The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) is deliberating the establishment of a microfinance bank. This strategic move comes in response to the prevailing credit crunch that has left numerous small-scale businesses grappling for breath, unable to access necessary credit facilities for their growth and sustainability.
Dr. Olawale Tunde Fasanya, the Director General of SMEDAN, highlighted the stark reality faced by the MSME sector. Out of a staggering 49.6 million existing MSMEs, a mere 2,083,222 have managed to secure access to credit facilities, presenting a paltry 4.2% of the total number. Dr. Fasanya lamented that 44,640,200 MSMEs, which constitute 90% of the segment, fall into the category of nano businesses—often overlooked and sidelined in the realm of credit disbursement.
This unfortunate circumstance hasn’t deterred these nano businesses from playing a pivotal role in the economy, as Dr. Fasanya emphasized, “They sustain the economy because the economic shocks do not affect them. If you like, let the naira go as high as N1000 to one dollar, they will only increase their prices and continue to be there, they won’t fold up.”
The challenge of inadequate access to credit is exacerbated by the risk posed by defaulting borrowers, causing banks to hesitate in extending loans. Dr. Fasanya acknowledged this dynamic, recognizing that “banks also find it difficult to source their funds at some rates, which they won’t give to somebody who will not be able to pay back.”
In light of these challenges, SMEDAN is actively proposing a credit guarantee scheme that instills confidence in banks to lend to MSMEs, mitigating the risk of non-repayment. Additionally, the agency is urging MSMEs to unite under cooperative structures, which can enhance their credibility and reliability in the eyes of lending institutions.
The pivotal role of access to credit in propelling MSME growth has prompted SMEDAN to conceive an innovative solution—a microfinance bank. Dr. Fasanya revealed that this bank is poised for launch, contingent upon the approval of the Central Bank of Nigeria (CBN). He emphasized, “As it stands, we are just waiting for the approval for the establishment of a microfinance bank by the CBN. We are not doing it alone; we are just a shareholder. It is on board, and I believe that before the end of this year, it will start functioning.”
Furthermore, the call to action has been extended to the youth, particularly those endowed with skills in fields such as tailoring and carpentry. Dr. Fasanya implored them to leverage the existing facilities at SMEDAN premises to propel their businesses forward, thereby contributing to the reduction of production costs and igniting a ripple effect of economic empowerment.
