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Bank users in Nigeria have increased

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By Mercy Kelani

MSMEs in Nigeria currently face difficulties that result in unpaid invoices.

The number of bank users in Nigeria has grown dramatically, with the majority of payments going through a single system. Nigeria’s cash-based Economy has drawbacks in spite of this. Even though the GDP is mostly contributed to by the approximately 39 million micro, little, and medium-sized firms (MSMEs), financing availability continues to be a substantial barrier to business expansion. Nonetheless, a strong credit system is essential for promoting investment, entrepreneurship, and Innovation in the economy. Due to a lack of a mechanism confirming the creditworthiness of other companies, MSMEs in Nigeria currently face difficulties that result in unpaid invoices and unstable finances.

Informed judgments on Loan extension are impeded by the lack of a central credit assessment portal, which results in Underdevelopment and lost chances for business owners. Nigeria lacks the strong credit systems and legal ramifications that safeguard national retailers in developed nations. To track creditworthiness and enhance payment reliability, a structured database system like to those used by credit agencies like TransUnion and Equifax might be implemented. New lending standards, well-defined laws, and government intervention to establish a central Credit Bureau System are some of the improvement strategies. The credit system could be improved by implementing credit Insurance programs, providing Tax advantages, and identifying companies that follow excellent credit practices.

84% of the workforce is employed by MSMEs, accounting for 48% of Nig’s GDP.

A healthy work environment could also be achieved by offering business owners financial management and Literacy classes that guide them through credit management and payment options. The National Bureau of Statistics (NBS) estimates that 84% of the workforce is employed by MSMEs, which account for 48% of Nigeria’s GDP and are greatly impacted by the country’s inadequate credit system. For example, Adebayo Enterprises, a small and medium-sized enterprise (SME) that deals with agricultural products, had to fire thirty percent of its staff when over $100,000 in unpaid payments from Retail partners forced them to file for bankruptcy.

Similar financial difficulties were experienced by the Fashion retail company Chike’s Boutique as a result of bulk purchasers’ late payments, which postponed expansion plans and resulted in lost growth possibilities. The importance of having a strong credit system is demonstrated by these actual cases. Because Nigeria’s current Infrastructure lacks efficient methods to identify and manage credit risks, experts like Professor Michael Adeyemi from the University of Lagos underline that a strong credit system is necessary for sustainable Economic Growth. SME growth depends on financial inclusion and loan accessibility, according to World Trade Organization Director-General Ngozi Okonjo-Iweala.

40% of SMEs in Malaysia & only 5% in Nig. have access to bank loans.

She also supports extensive credit reporting systems as a means of enhancing the commercial climate. Entrepreneurs that have experienced the negative impact of unpaid bills on their operations and expansion, such as Tola Chukwuemeka, owner of Amaka’s Supermart, and Tola Adebisi, CEO of Tola Ventures, have expressed their dissatisfaction with the inefficiencies of the current system. In contrast, South Africa’s credit system features extensive credit reporting and robust legislative protections that guarantee retailers’ safety, allowing for more seamless business dealings.

Based on data from the World Bank, over 40% of SMEs in Malaysia and only 5% in Nigeria have access to bank loans or lines of credit. This disparity draws attention to the shortcomings in Nigeria’s credit system as well as the advantages of perhaps implementing international best practices. To solve these difficulties, concrete practical initiatives include building a central Credit Bureau System to maintain a complete database of registered firms and their creditworthiness. Risks can be reduced by putting in place new lending requirements that take debt-to-income ratios, credit scores, and required partial payments into account.

Related Article: Improved Credit Access for MSMEs in Nigeria

It is recommended that policymakers ensure unambiguous communication and payment policy execution, provide incentives for prompt payments, and apply penalties for late payments. In order to shield shops from the risk of non-payment, the government may implement credit insurance programs and provide tax breaks to companies who uphold sound credit procedures. For business owners, financial management and literacy training are especially crucial because they equip them with the information they need to handle credit and payment options wisely. Together, these initiatives would produce a more dependable credit system, which would promote Economic Expansion and company expansion.


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