October 20, (THEWILL) – With many businesses battling for survival amid mounting economic headwinds, there are renewed expectations that Nigeria’s leading digital retail financial institution, Polaris Bank Limited, would step up its activities to salvage the crumbling informal sector largely populated by micro, small and medium enterprises (MSMEs).
The expectations stemmed from the prominent role the Tier-2 bank has played in promoting the MSME sector, the engine of the economy, for which it has been eminently recognised by stakeholders and industry experts.
At the inaugural ‘MSME Finance Awards 2024’ organised by a digital media platform and The Economic Forum in Lagos last August, Polaris emerged Nigeria’s top bank in MSME Lending. It was a notable achievement considering the emphasis the World Bank has laid on focusing on that sector to boost job creation and the people’s standard of living.
The award which highlighted Polaris Bank’s dedication to supporting MSMEs through various direct and indirect funding initiatives, was well received among stakeholders. According to reports, the judges emphasised the bank’s consistent efforts in providing sustainable finance, which has enabled Nigerian entrepreneurs to grow and expand their businesses.
“This is a welcome development. At a time the manufacturing companies are facing huge challenge in accessing foreign exchange to import raw materials and other accessories, this is the time to revisit the backward integration policy in particular with vigour,” said Engr. Dan Ikoku, owner of a grain processing outfit.
According to Engr Ikoku, the drive by Nigeria’s major developing banks – the Development Bank of Nigeria (DBN) and the Bank of Industry (BoI) – to promote MSMEs through commercial banks’ activity in MSME financing, underlines why Polaris Bank should brace for the challenge.
“It is time to embrace the backward integration policy with renewed vigour and commitment because the economy is not smiling on people and businesses. Many businesses are shutting down, and the worst affected are the small businesses,” Ikoku said in a chat with THEWILL.
At present, job losses are on the rise as a result of the surge in petrol prices occasioned by the removal of subsidy and the devaluation of the naira mid-2023. Rising inflationary pressures in recent months (hitting 32.7 percent last September) have weakened the purchasing power of cash-strapped consumers, as businesses grapple with higher operating costs. The worst casualties are the MSMEs.
According to Abdulrasid Yarima, president/chairman of the governing council of the Nigerian Association of Small and Medium Enterprises (NASME), about 10 percent of the 40 million MSMEs in the country have shut down since the subsidy removal.
In a statement late last year, Yarima said, “It’s been very tough for our members as we are managing to survive. Some of them are closing shops while others are looking for new business opportunities.”
THEWILL findings revealed that many thriving MSMEs involved in the value chain of major manufacturing companies, under the backward integration policy, have either scaled down their operations or stopped doing business
Backward integration is a practice where companies are encouraged to cultivate their own raw materials by purchasing from their suppliers or establishing their own farms, for instance, to grow produce for their factories.
The consumer goods firms, in particular, keyed into the scheme and have since taken giant strides in its implementation. This is to the benefit of the MSMEs, especially those engaged in the agriculture and transport value chain
For instance, Nestlé Nigeria instituted a project to engage 5,000 smallholder farmers, initially, for the supply of raw materials for its agro-business operations. The initiative, ‘Developing Inclusive Grain Value Chains Project’, was in partnership with IDH — a Sustainable Trade Initiative and TechoServe outfit.
Nigerian Breweries stepped up local production of sorghum and cassava to boost local raw material supply for its plants. The 78-year-old consumer goods firm has made significant strides towards large-scale cultivation of sorghum and industrial application since the 1980s.
The projects are now severely challenged by the myriad of environmental obstacles across the states, including insecurity and poor road network, where the farms are established and the value chain is being threatened.
As a result, the companies which rely on a strong value chain that involves many micro, small and medium businesses especially in agriculture, agro-business and transportation activities are not being able to feed the manufacturing companies. This has a far-reaching impact on the economy as the manufacturing companies have to resort to other means to source their raw materials, including reverting to importation amid the forex crisis.
Additionally, due to high cost of operations, most of the manufacturing companies recorded huge losses or declined profit in their 2023 FY reports, leading to scaling down in their scope of operations which has affected the MSMEs engaged in their value chain.
A check by THEWILL showed that 10 major Nigerian manufacturing companies recorded huge inventory costs by way of raw material, inventory and packaging sourcing in six months according to their 2024 interim half-year results.
Data from their 2024 half-year reports revealed that their total inventory items namely raw materials, consumables and packaging rose by 238.2 percent to N2.2 trillion in six months from N665 billion in the corresponding period of the previous year.
Although their combined post-tax loss dropped to N581.87 billion from N665.83 billion in the previous half-year period, the impact of high cost of raw material input remained significant. This is indicative of the important role by Polaris Bank and other financial services institutions in supporting the MSMEs.
In response to the award, Polaris Bank’s Managing Director, Mr. Kayode Lawal, expressed gratitude and reaffirmed the bank’s commitment to supporting Nigerian MSMEs.
He noted, “We are honoured by this recognition, which underscores our unwavering commitment to empowering micro, small, and medium businesses. These enterprises are essential drivers of economic growth, innovation, and job creation.
“This award is a testament to our team’s dedication to providing tailored financial solutions. It further motivates us to continue our strategic focus on MSME lending, financial inclusion, and Nigeria’s broader economic development,” he added.
Polaris Bank’s approach to MSME lending aligns with its mission to deliver innovative, customer-centric services that help businesses thrive, further cementing its reputation as a key player in driving Nigeria’s economic progress.
Coming at a time the World Bank has advised Nigeria to boost local productivity through developing the small businesses, combined with the efforts of the major development banks – Development Bank of Nigeria (DBN) and Bank of Industry (BOI) – Polatis Bank will record a huge success in MSMEs support programme.
Specifically, the DBN was conceived to address the major financing challenges facing the MSMEs in Nigeria. Its objective is to alleviate financing constraints faced by MSMEs and small Corporates. This is achieved through partnering with the commercial banks towards provision of financing and partial credit guarantees to eligible financial intermediaries on a market-conforming and fully financially sustainable basis.
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
