Sanusi Lamido Sanusi: Financing small and medium enterprises -
strategies and challenges
Keynote address by Mr Sanusi Lamido Sanusi, Governor of the Central Bank of Nigeria, at the
Annual Micro, Small and Medium Enterprises (MSMEs) Finance Conference & D-8 Workshop on
Microfinance For Small and Medium Enterprises (SMEs), Lagos, 15 August 2013.
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Protocol
1. I welcome you all to this auspicious occasion of the Annual Micro, Small and Medium
Enterprises (MSMEs) Finance Conference and Entrepreneurship Awards holding concurrently
with the Developing-8 (D-8) Organization for Economic Cooperation's Workshop on
"Microfinance for Small and Medium Enterprises (SMEs)". The similarity between the theme of
the Conference, which is "Strategies for Sustainable MSME Financing", and the focus of the D-8
Workshop, engenders the need for the search for a common solution to the challenges of access
to finance for Micro, Small & Medium Entrepreneurs (MSMEs) - a critical sector usually excluded
by the financial markets.
2. The D-8 Organization for Economic Cooperation is an alliance made up of Bangladesh,
Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey as members, which aims at
improving the position of member states in the global economy, through diversification and
creating new opportunities in trade relations, enhancing participation in decision-making at
international level for economic development. The platform thus provides an avenue for members
to benchmark each other, share development experiences, closely under-study best practice
models, and apply peer pressure in the implementation of agreed milestones. The five priority
areas of long-term cooperation among the members include trade, agriculture and food, industry,
transportation, energy and minerals.
3. A cardinal aspect of D-8 industrial cooperation is the promotion of SMEs. The emphasis
in this regard had been on the need to deepen collaboration through technology transfer and
cluster development. This workshop on Microfinance for SMEs can, therefore, be viewed as a
strategic approach by the D-8 to address the financing of SME in member countries. The
conference is also focused on financing of MSMEs because they are generally acknowledged to
contribute meaningfully to economic development through output growth, income and
employment generation, and innovation.
4. Your Excellencies, distinguished Ladies and Gentlemen, in 2012, Nigeria had about
17.6 million MSMEs employing about 32.4 million people, and contributing about 46.54 per cent
of nominal GDP. A recent survey by IFC and Mckinsey (2010) suggests that 80 per cent of these
MSMEs are excluded from the financial markets. The state of MSMEs in the country underscores
the importance of this conference. Suffice it to say that between 2003 and 2012, commercial
bank loans to small scale enterprises dropped at an exponential rate. Analysis of the annual
trend in the share of commercial bank credit to small-scale industries indicates a decline from
about 7.5 per cent in 2003 to less than 1% in 2006 and a further decline in 2012 to 0.14 per cent.
5. A number of reasons have been proffered for this financing gap. The banks readily
attribute their risk aversion stance for not lending to MSMEs to demand-side constraints, which
include the lack of managerial capacity, inadequate collateral, and poor record keeping, amongst
others. However, there also exist supply-side issues such as high transaction costs and lack of
understanding by the banks of the nature and operations of MSMEs Other constraints plaguing
the MSME sub-sector in Nigeria include infrastructure deficit (especially, power and transport),
policy inconsistencies, bureaucracy, multiple taxation and levies, weak intellectual property
protection and contract enforcement, and insecurity.
6. Your Excellencies, distinguished Ladies and Gentlemen, we must therefore commit
ourselves to the formulation and implementation of policies to strengthen the MSME sub-sector.
The CBN on its own part has been working assiduously towards developing a robust regulatory
and supervisory framework and initiatives for improved access to finance for the sub-sector.
Some of these are the Revised Microfinance Policy, Regulatory and Supervisory Framework;
Certification Programme for MFBs; Designated Non-Financial Businesses and Professionals
(DNFBP); Competency Framework; Payment System Transformation; development of a
Moveable Collateral Registry; and the Financial Ombudsman Bill currently before the National
Assembly. To further de-risk and encourage lending to the MSME sub-sector, the CBN has also
intervened with a number of initiatives such as the Power and Airlines Intervention Fund (PAIF) to
help address the constraints of electricity; Small and Medium Enterprises Credit Guarantee
Scheme (SMECGS); SME Refinancing and Restructuring Facility (RRF); Youth Empowerment
Programme (Entrepreneurship Development Centres (EDCs) and NYSC Venture Prize
Competition), Financial Inclusion strategy and Tiered Know Your Customer (KYC) requirements.
