- Operators groan over high input costs, declining sales
International Finance Corporation, a member of the World Bank Group, estimates that there is an unmet demand for credit by Nigerian MSMEs of approximately $32.2 billion, an equivalent of N13 trillion.
“On an aggregate level, demand for credit is highest among micro-entrepreneurs and in the agriculture and retail trade sectors. A large proportion of MSMEs seek loans that are less than N10 million ($24,700). Micro and small enterprises typically seek loans less than $2000, while medium enterprises require larger loans. Private sector lending to micro, small and medium enterprises (MSMEs) in Nigeria remains limited,” IFC disclosed.
Domestic credit to the private sector was about 14.1 percent of gross domestic product (GDP) in 2022, well below the about 35.8 percent average in Sub-Saharan Africa.
While commercial banks lend to larger firms, smaller-scale businesses generally struggle to access formal financing.
There are many reasons for this, including restricted access to finance, lack of documentation, a weak debt resolution and loan recovery framework, and underutilised and underdeveloped financial infrastructure in terms of accessing credit information.
While the adoption of digital financial services (DFS) is nascent among MSMEs in Nigeria, the digital economy offers an opportunity for financial technology providers to reach more MSME customers. Innovation and collaborative fintech frameworks offer the possibility to build and strengthen the fundamentals of an MSME finance business and to develop more advanced offerings and tools for financial institutions to serve MSMEs in a sustainable way.
Meanwhile, a survey recently conducted by PricewaterhouseCoopers on Nigerian NSMEs, showed that 67 percent of surveyed MSMEs reported that there has been a decrease in the demand for their products or services.
When asked the reason for the decline, 38 percent attributed it to the high cost of their products and 36 percent reported that the low purchasing power of consumers was the major reason for the decline.
The decline in demand for their products/services over the past two years is due to macroeconomic headwinds such as inflationary pressures, depreciation of the currency, and slow economic growth.
Furthermore, while 12 percent reported that the decline was due to consumers switching to alternatives, 10 percent attributed it to changing consumer preferences.
Headline inflation reported in June 2024 stood at 34.19 percent driven by increased food prices, naira devaluation, high import bill, and rising energy and logistic costs.
Although inflation is projected to decline marginally to 21 percent in 2024, MSMEs may continue to experience sustained inflationary pressure driven by a combination of the pass-through effect of the rise in the international oil price (EIA forecasts that the average international oil price may be $93.24/b in 2024) on domestic energy cost and exchange rate pressures.
This may lead to an increase in the cost of inputs for MSMEs which will pass through to the price of final goods and services consequently impacting demand for their goods and services.
