February 28, 2011


The principal problem associated with development is the issue of capacity .By building adequate capacity , development can not only be created but also sustained in the long run .Investing in capacity building is equivalent to nation building in the long run which depends on the enterprise of capacity to sustain polity and then nationhood by creating national wealth that is oriented to outlive its times as the legacy of posterity .A thorough adoption of this simple formula is a tested roadmap and a reliable transition towards the end of poverty in the society of man .Developing adequate capacity or sustainable capacity building is a foremost criteria to capital development .
As we earlier emphasized in the second chapter development is about people and development means people . Jeffrey Sachs in his famous book The End Of Poverty ……..how to make it happen in our time observed that poor countries lack six major kinds of capital :
1.Human capital :this includes health , skills and competence needed to make each citizen productive or influence economically productive .person ;
2. Business capital : facilities , machinery and transport infrastructure needed in agriculture services and industry ;
3. Infrastructure : Roads , rail water , power , telecom . , airports and seaports which are elementary outputs of basic development to promote mass development and business productivity ;
4 . knowledge capital :scientific and technological knowledge which can grow mass productivity is highly underdeveloped .This should be nurtured for the promotion of production , physical and natural capital ;
5. Public institutional capital : Bureaucratic bottleneck and distortion is a major bane . Commercial law , judicial systems , public sector services and effective control that could ensure peaceful and progressive division of labour must be put in place to promote mass development ;
6 . Natural capital : arable land, fertile ecosystems , rich soils and biodiversity. This provides ecological services needed by humanity for earthly sustainable living .
As we noted investment in people can take care of this responsibility and effectively manage these enormous assets for national development .That is the only challenge facing the under developing nations .The burden that this region has come to face is how to create wealth .In the World Bank report [‘where is the wealth of nations ? measuring capital for the 21st century ’] , it showed that intangible capital is near to zero in the major oil countries like Nigeria ,Algeria and Venezuela and often negative . The classic ‘resource curse ’as noted by Auty and Gylfason [2001] was also documented .
When Richard M. Auty first used the term resource curse in 1993 he used it to describe the recklessness of oil rich territories and their failure to use their resources to benefit their economies and boost wealth generation and counter-intuitively had lower growth rate than countries without abundance of natural assets or natural resources .Studies by Jeffrey Sachs , Mark Warner among numerous literature have shown link between natural resource abundance and poor economic growth .
Empirical evidences abound . In the Opec territory between 1965—98 per capital in this region decreased on average by 1.3 % whereas in the developing world grew by 2.2 percent on the average [Akinjide:2006] . The World bank further find out that ; What is the most important component of wealth creation across nations ? It also interrogates whether natural wealth increased or decreased as countries develop . O f course it does decrease as long as flaccidity matures or develops .Then it noted the top 10 wealthiest states such as Switzerland , Denmark –the food basket of Europe , Sweden , oil rich Norway , Luxembourg –Belgium , Austria ,France , United States and Germany .Except for Norway , none of this depended on natural capital or resource for national development since they utilized effectively the Sach’s golden formula [SGF/SAGOF] which has taken them half a millennium to nurture . Even for Norway where natural resources including oil and gas from the North Sea constitute negligible 12 % of total wealth , her mainstay is SAGOF .Whereas the bottom countries such as Chad Madagascar , Guinea –Bissau , Nepal, Niger , Congo , Burundi , ,Mozambique Ethiopia and Nigeria which scored second to the last with Congo the percentage was noted to be horrible . For instance in a monocultural nation like Nigeria crude oil accounts for over 70% of its earnings and 95 % of export receipts in a country in which 98 percent are poor
Likewise in his book The Origin Of Wealth Eric Beinhocker also admitted what is generally accepted by all economists that wealth is the product of human efforts and labour using the sweat from our brows and the knowledge in our brains for cultivation and accumulation .In other words it is not investment in natural resources, land , geography and building that is vital for national development per say but in people .This investment in strategy and technology that boost growth which can only be successful for the upteempth time by starting from the grass root empowering our people and opening up our communities for mass development . And that of all markets in the country human resource or labour market is the most maligned and abused market .

We have repeated this several times that it is somehow baffling that virtually everything that comes out from developed world are consumed and imbibed hook line and sinker without remorse and without reflection or shame by the developing world including its form of government we have adopted today which as claimed is symptomatic of development .Whereas democracy as they claimed being the best form of government is easily contended on the ground that it is not a foolproof or an arbiter that represent mass development in the longer term. These are the two poles entirely clashing each other .Normally democracy is meant to promote development if not it should be abrogated for a better alternative . How can we make democracy work ? Does it seem an alternative not workable or exist ? Let us first look briefly at the politics and antecedence of democracy in the developing world .
