BANKING

SME Financing: Challenges and Opportunities in Nigerian Banks

Published

1 year ago

SME Financing: Challenges and Opportunities in Nigerian Banks

Small and Medium-sized Enterprises (SMEs) are the backbone of any thriving economy. They contribute significantly to job creation, innovation, and economic growth. In Nigeria, SMEs play a vital role in the country’s economy. They account for a significant number of businesses. Despite the potential of SMEs in Nigeria, they face numerous challenges, especially in the areas of accessing finance. In this post, the challenges and opportunities of SME financing in Nigerian banks will be discussed.

Challenges in SMEs Financing

1. High-Interest Rates:

In Nigeria, it is financially burdensome for SMEs to borrow from banks due to the exorbitant interest rates of traditional banks. High-interest rates mean that SMEs have to pay more for the funds they borrow which leads to higher borrowing costs. This can eat-into their profits and reduce the financial resources available to them for business expansion, investment, innovation, and other critical business activities, such as marketing, hiring, and product development. As a result, they are discouraged to seek financial assistance thereby affecting their ability to expand and invest in their businesses.

2. Inadequate Collateral:

Traditional banks in Nigeria require collateral to mitigate the risk of lending. Many SMEs lack valuable assets that are sufficient to be used as collateral. Since they lack sufficient collateral, they can be denied access to finance which restricts their ability to invest in growth opportunities, purchase inventory, and or expand their business operations. Even when they manage to secure the loans with their inadequate collateral, the loan amounts are typically very low. As a result, they may not have the necessary capital to fund substantial investments in their businesses.

3. Lack of Financial Literacy:

The knowledge and understanding of different concepts and practices of financial management is crucial for the success of any business, including Small and Medium-sized Enterprises (SMEs). However, many SME owners lack the necessary financial knowledge to make informed decisions about their businesses and to navigate the complexities of the banking system. Most financial institutions evaluate the creditworthiness of SMEs before granting loans or credit requests. It may be difficult for an SMEs owner with poor financial literacy to present their financial statements effectively and demonstrate their ability to manage borrowed funds, making it difficult to secure financing as a result, the bank denies their loan application hinders their ability to access loans.

4. Regulatory Challenges:

SMEs in Nigeria stuggle with regulatory challenges which hinder their growth. The complexity and the ever-changing regulations is burdensome for small businesses, making it difficult for them to operate within the legal framework.
SME Financing: Opportunities in Nigerian Banks
Small and Medium-sized Enterprises (SMEs) are the lifeblood of Nigeria’s economy, and their growth and success depend significantly on access to financing. In recognizing the importance of SMEs, there is an increasing focus on the provision of financial services tailored to the specific needs of these businesses. Below are some opportunities for SME financing in Nigerian banks:

1. Government Support and Intervention Programs:

The Nigerian government, in collaboration with the Central Bank of Nigeria (CBN), has initiated various intervention programs aimed at providing funding support to SMEs. Examples of such programs are the Anchor Borrowers’ Program, the Agribusiness/Small and Medium Enterprises Investment Scheme (AGSMEIS),funds like the Micro, Small and Medium Enterprises Development Fund (MSMEDF), the Agricultural Credit Guarantee Scheme Fund (ACGSF) and the Creative Industry Financing Initiative. These programs provide subsidized interest rates, reduced collateral requirements, and other favorable terms for SMEs.

2. Fintech Innovation:

Banks in Nigeria are increasingly initiating partnership and investing in fintech companies that offer innovative financing solutions. These fintech firms provide digital lending platforms, mobile banking services, and peer-to-peer lending options, making it easy for SMEs to access quick and efficient credit. Examples are bank collaboration with fintech firms like Flutterwave and Paystack which allow SMEs to accept digital payments and access loans through user-friendly interfaces and streamlining the financing process.

3. Microfinance Banks and Institutions:

Microfinance banks are designed specifically to cater for the financial needs of SMEs. They have gained prominence in Nigeria and offer more inclusive and flexible financing options that require less collateral and provide loans at reasonable interest rates. For example LAPO Microfinance Bank provides loans to women entrepreneurs in rural areas to establish or expand their businesses.

4. Credit Guarantee Schemes:

Credit guarantee schemes like the Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), provides insurance coverage to banks lending SMEs loans. This reduces the risk for banks and encourages them to offer loans to SMEs at more favorable terms. The intervention of NIRSAL’s in the agricultural sector has enabled farmers and agribusinesses to access funds with reduced collateral requirements and lower interest rates to foster growth in the sector.

5. Venture Capital and Private Equity Investment:

Nigerian banks are increasingly collaborating with venture capital firms and private equity investors to channel investment into SMEs that are promising. The partnership provides equity financing, which is crucial for businesses intending to scale up either to expand their operations, develop new products, and drive innovation.

6. Capacity Building and Business Development Services:

Some banks in Nigeria offer more than just financial services; they provide training, mentorship, and advisory support to SMEs. These services help SMEs enhance their management skills and improve their ability to access financing. For example, banks conduct business development workshops for their SME clients to equip them with the knowledge and skills needed to prepare robust business plans, make financial projections, and increase their chances of securing loans.

