Partnering Finance: Addressing the shortfall with MSMEs Capitalization in Nigeria – The FODDS Capital approach.

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The challenges entrepreneurs face trying to secure capital for their business can be quite disconcerting. Micro, Small and Medium Enterprise are the lifeblood of economies of nations. In Nigeria, it constitutes 75% of labour force, not excluding its 10% contribution to GDP. Readers might wonder why MSMEs which account for a sizeable amount of labour would contribute a dismal amount to GDP and go on to face challenges with regards to financing.

To answer that in part: the irregular scope of operations of these micro and small businesses, their lack of proper accounting record, incomplete registration/documentation makes it difficult to ascertain the true financial state of the business; thus, leaving it untaxed, unregulated and consequently raises questions of their creditworthiness.

The Government is doing its part by establishing the Bank of Industry (BOI). The question remains; how many micro and small business meet the eligibility criteria for financing? The Nigerian Bankers Committee in 1999 set up the Small and Medium Enterprise Equity Investment Scheme (SMEEIS) to fund SMEs in Nigeria through equity investment/loans at single digit interest rate, this yielded little result. On the part of SMEEIS, little disbursement was made to these entrepreneurs. On the other side, most SME owners were not prepared to have banks as partners/shareholders through equity investment, owing to fear of taking over operation of their business.

This psyche of being a “bossman” or “bosslady” could sometime be debilitating for business and to an extent should be discouraged.

At FODDS, we understand that timely intervention in start-ups is crucial that’s why offer partnering finance (asset, cash and equity), capability enhancements, and peer to peer networking to make a difference to budding entrepreneurs.

Speaking with an aspiring entrepreneur at our office:

Nicholas: Why would you venture into business and not take up a day job with a company?

Entrepreneur: That’s what the government supports, that everybody should be an entrepreneur. I get to be my own boss, no one tells me when to open or close, or even gives me targets; I can pursue my business the way I like.

I paused for a moment, stared at him and then smiled, knowing he had bought into the jingle out there and unknowingly, the word of the co-founder of LinkedIn, Reid Hoffman- “All humans are entrepreneurs not because they should start companies but because the will to create is encoded in human DNA.” He simply missed the end part of it- “There is only one boss-the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.” – Sam Watson.

This is most likely the case with micro and small businesses in Nigeria which makes survival of the 1st three years difficult and challenging.

There are many reasons entrepreneurs shy away from partnership in Nigeria. For example, Chidozie Bankole & Sons Limited, is listed as a partnership company. True as that may be, Chidozie prefers having his sons or spouse who contributes nothing to his company as co-owners, while he runs around looking for funds to finance supplies and operations. He will rather have the company moribund than be in partnership or have an equity investment in his company.

Not all partnership requires giving up stakes, however, for whatever partnership one might be undertaking, here are some few steps and question to ask:

  1. Why do I need this partner?
  2. What is the commitment level of the potential partner?
  3. Who are your potential partner(s)?
  4. What is the financial situation of this partner?
  5. List expectations/deliverables, define roles and responsibilities, including cadence for communication.
  6. Never seal a partnership deal with a handshake. Parties must be willing to put all in writing in form of a contract. Discretion is the mother of corruption.
  7. Document your exit strategy. Always begin with the end in mind. Spell out terms and steps to follow in dissolution of the partnership.

Entrepreneurs want to do it all themselves, that can be a recipe for disaster. People will naturally give their best when they have something at stake. MSMEs in Nigeria must embrace partnership that works.

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