Financial Literacy: The struggle of the Nigerian SME

Financial literacy is defined as being educated about money and finance, with a special focus on an individual’s and institution’s finances. Being financially literate enables you to make smarter money management decisions that leads directly to a financially secure future, one that protects the assets built by you.

Financial issues that come into play for the average Nigerian entrepreneur includes budgeting, spending, debt, taxes etc.

With the growing and rapid changes in developments in the financial sector and the broader economy, it is important to understand whether the average Nigerian entrepreneur is equipped to effectively navigate the maze of business financial decisions that they face every day.

Many Nigerian SME and MSME entrepreneurs lack financial literacy skills to build and sustain their businesses — from the “2018 Nigerian MSME Financial Literacy Survey by FATE Foundation”. A wider provision of financial literacy skills would strengthen the SME and MSME base, leading to stronger businesses, with business leaders/owners who are better able to plan and manage their firms, and more capable of raising finance for their future development. Entrepreneurs who have attended financial literacy training have benefited from doing so and applied what they learned by improving record keeping and financial planning.

Nigeria is blessed with a strong entrepreneurial culture and can rightly be referred to as one of Africa’s leading entrepreneurship hubs. Despite the inherent benefits in this large pool of MSMEs, their viability and growth are continually threatened by a number of factors that have a strong correlation with capacity limitation in general and poor financial literacy in particular. Financially literate entrepreneurs are more likely to better manage their businesses leading to their growth and success,

An important mandate of the Central Bank of Nigeria (CBN) is the promotion of a sound financial system in Nigeria. A key aspect of this function is the entrenchment of effective consumer protection regimes that not only protect the rights of consumers but also engender public confidence in the financial system.

Benefits Of A Financially Literate Nigerian Population

Financial literacy enables entrepreneurs to plan, manage financial risk, cash flow, identify and seek appropriate financial support. According to the Adenike Adeyemi (Executive Director, FATE Foundation) at the FATE Foundation 4th Annual Policy Dialogue “ financial literacy is not effectively emphasized in the Nigerian curriculum at the post-basic and tertiary level, most entrepreneurs often struggle with understanding the financial rudiments of running a sustainable business. Most of them cannot do record keeping, cash flow management, preparing projections and taxation,”

Financially literate business owners would be beneficial to themselves, the financial institutions/providers and the larger economy in the following ways;

1. Better equipped to make optimal choices in the use of financial products;
2. Pose lower credit and default risk;
3. Constitute a market for sustainable financial services & Products;
4. Promote Financial System Stability by Increasing market demand, and responsible use of financial services.