Business

Exploring alternative funding for Nigerian businesses

Recently, the Lagos Chamber of Commerce and Industry (LCCI), in conjunction with Jersey Finance, a strategic partner of Commonwealth Advisory and Investment Council, held a meeting on access to international capital and funding solutions for Nigeria. TAIWO HASSAN reports

At many fora in the Nigerian business community, the issue of access to capital/credit for businesses and expansion has been one of the most discussed issues in the country. The reason for this is not farfetched considering the fact that major manufacturing firms, members of the organised private sector and others have been complaining of difficulties in accessing capital in Nigerian banks despite efforts by the Central Bank of Nigeria (CBN) to ensure the contrary. Thus, amid huge funding gap encountered by Nigerian business owners, LCCI believe that its collaboration with the Jersey Finance, a strategic partner of Commonwealth Advisory and Investment Council, will benefit Nigerian businesses. It will enable them have access to international capital to solve the perennial challenges surrounding running of business in Nigeria, especially from the credit side, which is key to expansion.

Reasons for accessing int’l capital

In her remarks at the conference themed: ‘Access to International Capital and Funding Solutions for Nigerian Business,’ the President of LCCI, Mrs. Toki Mabogunje, explained that the theme was timing as it underscored the importance of access to capital and finance to the development of the Nigeria economy given the large number of businesses in the country and the important role of private sector in facilitating economic growth and development. She noted that, according to the Central Bank of Nigeria, total gross credit to the private sector stood at N18.90 trillion at end-June 2020, representing about 13 per cent of the Gross Domestic Product (GDP). The LCCI president also stated that the World Bank statistics showed that Nigeria’s 10.5 per cent, Domestic Credit to Private Sector (percentage of GDP) in 2019 was one of the lowest in world. Mabogunje, however, admitted that it was, therefore, evident from the statistics above that the size of credit to private sector (as percentage of GDP) was largely insufficient to meet the demand for finance by private sector, thereby creating a huge funding gap and liquidity challenge to meet working capital requirements and finance new projects and expansion of existing ones.

COVID-19’s impact

Speaking further, the LCCI president explained that prior to COVID-19, businesses were increasingly finding it difficult to access finance through the domestic financial system given the high borrowing costs associated with credit facility in conventional banking system. Moreover, she noted that COVID-19 had elevated the risks and uncertainties around capital and finance generally in view of deteriorating business and economic outlook. To her, this scenario, therefore,reinforces the need for businesses to explore alternative funding solutions available on global as well local space.

CBN’s role

However, the renowned entrepreneur said that LCCI recognised the role of CBN in areas of expanding the frontiers of finance for businesses through policies like increase in Loanto- Deposit ratio and several intervention funds for different categories of business, including the MSMEs. Mabogunje stated: “I note the COVID- 19 interventions programme of the apex bank such N50 billion Targeted Credit Facility to cushion the effect of the pandemic on business enterprise. This underscores the need to deepen the landscape of capital and finance.”

Impediments

In order to unlock access to international capital and finance for Nigeria businesses, Mabogunje highlighted the need to holistically and very quickly address issues that have constituted impediments over the years to Nigerian businesses in order to align the expectations of investors with the priorities of business owners. She said: “This conference has been specifically and strategically designed to cover key areas around accessing finance and capital and to focus on the following imperatives; right business model that prioritize growth with clear strategies under different scenarios to consistently increase market niche and grow investors’/shareholders capital,the importance of building structure into the business model and role of sound corporate governance, how Nigerian businesses can overcome the issue of distrust of capital and finance owners, especially by small and medium enterprises, and, political factors, economic policies, and regulatory framework, to improve domestic capital mobilization and foreign capital inflow.”

Threats

She listed challenges facing Nigerian business environment to include illiquid FX market with multiple exchange rates, high cost of doing business makes products and services uncompetitive, lack of access to capital – over 90 per cent of SMEs are without access to credit, debt sustainability – debt to revenue ratio over 70 per cent, low budget allocation/investment in health and education, and migration of highly skilled workers to developed countries.

Last line

Nigerian banks prefer to sit on massive portfolios of government bonds than lend, hence its time for Nigerian businesses to explore alternative funding solutions available globally for credit availability.

 

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