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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.

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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.

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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.

“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;

  • 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.

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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Companies

GMD, 2 Executive Directors buy 5 million additional units of Zenith Bank Plc shares

In three separate transactions, major stakeholders purchased 5 million units of Zenith Bank’s shares.

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Executive Director buys 2 million additional Units of Zenith Bank Plc Shares.

Zenith Bank Plc, Group Managing Director, Mr Ebenezer Onyeagwu, and two Executive Directors, Messrs. Dennis Olisa and Ahmed Umar Shuaib, have purchased an aggregate of 5 million units of additional Zenith Bank Plc shares.

This was disclosed by the bank, in a notification sent to the Nigerian Stock Exchange, and seen by Nairametrics.

According to the notification, signed by the Company’s secretary, Michael Osilama Otu, the purchase was made in the bourse, over three transactions on the 16th and 17th of September, 2020.

As part of the regulatory requirements, the disclosure must be reported to the Nigerian Stock Exchange, especially when the trade is executed by a major shareholder or director of a listed firm.

Breakdown of the deal

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According to the details of the deal verified by Nairametrics, Mr. Dennis Olisa pulled the highest deal as he purchased 2,000,000 additional units of Zenith Bank Plc’s shares at an average of N17.18 per unit, totaling N34.36 million. Mr. Ahmed Umar Shuaib also purchased 2,000,000 additional units of the Bank’s share, at an average price of N16.99 worth N33.98 million. Completing the trio was, Mr. Ebenezer Onyeagwu who purchased 1,000,000 additional units at an average of N17.05 worth N17.05 million.

This major purchase boosted the total number of trade deals (Volume) posted by the Bank in the NSE market, as the deals contributed about 11.61% of the Bank’s total deals between 16th and 17th of September, 2020.

(READ MORE: Zenith Bank rewards customers with massive giveaways in the “Zenith Beta Life” weekly promo)

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What this means

Based on the recently released H1 2020 Financial Results of Zenith Bank, Mr. Ebenezer Onyeagwu had 45,500,000 direct shares as of June 30, 2020. Mr. Ahmed Umar Shuaib had 7,577,343 direct shares, while Mr. Dennis Olisa had 7,122,316 direct shares. All these remained unchanged from their reported shares in H1 2019.

With the addition of 1,000,000 shares, Mr. Ebenezer Onyeagwu’s stake increased to 46,500,000, indicating an increase of 2.19%. Mr. Ahmed Shuaib’s shares also leaped by 26.39% to 9,577,343, while Mr. Deniss Olisa’s shares increased by 28.08% to 9,122,316 direct shares.

This deal may signify that the Bank’s insiders expect an increase in share price. It is a positive signal to outsiders, coming from top insiders who are abreast with latest information on the Bank’s prospects.

This can play a vital role in stimulating a bullish trend. Zenith Bank’s share price is currently trading at N16.70 on the NSE.

Conclusion

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Regardless of the impact of the pandemic on the income and revenue of banks, Zenith bank still remained one of the high-flying financial organizations in Nigeria. For example, the tier-1 bank’s gross earnings grew by 4.37% from N331.5 billion in H1 2019 to N346.1 billion in H1, 2020. Its Profit After Tax increased by 16.81% from N111.7 billion to N114.1 billion within the period under review. The aforementioned factors might have been the reason behind the recent bullish trend for its stock.

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Financial Services

CBN to hold MPC meeting next week

The CBN’s highest monetary policy decision-making body, the MPC is set to hold its meeting.

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CBN to hold MPC meeting next week, Demand for credit by household increases in Q2 2020 - CBN, CBN grants licenses to 3 Payment Service Banks, Mobile money loan CBN Governor, CBN, Three PSBs get Apex Bank’s provisional to commence operations, Milk Import: Experts advise CBN on FX restriction , CBN automates trading system, introduces electronic form to facilitate exports , CBN campaigns for Made-in-Nigeria products 

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is set to convene next week for its periodic meeting.

The notice of the meeting, which was released by the apex bank on its website, stated that the 275th meeting of the MPC is scheduled to hold on next Monday, September 21 and Tuesday, September 22, 2020, at CBN Headquarters, Abuja.

READ: UBA Plc H1’2020 results, a true reflection of its rightsizing decision?

The MPC meeting: Basically, the MPC is the CBN’s highest monetary policy decision-making body. It comprises the governor of the Bank who is the chairman, the four deputy governors of the Bank, two members of the board of directors of the Bank, three members appointed by the president, and two members appointed by the governor.

The MPC sets monetary policies for banks in the country through decisions on the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR) and Liquidity ratio. These variables determine the quantum of funds that the banks have at their disposal to lend.

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The MPR is the rate at which the CBN lends to banks. This, in turn, determines the interest rate that banks charge members of the public.

READ: President Buhari approves N13.3 billion for Community Policing in Nigeria

Decisions at the last meeting

The Central Bank’s MPC meeting was last held in August 2020, where all key rates were left unchanged. Basically, the MPR was kept at 12.5%, while other parameters such as Cash Reserve Ratio (CRR) at 27.5%, Liquidity ratio at 30%, and asymmetric corridor remained unchanged.

Emefiele explained that eight members of the committee voted in favour of holding the MPR, while two members wanted it reduced.

READ: CBN debits banks another N459.7 billion for failure to meet CRR target

According to the MPC, the decision to hold all rates constant was largely driven by the effect of the outbreak of COVID-19 that has largely disrupted the global economy.

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Financial Services

AfDB assures firms of supporting their expansion plans

AfDB is dedicated to prepare homegrown institutional investment funds.

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Adesina Probe: US Treasury Secretary praises AFDB’s decision on independent review, Growth must be seen in citizens' lives, AFDB President to African leaders, AFDB launches $3 billion “Fight COVID-19” social bond, Adesina Probe: US Treasury Secretary praises AFDB’s decision on independent review

Africa Development Bank (AfDB) has reassured firms of its dedication to their expansion plans and fortification of their capital base through its homegrown institutional investment funds.

While announcing the bank’s endorsement of a $10 million unsecured facility given to InfraCredit, a Nigerian firm, Stefan Nalletamby, AfDB’s Director of Financial Sector Development, explained that the financial institution is dedicated to prepare homegrown institutional investment funds and invigorate non-sovereign local debt capital market advancement in Nigeria.

READ: CBN releases new capital base, sanctions for Microfinance Banks in new draft guidelines

He said, “The Bank’s help will fortify the capital base of InfraCredit, supporting the expansion of the Company’s core business of guaranteeing of bonds securities issued to fund infrastructural projects.

“This at last assists with expanding private sector financing for critical infrastructure such as; energy, agribusiness, water, health and education, through local capital markets.”

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Explore the Nairametrics Research Website for Economic and Financial Data

Chief Executive Officer of InfraCredit, Chinua Azubike, said, ‘’Despite the impact of COVID-19, and changes to macro-economic assumptions, we are pleased to have reached yet another milestone in our pursuit to strengthen our robust balance sheet and guarantee issuing capacity.

READ MORE:AfDB’s debarring of 4 Nigerian companies: Consequences and effects)

“Notwithstanding challenging market conditions, we have continued to demonstrate our strong fundamentals, solid underlying portfolio performance, proven track record and profitability.”

With the admission of AfDB to its capital structure, he explained that his company is confident of its continuing ability to deepen market penetration and support access to long term domestic credit for the growing pipeline of infrastructure projects that will create jobs and support local economic growth.

 

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