SME FINANCING : OPTIONS FOR

ENTREPRENEURS

Presented By
John Verlie O. Empeynado
MBA-1
 Reference
 Khula, is a development finance institution (DFI) reporting to the Department of
Trade and Industry (the dti), with an independent Board of Directors

 Khula was established in 1996 and its mandate derives from the dti White Paper
on the National Strategy for the Development of Small Business (1995).

 The decision to establish Khula as a wholesale rather than a retail institution was
taken after considering the following factors:

• The role of the State is to create an enabling environment rather than

to participate directly.

• Government backed guarantees would assure Commercial banks and

other financial institutions and get them to participate in the SMME sector.

• As a wholesale financier; Khula works through a network of partners

inter alia Commercial Banks; non-bank RFIs; and other partners – to
ensure that SMMEs have access to finance.
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 Khula’s Mandate, Vision and Mission
Mandate
To address market failures in the SME finance sector by leveraging and
unlocking private sector and other developmental funding for the
creation of a vibrant SME sector. Khula’s main focus is the facilitation
of access to finance by SMEs; maximising development impact and
ensuring organisational sustainability

Mission
Vision To provide finance,
To be the mentorship services and
small business premises to
development finance SMEs through a network of
partner of first partnerships and to
choice in the field of encourage the sustainable
Small Enterprises development of SMEs
whilst ensuring Khula
Development remains financially viable

The achievement of the desired impact envisaged in the mandate

would be through the development and implementation of a Khula SME
bank
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 Khula’s Mandate is
focused on
three key areas …
Promote access
to finance

Access to
finance for SMEs

Development Financial
impact sustainability
Create sustainable SMEs;
in the mainstream Long-term
economy, thereby objective
contribute to economic
development

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 SME Financing Landscape … Characteristics

Characteristics

Opportunity-driven/Entrepreneurial
•Less than 200 employees
Medium
Medium •Developed technical & business skills
enterprises
enterprises

•Less than 50 employees

Small enterprises •Developed technical /limited business skills
Small enterprises

•Less than 5 employees

MicroMicro enterprises
enterprises •Some technical /limited business skills

Survivalist enterprises
Necessity-driven/Survival
Survivalist enterprises •Individual self employment
•Limited technical and business skills

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SME Financing Landscape …Supply

Financing Needs - Supply

•Corporates
•Banks/Financial Institutions
Medium
Medium
enterprises •Private Equity/Venture Capitalists
enterprises
•Khula, IDC, NEF

•Own resources
Small enterprises •Banks & Corporates
Small enterprises
•Khula & PDCs
•Own & family resources
MicroMicro enterprises
enterprises
•Microlenders & Banks
•SAMAF & PDCs
Survivalist enterprises

Survivalist enterprises •Own & family resources

•Microlenders
•SAMAF

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Introduction
Who are SMEs?
Small and Medium Enterprises (SMEs) are basically businesses
defined broadly in terms of their
 investments,
 number of employees,
 capital base
 annual turnover
 balance sheet.

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Introduction

Definition of SMEs?
 The criteria for defining SMEs however
differ from country to country.

 Theseclassifications are
predetermined by particular agencies
or developmental institutions
empowered to develop SMEs.

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SME Definition
Definition of SMEs?

For instance, a Small business in developed

economies such as Germany, Japan,
Singapore and the United States of America
(USA), might be a Medium or large-scaled
business in a developing economy like
Nigeria’s.

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SMEs – A global view
 It is globally affirmed that Small and Medium
Enterprises (SMEs) represent around 90% of global
economic activity.

 SMEs are the “engine of growth’’ and catalysts for

socio-economic transformation of any economy.

 SMEs contribute to employment generation,

wealth creation and poverty reduction.

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SMEs – A global view(Nigeria’s
Perspective)
   Micro/Cottage Industry
An industry with a labour size of not more than 10
workers, or total cost of not more than N1.50 million,
including working capital but excluding cost of land.
 Small-Scale Industry
An industry with a labour size of 11-100 workers or a
total cost of not more thanN50 million, including
working capital but excluding cost of land.
 Medium Scale Industry:
An industry with a labour size of between 101-300
workers or a total cost of over N50 million but not more
than N200 million, including working capital but
excluding cost of land.
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 Financing SMEs
 Amongst the challenges facing SMEs, in Nigeria,
access to Finance for Business occupies a very
central position.

