Establishment of the scheme:
The small and Medium Industries Equity Investment Scheme (SMIEIS) is a voluntary initiative of the Bankers committee approved at its 26th Meeting held on 21st December 1999 (NBTE training manual 2007). The initiative was in response to the Federal Government’s concerns and policy measures for the promotion of small and medium Enterprises (SMEs) as vehicles for rapid industrialization, sustainable economic development, poverty alleviation and employment generation.
The scheme requires all banks in Nigeria to set aside ten percent of their profits after Tax (PAT) for equity investment and promotion of small and medium enterprises.
Purpose of the Scheme
The 10% of the profit after tax (PAT) to be set aside annually shall be invested in small and medium enterprises at the banking industry’s contribution to the Federal Government’s efforts towards stimulating economic growth, developing local technology and generating employment.
The funding to be provided under the scheme shall be in the form of equity investment in eligible enterprises. This will reduce the burden of interest and other financial charges expected under normal bank lending, as well as provide financial, advisory, technical and managerial support from the banking industry.
For the purpose of this scheme, a small and medium enterprises is defined as any enterprise with a maximum asset base on M500 million (excluding land and working capital), and with no lower or upper limit of staff.
Activities Covered by the Scheme.
Every legal business activity is covered with the exception of:
ii. Financial Service
Eligibility of Funding
To be eligible for equity funding under the scheme, a prospective beneficiary shall:
i. Register as a limited liability company with the Cooperate Affairs Commission and comply with all relevant regulations of the companies and Allied Matters Act (1990) such as filling of annual returns, including audited financial statements.
ii. Comply with all applicable tax laws and regulations and render regular returns to the appropriate authorities; and
iii. Engage or propose to engage in any of the businesses covered by the scheme.
Mode of Investments and other related Issues:
- Equity under the scheme maybe in the form of fresh cash injection and/or existing debts owed to participating bank.
- A participating enterprise may obtain more funds by way of loans from banks in addition to equity investment under the scheme.
- Eligible enterprises are free to approach any bank, including those they presently have a relationship with, to seek funding under the scheme. Prospective beneficiaries should note that the banks may operate the scheme directly, through their wholly owned subsidiary venture capital companies or through venture capital companies floated by consortia of banks or through independent venture capital companies.
- Prospective beneficiaries are advised to seek the opinion of third party consultants such as lawyers, accountants and valuers in determining the value to be placed on the assets and capital of their business in order to determine a fair price before or during negotiations with the bank.
Requirements by Beneficiaries:
1. Beneficiaries will be expected to;
a. Ensure prudent utilization of funds
b. Keep up-to-date records on the company’s activities under the scheme
c. Make the company’s books, records and structures available for inspection by the appropriate authorities (including Banks and the CBN) when required.
d. Comply with guidelines of the scheme; and
e. Provide monthly financial and operational report to the investing banks before the 15th of the next succeeding month.
2. The recommendations of the industrial associations, particularly Manufacturers Association of Nigeria (MAN); National Association of Chambers of Commerce, industry, Mines, and Agriculture (NACCIMA); National Association of Small and Medium Scale Enterprises (SASME); and National Association of Small Scale Industries (NASSI) will be mandatory for members of these associations.
3. Membership of recognized NGOs engaged in entrepreneurial development and promotion of small and medium scale enterprises will also be an advantage.
Problems of Financing SMEs
Factors militating against funding of small scale Enterprises are as follows:
1. Inability or unwillingness to finance sound feasibility study.
2. Credit worthiness of the enterprises
3. Inadequate and low equity base
4. Under-capitalization due to unwillingness to pool resources
5. Character of the promoters
6. Stringent lending conditions too high for SMEs
7. Poor resources base and managerial experience
8. Viability of the projects doubtful
9. Inadequate collateral to back-up loan request
10. Low credit worthiness of the entrepreneur
11. Low realization of the collateral
12. Poor Book-keeping/Accounts
Suggested Solutions open to SMEs
a. Proper co-ordination of the rates of financial institutions and their targets group with a view to streamlining their activities.
b. Concessionary rate of interest for SME loans.
c. Total exemption form export duty and excise duty in the case of projects located in the rural areas.
d. Provision of tax holidays for SMEs
e. Provision of adequate infrastructural facilities
f. Foreign exchange rate concession should be granted to SMEs
g. Occasional training for top management of SMEs
h. Finally, ensuring that accounts of SMEs are audited on annual basis. This will spur them to employ qualified boom-keepers and to be more readily accountable of need be.