One major factor blamed for stunted SME growth in Nigeria is access to affordable/cheap or single digit loans. In response to this, various single digit loan propositions have been launched by the Central Bank and the Nation’s foremost development bank, Bank of Industry (BOI).
Whilst these schemes do not really address the core of the challenges inhibiting access to finance in the segment, they do very well in attempting to reduce the cost of debt for the eventual beneficiaries.
My concern however is that these solutions have succeeded in addressing a relatively non-core issue. Businesses generally are supposed to generate enough earnings to cover their cost of capital, otherwise businesses unable to do so should not exist.
Firstly, what is the actual cost of debt in Nigeria? To get us thinking in the right direction, I will use simple metrics to estimate:
The implication is that ideally, today, no loan is meant to be created by banks for less than 23%PA. Note that we have not factored in risk premium and other variables.
As a result, one would want to ask, who pays the subsidies on the single digit intervention loans? Have we measured the impact of these interventions to see that they are not enriching a few businesses that are even hardly SMEs? From experience we know that such subsidies many times lead to unhealthy arbitrage.
I personally do not think there should be interest rate subsidy for bank loans in our system. If a business cannot produce returns (EBIT) above the risk free interest rate for debt in the operating environment, then such business should really not exist. If they must remain, then they must increase the profit on their services by increasing prices or reducing costs sufficiently to cover their cost of capital.
I actually think interest rate intervention schemes only dare to treat the symptoms of the sickness. The real sickness is that the cost of running an SME business is high – from cost of power that we cannot readily control, to taxes and levies that can easily be dealt with. The real sickness is that primary producers can hardly price their products properly because they are fragmented and do not have access to the market. The real sickness is that undocumented payments for imports enable importers to under-declare invoices, hence pay lower duties thereby make locally produced substitute products seem more expensive… The sicknesses are quite a few.
Therefore, when next we think about single digit interest rate loans for SMEs in Nigeria, we should remember that the costs of these loans are over 20%. Whilst interest rate interventions are not sustainable solutions that will boost growth and competitiveness, someone will still bear the cost of such subsidies… Probably, unpaid public servants may just be the ones bearing this cost.
Compliments of the New Year!
Obinna | @ukachukwuwrites
Start Smart Series – Part 3
One of the issues facing small business owners in Nigeria is lack of finance and inadequate management expertise. Not surprisingly failure rates of small businesses is very high (estimated at about 80% within the first 5 years). This is further emphasized by the fact that most Nigerian youths are afraid to start their own businesses.
The draft National Policy on Micro, Small and Medium Scale Enterprise (MSMEs) stated the importance of MSMEs as the primary source of new jobs and the critical breeding and nurturing grounds for domestic entrepreneurial capacities, technical skills, technological innovativeness and managerial competencies. This cannot be better said as small business owners are a critical part of the economy and the business environment in Nigeria. The Nigerian government, in recognizing this fact, has put in place a number of incentives to encourage micro, small and medium enterprises (MSMEs).
The popular saying that knowledge is power is true as lack of knowledge of these incentives have prevented many entrepreneurs from taking advantage of the opportunity. In this part of our Start Smart Series, I have put together some incentives available to business owners in Nigeria:
Targeted at serving NYSC members. It is a financial aid given to NYSC members who have a business plan in one of the identified 35 MSMEs clusters. You can look up details at http://www.boi.ng/graduate-entrepreneurship-fund.
Sure-P Graduate Internship Scheme (GIS)
Opened to all business owners between the ages of 18 and 40 years. It is a skill development training incentive. For details, see http://www.wealthresult.com/finance/small-business-federal-grants
SMEEIS Youth Entrepreneurship Development Program (YEDP)
Opened to members and non-members of NYSC and those who possess a verifiable tertiary institution certificate or artisans with First School Leaving Certificate or a technical certificate or accredited proficiency certificate from the National Board for Technical Education (NBTE), whichever is applicable.
