Micro Small and Medium Enterprises Financial Services Demand Survey

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Micro Small and Medium Enterprises Financial
Services Demand Survey

• Being a paper presented by USAID PRISMS Project
  at CBN/World Bank MSME Project Stake holders
  Round Table discussion on June 28th , 2006 at
  Eko Hotels

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Micro, Small and Medium Enterprise Financial
Service DemandSurveyNigeria
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BACKGROUND

• A survey commissioned by USAID Nigeria PRISMS
  project, Abuja and carried out by Development
  Associates (DA).
• The survey commenced in November 2004 and was
  completed in July 2005.
• Areas covered are Kano, Abia, Cross Rivers, Oyo
  and Benue states and the FCT.

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OBJECTIVES

• To have detailed information on which to base
  decisions regarding both MSME financial services
  needs and financial services providers, to guide
  proper design interventions.

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Other Objectives

• Map the MSME demand for financial services to
  guide the expansion of rural and agricultural
  financing in Nigeria
• Assess the real demand for MSME and financial
  services in focal states
• Determine the training and technical assistance
  needs
• Provide recommendations to commercial banks and
  other service providers for MSME training

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Survey Methodology

• The Survey is consistent with USAIDs Rural and
  Agricultural Finance (RAF) Market Assessment
  methodology.
• The survey methodology incorporated quanlitative
  and quantitative analysis, desk research
  including gathering relevant industry sector
  information from standard financial reports and
  documents from relevant institutions.

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Survey Findings

• Financing currently utilized by MSMEs
• Personal savings, informal sources, MFIs and
  cooperatives, community bank financing,
  government sources, commercial bank financing
• MSME demand for commercial bank financial
  services
• Leasing, overdraft facilities and soft loans,
  business development services

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Survey Findings

• Current level of MSME satisfaction with
  commercial banks
• Level of satisfaction divided
• Related to the type of industry
• General dissatisfaction

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Survey Findings

• MSMEs reluctance to utilize commercial bank
  financing
• High interest rates and collateral requirements,
• Banks perceived unwillingness to match MSME
  demand for medium to long-term financing
• Perceived nepotism and lack of transparency in
  lending
• Perception of insufficient knowledge about MSME
  sector

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Survey Findings

• Commercial bank constraints in supplying MSME
  Financing
• Lack of confidence in management, inadequate
  security, limited MSME knowledge about borrowing,
  high cost of lending, insufficient bank knowledge
  of the sector
• Constraints to MSME growth
• Government policy, access to finance,
  infrastructure, legal system, foreign competition

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Outcomes

• Role of capital in MSME operations
• Access to capital
• Financial sector reform context
• Role of Advocacy
• Impact of infrastructure on MSME operations
• Importance of creating a credit culture among
  MSME operators

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Outcomes

• Lack of trust on both sides of the
  Lender/borrower equation
• Transparent financial system
• Developing MSME and commercial bank partnerships
• MSMEs already working with commercial banking
  institutions, commercial banks awareness of
  potential market

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Recommendations

• Continue to develop MSME demand for financial
  services
• Frequent demand assessments
• Effective lines of communication with banks
• Leverage resources and knowledge sharing

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Recommendations

• Reorient commercial lending to MSME financial
  services
• Training in general lending principles to the
  MSME sector
• Identify permanent sources of MSME funding (RAF)
• Promote commercial bank collaboration with
  financial intermediaries

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Recommendations

• Commercial bank training provided to MSMEs
• Business development services to improve
  competitiveness
• Basic business management training
• Commercial bank training in basic
  lending/borrowing principles

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About USAID Nigeria PRISMS Project

• The Promoting Improved and Sustainable MSME
  Financial Services (PRISMS) project is an
  assess-design-implement project financed by USAID
  Nigeria and managed by Chemonics International
  Incorporated.
• Major object of the project is to facilitate
  increased flow of sustainable financial services
  to support growth of the MSME sector in Nigeria.

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Project Methodology

• Wholesale lending strategy to facilitate
  commercial bank wholesale lending to MFIs/NBFIs.
• Retail lending strategy to directly link SMEs to
  finance from commercial banks, MFIs and new MFBs.
• Support the implementation of CBNs microfinance
  policy.(52) examiners trained on risk based
  supervision.

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PRISMS Roles

• PRISMS is already catalyzing financial sector
  partnership by demonstrating to Nigeria financial
  services industry opportunities for successful
  and profitable engagement with MSME sector by
• Conducting and distributing the MSME demand
  survey.
• Facilitating wholesale lending to NBFIs from
  commercial banks.

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PRISMS Roles contd

• Facilitating the establishment of bank owned
  subsidiary and private equity funds.
• Improving enabling environment to support MSME
  finance, through capacity building for CBN staff.
• Development of training courses for MSME lending
  institutions and commercial banks.

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PARTNERSHIP WITH FINANCIAL INSTITUTIONS

• PRISMS project enters into partnerships with
  financial institutions interested in expanding
  access to finance targeting the MSME sector.
• PRISMS functions as an honest broker between
  the financial institutions and prospective
  borrowers. The project is neither an investor nor
  a lender, and takes no fees nor receives any
  financial benefit from transactions concluded.

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CONTACTING PRISMS

• PRISMS Office, Plot 14 Negro Crescent, Maitama,
  Abuja
• Tel 09-41350954133566 Fax [phone]
• Email inquiries_at_nigeriaprisms.org
• Website www.nigeriaprisms.org