Why lending to the MSMEs sector makes sense
By Ada Anioji
Recognising the immense opportunity in the MSMEs sector, Diamond Bank has for several years running cut a niche as being one bank that has risen to the challenge of doing business with this all-important sector.
And for its efforts, it has enjoyed years of accolades in the tonnes of awards garnered over the years especially in 2016 for leading in SMEs schemes with their laudable and innovative micro, small and medium entrepreneur (MSMEs) strategies.
According to a recent World Bank report on Africa, problems such as corruption, unreliable electricity and poor infrastructure were blamed for the sluggish nature of MSMEs growth in the largest economy on the continent, namely Nigeria.
This resulted in the hiherto very fast growing economy (between 2011 and 2015) being ranked a distant 133rd in the ‘ease of doing business’ index. before the current decline, bookmakers were upbeat that with its young, large and growing middle class, Nigeria was an assured MSME market that was only waiting to be developed.
The MSMEs project of the bank emerged in 2010 with an understanding of the informal nature of SMEs in the country, like unavailable requisite information such as proper accounting records, financial statements, bankable business plans, lack of security and operating in disconnected value chains which makes it difficult for banks to assess the credit worthiness of the SMEs. Specialised skills/tools required to take the unstructured information, convert same into usable quasi-structured financial information for use in credit assessment is generally lacking. The Bank therefore integrated Retail banking and business training to serve existing and budding entrepreneurs who were encouraged to open an MSMEs-specific Business Xpress account with the bank to help them grow their business.
In a developing country it’s often difficult to raise or borrow startup cash for small and medium scale businesses from financial institutions. More often than not, it is family and friends who can be patient enough through the incubation to productive period of the business to get their money back with or without returns, that have over time stepped in to fill this void. This is due to fear that SME’s have struggled against local markets, regional integration, poor infrastructure, dubious legal systems, a lack of back up local finance/government support and unattractive tax systems. Recently though there have been improvements in the management of all of these challenges but clearly even much more still has to be done.
During a Vconnect and Facebook SMEs conference in Lagos earlier this year, the media quoted Njideka Esomeju, Head Emerging Market, Diamond Bank Plc who affirmed that financial institutions in Nigeria are not enthusiastic about supporting SMEs with startup funding, stating that for a banker to accept to fund your business, he is interested in the value your business would add to the economy, in terms of job creation. “So, whatever business you are doing, you need to get your house in order by understanding the nature of the business, understand your customers and being able to communicate with your banker,’ she noted.
The opportunities in financing SMEs in Nigeria are however enormous, considering that there are over 37 million of them present, and virtually cut across all sectors. SMEs are responsible for most of the new products and processes, provide most of the employment opportunities (they employ 84.02% of the total labour force) and their contribution to national GDP (48%) is a key indicator of the economic growth of the country. In a bid to proffer solution to SMES challenges and contributions to the economic development of the country, Diamond Bank has frontally engaged the huge hurdles on the path of accessing funding and for a start, removed the troubling demand for collateral submission as prerequisite for obtaining loans.
The bank is also promoting female entrepreneurship and in collaboration with Eventful Limited, staged one of Nigeria’s biggest beauty products and services fair in Lagos on July 9 2017. At the occasion, it enjoined prospective customers to access its services and enjoy its SMEs privileges, by opening a Diamond Business Xpress account and run it for at least minimum period of six months, according to Victoria Ochuwa a front desk staff at Opebi branch office.
Many organizations have pulled together events, social networks and campaigns to emphasise on SMEs economic advantages to any country of which startup fund has always been a peculiar challenge. While the government is yet to establish favourable startup policies and kick start funding SMEs in all sectors, other financial institutions may take a cue from Diamond Bank’s micro, small and medium entrepreneur (MSME) strategies which are clearly all inclusive.
Diamond bank CEO, Mr. Uzoma Dozie