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Bank loans not main funding option for Nigerian MSMEs -PwC

In Nigeria, deposit money banks are required to keep 65% loan to deposit ratio.



PwC's MSME Survey 2020

New findings contained in the PwC’s MSME Survey 2020 has revealed that Micro, Small, and Medium Enterprises do not rely on banks to meet the majority of their funding needs. Instead, they rely on their savings as well as friends and family.

Understanding the situation

For now, access to credit facilities remains one of the biggest challenges facing MSMEs in the country. Information contained in chapter 4 of the 84-paged report revealed that many of the small businesses that participated in the PwC survey resorted to starting their ventures with less than N50,000 initial startup capital.

The report further revealed that only a paltry 4.7% of Nigerian MSMEs start their businesses with more than N300,000 in initial capital costs. As much as 75% of small and medium businesses in the country start their ventures with less than N10 million. However, 6% of MSMEs start with more than N40 million.

READ MORE: IFC invests $100 million in Zenith Bank to support SMEs amid COVID-19

Why bank loans are hard to get 

“SMEs usually do not have access to bank loans unlike firms; they mostly rely on their own savings or cash from friends and family. According to The International Finance Corporation (IFC), 40% of formal MSMEs in developing countries, experience a finance shortage of USD5.2 trillion every year. Lending is usually dependent on the stance of the borrower’s financial position, and analysed historical data about the business,” part of the report said.


For the MSMEs interviewed during the survey PwC, bank loans are impossible to get mainly because of their high cost. About half of the respondents (50%) admitted that they did apply for bank loans over the last 12 months, but never ended up taking them due to their high costs. The report also noted that high cost of capital is one of the major costs to business operations in the country.

READ ALSO: CBN’s financial inclusion drive achievable with tech– Expert

Meanwhile, 31% of MSMEs said they applied for bank loans but their applications were rejected. About 10% of the respondents said they applied for bank loans and only got half of what they applied for. Only 10% of the respondents said they were able to access all the loans they applied for.

Commercial banks was the main source bank loans for MSMEs (91.9%) while microfinance banks accounted for only 4.7% of the bank loans to MSMEs. Meanwhile, development banks such as the Bank of Industry (BoI), accounted for only 1% of bank loans to small and medium enterprises, the PwC report said.

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“29% of businesses see the high-interest rates on loan as the most important limiting factor to getting funding for
working capital and expansionary activities. 25 percent cite insufficient collateral or guarantees for funding, while 22% point to the current economic conditions as the most important limiting factor,” -PwC MSME Survey 2020

READ MORE: The New Normal – Digital Transfers and Remittance in Nigeria

Recall that in 2019, the Central Bank of Nigeria (CBN) had increased the Loan to Deposit Ratio (LDR) of deposit money banks in the country to 65%. This was in a bid to ensure the adequate provision of funding to the real sector of the economy. Although this directive has yielded a considerable result, the PwC report noted that banks may refuse to lend to the real and accept the punishment that may come with such refusal. This is because of perceived risks in the real sector, especially amid the COVID-19 pandemic.

Some suggestions for the way forward

In order to improve the chances of MSMEs at securing bank loans, the PwC report suggested the following steps should be followed;

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  • Proper documentation: Most funding institutions request the cashflow history of businesses being considered for funding. SMEs seeking funding should produce audited financial statements that reveal credible financial information.
  • Use of technology for documentation:  Companies may use tools such as excel sheets, Power BI, cash flow budget worksheet, and other technologies to make cash flow projections easier and faster, this provides readily available documentation at any given opportunity.
  • Financial statements and projections for the business: Financial statements are major requirements when looking to secure a loan, this makes it paramount for firms to keep proper and standard documentation of their transactions.
  • Collateral to secure a bank loan: It is important to have a secure, valuable ( as valuable as loan requested) property for use as collateral, with the value of the property remaining valid through the loan period.

READ ALSO: Analysis: Airtel Nigeria is winning where it matters

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You may download the full PwC MSME Survey Report by clicking here.

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Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs.He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor.Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan.If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

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Debt Securities

Interest rates will remain low until the end of H1 2021 – Meristem Securities

Meristem Securities has argued that interest rates will remain low until, at least, the end of H1 2021.



Why Emefiele’s interest rate policy is ‘great’

Meristem Securities has asserted that interest rates will remain low until, at least, the end of H1 2021.

This statement was made at the recently held webinar on Global Economy and Outlook, which the company themed: Bracing for a Different Future.

Although the company acknowledged that there is mounting pressure for upward movement in yields from several stakeholders, it appears the company concurs nothing concrete is in sight.

This line of reasoning seems to have influenced their decision to advise investors to move away from Treasury instruments.

What they are saying

Meristem advises that:

  • “Buy and hold strategy investors seeking to generate above average returns should move away from risk free Treasury instruments and focus on investment grade commercial papers and bonds which satisfy investment objectives.”
  • “Active traders with higher risk appetite are advised to focus on high-yield short duration instruments, which would be re-invested into a higher yield environment should rate reversals occur.”

