SME CAPACITY BUILDING

A Condition for Sustainability, Growth and Funding

Table of Contents:
1.2.3.4.6.Overview of the SME sector Why SMEs fail? Capacity and the SME Capacity Building Initiatives for Success Discussions

The SME Sector:

The SME sector in Nigeria accounts for close to 50% of GDP

MSME Definition

Proxy Loan Size at Origination <$10,000 <100,000 <1 million (*)

Source: WBG

Indicator
Micro Small Medium

Employees
< 10 10-49 50-300

Total Assets or Annual Sales (US$)

<100,000 N0-15.7m 100,000 - < 3 million N15.7mN47.1m

3 million -15 million N47m-N2.35b

Indicator

Employees

ASSETS (Naira, million) (excluding land and buildings)

Micro Small Medium

Less than 10 10 - 49 50 - 199

Less than 10 (<N5m) 10 - less than 100 (N5-N50,m) 100 - less than 1,000 (N50-N500m)
Source: New national policy on MSMEs

Why Do Small Businesses Fail?

50% of SMEs die within their first year Only 20% survive beyond 5 years.

SMEs Fail Because

...most SMEs are sophisticated in their aspirations; but only a few of them rise above mediocrity in the administration of their businesses - a bank Loan Officer

WHY SMEs Fail

Leading Causes of SME Failure include:
1. Lack of experience

2. Insufficient capital (money)

3. Poor location 4. Poor inventory management

5. Over-investment in fixed assets

6. Poor credit arrangements 7. Personal use of business funds 8. Unexpected growth 9. Competition 10. Low sales

The Demand-Supply gap in Finance:

- 80% of SMEs seek access to a loan - SME finance gap: formal SMEs - US$46 billion (informal MSMEs - US$12.7 billion). - 10% of Nigerian SMEs applied for a loan or a line of credit - Only 5% of SMEs are able to get a loan

Being Ready For Finance

The 5 Cs of Credit: - Character - Capital - Condition - Collateral - Capacity

Key Considerations in Credit Appraisal

Element Character Definition Company and Management Integrity (IDD) Indicators History of repayment, Sector of activity

Capital

Other financial resources Access to other sources of financing, Owners Contributions, earnings reinvestment Sensitivity to external economic forces Underlying value of company and collateral provided Ability to meet obligations Business Strategy, Industry Analysis, Strength and Size of competitors Hidden asset values, Asset reevaluations Other commitments Financial Structure Investment Strategy Cash Flow Analysis

Condition

Collateral

Capacity

Building Capacity: Managerial Skills

Some Capacity Building tools:

IFCs SME MANAGEMENT SOLUTIONS SME Toolkit
http:nigeria.smetoolkit.org

Overview IFCs SME Toolkit is a one-stop-shop for SMEs and entrepreneurs looking for business management information, interactive tools and training resources to grow their businesses. The program operates through a network of local partners and distributors and leverages the latest information and communication technologies (web, mobile, apps) to provide SMEs with high quality resources.

Business Edge

BE is an IFC owned training methodology specifically designed to strengthen the management skills of owners, managers and www.businessedge-africa.com staff of SMEs. BE offers its clients management training solutions adapted and easily applicable to local business context that are delivered through a network of local franchised providers and certified trainers. BE covers 54 management courses SME Governance Corporate Governance training solutions

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