7. Partnerships with International Organizations:

Nigerian banks collaborate with international organizations and development agencies to access funding and expertise. These partnerships can result in specialized financing programs for SMEs, including those focused on women and youth entrepreneurs. For example, Union bank in partnership with the International Finance Corporation (IFC) launched a program to provide sustainable energy solutions to rural SMEs. This initiative offered financing and technical expertise to help businesses thrive.
SME financing in Nigerian banks presents both challenges and opportunities. While access to finance is still a significant hurdle for many small businesses, promising developments like the different government initiatives, fintech innovation, microfinance institutions, improved financial literacy and business development support will help to make SMEs more creditworthy and better positioned for growth. Therefore, it is essential for banks, policymakers, and other stakeholders to work together to address the challenges and leverage on the opportunities in SME financing to unlock the full potential of SMEs in Nigeria and also foster a more inclusive and vibrant entrepreneurial ecosystem that will contribute to economic development and job creation.

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BANKING

Afreximbank Acts as Joint Lead Manager on Ecobank Transnational Incorporated’s USD 400mn Senior Unsecured Note Issuance

Published

2 months ago

Christopher

The proceeds of the note will fund general corporate purposes of the issuer, including refinancing of a USD350 million senior bridge-to-bond loan facility that was jointly coordinated by Afreximbank in March 2024.

African Export-Import Bank (“Afreximbank”) (www.Afreximbank.com) is pleased to announce that it has successfully acted as Joint Lead Manager and Bookrunner on a USD 400 million 10.125% Rule 144a/RegS senior unsecured note issuance by Ecobank Transnational Incorporated (“ETI”) due in October 2029.

The note issuance achieved peak orderbook oversubscription of 2.1x, backed by more than 70 high-quality and diverse investors comprising development finance institutions, asset managers, commercial banks and insurance companies from Africa, the UK, USA, Europe and the Middle East.

Professor Benedict Oramah, President and Chairman of the Board of Directors of Afreximbank, commenting on the transaction, said: “We are pleased to have supported Ecobank Transnational Incorporated (“ETI”) in placing the first public Eurobond issuance by any Sub-Saharan African financial institution since 2021, following our bridge financing support earlier in the year. This transaction underscores Afreximbank’s capacity and readiness to structure innovative market access solutions for our pan-African banking partners.”

Afreximbank’s Advisory and Capital Markets (ACMA) department acted as Joint Lead Manager and Bookrunner on the issuance, working alongside international and African partners.

Distributed by APO Group on behalf of Afreximbank.

BANKING

International Islamic Trade Finance Corporation (ITFC) and the Central Bank of Nigeria Successfully

Published

2 months ago

Christopher

International Islamic Trade Finance Corporation (ITFC) and the Central Bank of Nigeria Successfully

These workshops form part of ITFC’s Integrated Trade Solutions (ITS) framework, aligning with the organization’s goal of providing holistic trade financing interventions in OIC member countries.

The International Islamic Trade Finance Corporation (ITFC) (www.ITFC-idb.org), a member of the Islamic Development Bank (IsDB) Group, in partnership with the Central Bank of Nigeria (CBN), successfully concluded a workshop on Non-Interest Banking and Trade Finance in Nigeria. Held from 17th to 19th September 2024 in Abuja, the sessions aimed to enhance capacity and knowledge in Islamic banking principles, trade finance products and services, and how different financial toolkits are applied in Islamic finance from operational and business perspectives.

International Islamic Trade Finance Corporation (ITFC) and the Central Bank of Nigeria Successfully

Nigeria’s Islamic finance industry, valued at US$3.8 billion, is one of the major Shariah compliant industries in Africa. Despite some challenges such as low public awareness and a smaller capital base compared to conventional banks, Islamic finance has been substantially contributing to reduce financial exclusion and improve access to affordable finance in the country. The three-day workshop was designed to bridge prevailing knowledge gaps focusing on key areas such as Sukuk issuance and main non-interest banking products basics.

Delivered under ITFC’s Integrated Trade Solutions framework, the workshop equipped professionals with the skills to promote Islamic finance in Nigeria while also highlighting ITFC’s wide range of trade financing services.

Participants reported a significant boost in understanding Islamic banking and trade finance, and the workshop showcased ITFC’s contributions to economic development through sustainable financial solutions.

Eng. Nasser Al Thakair, ITFC, remarked: “ITFC is committed to supporting Nigeria’s efforts in Islamic finance, tailoring this workshop to address the unique challenges faced. We will continue to provide the expertise and financial backing needed to grow Islamic finance in Nigeria and beyond.”

Over 30 professionals from the Central Bank of Nigeria, non-interest banks, and other financial institutions attended, further advancing Islamic finance in the country.

As Nigeria positions itself as a leading market for Islamic finance in Africa, ITFC remains dedicated to advancing trade finance and supporting the growth of the sector for long-term economic impact.

