Government, Bank, and Private Capital Financing of Entrepreneurial Firms in Nigeria

Abstract

This chapter identifies three sources of debt financing for small and medium-sized enterprises (SMEs) in Nigeria, namely government, bank, and private debt financing. In each case, brief historical account of key developments was provided to highlight prospects and challenges in servicing entrepreneurial firms. Two key milestones were considered transcendental and used as parameters for the review. They are financial sector liberalisation (1986) and banking sector consolidation (2004). The chapter is divided into five sections. Section one introduces banking reforms in Nigeria and relates the origin of banking to the need to grow entrepreneurship. Section two describes stages of government’s direct involvement in credit allocation and in strengthening the institutional frameworks for extending credit to SMEs. Section three reviews banks’ institutional strengthening mechanisms and available windows for SME financing. Section four identifies two segments of private debt financing: finance companies, and mezzanine fund, and reviews their capacity to fund entrepreneurial firms. Finally, section five concludes among others that financial liberalisation and bank consolidation have not significantly improved access to finance for start-ups.