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SME loans: Collateral, registration still hurdles in 980 MFBs

By on September 13, 2017

Just like the deposit money banks, operators of Small and Medium scale Enterprises (SMEs) may still be having difficulty accessing funds from the Micro Finance Banks (MFBs), the Daily Trust reports.

The key challenges, according to some of the SME owners, are the unchanged demands for collateral and evidence of business registration and other supporting documents, guarantors and high interest rates prevalent among the MFBs.

A record obtained from the Central Bank of Nigeria (CBN) on the list of MFBs showed that there are 980 registered MFBs in Nigeria. Out of these, none has national presence, 103 are present across some states while 869 have presence only as a unit in certain places.

Business operators said although some of the MFBs in Abuja, including Aso Savings, Fortis MFB, and Hasal MFB, are willing to give medium term loans of N100,000 to N2 million, the Conditions Precedent (CP) they set are often difficult to meet.

Malam Abdullahi Bala, a grocery store owner in Mararaba, Nasarawa State, had an experience with Aso Savings near his area in 2015. He said, “I requested for a loan of N500,000 after someone referred me to the MFB for their personal loan package. I was asked to open a corporate account with a list of many registration documents, provide a collateral either in landed property, and get a guarantor who operates a salary account with them.

“The list was just too much for me to fulfil immediately and I needed the fund urgently, so I gave up,” he said.

Bala also said the interest rate for such loan is often from 14 per cent within the two to three year period, making it high for small business owners to deal with.

For Mrs Ngozi Ogugwo, the MFBs have been able to help expand her fabrics business after she got up to N1 million from Hasal MFB in Garki-Abuja after diligently meeting their criteria under their SME financing packages.

However, Hasal MFB offers a variety of products tailored to meet the business needs of SMEs. Information on enquiries via its corporate site says SME finance is a financing solution accessible for specific business medium term projects. The MFB could finance Local Purchase Order (LPO), contract, inventory, overdraft and lease financing. Its loans are above N1 million with monthly repayment of Principal and Interest within a tenor of three to 12 months.

The MFB requires a completed loan application form, a guarantee form, another form called KYC (Know Your Customer), and collateral requirement which includes landed property with good titles, fixed deposit or a verifiable fixed and floating asset.

For Fortis MFB, its Business Extra Loan package is meant for shop owners engaged in buying and selling of goods ranging from auto spare parts, building materials, fast moving consumables, filling stations, supermarkets, and eateries.

A financial analyst, Malam Sule Hassan, believes the Central Bank of Nigeria (CBN), the banks and the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) would need to do more financial education. He said the challenge with many SME operators remains that they are not financial literates.

“For instance, how can a business owner just go to the bank without documentation and think he can get loan fast? Every business, whether small or little, needs to be registered; this is still a challenge to many people in Nigeria. Once they are making profit, they don’t think of the legal part of business anymore,” Hassan explained.

The Chairman, Abuja Chapter of National  Association of Micro Finance Banks and Managing Director of Triple A Micro Finance Bank, Dr  Dan Ogun, said the association is doing a lot to teach SMEs that are their customers financial literacy and entrepreneurial skills.

“We train them basically on how to keep accounts. One of the challenges of some  SMEs is inability to manage finances effectively. Separating between profit, capital and all that.  So for MFBs in the FCT we do everything to make sure that our customers have financial literacy to be able to manage loans and facilities we give.”

“In our enlightenment as well, we train them to know the importance of savings. That you cannot say you are poor and unable to save as a small business owner.  We tell them that if you have N10 and are unable to save, when you have N10 million you will be unable to save as well.”

Ogun said one of the fundamental objectives of Micro Finance Banks is to empower the active poor that are at the bottom level of the economic ladder.

“What we have been doing is to sell products that are friendly to those levels of people. Also, once we give loan, it’s also our duty that we help to promote that business. So we make referrals for people to patronise that business,”he said.

On the high interest rate charged by Micro Finance Banks, Ogun said: “Our national president, Mr. Rogers Nwoke, has been discussing with the  Central Bank of Nigeria, BOI and others to make wholesale loan available to microfinance banks. Wholesale lending is when you get money from the government or CBN and other development banks which you  then lend to SMEs.  Those monies come with conditions that are friendly, and that is also passed to the SMEs.

When we get such cheap money, we will give out cheap money. But when we have to get money through our efforts and pay exorbitantly for it, then someone has to bear the cost. So, it is those that take loan from us that will bear the cost,” he explained.

However, Ogun said in the seven years existence of Triple A Microfinance Bank, they have empowered about 500 SMEs. “If you are talking of this year, we can count about 50 people that we have empowered.  We have just developed a programme that gives N50,000 to SMEs at 3% interest rate per month.”

In Katsina State, an NGO, the International Centre for Energy, Environment and Development (ICEED) is promoting financial literacy among peasant men and women across seven LGAs through its ‘Improving the fuel-wood balance’ (FuWoBa) project.

The Project Advisor, Farmer Managed Renewable Energy (FMR) Production, Mr Adedamola Ogunsesan, at the Stove Development Centre (SDC) and Project Office in Katsina city, told one of our reporters recently that they are distributing 35,000 clay stoves in the areas to battle the over-dependence on fuel-wood, a major cause of desertification and deforestation in sub-Saharan Africa.

Ogunsesan said for every stove sold, the marketers get N150 to N200 as commission which is paid to them through the engagement of MFBs. So far, two MFBs – Mashi MFB in Mashi LGA and Bayajidda MFB in Daura town, Daura LGA – have keyed into the project with seven others finalising the engagement process.

“In all of this, there is empowerment aspect, financial literacy, gender aspect and working with the micro finance banks.  We have reached at least 500 households with an average of seven members each. Seven other MFBs have agreed to join and give loans to locals to start production,” he said.

To enable more SME operators have access to loans through the MFBs, the Bank of Industry (BoI) in August 2017 said it may soon consider working with credible MFBs to make credit more easily accessible to SMEs.

The Managing Director, Mr Olukayode Pitan, at a stakeholders’ forum in Osogbo, Osun State, was reacting to the many complaints lodged by business owners at the forum on access to funding and processing their business documents.

 

[Daily Trust]

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