The Greek writer Aristotle in the 4th century B.C. , noticed these types of government :-- where power is held by one man is called monarchy ; where power is held by a few is called Aristocracy ;where power is held by the mass of the people ,this is democracy .These forms according to Martha Stewart in The British Approach To Politics are described as mere appearances rather than realities and these types in order of sequence could be fronted for by the following : tyranny ,oligarchy and ochlocracy . Infact oligarchy or ochlocracy brazenly fronts for democracy in virtually every developing society while the capital ‘word’ lives in limbo . Every form of government can be good and can be bad it all depends on the human system which will drive the governance system and chains . When the power belongs to the mass of the people they called it democracy but oligarchy in the same polity has conned the good aims of democracy if any and hence retards development that democracy is supposed to promote. Hence democracy in the 3rd world must scraped or revamped for it to be effective . If not a good alternative should be found . .

A media writer once argued the latter position that democracy retards development .I think the truth is the most profound around .Definitely it is . He argued the thesis that the developing region needed development rather than democracy was a brainchild of the post war period waxed strong in the 70s when the cold was at its peak .Samuel Huntington and a group of American political scientists argued volumes that democracy or undesirability of democracy for a country that have not reached a particular level of economic development .On the other hand they also argued what developing countries needed was good governance backing it up with appropriate data and historical instances . Writing in ‘Democracy and Development’ Sola Fasure at defunct Comet [now The Nation ] commented ‘ when the cold war ended the argument changed ’and the consensus was that democracy is good for every body .. But he bungled a good argument that ‘the lies and propaganda of the past will simply not go away ’ .Were they truly lies or propaganda because democracy did fail to promote absolute development in the hapless territories .
We assess democracy by global appeal , spread and impact . The growth of democratic institutions that started in mid-70s spreading wildly over the next two decades into Latin America former Soviet region and the SSA region in its third wave as coined by Huntington suddenly grounded to a halt .According to freedom house a democracy watchdog there were 118 electoral democracies in 1996 around the world .Almost a decade later they were 117 in relative proportions rated free , partly free or not free were static since the 90s
Usually in the 3rd world , the impact vs. development is close to zero because structure to make democracy effective if at all indeed vital to development is grossly missing .The democratic interest had persisted but development in this region had stalled and the grand hopes have not been realized .Four years ago , the former soviet had gone from frontier land of democracy to waste land within a decade The south American experiencing crisis of democracy, from weak state institutions to corrupted political elites .Some reports argued 15 -20 years after the gains of political freedom, personal security and economic well fare were not better than in the previous period .
Africa is still the basket case of democracy unworkability in which authoritarian democracies have failed . This is working perfectly in the former soviet block-mainly Russia and especially East Asia and including China , North Korea , Vietnam , Laos and Singapore . These are some of the world fastest growing economies . Majority of African countries have slumped further into poverty and gross underdevelopment in which every form of government has failed . The human system or institution is the major problem.
There is no doubt that western Democracy foisted on the developing region has grossly under-performed and heavily retarded development as they failed to invest in their people ballooning mass poverty .We need not be deceived . This is simple .In 1992 before an audience in Philippines .Singapore ’ s Lee kuan Yew remarked ‘I do not believe that western democracy leads to development . I believe that what a country needs to develop is discipline more than democracy ’ .And good governance is a function of the relative stability of political discipline that is mature enough to curb the excesses of democracy that disrupts the flow of development to the people .He observed ‘the exuberance of democracy leads to indiscipline and disorderly conduct which are inimical to development ’.
It is no longer news that this belief transformed Singapore preaching new ideology and consolidating this fact that each nation must determine the nature of development model and pattern that suits its economic climate and demographic institutions .The belief in the superiority of governance in the case of India –the world largest democracy and the Asian tigers .The three authoritarian democratic states between 1960---1987 , grew at astonishing rate of 6.4 % per capital whereas the liberal democracy in spite of its highly educated and committed leadership still recorded a paltry 1.9 percent per capital and western style democracy has dampened the possibility of radical changes in favour of the poor .
Radical changes in favour of the poor and efforts at land reforms were stressful and frustrated by powerful landed elites in Brazil and Venezuela prior to the election of left wing government in this region to effect reform in the new century. Development is a turbulent process which involves distribution of resources mobilizing every available resource to dominate forces of nature and ensure that every stakeholder in the society is affected .It should be noted that institutions that have supported and sustained western democracies were evolved over the last 400 years .The British parliamentary institutions the oldest was developed over the course of a millennium .
Political scientists and media scholars have contended this could be strenuous for late comers to development which need to adopt home grown institutions to quicken their pace of rapid development or else may not catch up with the rest of the world .
The decadence of democratic institutions permeates every part of the developing countries .We shall use the basket case of Nigeria as the case study at this point .The deputy editor at Business Day Charles Ike-Okoh and the fellow Journalist Badejo Ademuyiwa in the research report entitled ‘ National Assembly : World ’ s Biggest Democracy Cost Centre [ 2] ’[10 Tuesday 10 February 2009 ] .In the intro , they affirmed ‘ Since June 2007 the house of representatives has not passed 10 bills because most of their time is spent sharing money .’ According to a former legislator ‘‘It is hard to determine what the lawmakers take home monthly .Nobody knows it except an insider . It has been done in a way that nobody can discover it. Only the banks can tell the exact amount a federal legislator collects monthly ’’.He called for removal of secrecy through the order of the CBN and the backing of government . This he believed would not be possible and can even be politicized by CBN or the government .
