FINANCING OPPORTUNITIES FOR NIGERIAN MSMEs

PRESENTATION BY

ABDUL-GANIYU MOHAMMED, DIVISIONAL HEAD, SME – SOUTH

BANK OF INDUSTRY

AT

The FATE Foundation's March Alumni Knowledge Building

Programme

Thursday, March 10, 2016

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Overview of the Nigerian Economy

• Largely a middle income, mixed economy and an emerging market.

• Expanding financial service, communications, technology and

entertainment sectors.

• Currently the largest economy in Africa with total GDP of $510 billion as at

2013.

• Impressive growth over the past decade with a record estimated 7.4%

growth of GDP in 2013

• Experiencing high unemployment rate and poor income distribution

• Hosts a huge spectrum of suitable agro-climatic conditions that allow a

broad range of diverse agricultural production. However still importing large

quantities of agricultural / food products.

• The employment base of the Nigeria economy is largely dependent on the

agricultural sector

Overview of MSME in Nigeria

• Size of SMEs 37million (Micro-36.99m, Small- 68,168, and Medium-4,670). They are mainly sole proprietorships. 55% of SMEs are wholesale and retail trades.

• State Distribution

Lagos state has the highest number of SMEs (11,663), while Kwara State has the least (226). Lagos State also has the highest number of micro enterprises (3,224,324), followed by Oyo State (1,864,954), then Kano State (1,794,358). While the FCT (482,365) and Nasarawa State (382,086) recorded the least.

• Labour Force The total number of persons employed by the MSME sector as at December, 2013 stood at 59.7million, representing 84.02% of the total national labour force.

• Gender size Female entrepreneurs accounted for 43.32% in the ownership structure of micro enterprises as against 22.75% in small and medium enterprises.

• Literacy level The level of education is very low. 51% of the SMEs have no education

• Age The ownership structure by age showed that the age bracket of 24-50 dominates. Hence youth entrepreneurs are dominant.

• GDP & Export Contribution to GDP in nominal terms stood at 48.47%.Contribution to export quite low, stood at 7.27% because the products fall short of standards and as such, cannot access international market

Importance of MSMEs

Engine of Growth The sector is the largest provider of employment in most countries,

especially of new jobs. MSMEs are a major source of technological innovation and new products A major contributor to the Gross Domestic Product (GDP)

Poverty Reduction MSMEs tend to employ poor and low-income workers MSMEs are sometimes the only source of employment in poor regions and

rural areas Self-employment is the only source of income for many poor MSMEs play a particularly important role in developing countries where

poverty is most severeEssential for a Competitive and Efficient Market

Ensure none of the participants have significant market control because of a large number of players

Competitive markets achieve an efficient allocation of resources

Particularly Important Role in Developing Countries MSMEs can be used as a tool for political stability MSMEs as a tool for financial inclusion MSMEs as a tool to curb or reduce social vices to a manageable proportion MSMEs as a tool to grow government tax base

Underlying Challenges in MSME Financing

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Tackling the Underlying Challenges

Hence, lending models developed for stable markets with reliable

documentation cannot be applied to largely informal SME businesses.

MSMEs clearly require flexible and tailor made loans while effective support

must go beyond funding and short-term advisory.

These are the underlying reasons for the strategic positioning taken by BOI

in recent past which include:

• Expanding the reach to the micro enterprises through an on-lending

scheme with Microfinance Banks (MFBs).

• Integrating capacity building into financing for MSMEs

• Cluster based lending approach

• Innovative financing.

• Creative support mechanism including digital offerings

• Exploring alternative mechanisms like venture capital and value chain.

Introducing BOI

• Set up in October, 2001

• This followed the reconstruction

of the former NIDB to include the

mandates of NERFUND and

NBCI

• The defunct NIDB has been in

existence since 1964.

• The setting up of Bank of

Industry (BOI) is the

Government strategy of

achieving self sustaining growth

in the context of globalization.

• BOI is determined to ensure

optimal utilisation of Nigeria vast

resources and potentials

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Bank of Industry (BOI)

– Mandate

• The potentials of BOI will be better appreciated in the context of its

primary mandate and it’s expected role in the implementation of

the Federal Government’s industrial and economic programmes.

• The mandate of BOI is to provide Financial assistance for the

establishment of large, medium and small scale companies as well

as the expansion, diversification and modernization of existing

enterprises and the rehabilitation of ailing industries

• It was conceived as a catalyst in transforming the real and

emerging sector of the Nigerian economy by providing financing

and business support services to entrepreneurs especially MSMEs

with strong potentials for employment generation and export.

The Vision

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BOI’s vision is to be Africa’s leading Finance Institution operating under global best

practices.

The Bank’s mission is to transform Nigeria’s industrial sector by providing financial and

support services to enterprises.

