A Comparative study of SMEs in Nigeria and India


During the 2005 commissioning of SMEDAN headquarters in Abuja, then-president Olusegun Obasanjo called on CBN to ensure optimal functioning of SMIEIS and other SME-friendly banks like the Bank of Industry (BOI) and Nigerian Agricultural Cooperative & Rural Development Bank (NACRDB). Subsequent reforms in the banking sector, which was expected to boost performance of SMEs in Nigeria in line with objectives of the National Economic Empowerment and Development Strategy (NEEDS), stimulated growth in different sectors of the economy. In light of these policy initiatives, including the achievements, problems and potentials of SMEs in Nigeria, here is a brief comparison with India:

Small and Medium-scale Enterprises in India

SMEs in India refer to Small Scale Industries (SSIs), which comprise of over 95% of industrial firms and provide around 50% of GDP.

As a reliable developmental tool, SSIs in India account for over 80% of total jobs in the industrial sector and about 40% of total exports, with increasing contributions to national economic development objectives since early 1990s. By 2000, implementation of strategic policies increased SSI jobs to about 3 million and the workforce rose by 18 million. In the same year, total production value and export volume documented in the sector reached $110bn and $10bn respectively (Onugu., 2005).

Comparisons between Nigeria and India:

Nigeria and India.jpg

Definition: SMEs employ between 10 and 300 workers, with working capital not exceeding ₦200m, minus investments in real estate. SSIs are business establishments in manufacturing, processing or goods-preservation industries, including investments in equipment valued below $210,000.

A noticeable difference in both countries is that India does not recognise medium-scale enterprises. In addition, real sector in the South Asian country excludes services and commerce.

Credit: Nigerians SMEs obtain credit facilities from World Bank-assisted programmes, development banks and special institutions at minimal interest rates. India operates a multi-agency credit system which shares responsibilities between commercial banks and formal lending institutions. While commercial banks in India provide working capital, its counterpart handles short, medium and long-term loans.

Funding: Although SMEs are no longer mandated to document a minimum amount of annual credits received from lending institutions, banks are mandated to invest its “non-taxable” 10% of yearly profits in SME development projects. In India, 60% of total yearly credits offered by banks are channelled to SSIs.

Funds management: SME funds in Nigeria are administered by venture capital managers or through subsidiaries whereas credits received by SSIs are flexible, non-collateral-based and driven by needs.

Business structure: Nigerian SMEs are compulsorily registered as Limited Liability Companies (LLC) whereas entrepreneurs in India’s SSIs are allowed to operate as proprietors, partnerships or LLC.

Incentives: Apart from the tax-free 10% from Nigerian banks, BOI offers major credit facilities to SMEs while the Nigerian Export-Import Bank (NEXIM) provides only soft loans to export-oriented enterprises.

On the other hand, SSIs operate with a well-structured credit system. Loans are offered on soft-lending terms, with subsidies on sales tax, excise duties, capital investment, transport etc. Additionally, SSIs need credit guarantees for issued loans.