Why SMEs in Nigeria find it difficult to access investment capital
The Group Chief Executive officer, Emerging Africa Companies, Toyin Sanni has adduced several reasons as to why Small and Medium Scale Enterprises (SMEs) in Nigeria find it near impossible accessing the much needed capital for investment in their businesses.
Sanni, speaking recently during an exclusive interview in Lagos observed that SMEs’ inability to access capital was due to investor’s growing concerns about the high risk of investing in their business, and inadequate government structures as well as existing financial records of many SME operators.
Further reasons she highlighted included also inability to meet requirements such as collaterals as well as business track record requested by traditional lenders, pointing out that some of the issues were currently being addressed by Emerging Africa Company through its specialised advisory and fund raising desk for SMEs.
“Different factors contribute to the inability of most SMEs to access needed capital. These include investor concerns about the high risk of investing in SMEs, inadequate governance structures and financial records of many SMEs, as well as inability to meet requirements such as collateral and business track record requested by traditional lenders. Some of these are being addressed by Emerging Africa through our specialised advisory and fund-raising desk for SMES,” she noted.
And responding to questions as to why many would-be Nigerian investors fell victim of Ponzi schemes, the company chief executive explained that greed and ignorance were major reasons, pointing out that people tended to invest in what they do not know because they do not seek to understand what is driving what people are saying is the perceived success of an investment.
According to her, Ponzi schemes do not have an underlying profit formula that supports the level of return that they claim to bring, adding that they only pay a few people who would then invariably be their mouthpieces and tell the whole world what they got, which would in turn lure others because they also want to get that kind of money.
Proffering solutions as to what should be done to shield many Nigerian investors from falling victim to Ponzi scheme, the company boss advised that the Securities and Exchange Commission (SEC) should carry out increased financial literacy and awareness campaigns as well as continuous monitoring and enforcement in collaboration with other regulatory agencies.
“People fall victim to Ponzi schemes on account of greed and ignorance. The latter is a terrible thing because what one doesn’t know would kill one. People invest in what they don’t know because they do not seek to understand what is driving what people are saying is the perceived success of an investment.
“They keep using Mr. A’s money to pay Mr. B and so on while the owner (of the scheme) travels for an exquisite holiday. The owner’s perception is that the cycle would keep running as long as there are new people bringing in money. Then, one day, there would be a rumour and they would run into a liquidity shortage and someone would realise that there was no real investment for all the money that was paid out,” she explained.
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