To achieve this, BOI is setting out to make impacts by ensuring that the enterprises being

financed are not only sustainable but also sustainable environments.

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Tapping the BOI potentials

• The Bank has been charged with the responsibility of providing fund for

the successful implementation of Government’s industrial programmes.

• The choice of BOI to carry out this task is based on its role as a

Development Finance Institution (DFI);

i) Provision of Long-Term Fund: up to 3-15 years including moratorium

of 1-4 years depending on the source/line of credit.

ii) Concessionary Interest rates: ranging from 4-10% depending on the

line of credit.

iii) Provision of Advisory Services: Business advisory and capacity

building services.

iv) Benefits of partnership with various stakeholders: leveraging on its

partnership (e.g UNIDO, AfDB, Afrexim, AFC, British Council, CBN, FMA&RD,

State Governments, Dangote Foundation, EDCs, etc.) to assist its customers

in capacity building and in securing credit facilities at concessionary terms.

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Exploring the opportunities

Rendering creative solutions & creative

financing

•Cluster based financing in line with

Commodity based industrialisation

• Increasing Funding base

•SME Consultants (BDSPs)

•Digital offerings: SME Accounting App,

Online Loan Application Portal, SME Mobile

App, Customer Portal

•SME Auditors

•SME Estate Valuers,

etc

Introducing BOI

PRODUCTS & SERVICES

Short, Medium and Long-Term Financing

Cluster lending through Product Programs

Equity Financing

Co-Financing/Syndication

International Operations/Trade Services

Management of specialised Funds

Other complimentary services rendered by BOI’s

Subsidiaries: Microfinancing, Leasing, Trusteeship,

Insurance Brokerage, Consultancy, etc.

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3 Easy Steps to Accessing

BOI Fund

1. Formal Application Letter

2. Completion of BOI’s Questionnaire

3. Submission of BOI’s Checklist items and Questionnaire at any of the Bank’s offices nationwide

Or

Meet with any of our accredited BDSPs

(www.boi.ng/bdsp)

Apply online at www.boi.ng/apply

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BOI Checklist Items (Summarized)

• Copy of Certificate of Registration, Certified True Copy of

Memorandum and Articles of Association of the Company, Form

C02 and Form C07

• Three (3) years most recent Audited Accounts of the company (as

applicable)

• Land and building documents: Certificate of Occupancy

(Satisfactory tenancy agreement long enough to cover the tenure

of BOI’s facility, in respect of rented property).

• Quotations for items of plant and machinery.

• Quotations for items of raw materials.

• Three (3) years most recent Tax Clearance Certificate for the

Company and two (2) Directors.

• Eight recent Passport photographs of each of the two Directors

and the Company Secretary.

• Photocopy of international passports or drivers license of two (2)

Directors.

A. Are you a Nigerian Entrepreneur?

B. Can you provide at least 20% equity for your project?

C. Do you have sufficient industry knowledge, skills and experience related

to your business?

D. Are you prudent and financially disciplined and able to separate personal

funds from business funds?

E. Are you passionate, energetic and resilient in the face of challenges and

unafraid of competition?

F. Have you attended an entrepreneurial development program at any of our

accredited EDCs – www.boi.ng/EDCs

G. Is your company set up to run effectively even in your absence?

H. Does your company fall within BOI’s definition of SMEs as indicated on

our website (www.boi.ng/smedefinition)?

I. Has your company been in operation for a minimum of 3 years with a

good track record of sales and profit margin?

J. Is the loan purpose clear, specific and verifiable?

K. Does your company have a viable and realistic growth plan?

L. Are you or your company able to provide collateral in the form of Bank

Guarantee or Legal Mortgage or verifiable streams of receivables

from well rated entities?

M. Neither you or your company has a history of loan default.

N. Does your company keep accurate and complete records of its operations, both

accounting and non-accounting?

O. Does your company have a skilled, motivated and dedicated workforce?

P. Is your company in close proximity to reliable sources of raw materials?

Q. Does your company have a strong demand for its products from a loyal customer

base?

R. Does your company have all the licenses and permits required for its operations.

S. Does your company operate in Nigeria’s agricultural or manufacturing value chains

or related service sector?

T. Are the project and other collateral assets within safe and secure locations?

U. Is the technology employed tested, reliable and efficient with medium to long-term

maintenance agreements and performance guarantees from the equipment

suppliers.

V. Is your company a member of relevant Organized Private Sector (OPS)

Associations – MAN, NASSI, NASSI and NASME.

W. Are you and your company up to date in meeting Personal and Income Tax

obligations respectively?

X. Can your company generate sufficient cashflow to fully repay the loan?

Y. Is your company engaged in activities that are legally permissible?

Z. Do you undertake to make full and accurate disclosures to BOI concerning the loan

application.

Thank you