Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact
The solution is an improved modified method used by People’s Bank of Nigeria in the 1990s in Nigeria to grant loans to small scale traders. A low interest specialized bank tailored to meet the cheap credit needs of SMEs is very important as research as shown that interest rates above 9% makes it impossible for businesses to survive and meet their loan repayment obligation (Stiglitz, 2002, Agrawal, 2004). This scheme would impact positively on the financial performance of SMEs since high interest rates in Nigeria negatively affect the return on investment (ROI) of SMEs (Obokoh, 2009). It was demonstrated in the study that high interest rates affected the ROI of all the SMEs that participated in the study with the ones with debt obligation worse hit by financial charges. So a low interest rate credits tailored towards SMEs would improve the survival chances of SMEs especially those in their early stage.
Currently, the microfinance scheme just introduced by the CBN, involves a lot of paper work. This problem will be reduced if not eliminated by the group’s application method because each group is able to fine tune the requirements for the loans application before they approach the disbursing agency for the funds. This method reduces the administrative cost of monitoring creditors after the loans must have been granted as members do the monitoring to ensure repayment of the loans by members.
How many firms do you expect to reach?
As many SMEs that exhibit positive growth potentials and who are within cluster/peer group that are able to monitor member’s efforts towards the repayment of their credits. The scheme is a national low credit scheme and would be able to accommodate as many SMEs that are able to meet the criteria for credits.
What is the volume of private SME finance you aim to catalyze?
The scheme would be able to catalyze large volume of private SMEs finance because they are expected to deposit the proceeds of their sales/save the banks. The deposits would in turn earn interest rates on the amount deposited. The disbursing agencies would help to mobilize funds for investment
What time frame will be required to reach these targets?
The time frame for this proposal should be flexible to accommodate new start-up SMEs that may require some period of moratorium to commence loan repayment. Some SMEs may require the credit for working capital which gives them a different time frame.
What would prevent your solution from being a success?
The success of the proposal is predicated on getting government to guarantee the funds and securing private funding from Non-Governmental Organizations (NGO). In addition, there must favourable economic environment in terms of provision of infrastructure by the government because the loans should be for working capital or purchase of manufacturing equipment and not for the self-provision of power for their operation.