The report shows that the national Assembly member ’s monthly salaries in the early part of Yaradua vs. Good luck regime earned 4.5million exactly the size of a local government allocation from federation accounts in 1999 while the speaker collects 33 million naira . From January 2008 onward each collects 10.7 million naira and Speaker collects between 75 million to 100million naira . The senator earned 44million naira monthly and 528million naira annually and 128 million naira annually for the reps ..
Every budget year they bring up several projects and then huge money allocated to recurrent expenditure is eventually shared among themselves after passage of fraudulent bills plus huge constituency funds, Which do not also reach the grass root .
To worsen the case nobody audits their accounts because the auditor general of the federation which ordinarily audits the National Assembly and public account committees with supervisory powers in both houses are easily being bought over .National Accounting Standard Board [NASB]is also being compromised and sanctioning for erring auditors and professional accountants are common .Selfless service is very hard to come by and corruption to borrow Stewart ’s ‘has turned a bad habit into a mortal disease’ .Every institution is consumed by this intrigue and moral decadence .Consequently less than a quarter of 1% of national population controls more than two-thirds or 80-90 % of national budget and wealth in a country in which more than 3 million join labour market every year [ILO:2002].And one can imagine the kind of impact that a house that is often divided itself will have and where fight , exchanging of blows and rancor had persisted among members like primary school pupils will have .
The question is : Is democracy promotive of development , decadence or corruption ?Are we at this stage fit for adoption ? The military had not helped either even though the best development and the worst corruption era were perpetrated through them .Our hands are tied . .What can we do ? It is the same story across AFRICA in which 150billon dollars is siphoned annually by corruption .It is a bitter truth to swallow that we do not need western style democracy that lee Kuan Yew believed is an abettor of indiscipline and corruption .We evolved Marsocracy as effective alternative . The solution proffered also takes care of new form of government that is responsive to developing territories like Nigeria .
Above all it preaches development and investment in people and first and foremost its peculiar financial system model must first evolve prior to its adoption using DUCAPOT rule to touch the grass root .Therefore the importance of microenterpreneurs and SMEs cannot be underestimated which is the arrow of development

Professor Alexander Geshenkron in a comparative study conducted
‘Economic Backwardness In Historical Perspective ; A Book Of Essays [1962] England ‘ . He noted the success of industrial revolution in England rested largely on the success of SMEs which requires little capital to operate in addition to founder’s specialized entrepreneurship . As an economy categorized as moderately developing , Germany also flourished during the period through them. And depended heavily on the Banking sector for their success .
Likewise , the quantum leap by Japanese economy during the similar period presented a more remarkable picture of the power of these wealth machines to support her phenomenal development prior to World war 11 .The secret behind this economic miracle according to Professor Yamamuva was simply cultivated by phenomenal growth in commercial lending to micro enterprises .This was made possible through the great Zaibatsu – an equivalent of modern development banking model .
Today, the world sole super power the United States followed similar universal pattern of mass development .For instance Banks in Louisiana were noted to have relied heavily on SMEs as engine of growth and so heavily financed them for purposes of economic welfare of the Nation ‘s citizens. It is the same logic everywhere .The developing countries also after independence have pursued and implemented similar policies to no avail owing to socio psychological self imposed barriers and the unceremonious truncation that came later through external aggression .We should not fail to remember that China and India are both 2nd and 5th largest economies on earth .Their strength rest largely on SMEs in addition to micro enterprises .
The American brutal civil war finally came to an end on April 9,1865 when General Robert E. Lee surrendered to the north country .The Americans came to discover the magnitude of the social and economic damage was far inestimable especially for a nation already in its glorious path to industrial stardom .They were confronted with the big question of how to rebuild the war-torn economy .Their challenge was to build , the world most powerful industrial superpower and building the largest economic powerhouse means unseating the British economy into distant obscurity .And so they turned to entrepreneurship as a sport in the reconstruction effort and took this challenge farther than any other nation in the mortal history .
There is no doubt that during the post war reconstruction effort some American entrepreneurs actually stood out with unmatched record and indelible profile in their generation for all time .These four barons can be regarded as the most ferocious players during the period charting away out of economic horrors with the most aggressive entrepreneurial and selfless disposition never seen in the world prior to the period . Andrew Carnegie did not waste time transforming the American steel industry into most competitive mass market worldwide while cutting down the monopolists .In the oil industry John D.Rockefeller was extensively felt and a phenomenon until this day with a stroke of master strategy transformed the under developing nature of the then industry into world behemoth today making America to consolidate its leading status as the world largest producer of crude .He not only displaced the monopolists but extended his distribution channels across the world mainly in China and Japan .
