Government Financing of MSMEs – Is it working?

June 15, 2015

Praia_market_potatoes_maniocMicro, small and medium enterprises (MSMEs) are recognized as the driving engine of socio-economic transformation of any economy. Internationally, the MSME sub-sector absorbs more than 80 percent of job opportunities, facilitates primary production and value addition, enhances capacity utilization and improves capital per head. It is thus, the surest avenue for providing needed goods and services in rural or semi-urban areas, addressing the problems of rural to urban migration and income distribution, growing the entrepreneurial talent and simulating economic development in the community. Micro, small, medium or even large enterprises evolve through the process of meeting a need in a society, doing business or engaging in entrepreneurship. Entrepreneurship is described as the lifeblood of any economy and the solution to unemployment and poverty. Consequently, it has been rightly pointed out that the economic development of the developed world emerged largely from the efforts of micro and small enterprises.

Without overlooking mega or large businesses, empirical findings have shown that a significant feature of a flourishing or thriving economy is a vibrant MSME sub-sector playing the ennobling role of creating employment, providing sustainability and innovation in the economy and the vital linkage between large businesses and individual consumers. It has also been found that countries with a higher share of MSME have higher growth than those with a lower ratio with the larger businesses having their origins traceable to MSMEs. In addition, a large percentage of the population depend on this sector directly or indirectly for one thing or the other in meeting their needs. MSMEs are known to hold the future to the development and occupy a pivotal position in the economy, especially as it concerns industrial growth, youth empowerment and innovation. Despite the vital role played by MSMEs in economic development, MSMEs experience challenges such as weak market linkages, inclement business environment, inconsistent government policies, multiple taxation, obsolete technology, lack of information, inadequate skills and human capacity. All these combine to limit their growth, ability to do better and eventually early demise.

Another factor that impedes the growth of MSMEs in Nigeria is lack of affordable and reliable capital. Lack of capital or financial resources is a major barrier for MSMEs and entrepreneurs who usually have to mobilize their own capital to establish or expand their businesses. MSMEs in Nigeria have difficulty in accessing bank loans as a result of the inability to provide collateral and other securities. As a consequence of the above impediments, the Nigerian government needs to intervene by providing means of reaching some of these facilities and resources. Another factor that requires government intervention is the provision of infrastructure. Lack of power, good road network to transport raw materials and finished products has been noted to be a serious impediment. To mainstream MSMEs and position them to optimally contribute to the fight against unemployment and poverty, a conscious commitment at governmental level is desired. This has come with the successes that have been achieved in Japan, Italy and India amongst other nations which continue to have a large pool of vibrant MSMEs and where the sector has been instrumental in the fight against unemployment and poverty.

Government must therefore adopt a deliberate policy to promote entrepreneurship and enterprise creation through guidance, counselling and other forms of support. Government’s role can come by making policies that will enthrone a hassle-free business environment, facilitating access to affordable and reliable finance, provision of infrastructure, human capacity building, facilitating information, market access and business development services…

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