Equity culture is the solution to financing SMEs in Nigeria – Abu Jimoh

The Chief Executive Officer of Coronation Merchant Bank, Abu Jimoh, has advised Small and Medium-sized Enterprises (SMEs) on the need to embrace a robust equity culture as a funding option in order to stand a good chance of surviving in Nigeria’s highly volatile economy.

The Equity Culture: Abu Jimoh who disclosed this recently while commenting on several issues pertaining to the Nigerian economy, also noted that the NSE All-Share Index declined steeply by 64.2% in dollar terms in the last five years. This is a sharp contrast when compared w America’s S&P 500 which rose by 51.4% in the same period. This is mainly because the two countries have different equity cultures.

“You cannot have an equity culture where you do not have equity performance.  In the US, an entrepreneur aims to list his or her company as soon as possible. It brings status and can, through share ownership, make employees rich. 

“In Nigeria, an employee is more likely to ask for an employee loan than employee equity. In this kind of environment, you do not have an IPO culture.”

What it means: Apart from the fact that a vibrant equity culture can help SMEs raise fund easily by selling its shares to employees, it can also serve as a way of increasing employees’ productivity, efficiency, and accountability as well. Since employees, by reason of their stake in the business, will automatically share in any profit or loss the company records, there is every likelihood that their interests will drive them to ensure that the business performs well.

According to Mr Jimoh, “equity is often the correct form of financing SMEs. If their investment returns are strong enough then SMEs can take on debt as well.”

Another reason SMEs need to explore equity financing as a veritable funding option is that accessibility to loans and credit facilities in Nigeria is severely limited. Interestingly, the majority of such loans come with stringent terms and conditions among which is the high-interest rate which is currently well over 20% in most commercial banks.

Why this matters: Effective funding of SMEs is such a big issue for most emerging economies like Nigeria. Interestingly, it is estimated that SMEs are responsible for about 90% of all the businesses in Nigeria. They equally employ 60 to 70% of the entire workforce. As far as the Gross Domestic Product (GDP) is concerned, they contribute over 50%. Needless to say that SMEs are the bedrock on which the whole Nigerian economy is anchored.

Source: Nairametrics

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Author: see naija

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