Particularly of note , John Pierpont Morgan holding history by the neck rewrote the pages of American entrepreneurship from the backwoods and backwaters of history into world leading economy .He shoved aside competition to become defacto world central banker and America central banker even before the coming of the Fed. .He was also a foremost venture capital single handedly acting as intermediary par excellence and midwiving crucial capital flows into American SMEs risking even his private capital to save his country from the gold panic of 1893—95 and the successive stock market panic of 1907 .Like his colleagues no deep seated patriotism can be better than this earning an unrivaled place for themselves in the annals of American antecedence .
Starting from the grass root, they rose beyond their borders to become the envy of the world giving back to the communities most of the wealth they had generated donating varsities, schools , charities , hospitals and libraries creating a conducive environment for new generation of SMEs to thrive .
America as a result of these barons was able to dominate the world using the economic power of SMEs to engineer her political power supremacy. .Microsoft ,Dell ,Wal-Mart , Compaq , Hp, Home Depot , Intel ,MacDonald’s , IBM , Gateway , Oracle , Apple and Cisco etc all started as SMEs before transcending borders to become household names all over the world .With one of the highest per capital income in the world it is also the major source of private workforce .
In the U.K. . as well as the European union SMEs contribute 99 percent and 98 percent of private workforce .A total of 3.7 million business in the former and controlling 65 % of business turnover in the latter . In most countries of the world according to ILO , SMEs accounted for over 60 percent of non formal sector employment .Most of the new jobs created over the last 10 or 20 years in Europe and America for example have come from SMEs .SMEs accounted for over 80 percent of enterprises in virtually all countries of the world .They also contributed 15—20 percent of the GDP in most countries . In the European union it comprised of 98 percent of all enterprises .
The 2001 ILO figures that over 150 million youths are employed and over 80 percent living below 1 and 2 dollar a day can easily be taken care as SMEs develop robustness vital to sustainable economic growth .
Coming down home to Nigeria , the federal bureau of statistics shows that 97 percent of businesses employed less than 50 people . It produces 60 percent of employment and output . They control the informal sector which in turn controls 70 percent of the economy . Unfortunately SMEs mortality ratio is said to be 80 percent in the first five years of operation . If indeed it is recognized that it accounts for 80 percent of entire workforce in most countries of the world , why then do the lips service continue in succession for 5o years since independence ..
Now ,we shall examine briefly the challenges facing SMEs and Micro entrepreneurs in Nigeria .
Nigeria as a nation quite unfortunate , quite uncharitable and quite lackadaisical and super--irrational has been struggling persistently to revive the fortune of SMEs since independence . Although we did a review of this later but here cursorily also or in a cameo we appraise the failure of industrial development centre established since 1962 among other similar initiatives is still a national stigma till date in a country where policy summersault and succession crisis is a way of life and effective organization hardly taken to consideration .
The first industrial development centre established during the period by the then eastern government in Owerri was taken over by federal government in 1970 .Subsequently ,other IDCs were founded in Zaria ,Uyo ,Kano Osogbo ,Benin city , Ikorodu, Bauchi , Maiduguri, Port Harcourt ,Akure and Ilorin .Just like the DFIs, the politicization that came later deceitfully truncated this good initiative. The merger that came also later in 2001 hardly survived and the bank of industry struggled to take off after years of wobbling and vain restructurings and even where money were disbursed with the coming of Good luck regime appropriate blueprint was lacking .
The SMEs bankers private sector initiative took off during the merger in 2001 at the instance of bankers committee to invest 10% of PBT according to the guidelines into SMEs .It also reminded us of similar or earlier ilk’s in the industry . The guidelines regulating the scheme were highly insensitive to the yearnings of industry .It defines SMEs as any enterprise with a maximum asset base of 500 million naira excluding land and working capital . We could be talking of total asset value at 1 billion naira . Imagine for a start up company ! Nevertheless the scheme was approved in 1999 .This sounds unbelievable .Is this way SMEs are classified in advanced countries ?
The investible fund is for equity investment annually in both ordinary and zero coupon non cumulative preference shares . It is the industry contribution to federal government attempt at stimulating the economy evolving local technology and employment generation .It also includes 10 percent minimum credit to the micro enterprises . The CBN empowered them to invest up to 200million in a viable enterprises through fund managers excluding trading and financial service business . This direct patronage should not exceed 40 percent of the equity structure of such emerging enterprises and has a duration in the form of venture capital .Whether by investment syndication or ;loan consortium participation in large projects should not exceed the benchmark .
To make matters worse in the following review besides interest rates put at 9 percent the amount investible in a project was increased from 200m to 500 million naira while the asset base rose to 1.5 billion naira from 500million naira . This puzzles industrialist entrepreneurs and needy businesses especially the inability to secure 70 % of funding not to talk of 100 percent financing .And upon dilution of ownership holdings still expect capital appreciation above money market rates annually .Institutional apathy was aggravated even in the post consolidation era .According to Nigeria export promotion council [NEPC] only blue chip companies still enjoyed unbridled access to credit lines with reduced interest rates and not SMEs despite increased liquidity in the system after consolidation .Going by this historical and technical background the scheme is an elitist one and not one for the masses and the interest rates for SMEs are in double digits as opposed to single digits for prime borrowers in the economy .
