Estate Planning is all about planning for risks such as ill health, inability to earn income, untimely death, etc. It is also about the transfer of property, either during life or death, the methods used, and the risks associated with those methods.
In 2014, the Enhancing Financial Innovation and Access (EFInA) survey studied household dynamics in Nigeria and listed the financial risk with the greatest impact on household finances to include: serious illness of a household member (33.6%) and death of a relative/household member (27.7%). A household’s biggest financial risks are the “breadwinner” falling ill or dying.
How to protect income, and how to transfer of assets
Let’s start with protecting income. The most common way to hedge against a loss of income is to buy insurance. You can buy insurance to cover your assets; for example, you buy a home or car insurance. You can even insure your home appliances.
Meanwhile, insurance has a cost, that is the premiums paid. Therefore, do not insure what will become obsolete within the lifetime of the cover or pay to insure when the premium is more than the value of the assets. This is simple enough. The main risk here is to choose an insurance company that will pay premiums when the insured event eventually occurs. One of the most important assets to protect via insurance is your ability to earn, this is done via disability and life insurance.
Understanding disability or loss of income insurance covers
Disability Insurance or loss of income insurance covers you in the event you cannot work or perform your current occupation because of illness or injury. Disability Insurance is extremely important for a business with a key owner or single owner, as the EFInA study shows the biggest financial risk to a household is the incapacitation of the breadwinner. Getting disability insurance ensures you don’t lose income when you are sick for a long period of time.
If you’re an employee, There is a new Employee Compensation Act that mandates disability insurance. Ask your employer about this.
Health Insurance is another protection to take, especially as you grow older. For a fixed premium, you’re protected from extraordinary health care expenses that will completely distort your budget. Buy health insurance, put the cost of premium in your cash budget that protects your cash flow should you fall ill.
Let’s talk about Life Insurance
Another way to protect against loss of income is to buy life insurance. The whole idea of life insurance is to ensure the income of the breadwinner is not impaired. This is extremely important. You want to buy a life cover that ensures that your dependents do not suffer a loss of income if anything happens to you. You can also buy a life policy linked to an education option that pays the sum assured towards the education of identified wards. If you have a Retirement Saving Account, then your employer must take a Group Life Insurance cover for you of three times your remuneration. Make sure you identify a fit and proper next of kin and ensure the premiums are paid by your employer.
Now, Let’s Discuss Transfer of Assets
Assets can be transferred from the owner to a beneficiary via many methods. A well-planned asset transfer prevents dissipation of assets. The very first thing to do is to ensure all your assets are properly registered and legal. There are three main circumstances under which assets are transferred;
No Will: This has to do with assets transferred Intestate, i.e. assets transferred without a formal will or instruction of the owner. The assets will then be transferred in line with the governing laws of the state. If you don’t have a will, your assets will be administered and shared to your identified beneficiaries by the court-appointed Administrator. You want to avoid this. Also, not a Next of Kin designation is not enough, be specific how you want your assets to be transferred by writing a proper will.
[READ THIS: Why do I need insurance coverage?]
A Will: Assets can be transferred according to your instructions as stated in a Will. This allows assets to be transferred to beneficiaries according to the wishes of the owner, including the appointment of an Executor to the Will
A Trust: A trust is an arrangement whereby assets are transferred by an individual or a corporate, to a Trustee, to be held by the Trustee for the benefit of certain beneficiaries. Trust can come in effect even when the owner of the assets is still alive, this is called a Living Trust. The Trustee can also be a corporate Trustee.
The cost of a Trust is usually more expensive than a Will. However, a Trust offers the advantage of avoiding Probate, are more private and cannot easily be challenged. Trusts are also more flexible than wills. Other methods to transfer assets are the making of gifts to beneficiaries.
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Note that Probate is the Court process by which a Will is proved valid or invalid. When a person dies, the estate must go through Probate. This Probate process is overseen by a probate court.
When you do your Net worth review exercises and there is an increase in your Net worth, always update your will or Trust to capture the new assets.
To close, remember that what you’re protecting is not only your ability to earn money but to protect your budget from extraordinary events. Not buying vehicle insurance, for instance, can expose your budget to irreparably loss should anything happen to your car.
To summarize, from income, you first protect, then create an emergency fund then you can invest.
Question: Have you written a Will or Trust for your assets?
What SME’s need other than Intervention loans
Since access to finance is a key constraint to SME growth, funding it has become paramount.
Small and Medium Enterprises (SMEs) play a major role in most economies, particularly in developing countries. According to the World Bank, they represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies and these numbers are significantly higher when informal SMEs are included. The World Bank predicts that “600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SME development a high priority for many governments around the world.
