Imperative of loans to SMEs for inclusive growth
Nigeria cannot begin to talk about inclusive growth unless it can figure out how to channel financing and credit to millions of its Small and Medium Scale Enterprises that can potentially provide jobs for its teeming mass of unemployed. The problem is not being helped however, by the nation’s major banks who are still reluctant to lend to the sector
Nigeria’s five biggest banks FBNH, Guaranty Trust, Access, Zenith and UBA grew their loan books cumulatively by an average of 28 percent or N1.5 trillion in 2014 which, at first glance, looks like a solid expansion of credit to millions of businesses and consumers.
The lenders double digit surge in loans extended however, masks the fact that about 80 percent of it went to large wholesale and corporate customers who often do not number more than 500 per bank, leaving millions of Small and Medium Enterprises (SMEs), struggling to access credit for new businesses or to expand existing ones.
A breakdown of Guaranty Trust Bank’s (GTB) loans extended by segments shows that the lender’s 400 plus customers comprising multinationals and large corporates with revenues above N5 billion had N896.38 billion in loans outstanding, compared to N16.66 billion of loans extended to its 150,000 SME customers.
Access Bank’s loans breakdown by segments shows the lender extending N568 billion of loans at the end of 2014 to 500 plus multinational and well-structured large companies with revenues over N20 billion while the bank’s 300,000 SME customers were extended only N32 billion loans.
A further breakdown shows that 81 percent of Zenith Bank’s gross loan book at the end of 2014 went to corporate and commercial customers, compared to 8.2 percent for retail customers, while 70 percent of First Bank’s loans were extended to institutional and corporate customers, compared to 22 percent to retail and commercial banking customers.
Lack of access to credit is a major issue for small businesses in Nigeria and the country ranked 52 in getting credit on the World Bank 2015 doing business report compared to 36 for Ghana.
It is said to note that small businesses operating in this country often get up to 90 percent of their credit needs from supplier’s credit, loans from relatives or retained earnings as disclosed by the World Bank in a recent report.
We are also concerned that banks are retrenching from extending loans to all but the most blue chip corporates as an uncertain macro – environment threatens to balloon bad loans. They are also more content to play and earn profits in the fixed income space where high yields are prevalent.
The International Monetary Fund (IMF) predicts growth of 4.8 percent this year, down from 6.3 percent in 2014.
Our analysis shows that small firms and individuals are subsidizing banks loan extension to large firms because SMEs often have significantly more deposits than loans with banks.
The Nigerian government in a bid to solve some of these issues has set up various intervention funds to aid SMEs, but sadly enough, they have often not been able to make a dent in the huge loan needs of the SMEs.
We advise that government should expedite action to boost the capacity of the recently set up Development Bank of Nigeria (DBN) and Nigerian Mortgage Refinance Corporation (NMRC), which would help to increase small business loans and mortgages.