On a more serious note how do they classify or define SMEs in the OECD region . The Small Business Administration in the United States defines it as ‘independently owned ’entity and ‘operated for profit but is not dominant in its area of operation ’ . In the same vein companies in Britain are controlled by company act 1948-1981. The 1981 act stipulates and designates certain companies small and medium .The former having a turnover of more than 1million pounds or 1.4 million pounds p.a., asset less than 700,000 pounds with less than 50 people under employ .These companies are independently owned like in America and are mandated not to reveal turnover and profit to the public .
In the same way with the Medium companies which have turnover less than 5.75 million pounds ,assets less than 2.8 million pounds and employ less than 250 people . No outside interest is in involved .This liberal lending policy encourages their economy to grow .Today there are approximately 23 million of such businesses in America jointly employing more than 80 percent of national private workforce contributing more than half to the GDP . Infact according to Economist in 2006 , 99 percent of the 26 million businesses it reported employ not less than 500 workers and were guaranteed loans with no ownership dilution shareholding . This is what makes American economy thick rather than the bulge bracket companies that we do focus upon .SMEs are the secrets to her wealth as a dominant force in the international community.
It is a common knowledge that this policies lack grass root sensitivity . In the capital market the objectives of 2nd tier capital market could not be achieved and the 3rd tier capital market or exchange that came later followed similar fate .The launch of new alternative investment market [AIM/PRIPEX] with insensitive and inadequate structure in a bad system is bound to follow the same vomit .
This is also evident in another new initiative to revive the conduct of SMEs in the country . The federal government pumped 500billion to the Bank of INDUSTRY to develop real sector and 200billion naira to develop agriculture and manufacturing managed by elitist banks .Infact, like we earlier admitted the requirement is too stringent , majority of SMEs and the lower cadres will still be left behind and not catered .They do not have direction and the policies are not broad based reinforces the propensity of development arbitraging –that is only very few will be benefited , leaving majority of SMEs behind .
The requirement for accessing loans with NERFUND , BOI ,the capital market , the insurance sector or any DFIs are too elitist . The latest 200billion SME credit guarantee scheme [SMECGS] to promote credit access to SMEs and manufacturers which would be funded 100% and managed by CBN is to begin Nigeria ’s quest towards industrialization .The fund is 80 percent guaranteed by CBN .Good ! But what about the requirement ? The manufacturing and agricultural value chain and SMEs assets shall not exceed more than 300million naira employing between 11-300 persons . Good !That is too bad and not different from previous policies
Certainly, sustainability also , will be a great future challenge and the domestication of the initiative in the language of the grass root need to be considered .The investment conscious self centered parochialism of the local banks might stalled the beautiful initiative .Moreso , MFBs as the right institutions for the fund to be channeled are being bypassed .This could have been solely managed by them or in a separate financial system with ancillary grass root conscious institutions .
We STILL find it hard to apprehend that for every incentive provided by federal government to banks to lend to SMEs has often met brick wall . They not only demonstrated a discernible degree of reluctance against SMEs but also dubbed them as ‘HIGH RISK ’ . Hence a no go area . The CBN credit guidelines for banks as earlier emphasized to lend a given proportion of their loans and advances to SMEs especially agriculture started in 1979 .It was also 10 percent then and was subsequently raised to 16 % .Similarly in 1982 ,1983, 1984 and 1985 ,loans and advances to SMEs stood at 206.7million naira , 351.30 m, 345.3 million naira and 977.2 naira respectively in a percentage allocation of 2.0 , 3.1 and 7.9%.
Some of the problems faced by banks in advancing loans to SMEs include the high mortality rate in the sector . According to a research reports by industrial research unit of OAU revealed lack of integrity in operation of such loans and Since they are dubbed a high risk enterprise , loans to SMEs are accorded low priorities in the lending scheme . The problem of adequately trained personnel is another bone of contention . Inadequate skilled lab our and the owners are people with little specialized skill or expertise neither do they have capacity or finances to hire expert to manage the business either part time or full time .
The consequence is that they are used to producing faulty and insufficient records .About 50 % of SMEs keep profit and loss account and appropriate balance sheet on a regular basis ..The media research shows that these lack of records or inadequacy in record keeping ordinarily influences lack of financial assistance from banks .The inability to survive competition and the resultant low efficiency can be deduced as natural consequence of poor book keeping or inadequate record .keeping .
Although mismanagement is another problem the above factor can also be regarded as part of mismanagement since information is the livewire and blood system of an enterprise . Lack of adequate planning indicates in that case they are not mentally represented and poor administration are common management problems . Poor marketing policies with no adequate strategies and inadequate information can be waterloo to business continuity and especially at death of the original owner , perpetuation of business becomes practically impossible , due to lack of previous documentation that could be instrumental to business continuity .