 As a result of perceived risks and uncertainties

ascribed to SMEs, many Commercial banks and
financial institutions continue to limit the
support they offer to this sector of the
economy.

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Financing SMEs: Options for Entrepreneurs

Though access to finance remains a major challenge

to SMEs, several funding options and opportunities
still exist.

They will be discussed under the broad headings :

 Debit financing sources for SMEs and

 Equity financing sources for SMEs.

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Financing SMEs: Options for Entrepreneurs

DEBT FINANCING SOURCES

FOR SMEs

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Financing SMEs: Debt Financing Sources

SMEs can access funds from Microfinance banks.

For this presentation, some Funds from the
following Institutions will be reviewed.
 Central Bank of Nigeria ( CBN)
 Bank of Industry (BoI)
 Development Bank of Nigeria (DBN)
 International Development Finance Institutions
(DFIs)

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EQUITY AND OTHER FORMS OF FINANCING SOURCES FOR
SMEs

EQUITY AND OTHER FORMS

OF FINANCING SOURCES
FOR SMEs :
EQUITY AND OTHER FORMS OF FINANCING SOURCES
FOR SMEs :
The following are Equity and other forms of
Financing for SMEs which are very important
sources of revenue for SMEs.

 Family
 Friends
 Angel Investors
 Partnerships
 Leasing
 Cooperative Societies
Strategies to Enhance Access
to Finance for SMEs
The following are Strategies to Enhance
Access to Finance for SMEs

 ERGP Focus Labs

 SME Clinics
 Business Forums
 Industrial Clusters / Parks
 Vendors/ Customer Finance
SMEs Financing : Limitations to accessing finance

There are many limitations to accessing finance. Many border on lack of information
about the loan requirements, business or trends in the industry of interest

Some of these limitations also include:

 Lack of a Bankable Business Plan
 Lack of / inadequate information about requirements for accessing the loan
 Poor or inadequate Market Research Data (R&D)
 Unrealistic projections and feasibility studies
 Adherence to Regulatory requirements , government policies and other
requirements such as Tax.
 Poor accounting framework
 Recognition of the importance of Standardization and quality.

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SMEs Financing : Preparing to Access Finance
Some of the requirements for serious consideration when preparing
to access finance are listed below . Adherence provides better
leverage for continuous servicing of the loan facility after
successfully obtaining it :

 Consistent Market Research ( R&D)

 Adherence to Regulatory requirements such as Tax,
Government policies, professional requirements.
 Good Governance structures – Organizational stability and
Management Systems
 Business improvement measures , Training and development
 Human Capital development
 Lack of proper accounting framework to track finances;
expenses and revenue.
 Unrealistic projections and feasibility studies
 Consistent SWOT analysis (Strengths, Weaknesses,
Opportunities and Threats)

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Conclusion
SMEs play a very important role in job
creation. Over 75% of jobs are
created by SMEs. It is therefore
important that SMEs with potential
are able to obtain the finances they
need so that they can grow.
Government should make access to
finance less cumbersome and develop
the capacity of SME operators towards
accessing more funds for the growth
of their businesses and overall
development of Nigeria’s economy.
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 International Benchmarking Lessons On
Direct Lending
• Government is prime funder and key player
• Government support and commitment to SMEs at highest level of government
• Research and developments of new products is the key elements
• Centralize the risk management processes
•Clearly defined and easy to understand and client recruitment and credit process
which ensures that they get the “Correct clients.”
• Quick turn-around times due to clearly defined loan disbursement processes
• Place strong emphasis on credit risk management
• Extensive Network of branches which enable them to visit SMEs
throughout the country
• Commitment to SME support in the country at the highest level of government
• Provide integrated support - Financial and non-financial.

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Thank you

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