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.

An Overview of Small and Medium-scale Enterprises (SMEs) in Nigeria






SMEs stimulate economic development by facilitating productive activities in different sectors of the economy. It increases National Income (NI) and enables equitable distribution of wealth through employment, industrial linkages, export promotion and value creation for investors, customers and stakeholders, including the three tiers of government (Eniola & Ektebang., 2014). Although entrepreneurs in different business settings have varied opinions about SMEs, their understanding or misconceptions about commerce, in most cases, determine which firms survive and those that go extinct (Jaouen & Lasch., 2015). Further on business performance, Wennberg and DeTienne (2014) pointed out that closure of SMEs in developed or developing countries are often misconstrued despite their invaluable contributions as drivers of economic growth.

The SME sector is crucial to Nigeria’s GDP growth (Okon & Edet., 2016). However, poor financial management strategies, ignorance of new developments in global markets, ineffective government policies and inadequate infrastructure (roads, electricity, ICT etc) are some of the challenges responsible for SME failures in Nigeria (Karadag., 2015). According to Aujayeb-Rogbeer et al (2015), other factors that hamper growth of small businesses include religion, cultural beliefs and tradition in some parts of the country where women are forbidden to trade or hold administrative positions in offices (Dey., 19750. To revitalize SMEs and infuse competitiveness in the sector, these challenges demand urgent attention from policymakers.

Findings from Gbandi and Amissah (2014) show that SMEs are categorized under small, medium or large-scale industries depending on the number of employees and assets. For example, SMEDAN viewed small businesses as companies with less than fifty workers and capital assets below ₦500,000.00; the Ministry of Industry and Trade (MITI) cited a cash/working capital above ₦5 million but not more than ₦50 million, suggesting that use of employees as a criterion should be avoided to eliminate confusion during economic recession periods; and BOI defined SMEs as registered business outfits with ₦750,000 allowed as the maximum value of cash investment. CBN, however, excluded investments in real estate but recognized SMEs as businesses with less than 50 permanent-contract employees and assets valued below ₦1 million.

Further, medium-scale industries refer to companies functioning with less than 100 permanent-contract workers and less than ₦50 million in total assets. Despite the varied interpretations of SMEs, it is agreed that small-scale industries operate with less than fifty permanent-contract employees whereas medium-scale companies cannot employ more than 100 full-time staff (Juliana., 2013).

Figure 2: Classification of Micro, Small and Medium-scale Enterprises


Source: National Policy of MSMEs (2006)