‘Government needs to localise MSMEs clinic to widen reach’
Funke Susan Medun is a director at Leapworld Limited, a firm helping micro, small and medium enterprises (MSMEs) access funding and write good bankable business plans.
Funke has over seventeen years’ experience in entrepreneurship. In this interview with JOSEPHINE OKOJIE, she looks at the Nigerian entrepreneurship and what government can do to address some of the key issues.
Despite a lot of funding available for entrepreneurship development in the country, why are businesses still not able to access most of these funds?
I will like to start by aligning with a statement credited to the vice president during the MSME clinic launch in Onitsha. The vice president said that MSMEs might be small, but together they account for up to 50 percent of Gross Domestic Product (GDP) and over 80 percent of the labour force. I am always delighted to have a discourse on MSMEs.
From my experience, there are a couple of barriers to MSMEs having access to funding available for them. From the internal processes, a lot of small businesses do not have the system and structure in place to access needed finance to grow their businesses, and this is a huge barrier. The financial institutions want a guarantee that small businesses have the capacity to repay back loans and this can be assessed using the systems and structures provided by the MSMEs themselves. You can provide what you don’t have. MSMEs need to start keeping proper records and there is a need to also separate the expenses of the owners from the business so that the business can have a life of its own. These are things start-ups and MSMEs can do for themselves.
Apart from development banks like the Bank of Industry (BOI), Bank of Agriculture, Lagos State Employment Trust Fund (LSETF), some CBN initiatives and others intervention funds with friendly SMEs conditions such as lower interest rates and less stringent conditions, most of the conditions of money deposit banks are too stringent and with double-digit interest rate for MSMEs to access. Most of the conditions are beyond small enterprises that are struggling to survive and often cannot provide the needed collateral/ lending conditions to access the loans.
Also, information is not available to a lot of MSMEs. Lagos state is doing great with the Lagos State Employment Trust Fund (LSETF), and I think other states should emulate them. You would be shocked to know that a lot of businesses that operate in Lagos do not know about LSETF. Some are aware but do not know the criteria needed to access it. Some believe the fund is only meant for businesses whose operators are indigenes of Lagos State. Some also believe that it is a national cake so they do not have to meet the criteria to access the fund. There are lots of low-interest funds for MSMEs, even grants, but all these barriers have prevented small and medium enterprises from accessing available funds. MSMEs should constantly seek strategic information to leverage for growth.
Why do you think most start-ups fail within five years of existence?
From my experience dealing with a lot of them, I noticed that most MSMEs have a faulty foundation and poor business management skills. They build their businesses without focusing on sustainability. The structures and systems that would propel growth are lacking. You cannot build a duplex on a foundation that is meant for a bungalow. The continued failed system and structure has continued to lead to high failure rates among start-ups. MSMEs needs to look at having administrative, finance, operations, corporate governance, human resource, sales and marketing structures and systems.
Also, the difficult business environment in the country has also led to their high failure rates. Providing their own power and paying multiple taxes have increased their production cost and made their survival rate difficult.
In addition, most start-ups fail to build capacity in the industry in which they operate. This has also increased their failure rates. You need the right skills to scale up your business and if it is lacking, the growth of the business would be limited. Applying the method you used for your survival stage at your growth stage will not grow the business sustainably.
What is the ideal interest rate for start-ups?
I really do not encourage start-ups to go for high interest loans. Start-ups should source their funds from their family, friends and also seek grants or equity investments. There are a lot of grants available for MSMEs such as from the FGN World bank funded growth and employment (GEM) project, and Tony Elumelu Foundation, amongst others. If they have to take a loan, I think a low single-digit interest rate is ideal for them.
How can Nigeria grow its entrepreneurship?
We need to introduce entrepreneurship to schools and overhaul our curriculum. Entrepreneurship should not be taught or seen as ‘everybody must start their own business’. If we all embrace the spirit of enterprise, whether as an employee (intrapreneurship) or employer we would all help businesses to grow and the economy at large. Intending entrepreneurs should seek knowledge and build capacity. Do not rush to start your own business; you can learn first by working for others, serve then learn to lead. I believe there is a lot to learn during apprenticeship.
It’s good that the government is making efforts at improving the ease of doing business in Nigeria, putting in place funding interventions and the Made-in-Nigeria initiative is great, but it can do more. We need not just have lots of MSMEs but we need them to cumulatively contribute a good percentage to our GDP as in other emerging economies in the world.
What do you think is the biggest challenge confronting MSMEs in Nigeria?
Market linkage and access is one of the biggest challenges confronting most Nigerian businesses. Most small businesses complain about sales. The small businesses have fantastic products but do not have access to the right market to sell or export their products. MSMEs can leverage several low- cost sales channels, starting with the social media platforms, e-commerce and the like.
Secondly, attracting and retaining talent for MSMEs is also a major problem confronting them. Because of the way MSMEs are structured, it is challenging to attract and retain good talents needed to grow the business. At the initial stage of the business, it might be challenging to afford highly skilled staff and retain talents that believe in you and can endure the survival phase looking at the big picture.
Access to finance is still a major issue limiting MSMEs growth in the country. Huge infrastructural gaps are also negatively impacting business. Poor power supply has continued to increase production cost for businesses. Also, government bureaucracy for MSMEs that need regulatory approvals and unfair competition with cheap low quality imports are key issues.
Multiplicity of taxes and levies is another major issue confronting small enterprises in Nigeria. There is so much in tax that needs to be addressed. Maybe there should be a graduated tax system or holiday for small businesses. These challenges have made entrepreneurship a daunting task in Nigeria and the government must start addressing them.
How can government address some of the challenges you just highlighted?
We need a short, medium and long term approach to address the challenges of MSMEs in the country and also the strong will from the government. In the short term, the government has started with the MSME clinics, which are very good, but how many people will that get to? For the clinic to reach a large number of MSMEs, the government should partner with the private sector or business support service consultants to operate the clinic at every vicinity. The clinics should be localised; it should be done at the wards and local government levels so it can impact a lot of people. Government at all levels must work to bridge the country’s huge infrastructural gaps to drive down production cost for businesses. Similarly, government needs to give wavers to small businesses to access some markets. We have different bureaus of public procurements, so government should be able to provide a friendly checklist for small businesses to also bid for projects. We need to do more capacity building for MSMEs and address the issues with taxation.
What is your advice to young entrepreneurs?
For entrepreneurs at the idea stage, let them test their ideas and have a proof of concept. This makes you more confident and attractive to the relevant stakeholders. For those at the execution stage, define your goals and vision. Have a plan, put structures and system in place. Always look at sustainability. Build your own capacity and do not wait on the government. Get informed and seek collaborations. Look for the markets and be where businesses aggregate. Ensure you are giving value targeted at the right audience and right return. Money is like current, it flows in the direction where specific value is needed at that time.