It serves as a financial aid for startups and expansion projects in agricultural value chains (fish farming, poultry, snail farming, etc.), cottage Industry, creative industry (tourism, arts and crafts) and Information and Communications Technology (ICT), among others. Read more about it at http://www.cbn.gov.ng/Devfin/yedp.asp
SMEDAN Business Support Centres
Opened to all entrepreneurs; it is a vocational and entrepreneurship skills training organized by the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). You can check out more about them at http://www.facebook.com/smedaninfo
LIFE (Learning Initiative for Entrepreneurs)
This is a free online training on different business skills for all entrepreneurs. See more at http://www.life-global.org
National Enterprise Development Programme (NEDEP)
This is a skills acquisition, entrepreneurship training/business development service (BDS) and access to finance initiative. See details at https://www.facebook.com/nedepentrepreneurs
These are just a number of incentives available to business owners which can go a long way to ease the journey towards running a successful business.
All the best in your entrepreneurial journey.
Today’s marketplace is extremely competitive, offering thousands of products and services accessible at customers’ fingertips. The single distinguishing factor in attracting new and retaining existing customers is increasingly becoming ‘service’.
“The battle for repeat business is critical to long-term success in today’s intensely competitive marketplace. Customer Service is not just a competitive edge. In many industries, it is the competitive edge. Service is the new standard by which customers judge performance.” – William Band
Customer Service is really selling. It is what inspires a customer for return purchase more often. Customer Service is not only the responsibility of the customer service personnel, but also of the overall involvement of all stakeholders in the organization. The quality of service offered in an organization greatly impacts on the bottom line result.
The only competitive advantage available to an organization in a service economy in which everyone is providing essentially the same level of quality service. It has become a long-term competitive advantage for businesses in competitive markets. Irrespective of the industry, the approach to service delivery plays a vital role in the accomplishment of any organization’s corporate goal. It must be planned, strategically implemented in line with customer expectations and appropriately measured for improvements.
Sometime, we are all in a marketplace where all contenders are offering the same product with similar prices and almost the same marketing strategy. If there is a service element in any activity, then there can be a competitive advantage.
Quality Service should ingrained in every department of the organisation because, ultimately all activities impacts on the perceived final quality of the product and service experienced by the customer. In rendering outstanding and impeccable service, one’s attitude plays a vital role. We must continuously express thoughtfulness, show courtesy, integrity, helpfulness, efficiency, availability, friendliness, knowledge and professionalism in our work.
It is worth noting that poor services eat away at a company’s reputation. Your customers deserve to always experience an impeccable service, which in turn triggers a longing for repeated business.
Whatever you are engaged in, your service is a reflection of your brand and commitment to proffering a memorable customer experience. Let quality service be your competitive edge in the marketplace.
Culled from Managing Counsel of Templars; Ijeoma Uju’s presentation at Covenant Capital Seminar titled Establishing a business in Nigeria ‘What you need to know’ (Part 2)
Many people desire to start their own business and they wish to gather as many information as possible on how to go about the whole process.
To start with, there are several benefits for starting up a business in Nigeria- depending on the kind of structure you decide on. Some of these benefits include:
Having identified some of the benefits of starting your own business, you may wonder next on the kinds of business structures that are available in Nigeria, and also on your own best option. Some guides are provided below:
The most common structures in Nigeria for businesses that are going to be profit making ventures are the business name, and the Limited liability Company.
The business name could either be set up as sole proprietorship or partnership.
For sole proprietorship, you must bear in mind that you are the business, everything you will do is about the business, you have complete control of the business- but it may be difficult for you as a sole proprietor to raise a substantial capital for the business, and you are not also guaranteed that your business will continue- which means succession on the business is not guaranteed as a sole proprietorship business owner.
As for partnership, financial commitments are shared amongst the partners; where you seek to operate one, you and your partners must share the load of profit and every other benefit that come out of the business and the risks. The principal issue is where dispute arises in the business and the partners are put to the test of carrying on together.
Lastly is the limited liability company structure which benefits hinge on the facts that the company is a separate legal personality from its members, it can transact business in its name, it can sue and be sued too, and there is perpetual succession of the business, plus the brain of the business which is referred to as Board of Directors. Conversely however, the tax liabilities on companies are higher, and companies are obliged to keep records and file annual papers and audited report.
From all stated, you may agree that the decision on which business structure to adopt has to be made as early as possible because not all the structures will be appropriate for the kind of business that you intend to run.
…. to be continued.