Cash and stock are taken away at ease and for aggrandizement .These are not recorded if taken as loans not refunded .No transparency no accountability .Rather than paying themselves salaries from their businesses or return missing goods and cash the exuberance indulgence of the day truncates a potential business that could have changed their communities and touch many lives , it is a usual thing to mix their personal money with their business wealth and then in the long run the trade experiences liquidity problems . Funny enough most of these businesses are not registered business and doing business with unregistered businesses is illegal .
Besides the problem of loan misapplication common among SMEs the problem of loan repayment as a result of accumulation of arrears is another teething lending disincentive . Loans are sometimes not repaid at all even where business is generating sufficient funds to liquidate the amount borrowed or not repaid on a scheduled basis . The misuse and the misappropriation of funds and the failure to repay the principal let the alone the interest reduced the capacity of lenders to go round another classes of people reducing banks confidence for a prospective loans.
Most SMEs are highly undercapitalized and suffered from inadequacy of capital and unable to raise money from capital market due to inability to meet the stringent requirement of the exchange .
The loan recovery disability and inherent threats above all is the leading factor in the business hardship . Banks could hardly monitor loans let alone recover fund after lending .They are interested only in their money and hardly interested in personal advice to clients relegating SMEs welfare to the backburner .A banker is only interested in loan legal action when matters have degenerated . Without cooperation with the SMEs the safety of the loans may always be in doubt. Credit risk management expertise is grossly lacking in Nigerian banks and a major bane in this dilemma .There is no doubt lack of innovation is the central predicament in the Nigerian banking system and must apprehend this fact that the pace at which SMEs grow determines the pace at which the economy grows .
Unfortunately the outlook for the sector is bleak across the board .As the country prepares to join the top 20 biggest economies by 2020 and planning to grow by 13—15 percent SMEs sector is omitted and not factored in the project .Serious attention to it is recommended if we are to attain the perennially elusive development goals of SMEs project since 60s .MASAP projects resolved this hurdle as it does for micro enterprises .
Micro enterprises in most economies constitute the major plank of the informal productive sector and vital empowerment sources of a nation . When neglected most economies fail to grow . They operate in the urban areas and the rural communities at a very small scale [Drake and Otterro :1992] . Majority of the new workforce in the urban centers were consumed by micro enterprises . It is seen as the last line of defense in the economy the first and the last hedges of employment sources and ultimate bridge between the formal sector and the economy .
While micro enterprises accounted for half the labour force in Lagos alone ,it represented 30 % in Kenya in the 70s and the 80s ( Sethuraman :1981),it is as high as 50% in some African countries . It is generally proven that every morning 600 million people go to work for themselves . and often consist of a larger workforce in the developing countries [UNDP:1997; 2] . Most job losses in the informal sector were provided by this self propelling forces for sustainable economic growth .It was provided to have provided close to 14million jobs between 1992—2000 [Halverson Quevedo : 1992; 9 ] .As noted by Lubell and Zarour [1990:395] in the study of Senegalese formal sector that due to government harsh measures rose to become the saving grace indeed of the country ’s formal sector job losses .
Writing in the book, Microfinance and Economic Activity’ , Emeka Osuji concluded ‘many economies are not growing at all .At best ,they are static if not contracting .Various policy experiments in countries like Nigeria are taking toll on formal sector employment’ .What would have been the fate of this people loosing their jobs on a daily basis .To grow their activity is to grow the economic prosperity in the long run creating friendly marketing incentives to appropriately price development into sustainability . This corroborated Napoleon Bonaparte ’ s that the true worth of the state consists in the number of its inhabitants in their toils and lab our .and industry’.
In Nigeria today there are approximately 90 million micro entrepreneurs and being greatly marginalized by mainstream banks or financial institutions meant a dampener on economic growth . Moreover according to Okinmadewa [1997] and reappraised by Adeola [2001] in the schematic segmentation of poorer classes in the country classified them into three classes mainly : entrepreneurial poor ,Labouring poor , self employed poor and vulnerable poor . The first class and type include the upper low and the middle income earners who were forced to operate micro an small business due to harsh due to harsh economic climate ; mechanic shops hairdressing salons , displaced workers , artisans , and unemployed graduates .
The self employed poor are dependent on the first class for their survival or livelihood . They include street hawkers vendors , petty traders , shoe blackers or polishers and mechanics .The third class constitutes the largest category and population of the poor in the country including security men ,gardeners ,household workers , conductors and street hawkers . They are manual daily paid workers in the rural and urban areas .The least being the vulnerable poor who actually are those that demand social support programmes designated with safety nets . From the invalids to the women and children falls into this class .At this category the female headed household are a potential micro entrepreneurial resources and may demand for creditor loans like other classes for set up and for expansion .
