I read recently in the media that the FGN has announced a N75b intervention fund for small and medium enterprises (SMEs). This is certainly a welcome development and i congratulate the FGN. However, policy decisions and statements need to be implemented properly in order to achieve the expected impact and results. Already, stakeholders are having several serious debates about the best way to ensure the expected impact and results are realised, especially in wealth and jobs creation. Several commentators have expressed pessimism that the intervention fund will go the similar efforts have gone in the past with nothing to show for it, 2 to 5 years down the timeline.
I believe we can do things differently and that we can achieve the impact and results that Nigerians are hoping for. I also believe that it is not rocket science to do this.
The first thing we need to do differently is re-design the “vehicle” for delivering the intervention funds to SMEs. We have been trying to use the Central Bank of Nigeria (CBN), or Bank of Industry (BOI) or Commercial Banks or just one other type of financial institution to deliver SMEs funds to SMEs operators and this has not really worked out as planned. We need to change this. We need to realise that using just one type of institution to deliver SMEs intervention fund in our socio-economic context is like the proverbial “putting ones eggs in one basket”. The risks of process failure are too high and exit window too small, once you get in.
We should learn from our past experiences and do things differently this time. The SMEs intervention fund announced by the President Goodluck Jonathan Administration should be delivered using several, not just one, delivery vehicles. It should be delivered through Commercial Banks, Micro Finance Banks, specialised financial institutions e.g. BOI, credible cooperative societies, development agencies with verifiable track record of local operations in Nigeria, established SMEs professional associations, etc.
The point to bear in mind is that the SMEs intervention fund must reach SMEs operators in both rural and urban areas, and must reach SMEs operators on all rungs of the enterprise ladder – the micro, the small and the medium scale enterprises operators. Exclude any one group completely and you automatically and significantly diminish the chances that the expected impact and results will be achieved. The truth is that commercial banks alone or cooperative societies alone or any other one type of institution alone will not be able to reach the broad diversity of the operators that should benefit from the fund. This is the key lesson that we need to learn from the past.
Bearing this in mind, I recommend that the intervention fund be broken into several parts based on the determined delivery capacities of the various institutions that will be used to deliver it. In fact, the funds should not be thrust upon any one institution to manage and administer, not even as a matter of right. The various institutions should be made to compete for it. Commercial banks, BOI, cooperative societies should be invited to provide proposals that explain what exactly they would deliver with the funds and how much of it they can deploy within specific timeframes, 1 year, 2 years, 3 years, etc., what management systems they will use to under-guard the delivery process, and what criteria they will employ in selecting beneficiaries within their specific catchment areas and networks.
The decision of how much of the intervention funds to allocate to each institution should be made based on their proposals and each should be held seriously accountable based on clear and firm performance targets that are bound in time. What’s more? Should any one fail to deliver, the fund may easily be taken away and re-assigned another that is performing, without the risk of stalling the entire process. Besides, competition is always good for the system.
A central working group (not a sitting-allowance-collecting-committee please!) should be created to superintend the entire process. The group should have direct reporting line to the supervising federal minister or whoever else is accountable for the intervention fund at the top hierarchy of the federal government.
There are several advantages in this approach:
1. The risks of process failure are greatly reduced because they are spread out.
2. There is inherent competition among the fund managers/administrators to deliver, which can only improve the system.
3. The chances that SMEs operators in rural and urban areas and at all levels can be reached with the lifeline they so desperately are hoping for are increased.
4. Delivery time can be reduced to the minimum possible and process bottlenecks are also eliminated.
5. Process efficiency is improved.
It must be noted that intervention funding alone is not sufficient to revive the SMEs sector. Other critical issues such as the poor state of public infrastructure and tax regimes for SMEs among others need to be addressed as well. In some countries, SMEs are given tax incentives for hiring one more employee. We need to take a close look at our context and design an environment that will enable our SMEs.
On the part of the SMEs operators, certain things need to happen. I do not believe the intervention fund should go to the SMEs operator that puts self first rather that the enterprise first. To benefit, the operator must have an internally transparent management and corporate governance system, sign up for clear and strict financial reporting procedures, be open to receive technical support where necessary and must have practicable business plans that demonstrate how the intervention fund will be deployed and re-gained, with profit. Put, these conditions in place and “collateral” will not necessarily be a critical consideration, within a certain funding threshold.
Uzo Nduka
Lagos, December 2010
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