Since access to finance is a key constraint to SME growth, funding it has become paramount. This has birthed a myriad of programs ranging from incubators to accelerators both locally and internationally giving out loans, grants, and other resources to ensure that the sector is equipped to create jobs and stimulate the overall economy. There have also been federal grants and other forms of support given to SMEs. Since the outbreak of the Covid-19 pandemic, SMEs have been prioritized as recipients to loans and other stimulus packages. The CBN’s N50 billion Targeted Credit Facility (TCF) geared towards supporting SMEs and households whose economic activities have been disrupted by the COVID-19 pandemic, is just one of the different packages that have been put in place to cater specifically to it.
While there is data to back the impact SMEs have on our economy, it is true that even though small businesses help the economy, not all small businesses will contribute to the dream – or even survive past its early years. According to The Better Africa report, by Weetracker, an African digital media company, the top 5 countries that experienced the highest shutdown rates among start-ups between 2010 and 2018 were Ethiopia at 75%, Rwanda at 75%, Ghana at 73.91%, Zimbabwe at 66.7%, and The Democratic Republic of the Congo (66.7%). Failure rate for start-ups in Nigeria averaged 61% over the same period. What this means is that if small business loans are being given to businesses at random in Nigeria, 61% of those businesses are bound to fail and the monies given, completely lost.
The small business loans being offered by the CBN is a good step in the right direction. However, determining whether it ends up in the hands of the startups that are viable enough to scale and create the jobs or the larger percentage that will fail, depends to a large extent on how they are selected. In disbursing the loans, there must be clear methods of choosing the recipients. CBN’s N50 billion Covid-19 intervention fund for SMEs in conjunction with NIRSAL Microfinance Bank, simply noted that it would appraise and conduct due diligence applications before sending them to the applications to the CBN for final approval, to CBN for review. The results will tell their story.
Why the economy needs more than loans
The CBN giving out intervention loans is just one part of finding the solution – and this too does not say much about the amount in loans being given and their effect on the economy at large. If it’s too little to make any real difference, then it might only buy many of these businesses a few more months of dogged survival, after which all will be lost.
The overall operating environment must be able to stimulate growth either through favourable tax incentives for specific industries, moratorium on other forms of loans, or just the provision of basic infrastructures like electricity and speedy internet services.
Another important thing is to ensure there is a ready market for businesses within the country. Even with the right federal loans, a business having no ready market will sink its funds into inefficient marketing. This ready market, however, has a lot to do with the ease of local production to ensure competitive pricing, further curtailing the proliferation of imported items, and more.
In other words, economy will benefit even more from its overall development. The loans might help but, overall, there is unlikely to be sustainable exponential growth until the things that should be in place to expedite the development process exists.
How Nigerian SMEs can survive high mortality rate
SMEs are a very important economic catalyst in developing and industrialized countries.
In Nigeria where unemployment is a serious issue, the local businesses have a special position in the industrial sector because it has created employment and has been able to utilise labour. The local businesses, otherwise known as SMEs which means, Small And Medium Enterprise are everywhere, found on every street and corner as they surround us.
There is however no universal definition of SMEs that is widely accepted as it differs and varies from countries, but this is usually based on employment, assets or combination of the two. Institutions and organizations define SMEs in different ways depending on the purpose and the objective. Take for example, according to Organization for Economic Co-operation and Development OECD (2005) SMEs are considered to be independent firms that employ less than a given number of employees. However, SMEs were classified in terms of size, and financial assets.
The Small and Medium Industries and Equity Investment Scheme (SMIEIs), defined SME as an enterprise with a 200 million naira maximum asset base, with the exclusion of land and working capital and with a workforce of not less than 10 employees and not more than 300 employees. Akabueze,(2002).
The Third National Development plan of Nigeria (1975 – 1980) defined a small scale business as a manufacturing firm that employs less than ten people, or whose machinery and cost of equipment does not exceed N600,000
The Federal Government Small Scale Industry Development Plan of 1980 defined a small scale business in Nigeria as any manufacturing process or service industry, with a capital not exceeding N150, 000 in manufacturing and equipment alone.
These definitions give a clearer explanation as to how the meaning of SMEs differs and varies. However, just to give you a clearer understanding of what local businesses or SMEs mean, they are independently owned organisations that require less capital and less workforce and less or no machinery. They are ideally suited to operate on a small scale to serve a local community and to provide profits to the business owners.
Most enterprises in Nigeria, most of which are in the commercial sector are categorized as small businesses. The role of the small and medium enterprises towards the development of Nigeria is of great importance as it has contributed greatly to the country in terms of growth and development and also in providing employment opportunities.
From seminars to workshop initiatives for SMEs both locally and internationally, a lot is being said about SMEs all over the World.