The author affirmed in the piece Microfinance , Micro enterprises and the economy a postscript in National Mirror [Jan.11,2008 ] that apart from entrepreneurial poor, with a bit of attention ,none of the poorer classes are well catered and adequately represented …..especially even with the coming of microfinance banks in Nigeria. He concluded the lending policy being illiberal lacks grass root content .Again, ‘Micro enterprises’ according to Osuji [2006] ‘are often full time activities which provide the primary sources of employment and income for the operator and the dependents . These business units have been described as the economic activities of the poor because of the predominance of the poor in running them’ . And due to increasing retrenchment in the formal sector the people have now taken their fate in their hands finding relief on the other end of the spectrum most ignored by elitist policy makers and politicians ..This insensitivity is a major factor behind prevalence of poverty in the country .
Today approximately 15 million Nigerian graduates roamed the streets with no jobs no skills and no means of survival in a country in which 90 % are poor should we use UNDP poverty profile concept . This is no giant of Africa and funny enough according to one man is indeed a cockroach of Africa .The mainstream market is elitist they need to find their bearing with appropriate system .
As we earlier emphasized the development of small medium enterprises scheme popularly known as Small and Medium Industries Equity Investment Scheme [SMIEIS ] was a product launched in partnership with CBN in 2001 for acceleration of development in the sector .Each participating bank is expected to monitor, guide and nurture the enterprises and for ease of administration, each institution shall have small scale industries unit with responsibility to appraise and recommend relevant SSI proposal . To also monitor compliance other criteria required are :
1.Rendition of quarterly returns ;
2. Rendition of full particulars of acquisitions any SSI shareholdings in any SMEs .; [Note: the acquisition mentality here and non-liberal lending policies here was a major defect in the scheme contrary to free loans with no dilution attachment in developed region .]
3. This must be undertaken within 21 days of the acquisition .
In collaboration with United Nations Development Programme [UNDP] the national policy for the development of MSMEs took off in 2007 .subject to approval by federal executive council [FEC] on may 9 ,2007 . Prior to take off attempts at entrepreneurial development were haphazardly implemented and was meant to be a widely accepted policy document to develop the sector .What was earlier started as a scheme was later formed and transformed into an institution with the coming of SMEDAN to provide direction and fill existing institutional vacuum . The earlier scheme according to media reports by 2006 had created some 500,000 jobs and invested the sum of 18.1 billion naira or 47 .3 percent of the total amount of 40 billion naira that covered in 258 projects. This cut across 24 states of the federation including FCT with the real sector and tourism consuming larger chunk of the money .
Though this is worthwhile but nevertheless paled into insignificance the escalating demand for loan that financial standard -a local publication estimated at 438billion naira [March 1,2004 ] .More so as the stringent requirement during the period for accessing the loan or cheap finance had stalled the lofty goals behind the scheme which was meant to be temporary pending the maturity of microfinance banks .Only few fund managers distributed reasonable percentage to the needy sectors investing in trading and merchandising contrary to requirement ..
The coming of SMEDAN with its broad strategic policies touched key programmes’ issues .In the study by Obajaja [2008] this included land use planning ,contract enforcement ,property rights, tax administration and dispute resolution . While second area or sector touches research and development and technology the third covers extension services and support services .Infrastructure , marketing and finance fall in the last section .Micro food processing , arts and crafts in the cottage level ,textile and clothing , metal fabrication ,basic metal, electronic, InfoTech, leather and leather products , construction ,physically challenged people , HIV/AIDS, Furniture and solid minerals etc are classified as quick win situation under special target enterprises [STE] . These are the legal institutional and regulatory framework covered under the SMEDAN national policy document .
Policy analysts such as Obajaja among others have contended Inadequacies in the legal and regulatory framework persisted with the emergence of SMEDAN inhibiting the growth of this sector .inadequacy in property rights ,poor bankruptcy laws and leasing contracts, incompetence judicial system such as inadequate enforcement of prevailing laws and commercial contracts .This is regarded as legal instability common all over the world , increasing corruption and lack of commercial law , poor or lack of antitrust laws or with no periodical review . To redeem collateral may take one year or two .The challenges facing government at this stage include can be solved by tackling :
1. inadequate capacity building
2. poor coordination between various forms of government
3. World bank MSMEs efforts towards intergration of tax and business registration procedures reducing corporate registration, transaction costs , improvement of leasing regulatory framework and development of alternative dispute resolution mechanisms etc put together is grossly without a direction and a national financial system to complement mainstream market in redistributionist multiple financial system . The micro financial system should cater for the poor and the highly underserved grass root market and informal sector economy wits political legal social and economical complexes
4. Above all what started as a scheme later into an institution [SMEDAN] can now metamorphose with allied institutions and regulatory agencies and subsidiaries into a national micro financial system .One for the poor and the other elitist for the rich with different rules since their thinking nature and orientation are different which could also engage in cross border domestic investment for national development .