The CBN is also leading the efforts of the Bankers' Committee to set up an industry-wide
biometric database for all bank customers to address issues of KYC, Anti Money Laundering
(AML), and access to credit. This will help fast track use of channels such as biometric ATMs and
POS terminals, etc.
7. At this point I would like to dwell more on the Competency Framework. In order to
ensure that the banking industry has professionals with the requisite skills to maintain the stability
of the financial system, an industry Competency Framework was developed and exposed in June
2012 by the CBN. The objective is to guide banking operations and address issues relating to the
quality of human capital in leadership positions. The framework identifies 35 key control
functions, in which significant influence is exerted on the conduct of a financial institution, to
define and standardize the necessary skills and competencies required for both operators and
regulators in the industry. A gap analysis on industry competency using the framework, was
recently conducted which revealed results competencies ranging from 3% to 85%. The results
have been exposed to the banks and remedial actions are currently being proposed to focus
those with low competency ratios to get them to an acceptable level.
The CBN also recently released the National Financial Literacy Framework (NFIS). The Financial
Literacy Steering Committee has been set up under my leadership in line with the NFIS. One of
the most interesting elements of this project is a requirement for the Governor and Deputy
Governors of the CBN and all bank CEOs to take time and teach financial inclusion to youths in
secondary schools. I have already had my own baptism of fire from very intelligent students of
Regent School, Abuja, Nigeria. In September 2013, I will also teach a class made up of up to
100 students drawn from 3 (three) public schools in Abuja. This will continue on designated
Financial literacy Days. The classes and the questions and answers session will be broadcasted
on national television and radios nationwide. Banks are also required to increase communication
in indigenous languages to enhance financial literacy.
8. In 2010 cautionary lending was the order of the day as a result of the global financial
crises. With the quantitative easing measures of the CBN and the intervention of AMCON,
financial institutions began to recover from the effects of the crises. Specifically in agriculture, the
CBN worked with the Federal Government to set up the Commercial Agriculture Credit Scheme
(CACS), and the Nigeria Incentive-based Risk- sharing System for Agricultural Lending
(NIRSAL). Our interventions have positively impacted the economy as evidenced by the
percentage of bank lending to agriculture as a proportion of total lending, which has increased
from 1.4 per cent in 2009 to 4 per cent as at June, 2013. As of June 2013, the full amount of the
CACS Fund has been disbursed to 292 projects along the agricultural value chain. Out of the
total number of projects financed, 48 per cent and 41 per cent were for production and
processing activities respectively. Average capacity utilization of projects financed by CACS
increased from 45 per cent in 2009 to about 75 per cent as at June 2013.
9. Your Excellences, distinguished Ladies and Gentlemen, in addition to the above, the
CBN is presenting for launch today the N220Billion Micro, Small and Medium Enterprises
Development Fund (MSMEDF). The Fund is designed to further enhance access to finance by
MSMEs with the following major objectives: (i) Provide wholesale financing windows for
participating financial institutions (PFIs); (ii) Improve the capacity of the PFIs to meet credit needs
of MSMEs; (iii) Provide funds at reduced cost to PFIs; (iv) Enhance access of women
entrepreneurs to finance by allocating 60 per cent of the Fund to them; and (v) Improve access of
NGOs/MFIs to finance.
10. Permit me, Ladies and Gentlemen, to further state that these interventions are specific in
scope and time and should be seen as stimulus for addressing financing gaps aimed at stirring
the market dynamics towards MSME development. The ultimate responsibility for sustainable
intermediation for the subsector lies with the financial markets. Moreover, these interventions
serve to integrate the micro-entrepreneurs, the low-income earners, farmers, artisans and the
active poor who operate in the informal sector, into the financial system to improve the
effectiveness of public policy.
11. I wish to seize this opportunity to specially thank Your Excellences, Senior Government
officials, Members of Diplomatic Corps that have found time to attend this important event.
12. On this note, I hereby launch the N220 Billion Micro, Small and Medium Enterprises
Development Fund (MSMEDF).
13. I wish you all fruitful deliberations.
I thank you all.