The advice regarding shunning Treasury instruments appears to be in order, considering that treasury bill rate has been declining, with the latest figure — November 2020 — 0.03% as per the CBN monthly interest rate data.

Further checks from the Debt Management Office website, indicates that the latest figures for Eurobonds and Diaspora bond fall short of the fixed yield at issue for all the different categories of bonds in issue.

What you should know

Latest figures from the CBN’s monthly interest rate indicate that:

  • Treasury bill rate has been on a steady decline for six months, down to 0.03% since the last rise (2.47%) in May 2020.
  • Fixed deposit rates (one, three, six and twelve months) have also been declining – the latest figures for these indicate that in November 2020, one-month deposit rate was 1.92%, 2.9% for three months, 2.84% for six months, and 4.89% for 12 months.
  • Compared with the corresponding period in 2019, the figures indicate that these rates fell by 75%, 66%, 71% and 49% respectively.

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Financial Services

CBN issues framework for QR payments

CBN has issued a framework that would guide Quick response (QR) code payments in Nigeria.



The Central Bank of Nigeria has issued the framework that would guide Quick Response (QR) Code Payments in Nigeria.

This is a proactive move by the Apex bank towards ensuring the safety and stability of the Nigerian Financial System, as well as promoting the use and adoption of electronic payments and foster innovation in the payments system.

READ: Over 1 million people took loans from banks below 20% interest rate in 1 year- CBN

Quick Response (QR) Codes are matrix barcodes representing information presented as square grids, made up of black squares against a contrasting background that can be scanned by an imaging device, processed and transmitted by appropriate technology.

The codes are used to present, capture and transmit payments information across payments infrastructure and further enable the mobile channel to facilitate payments and present another avenue for promoting electronic payments for micro and small enterprises.


READ: Binance offers DeFi coders $100,000; DeFi market value hits $8 billion

What you should know

  • Quick Response (QR) codes are two-dimensional bar codes. QR code payments allow merchants to receive payments from customers simply by scanning generated QR codes using a smartphone camera. The QR code payments carry the purchase transaction information to the mobile device of the buyer/customer.
  • Making payments via QR codes is very secure. It is because the QR code is nothing but just a tool that is used to exchange information. Any data which is transferred via QR codes is encrypted, thus making the payment secure.
  • The Participants in QR Code Payment in Nigeria include Merchants, Customers, Issuers (Banks, MMOs and Other Financial Institutions), Acquirers (Banks, MMOs and Other Financial Institutions) and Payments Service Providers.
  • QR payments are increasingly becoming a popular means of payments in Nigeria, and some industry players would see the framework as a perfect way of regulating the sector.
  • QR codes are capable of storing lots of data. But no matter how much they contain, when scanned, the QR code should allow the user to access information instantly. It can be used for payments, sharing contacts and Wi-Fi passwords and lots more.
  • The popular and common argument is that since POS machines are expensive, cheaper options such as QR scanners should be pushed forward to local traders.

READ: Telecoms, FSI to hugely boost Nigerian Economy in 2021 – CWG’s Business Director

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Financial Services

CBN unveils framework for regulatory sandbox operations

CBN has issued a regulatory Sandbox framework towards engaging with the operators in the Fintech space.



diaspora remittances, Total credit to the economy rose to N19.54trillion – CBN Governor, CRR debits, P-AADS, #EndSARS: CBN says funds in frozen accounts may be linked to terrorist activities, Covid-19: Court closures impacted revenue generation for courts - Emefiele, P&ID dispute: UK Court orders $200 million guarantee to FG, Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking, AGSMEIS: CBN expand beneficiaries to 14,638., CBN expands access to mortgage financing

The Central Bank of Nigeria has taken proactive steps towards ensuring more flexible ways of engaging with operators in the payment solutions/fintech space, in a bid to tacitly regulate how operators churn out their new products and services.

To this end, CBN has introduced Regulatory Sandbox which is a formal process for firms to carry out live tests of new, innovative products, services, delivery channels, or business models in a controlled environment, with regulatory oversight, subject to appropriate conditions and safeguards.

It is expected that the CBN would stay abreast of innovations while promoting a safe, reliable and efficient Payments System to foster innovation, without compromising the delivery of its mandate.

What you should know

  • A regulatory sandbox is a framework set up by a regulator that allows FinTech start-ups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision. It encourages innovation that can improve the design and delivery of payment services.
  • No doubt, regulations around Fintech are still emerging and developing, there is still a high entry barrier for new entrants and it is expected that Sandboxes would present them with a safe testing environment and ease regulatory onboarding.
  • Sandbox is quite suited for new products, services or solutions that are either not contemplated under the prevailing laws and regulations, or do not precisely align with existing regulations.
  • Sandbox is intended to promote effective competition, embrace new technology, encourage financial inclusion and improve customer experience, with a view to engendering public confidence in the financial system.
  • The framework provides guidance on the establishment, the applicable rules and operations of a Regulatory Sandbox for the Nigerian Payments System, as well as providing standards for the operations of a Regulatory Sandbox, prescribes the processes and procedures for analysing, collecting, updating, integrating, and storing consumer data and information.

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