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How SMEs can benefit from credit guarantee ag~,ncies

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S:maUKaho Stanley Opara ENTRAL and state banks in most parts of the world pay compensation to banks to cover for part of the cost of default by operators in the Small and Medium Enterprise sector. This is to encourage the banks to promote the sector in


tine with the general aim of improving economic

growth. Under this arrangement. when borrowers default on a loan and thus incur a loss for the lender, the lending institution will be compensated for all. or part. of the loss involved. The initiative is aimed at pludentially relaxing SME regulations in order to help banks promote SME financing. owing to the fact that the conb'ibution of SMEs towards the Gross Domestic Product of any nation cannot be neglected. Despite the economic significance of SMEs, they have not yet been able to access their due share of financing from banks. Nigerian banks. in line with the d,rective of the Central Bank

economic growth policy. According to Onalo. indusb'ial growth and higher standard of ~r~ ' ~ ,...-....~~"'l"¥" If ~~l living are directly linked with enhanced productive and funding avenues of business, especially SME financing. This is because the .-B~prolessiohal 'h • ."" ':~ capacity of the SMEs of any state in Nigeria. Employment and SMEs playa critical role in employment generation and povertY wealth generated by SMEs undoubtedly constitutes a sizeable alleviation. • Approach relevant authorities proportion of the national Gross Domestic Product. he adds. In the current economic " it, therefore. makes sense to say that Nigeria and her federating • Leveraging on state platforms :: situation. banks are now units (the states) must develop the technological and funding seeing the need to play their help capability of their respective SMEs in order to make a resilient and due role in the promotion --:-. robust state-centred economy. ,. he notes. of economic groo..vth. e-bt:ai}.: ~6'hiit:ffi:Jff.iUH::-~p'll1i.6Idg;G'I1IiJ.!rEa~# OfiRl!l ' Onalo. who is also the Chief Executive Officer. Institute of Credit The CBN Governor, Administration, says there is the need for more states to set up Mr. Lamido Sanust. had Nigerian economy_ state-{)wned credit guarantee corporations, while adviSing SMEs insisted that banks should Others are to increase access to credit by promoters of SMEs to leverage on the opportunities presented by some states already help SMEs with relatively and manufacturers: ina"ease output, generate employment, implementing the scheme. low investment capacity to diversify the revenue base, increase foreign exchange earnings "All the states in Nigeria must move now towards entrepreneurial he-\p reduce poverty and and provide inputs for the industrial sector. economy. It is time for the state governors and their policy makers propel economic growth. However. a credit management consultant, Dr. Chris Onale, to move towards putting the needs of their SMEs at the centre of But SMEs must now says SMEs can require financing for several different reasons, purposeful economic development agenda. This will benefit the put forth new ideas and adding that some cannot afford large investments with their current people, the government and economic players in the states," he highlight areas. which cash flow and obtain outside financing to improve their business. explains. may be explored to further He adds that others need financing merely to get started. Such loans. he says, can The amount of financing a business can receive is determined develop the sector. be given to SMEs engaged by the size of the business, its financial health and the projects to Situations like the lack of reliable information and documentation, in agro-processing, cumbersome lending pr,;'cedures, lack of slTategic focus by banks, be financed, he says, explaining that in every part of the world, the livestock farming, human resource consrraints, dependence on collateral-based SME sector is treated as the chief cornerstone of the economy. arable crops cultivation, lending. SMEs' reluctance to disclose financial positions and the According to him, state governments in Nigeria are committed plantation agriculture, banks' perception that SMEs are high·risk customers. are being to the vision of creating opportunities for the people of the states manufa ct uring , tackled to ensure that all stakeholders in the process benefit. to eradicate poverty and improve the standard of living of their construction, telecoms, oil As part of its developmental role , the CBN recently established people through enterplise ownership. and gas, solid minerals, real "To this extent, it is important to draw the attention of the chief the SME Credit Guarantee Scheme for promoting access to credit estates, hotel, healthcare, by SMEs in·Nigelia. executive officers and their economic growth policy makers to tourism, wholesale. retail the inevitability of instituting credible arrangements, which can The scheme. according to Sanusi. has a fund of N200bn to be and service industries, provide invesbments and advisory services that will build strong wholly financed by the CBN. among others. private sectors in their domain," he adds. The objectives of the scheme are to fast·b·ack the development He says "that the He says in almost every part of Nigeria today, limited access of the manufacturing SME sector of the Nigerian economy proceeds can be used' by providing guarantee for credit from banks to SMEs and to finance is considered a key constraint to real sector growth, to aC<:juire equipment, ·Sanusl manufacturers. and to set the pace for industrialisation of the and this is especially bue of SMEs that have minimal innuence on facilities , machinery, supplies or materials to obtain capital, to .1' . ~ , . To t·• l~ I" _. fi ; hl:_ : :$Iu ~ • __. . . . . . . __ ... __ .... .' -'''_ finance construction. conversion, or expansion, and to refinance existing debts." Onalo says, if properly set-up , ISH farmers in Oyo State have called on the Federal Government to assist presently sold for N135 per kilogramme, up from N88, and from the state-owned credit guarantee them in solving the problem of high prices of feeds and other challenges N88.000 to N135,OOO per tonne. corporation will enable state in the market. Oloye said the processors or producers, who turned the soya beans governments to position the people The National Secretary-General, Catfish Farmers Association of Nigeria , to full fat soya. complained of high cost of diesel used in the process, for productive engagements capable Mr. Rotimi Oloye. told the News Agency of Nigeria, on Tuesday. in Ibadan that saying that it gave rise to the increase in the price of full fat soya. of putting the state economy in the price of fish meal, among other sundry expenses. had gone up from N350 "Around now, the rain is not enough ," the CAFAN chief said wh ile the hands of natives. It will also to N500 per kilogram me and N350.000 to N500.000 per tonne. speaking of another challenge. curb rural/urban migration by Oloye attributed the increment in the cost of fish meal to the high cost of Oloye said that with inadequate rainfall or water. the chances of entrepreneurs due to the lack of foreign exchange, which had impacted negatively on the value of the naira. fish multiplying in the pond or river was very slim as such production social infrastructure and incentives He added that full fat soya, which was a by~product of soya beans. was would decline . in the rural a reas of states. of Nigeria, are now making concerted efforts to explore new



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