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Prospects of Nigerian SMEs Under The Small
and Medium Industries Investment Scheme (SMIEIS). (Posted
18th Mar, 2002) Tell your friends about this page! Email it to them.
Basic Concepts in SMEs
The Small and Medium Industries and Equity Investment Scheme (SMIEIS) defines Small and Medium Enterprise (SME) as any enterprise with a maximum asset base of N200 million excluding land and working Capital and with the number of staff employed not less than 10 or more than 300. Small and Medium Enterprises (SME) have been defined along a broad continuum of size and type. In terms of size, measures used to classify SMEs include employment, assets and revenue.
Asset-Based (excluding Real Estate) Classification
Source: International Finance Corporation (IFC) publications (2001)
Element of The Small and Medium Industries Equity Scheme (SMIEIS)
SMIEIS is a voluntary initiative of the Bankers' Committee whose membership includes all the Managing Directors and Chief Executive Officers (MD/CEOs) of banks in Nigeria, which require all licensed banks in Nigeria to set aside 10% of their Profit Before Tax (PBT) for equity investment in, and promotion of Small and Medium Enterprises (SME).
SMIEIS is intended to stimulate economic growth and development, develop local technology and generate employment. The participating banks for equity investment under this scheme have currently set aside over N5 billion for alternative approach to financing SMEs. The goal of this scheme is to reduce SMEs borrowing and consequently relieve them from interest and other bank charges that are not favourable to their capital structure. It also espouses the provision of financial, advisory, technical and managerial support to SMEs by banks.
Activities Covered By SMIEIS
As regards the practice everywhere and Central Bank stipulation coupled with the agreement reached by the Bankers' Committee. The following activities will be covered under the SMIEIS:
Activities Not Covered By SMIEIS
In line with international practices, banks will not invest SMIEIS funds in entities whose principal business involve or comprise the manufacture or supply of, or any activities in the following sectors:
Any business activities that do not fall among the specifications above and meets the following criteria will be considered an eligible SMES and thus can partake in SMIEIS:
Modalities For Implementation
To safeguard the abuse of the scheme, the following modalities subsist:
Potentials of SMEs
SMEs is believed to be the engine room for the development of any economy, because they form the bulk of business activities in a growing economy like that of Nigeria. This is manifested in the following ways:
1. Employment Generation
2. Rural Development
3. Economic Growth and Industrialisation
4. Better Utilisation of Indigenous Resources
Challenges/Constraints of Funding SME Operations in Nigeria
Summary, Conclusion and Recommendations
From the above information, banks would always insist on clean, defensible and comprehensive business proposals before investing under SMIEIS, support businesses that are properly focused, professionally managed and with bright prospect. SMEs with a clear-cut and practicable succession plan will enjoy the blessing of SMIEIS. No doubt, banks would be represented on the Management Board of any enterprise they have equity investment.
SMIEIS, if properly managed could provide the necessary impetus for growth in Initial Public Offers (IPOs) in the future as the banks would exit from the investments made under the scheme and trade off the equity invested to interested the public as banks do not generally tend to stay too long with SMEs. SMEs would be better assisted with the provision of basic functional infrastructures, the inadequacy of which has constituted a drain channel for the investible funds of SMEs, they have to make provision for all these from the loan/funds hither to acquired from banks. If these basic amenities were readily available, SMEs would divest such funds to more productive operations.
The government could also assist by establishing a well funded National Credit Guarantee Fund that will act as buffer for credit facilities from banks and other financial institutions over and above the equity provided under SMIEIS.
* Part of this piece was extracted from Ben Akabueze's paper on Financing Small and Medium Enterprises (SMEs): The Small and Medium Industries Equity Investment Scheme (SMIEIS) Option, delivered at the e-week 2002 Seminar held at the Muson Centre, Lagos between 11-14 February, 2002. The remaining was prepared by our team.
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