Making MSMEs Bankable
Presented at the
CBN 6th Annual Microfinance Conference and Entrepreneurship
Awards
Abuja
February 7th – 8th, 2012
by
Lucky Onmonya
Institute of Development Finance and Project Management
Outline:
 The Nigeria perspective of MSMEs
 Contribution of MSMEs to development
 Challenges for sustainability and growth
Factors that enhances MSMEs Bankability
How to make MSMEs Bankable
Mistakes to Avoid by start up
Concept of MSMEs in Nigeria
CBN (N200 billion SMEs Credit Guarantee Scheme ‘SMECGS’
guideline , 2010) defined MSMEs as:
An Enterprises with Asset base (excluding land) of between N5 million and
N500 million.
 Labour force of between 11 and 300
Concept of MSMEs in Nigeria- 2
SMEDAN – UNDP (National Policy on MSMEs,
2007)
Size
Employees
Asset base (N million) excluding Land and Building
Micro
1- 10
Less than 5
Small
11- 49
5 less than 50
Medium 50- 199
50 less than 500
MSMEs and Development
Economic
Social
e.g . -Wealth creation
- Industrial linkage
- Saving mobilisation
e.g. – Poverty reduction
- Employment
- Security
Contribution
of MSMEs
Technological
e.g. – Innovation
-Fabrication
Management
e.g. – Skills development
Marketing
Finance
production
But there are challenges:
 Tough enabling environment
Weak entrepreneurial spirit
Weak managerial and innovative capability
Capacity to access credit and attract
investment (bankability) is limited
Factors that enhances MSMEs
Bankability
.
Innovation (value
Added)
Entrepreneur
character
Management
Team capability
Capability to tap
opportunity
Bankable
MSMEs
Compliance with
Legal requirement
Revenue/ Collateral
Cash flow
management
Financial record
keeping
Innovation/business opportunity
Capability of Tapping Business Opportunity:
-Capability and ability to take advantage of opportunity
created through innovation or business environment factors.
e.g. embargo on import, latent demand.
 Innovation/Value Added Capability:
- Value added to products or services or methods of operation,
distribution, etc through innovative capability gives
competitive advantage.
Entrepreneur Personal Character/
Management Team Capability
 Entrepreneur personal character and
capability:
- A demonstration of credit worthiness and wiliness to pay loans
- Resilience and persistence when facing challenges
- Open and cordial relationship with financiers e.g. bank
Management team expertise and commitment :
- Skills and experience in finance, production, marketing, human
resources, etc
- A stable and committed work force
Legal Requirements /Adequate
Financial Record
 compliance with legal requirements :
- Up to date registration with relevant agencies
- Submission of returns e.g. relevant tax returns
Financial Records:
Maintenance of adequate records in
a transparent manner . Banks look at historical records-The
profit and loss account, balance sheet, tax return, etc
Revenue or Collateral/ Cash
Flow Management
Revenue/Collateral : A demonstration of an ability to
pay debts from revenue instead of collateral.
Cash Flow Management:
of liquidity indicating solvency.
This provides an evidence
How to make MSMEs Bankable








Conduct a feasibility/ viability assessment
Develop bankable business plan
Prepare operating budget with emphasis on cash flow projection
Communicate business plan effectively
Secure a route to market
Invest significant personal fund
Registration with relevant agencies
Keep appropriate records and provide accurate financial
statement
 Develop good credit history
 Maintain honest and transparent relationship with
bankers/investors
Conduct Feasibility/ Viability
Assessment
 Feasibility assessment establishes whether the venture
/project can be undertaken under prevailing
technological, social, legal, economical and financial
circumstances.
 Viability assessment establishes the extent to which the
venture can satisfactorily generate benefits that exceed
costs.
 These provide empirical evidence and it is a
fundamental step in preparing a bankable business
plan.
Prepare a Bankable Business
Plan/Operating Budget
 Professionally prepared to meet the needs of the bankers or
investors.

Should contain the basic business ideas, opportunities, goals,
objectives and strategies in areas such as production,
marketing, finance, organisation, design, etc.
 Address the concerns of the banker/ investors in areas such as:

Risks and returns
Payment of debts and interest
Management capability and dedication
Knowledge of the market and customers needs
Competitors activities etc.
Conduct operating budgets, sales, production, expenses,
income statement and cash projection
Communicate the Plan Properly
 Eliminate all barriers that hinder effective communication for the
plan.
 Languages use to describe the venture no matter the level of
technology to be used must be simple, concise and
understandable.
 communicate effectively to show that the plan is realistic and
attainable.
 All ideas, strategies, supported models and computations must be
articulated clearly
 A poorly communicated plan no matter ‘beautifully’ prepared will
have negative impact on bankability
Secure a Route to Market
 Demonstrate – Good knowledge of the
market.
- Having access to customers’
base.
- The use of appropriate
channels of distribution and
promotion method to improve
market share and sales.
- Competitive advantage.
- Acceptability of product and price
Improve Management
Capacity/Invest Personal Fund
Demonstrate management competence
experience in form of:
- Knowledge and skills
- Experience
- Commitment
- Strong team relationship
Demonstrate commitment by significantly
investing personal fund (own capital)
Maintain Correct Legal
Status/Financial Records

Register business with relevant government
agencies:
-
Business name/certificate of incorporation
Taxes: personal income tax, company tax, value added tax, etc.
Intellectual properties: license, copyright, patents, trademark.
Product registration e.g. NAFDAC- (food/Drug)
 Maintain a proper accounting system:
-
Maintain appropriate books of accounts
Follow proper accounting procedure
Prepare financial statements
Periodic audit report is important
 Seek assistance from lawyers, accountants or auditors)
Maintain Cordial Relationship with
Bankers /Develop Good Credit History
Understand the way the bankers think
Be transparent and honest
Maintain a track record of credit worthiness
Start small by opening line of credit for a reasonable
amount and pay it off as agreed, obtain again and
pay off. The banker will be willing to give higher line
of credit.
Mistakes to Avoid by Start Up-1
 Preparing a business plan without adequate investigation.
 Presenting complex business plan. This can create
communication barrier
 Vague business opportunity that show no evidence of real
demand.
 Incredible financial projection or developing projections
that is inconsistent with other aspect of the plan.
 Concentrate all effort on the development of product
instead of other important elements such as how to access
customer based.
 Overestimation of sales revenue and poor cash flow
management
Mistakes to Avoid by Start Up-2
 Attempt to clean up the business only when there is opportunity
for loan.
 Window dressing the business.
 Diversion of loans to other purposes
 Relying on collateral instead of the business capacity to generate
revenue to pay back loans.
 Having a poor credit rating
 Combining business cost with personal expenses
 Having little or no experience and competence in the area of
business
 Doing business in a sector with high failure rate
 Excessive remuneration and fringe benefits for the entrepreneur
and top management
Conclusion / Way forward
 The growth of MSMEs will benefit all stakeholders such as:
- the banks (microfinance banks ,commercial banks, development
banks)
- Professional advisers (lawyers and accountants, etc)
- Donors and investors
- NGOs
- Regulatory /Advisory authorities
- etc
 Therefore, capacity of the entrepreneurs and management team
should be improved continuously
 MSMEs entrepreneurs must make effort to understand the needs
and concern of bankers and investors
 They should also develop long lasting relationship with bankers,
investors.