Why SMEs’ access to credit remains low –BoI

 

 Lack of bankable business plans as well as lack of clear business models have been identified as some of the challenges hindering most Small and Medium Enterprises, SMEs in Nigeria from accessing bank loans for the development of the sub-sector.

The Bank of Industry, BoI, has also noted that despite its role to the economic development, funding has remained the major bane of the sub-sector as banks were reluctant to give loans to small scale entrepreneurs.
The BoI noted that the poor banks reluctance to service subsector has to do with the perception of SMEs by creditors and investors as high-risk borrowers due to insufficient assets, low capitalization, vulnerability to market fluctuations and high mortality rates.
Speaking at the conference of Finance Correspondents of Nigeria, FICAN, in Lagos at the weekend, the bank’s Managing Director, Rasheed Olaoluwa explained that information asymmetry arising from SMEs’ lack of accounting records posed difficult for creditors and investors to assess the creditworthiness of potential SME proposals.
He observed that finance has been identified in many business surveys as a critical factor for the survival and growth of SMEs in both developing and developed countries.
“Access to finance allows SMEs to undertake productive investments to expand their businesses and to acquire the latest technologies, thus ensuring their competitiveness and that of the nation as a whole. Poorly functioning financial systems can seriously undermine the macroeconomic fundamentals of a country, resulting in lower growth in income and employment” he added.
The BoI Boss noted that despite their dominant numbers and importance in job creation, SMEs traditionally have faced difficulty in obtaining formal credit or equity.
He said that maturities of commercial bank loans extended to SMEs were often limited to a period far too short to pay off any sizeable investment, noting that this was due to the short-term nature of their funds, with the attendant mismatch if granted as long-term facilities to SMEs.
Meanwhile, he said that the tendency was for access to competitive interest rates to be reserved only for prime customers, while loan interest rates offered to SMEs remained high.
According to him, bank credit in Nigeria was characterised by limited availability of medium to long-term credit tenors, short moratorium, and high collateral requirements.
Source: NationalMirror 

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