Olusegun Aganga, Minister of Industry, Trade and Investment gave a charge at the inauguration of the board of directors of the Bank of Industry in Abuja that the government had directed the newly appointed board to increase its current credit portfolio to the micro, small and medium enterprises (MSME) sector.
“It’s not just a question of reviewing it, it’s easy to place it on about 20 or 25 per cent but that’s in terms of portfolio sizing. The real question is will it have enough traffic in terms of approved loans to this sector or segment coming in to feel up that particular portfolio,” head of retail banking at Diamond Bank, Jude Anele told CNBC Africa.
(READ MORE: SMEs in Nigeria need more support)
“There are a lot of issues lending to small and medium enterprises (SMEs). There are quite a few banks that are lending to SMEs in Nigeria - with the true sense of word lending to them. Those that are doing it have felt some impact but I think it could be a lot better than it is today.”
According to Anele a lot of banks have the challenge of the type of risk that is involved with lending to MSMEs.
“The critical challenge of our programs has been that of the risk profile of this small and medium scale enterprise. Until we find ways to de-risk them and make most of their propositions bankable then the better we are at growing that loan portfolio.”
Some Banks have taken different measures over the years to make things better for the MSME sector. But these measures have not really reflected, however need to increase so as to upscale it so the impact can be felt.
“The issue is that of scale. If you look at a bank like Diamond Bank, for the past four and a half years it has been lending to MSME’s without collateral. There are some defaults obviously, but what you do is that you learn from the mistakes that you make.”
“Diamond Bank did this as a result of some program that [the bank] had with the International Finance Corporation which helped us build a framework for assessing MSME loan applications and being able to lend to them without collateral and that’s called flow lending.”
(WATCH VIDEO: Funding SMEs in Nigeria)
Anele added that the involvement of some international organisations helped increase the amount of funds that can be available as loans for SMEs without a need for collateral.