VIEWPOINT - Tackling the Challenges of funding SME Exporters in Nigeria
It’s no surprise that the major challenge for the growth of SME exporters in Nigeria is funding. This funding challenge is aggravated by inadequate infrastructure (good roads and stable power supply in particular), lack of flexible and SME export friendly financial Institutions and the dominance of Asia with large financial muscles in the Nigerian Export business who offer very high prices to commodity merchants and thus increase the cost of procurements of most exportable commodities.
This article is solution focussed and was therefore put together to give ideas to the federal government and
financial institutions both within and outside Nigeria in order to enable them to consider SME exporter’s
funding as an investment option. I will therefore like to offer the following possible solutions to tackle the
challenges of inadequate funding of SME exporters in Nigeria.
Government should make laws to encourage the establishment of specialised banks that will only finance
export transactions. These laws should allow private individuals to establish export focussed banks and
Government should own and contribute 50% of these banks capitalisation so as to have a good control over its operations and thus enable the government to achieve its objectives of growing SME exporters. The law should stipulate the following among other things:
1. The export banks are to finance only export transactions and any financing done outside this should be penalized.
2. The export banks should offer trade finance products like Export Credit guarantee, Export Credit Insurance, Factoring, Forfaiting, Invoice discounting etc.
3. The interest rate on the export financing facilities from this bank should be set by the Central Bank and should be lower than the prevailing rate in the market at any point in time.
4. The export banks should be given tax holiday to enable them to maximize profit.
5. Government should reward any of the export banks that have the highest export finance facility portfolio at the end of each financial year.
6. The export banks should offer both pre and post export financing to exporters.
7. The banks should only finance SME exporting companies or cooperatives with at least 6 month experience in the business and with Bill of lading records of export and evidence of receipt of export proceeds from the buyers abroad.
8. The banks should only finance SME exporting companies that are owned 100% by Nigerians
9. The export bank should have a warehouse where all the products that they are financing are inspected to ascertain the quality before they are exported.
10. The export bank should grant export facility that is as low as 1 Million Naira and as high as 50 Million Naira
11. The goods should be used as collateral for post shipment financing while equity contribution of 30-50% must be a pre-requisite for pre-shipment financing.
12. The export financing facilities from the export bank should cover the export of solid minerals and agricultural commodities, semi-processed products and finished goods.
13. The export bank financing facility should only be granted to export transactions with Letter of Credit that is confirmed by a reputable Bank, Sight Bill for Collection and Avalised Bill of Exchange.
If the above proposed solutions can be given a favourable consideration, I believe it will not only boost the growth of SME exporters in Nigeria, it will consequently increase the rate of employment generation, drastic reduction in poverty and significant growth in Nigerian Gross Domestic Product.