According to the Central Bank of Nigeria report (2003), SMEs are a very important economic catalyst in developing and industrialized countries.
According to the United Nations Industrial Development Organization (UNIDO), developing countries can conquer poverty and inequality by democratizing, deregulating, and liberalizing the integration of the global economy. Recent studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high-income countries also that SMEs and informal enterprises account for over 60% of GDP and over 70%of total employment in middle-income countries (OECD, 2004).
However, considering the term “small”, there’s a whole lot of enormous challenges that come with it. In Nigeria, the factors working against the development and growth of local businesses are quite numerous, some of which include:
1. The issue of funding is a major problem with SMEs in Nigeria. However, the problem is not how to source it but the accessibility to either short or long term loans.
2. Lack of infrastructural facilities is a serious impediment to the performance of SMEs. The problem of inadequate infrastructural facilities includes electricity, good road network, availability of potable water, and solid waste management. These infrastructures are left to the business owners to provide themselves.
- Poor Management and Low Entrepreneurial Skill Base is a serious clog in the survival of small businesses as there is a lack of essential and required expertise in business which leads to wrong and costly decisions and mismanagement.
- Entrepreneurs often blame their failures on inadequate sales. However, the problem lies with poor marketing skills that could help promote their sales.
- Most entrepreneurs go into business without proper planning by taking a realistic view of what their strengths and weaknesses are, let alone giving careful consideration and analyzing the economic trends or business conditions in that particular sector of activity, which sometimes leads to mishandling when the business starts to expand.
- The root of most employee problems in Nigeria is poor personnel management. They put aside personnel matters till crises set in. Such crises usually pose serious threats to the firm’s survival if they are not promptly looked into.
- The harsh deteriorating macroeconomic environment in Nigeria has adversely affected the performance of small business enterprises and has posed as a major challenge to their survival and growth. Most small business enterprises are struggling with the problem of uncertainty caused by the unstabilized macroeconomic environment and policy shifts.
With all of this ongoings, some of the solutions preferred to ease these challenges include:
1. The need for government, and non-governmental organizations to create Seminars and workshops initiatives and other forums, to establish a platform for the interaction of SMEs owners/managers with others which can help to improve on their management capabilities.
2. Government should also provide the necessary infrastructures in order to ease the burdens and thereby encourage and promote rural industrialization.
3. The SME owners/managers should strive to develop effective marketing strategies in order to boost business operations which will become profitable.
4. It is important for SMEs to develop good personnel management policies to avoid crises that could affect their business.
5. Local business owners should take to proper planning, realizing his strengths and weaknesses before diverting into any business to avoid mishandling.
6. Goverments should help create a macroeconomic environment that is stable as it will enable these local businesses to make reasonable forecasts on costs, turnover, and return on investment.
7. The government should help in making funds easily accessible to SME owners/managers, be it short or long term loans that could help to encourage them to execute their business plan.
8. SMEs operators should also develop their competences in managing and sustaining their businesses by constantly engaging in training, research and development.
130 farmers to receive seed funding of N100,000 each
The target of the programme is to adopt farmers in 774 LGAs across the country.
The National Information Technology Development Agency has kick-started a job and wealth creation programme where 130 farmers will each receive seed funding of N100,000. The programme will be supervised by the Federal Ministry of Communication and Digital Economy.
According to a statement from the agency, the National Adopted Village for Smart Agriculture (NAVSA) programme is in line with the government’s drive to lift 100 million Nigerians out of poverty, and it will start with 130 farmers in Jigawa state.
In line with President @MBuhari's administration drive to lift 100m Nigerians out of poverty, @NITDANigeria, under the supervision of @FMoCDENigeria kick starts job and wealth creation programme by adopting 130 farmers on National Adopted Village for Smart Agriculture (NAVSA). pic.twitter.com/Z4cWdrlQgs
— NITDA Nigeria (@NITDANigeria) June 29, 2020
The target of the programme is to adopt farmers in 774 LGAs across the country, open the platform to all agriculture ecosystem players with access to information, facilitate and improve productivity, reduce the cost of production, and facilitate access to local and international markets.
With all of this in place, it is expected that the farmers will be able to build sustainable business models and digital business opportunities that will create not less than 6 million well-paying jobs in the next 10 years.
“NAVSA Platform is aimed at digitalising agriculture to drive Digital Economy, as part of President Buhari’s agenda to leverage on technology and innovation to revolutionise the agriculture value chain,” the statement read.
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Among other things, the farmers will be empowered with a digital platform, smart devices (tablets), connectivity for data and calls, Digital agripreneurship skills, and enrolment with telecom operators and the National Identity Management Commission (NIMC) for identification.
All of these will be given to them at the end of the programme, which will last from July 1 to July 13, 2020.