As a result of this unrealizable proportion, the inadequacies in the legal institutional and regulatory framework had persisted for a long time and not supportive of MSMEs and can never be supportive of the sector .. .There is no appropriate legal and regulatory frame work that can be created unless this challenge is surmounted .Laws regulation access to finance growth incentives, basic legal protection and investors confidence can easily be protected .
This is vital for Nigeria and the rest of developing territories when taken into consideration the peculiar characteristics and the kind of development impediment facing these territories in the global markets . Effective use of capital mobilized into SMEs will be based on the nature of unique development system . There is no need to replicate foreign regulatory environment in NIGERIA or an attempt to agree with international best practice . This system will determine the nature of laws and regulation s and institutions that will stimulate SMEs and Micro enterprises needy access to cheap finance .. The entire laws guiding the sector must be reviewed and introducing new ones tailored to the needs of the grassroots through which they were designed .The aims of the system includes;
1.Make every willing economically active Nigerian self sustain ant and a micro capitalist.
2. Abolish prevalence of mass poverty .
3. Make government activity felt in the grass root ;
4.Develop informal sector market economy with distinctive model;
5. Above all, ensure universal prosperity for the people and not capitalist prosperity for the few .
Smedan did recognize the importance of MSMEs in an economy especially its clime in which the marginalized MSMEs do not have access to finance even though it contributes 70 percent of working population and 50 percent of GDP .Given the fact that it has a better structure is still far inadequate to tackle myriad of challenges in the industry To make the matters worse ,definitely it does not have appropriate strategy to reach out to them ,even though it claimed to do so .According to the Director general Muhammad Nadada the strategy to touch the sector rested largely in its partnership with NERFUND and MFBs that are already near comatose and dead entities among others to execute the plan of going round these classes .Reorganizing Smedan with similar allied bodies and instutions into a coherent system is a panacea to the brewing storm . It will take care of 90million microenterpreneurs left unattended to by the latest SMECGS . A system that caters for all .
With this ideology and adoption of neo Marxist free market economy as the most inclusive free market model [new generation—dual band ] ever contrived by man with its peculiar Para --macroeconomic models is a foolproof for every willing Nigerian to become a capitalist and a salvation crusade especially for the developing region. The GDP can grow conservatively on the average 100 times to more than 20 trillion prior to maturity of Vision 2020 rather than the lethargic projection of 800—900 billion dollars [which already driven by oil and no productive activities included if persisted can notch 1 trillion dollars by 2020.How much more with the inclusion value added technological services] in a period in which China alone if adopted this model could grow or be far bigger than the present size of world GDP .Our leaders are blind .They can not see nor distinguish between black or white .That is their glory –a great ignorance and they cherish it shamefully fighting in the house.
This rough calculation does not include other markets noted in Nigeria nor even a full analysis of microfinance vs. population market but noted briefly the spread in government activities over the informal sector while allowing informal sector to retain its clumsy nature helping to refine and polish it and being guided with relevant rules suitable to development of the grass root and orientation of the poor .It means in a decade or within 20 years the nation can catch up with America .Economists and myopic policy makers may ask : Are you crazy ? But that is the gospel .It means in a decade based on the seriousness of political capital or state will the Nigeria could become a world leader but we are perpetually such an unserious nation .In a decade period the U. S. GDP can never be more than 30 trillion let alone 40 trillion based on the rate at which it is growing and the available macroeconomic model being used which is outdated or has outlived its model utility curve .
Moreso as it has reached a saturation level or its peak .In the next 50 years whether the model is adopted or not none of the advanced countries will be among the world leading economies even with their weapon of mass destruction .It will be worse should this solution be adopted .
Nigeria has potential to shoot even higher if we include all other identified markets and we carefully embrace local content and extremely domesticate local capital and nurture community and sovereign wealth funds around the world .Take a look at Lagos or Delta unarguably the richest states in the country , they should be able control GDP of say 15 or 10 trillion dollars . Lagos does not need an introduction again as a popular state with a GDP of less than 4 trillion naira .But the natural gas in Delta state alone over 40 trillion scf . is far richer than similar wealth in the U.S. in the United States put together .At least we can a feel how richer it could be if tapped or exploited . Unfortunately by 2006 it was reported Nigeria had lost over 100 billion dollars since commercial production started in Oloibiri in 1960s –more than 12trillion naira at conservative prices .Nigeria is loosing trillion of dollars [not naira-get it right ] due to ongoing capital flight crisis and highly retarded capacity building since independence .Such model can also make the nation sensitive to this missing link .
This is NIGERIA time to SHINE as late comers to development like elsewhere in the developing countries .Let us forget sentiment and adopt this model .We are building economy without tears or economy made easy for all irrespective of social status, tribes, races and diverse culture and nationalities is a unifier and especially explores the nation ’ s unique demography . It banishes social political and economic instability ,zeroing in on crisis eliminate armed robbery social inequality resolve every social disease and make the nation safer to live and secure to refuge or abode . What else again do we want ? or Are we waiting for ?

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