets and sales turnover.

Consequently, the World Bank definition of Small enterprises are those employing less than 50 staff on annual average, with total financial assets of less than $3.0 million (N1.29 billion) and average annual turnover of $3.0 million (N1.29 billion).

For Medium scale enterprises the World Bank puts number of employees at above 50 but below 300. The total asset is above $3.0 million but less than $15 million (N6.45 billion), and average annual sales turnover at above $3.0 million but less than $15 million (N6.45 billion).

In Nigeria, the Central Bank of Nigeria (CBN) has through its various circulars and intervention fund programmes generally defined SMEs (curiously omitting the Micro) as entities with asset base of N5 million and not more than N500 million excluding land and buildings with employees between 11 and 200. However, the Central Bank of Nigeria has not formally stipulated this definition of SMEs for reporting purposes so commercial banks mostly use account debit turnover to determine categories but even such turnover parameter varies widely from bank to bank.

In Nigeria, the Federal Government’s MSME agency, The Small and medium Enterprises Agency of Nigeria (SMEDAN) definition uses similar criteria as the Central Bank of Nigeria but with tiered thresholds.

The SMEDIAN has the Micro enterprise category as those with less than 10 employees and asset base (excluding land and building) of less than N5million. It placed employee number for Small enterprises category at between 10 and 49 with asset base (excluding land and building) at between N5million and N50million. The Medium enterprises category is defined by employee number of between 50 and 199, while asset base (excluding land and building) is put at between N50 million and N500 million.

Meanwhile, in view of Nigeria’s reality the Agency has just created a much lower category it calls Nano enterprises with employee number of one and asset of less than N100,000. 

Nigerian commercial banks mostly use the account turnover criteria to categorize MSMEs. For micro enterprises the median turnover is N10 million per annum, while first quartile is N8 million and the third quartile is N29 million.

For Small enterprises category the banks place the median turnover at N60 million, while the first quartile is N38 million and the third quartile at N322 million.

For the Medium sized enterprises, the banks place the median turnover at N480 million, the first quartile at N200 million and the third quartile at N2.5 billion.

The banks’ 3rd quartile thresholds for both small and medium enterprises lean more towards the World Bank’s SME definition.