financing SMEs through the Nigerian capital market

1. By Nwude C.E (Mrs.)
Deputy Director (Fund Management & Collective Investment
Schemes Department)
3rd July, 2014

2. Table of Contents
 Slide 1-4 General Overview
 Slide 5-6 Financing Options for MSMEs
 Slide 7 Major Enables of MSME Access to
the Capital Market
 Slide 8-9 Collective Investment Schemes &
MSMEs
 Slide 10-11 Efforts by the SEC to encourage
MSMEs
 Slide 12 Challenges of MSMEs in Nigeria
 Slide 13 The Way Forward
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3. General Overview
 The Central Bank of Nigeria in the Financial Systems
Strategy 2020 document defined MSME as any business
with turnover of less than N100 million per annum and/or
less than 300 employees (the CBN Financial Systems
Strategy 2020 document)
 The global perception is not also too far from the definition
above because according to International Council of
Securities Association (ICSA), Micro, small and medium
sized enterprises are generally defined according to the
number of their employees, annual turnover and/or total
assets and sometimes according to the industry they
operate in.
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4. Overview Cont’d
 It is imperative to note that micro, small and medium
enterprises act as catalysts in the economic
development of any country, particularly developing
countries like ours. For sustained economic
development Nigeria has to harness the great potential
MSMEs have to offer to generate employment, improve
local technology, develop indigenous entrepreneurship
as well as output diversification.
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5. Overview Cont’d
 Recognizing the pivotal role of MSMEs in growth and
development of the nation’s economy, the Federal
government have established a number of agencies
like:
 SMEDAN -Small and Medium Enterprise
Development Agency of Nigeria
 BOI –Bank of Industry
 BOA – Bank of Agriculture etc; with the mandate to
support MSMEs.
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6. Financing Options for MSMEs
 There are various financing options that are available
to the MSMEs and these include debt financing
through;
Commercial banks
Development Banks
Micro Finance Banks
Co-operatives
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7. Financing Options Cont’d
Equity Financing can come through
Venture Capital
Angel Financing
Private Equity
SME Bonds – issued to qualified investors through
private placement
Securitization of SME loans/asses backed by
government guarantees
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8. Major Enablers of MSME Access to
the Capital Market
 To facilitate SMEs access to both equity and fixed income
markets, ICSA recommends the establishment of separate
markets for them with relaxed listing requirements to
reduce issuance cost. This the Nigeria Stock Exchange have
adopted through the introduction of the Alternative
Securities Market ASeM
 MSMEs need market advisor to assist them prepare for
listing
 To encourage and sustain investors interest in this segment
of the market, the same standard procedures for custody,
clearing and settlement as in the main market to be
maintained.
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9. Collective Investment Schemes
(CIS) and MSMEs
 Getting MSMEs started or expanding them requires
more, but financing MSMEs is very risky and as such
pure collective investment schemes cannot provide the
funding needed.
 However, Venture Capital are used to finance startup
MSMEs with perceived long-term growth potential.
 Funds for Venture Capital come from wealthy
individuals, Investment banks, other financial
institutions or partnerships who may sometimes
require representation on the startup boards.
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10. CIS and MSMEs Cont’d
 Angel investors are mostly investors who want to help
MSMEs get their business off the ground and earn a
high return on their investment. Typically, they offer
expertise and experience in addition to money.
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11. Efforts by SEC to encourage MSMEs
 In recent times, the Commission has done the
following to provide an enabling environment for
MSMEs to grow:
 Financial Literacy
 Providing a waiver for Venture Capital/Private Equity
Fund Managers to be registered
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12. Efforts by SEC cont’d
Follow up through post registration inspection.
registered a number of venture capital and private
equity Fund.
 This is to enable Fund Managers take advantage of
unlocked investment Funds provided by Pension and
Sovereign Wealth Funds assets.
Capital Market thrives through disclosure and
transparency
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13. Challenges of MSMEs in Nigeria
 However, Fund Managers have to deal with a number
of challenges with respect to funding MSMEs in
Nigeria, and these include:
Geographical spread of the MSMEs
Their accurate profile
Lack of procedure in operation, especially with respect
to accounting and book keeping
Inadequate infrastructure like electricity, good roads,
etc
Poor Corporate Governance Practice, etc
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14. Way Forward
 But just like the ICSA suggested, advisers of registered
venture/private equity Fund Managers can work with
SMEDAN, BOI and other government approved
agencies for MSMEs to identify MSMEs that could be
nurtured for growth and profitability.
 the Federal Government could also set up an MSME
Development Fund through which SEC registered
Venture/Private Equity Fund Managers and other
MSME funding institutions can draw fund to dispense
to profiled MSMEs.
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