Distributed by APO Group on behalf of International Islamic Trade Finance Corporation (ITFC).

About the International Islamic Trade and Finance Corporation (ITFC):

The International Islamic Trade Finance Corporation (ITFC) is a member of the Islamic Development Bank (IsDB) Group. It was established with the primary objective of advancing trade among OIC member countries, which would ultimately contribute to the overarching goal of improving the socioeconomic conditions of the people across the world. Commencing operations in January 2008, ITFC has provided over US$75 billion of financing to OIC member countries, making it the leading provider of trade solutions for these member countries’ needs. With a mission to become a catalyst for trade development for OIC member countries and beyond, the Corporation helps entities in member countries gain better access to trade finance and provides them with the necessary trade-related capacity-building tools, which would enable them to successfully compete in the global market.

FINTECH

Kazang Pay launches card acquiring service in Zambia

Published

2 months ago

Christopher

Kazang (www.Kazang.com), the prepaid value-added services (VAS) and card acquiring business within JSE-listed fintech Lesaka Technologies, has launched its Kazang Pay card acceptance solution for merchants in Zambia. Kazang Pay makes it affordable for merchants to accept card payments on the same Kazang terminal they use to sell prepaid products and services.

Kazang Pay launches card acquiring service in Zambia

The Kazang Pay enabled terminal in Zambia accepts VISA debit and credit cards as well as mobile wallet payments. Payments are settled to the merchant’s Kazang wallet on the same day. It’s as easy as letting the customer tap or insert their bank card and enter their PIN on the secure scramble PIN pad.

Kazang operates around 12,000 VAS terminals in Zambia. The goal is to enable the majority to accept card payments over the next six months. Benefits to merchants include low transaction fees and no monthly terminal rental fee for those that meet a modest monthly transaction threshold as well as the opportunity to grow their business through card acceptance.

Kazang is Zambia’s largest VAS point-of-sale terminal provider, enabling mobile money payments, bank and mobile money cash in and out, bill payments, airtime, Zesco, and many other prepaid services on one platform. The addition of card acceptance makes the platform even more comprehensive for merchants and consumers alike.

The launch of Kazang Pay in Zambia follows the introduction of the solution in South Africa, where around 60,000 small and micro merchants use Kazang Pay to accept card payments. In Zambia, there are around 3.8 million debit, credit and ATM cards in issue and 41,000 point of sale (POS) terminals in place. The value of POS transactions has grown to K 111.4 billion by 2022 from less than K 20 billion in 2018, according to the Bank of Zambia.

Says Leon de Wit, managing director at Kazang Zambia: “Zambia has made enormous strides in terms of financial inclusion, with card usage and penetration growing at a rapid pace. With Kazang Pay, merchants can now easily accept card payments on the same all-in-one terminal they already use for vending of VAS products.

“Card transactions help merchants to grow basket sizes and potentially attract more customers, and at the same time, reduce the risks and costs of handling cash. Moving towards digitalised payments will also enable merchants to track sales, manage cash flow, and create a footprint that could make it easier for them to access loans.”

Ashley Naidoo, director of Kazang Pay in South Africa says: “Our Zambian merchants have eagerly embraced our card acquiring service as a valuable part of our one-stop solution. Following the launch of Kazang Pay in Zambia, we have seen higher VAS sales across our merchant base and much-improved merchant retention and with our card acquiring solution we now appeal to a broader merchant base.”

Distributed by APO Group on behalf of Kazang.

ABOUT KAZANG:
Kazang (www.Kazang.com) is a leading provider of cash and digital solutions to merchants in Southern Africa’s informal economies. Our fintech solutions include a diverse range of value-added services (VAS), card acquiring, secure cash vaults and supplier payments platforms. Operating with a network of approximately 90,000 active devices, we process approximately 2.2 million transactions daily in markets such as South Africa, Namibia, Botswana, and Zambia.

We are dedicated to helping small and medium merchants grow and succeed, through increasing their sales, making their businesses more efficient and reducing their risks with its holistic portfolio of products and services. Kazang is a member of Lesaka Technologies (https://LesakaTech.com).

ABOUT LESAKA TECHNOLOGIES, INC:
The Connect Group and Kazang was acquired by Lesaka Technologies, Inc. in April 2022. Lesaka Technologies, (Lesaka™) is a South African Fintech company that utilizes its proprietary banking and payment technologies to deliver superior financial services solutions to merchants (B2B) and consumers (B2C) in Southern Africa. Lesaka’s mission is to drive true financial inclusion for both merchant and consumer markets through offering affordable financial services to previously underserved sectors of the economy. Lesaka offers cash management solutions, growth capital, card acquiring, bill payment technologies and value-added services to retail merchants as well as banking, lending, and insurance solutions to consumers across Southern Africa.

Lesaka has a primary listing on NASDAQ (NasdaqGS: LSAK) and a secondary listing on the Johannesburg Stock Exchange (JSE: LSK). Visit www.LesakaTech.com for additional information about Lesaka Technologies (Lesaka ™). $LSK / $LSAK