THE ROLE INSURANCE IN NIGERIAN ECONOMY

This sector represents the backbone of Nigeria's risk management system, ensures
financial security, serves as an important component in the financial intermedi
ation chain, and offers a ready source of long term capital for the infrastructu
re projects. The role of insurance in the growth and development of our economy
cannot be over-emphasized.it mitigates the impact of risk and positively correla
tes to growth as entrepreneurs cover their exposures, otherwise risk-taking abil
ities are hampered. Thus, a strong and competitive insurance industry is a compe
lling imperative for Nigeria's economic development and growth.
The Nigerian macro-economy overview is a compelling story of progression and adv
ancement, attributably to a stable political environment and successful implemen
tation of socio-economic and financial reforms. Though Nigeria has previously be
en extremely dependent on Oil and Gas revenue, recent statistics show a change i
n this trend. Militants unrest affecting oil producing region have resulted in s
ignificant reductions in oil contributions to GDP. On this flip side, increasing
focus on developing the non- oil sector, combined with growth in key sectors su
ch as Telecoms and Building Construction have boosted non-oil sector earnings an
d growth.
As at Aug. 2005, prior to the announcement of the recapitalization directives, t
here were 22 insurance companies with a market capitalization of N28.94 billion
listed on the Nigeria Stock Exchange. Now there are 26 active companies with a m
arket capitalization of N683.1 billion, a 2,260% growth over two and half years,
with quite a few still expected to be listed this year.
The Nigerian Insurance Industry has evolved over the years following the announc
ement of new capitalization requirements for companies operating the sector. Wit
h the conclusion of the consolidation exercise, the number of players dropped fr
om 103 to 49. Activities in the sector , however, noticeably increased; with enh
anced public awareness of the sector and their operations, rapid expansions and
strategic business acquisition, improved visibility and strict supervisory regul
ations.
Therefore, in anticipation of the enormity of responsibility of the insurance se
ctor, given the expected role in the transformation of the nation's economy, the
reform in the sector became inevitable. One of the major outcomes of the consol
idation and recapitalization exercise in the sector was the recertification of 4
9 companies, as against over 100 companies that were in existence in 2005. Howev
er, in spite of the reforms, the insurance sector is still faced with daunting c
hallenges, which must be addressed to galvanize the economy.
The growth of this sector was on how effectively the insurers are able to come u
p with designs suitable to our context and how effectively they are able to chan
ge the perceptions of Nigerians and make them aware of the insurable risks. The
growth also depended on how service -oriented insurers are going to be, and the
effective ness of the regulation. In recent times, NICOM has taken the bold step
s the release of trapped funding to the sector, in the verification and recertif
ication of insurance firms, in ensuring that claims are better scrutinized and i
n guidance note as well as corporate governance.
The following functions were injected into the economy by the sector in order to
better the lot of Nigerian Economy;
a. Provision of indemnity/ compensation: as professional risk bearer that have e
ntered into a contract of insurance with the insured that regularly pays his pre
mium, it believes on the insurance company to indemnify if the insured peril occ
urs. When indemnified, it cushions the effect of loss suffered by the insured.
b. Reduction of losses: through the payment of indemnity, losses suffered are re
duced, making it possible for the sufferer to start again his business.
c. Distribution or sharing of financial loss: insurance operations enable loss o
r losses to be distributed among different contributors that mean insurers who n
ormally pay their premium regularly. These insurer contributions or premium norm
ally grow to form what is known as a "pool" of financial resources. If any insur
ed peril occurs, compensation or indemnification is effected from this common po
ol. Payment made from this common pool signifies or infers that the loss has bee
n distributed among the various premium payers. Infect, the loss burden has been
 borne collectively.
d. Confidence in investment: insurance has directly stimulated investment in var
ious fields of human endeavors. Any investor who remembers that he is going to b
e indemnified if the insured peril occurs will be willing and confident to put m
ore funds in his business or even expand his business.
e. Provision of employment: normally, insurers and insured provide job opportuni
ties to the citizenry. The insurance companies do employ additional hands as the
ir business increases, while investors who take insurance protections are confid
ent to invest and or expand their business. By so doing they equally employ peop
le to work for them.
f. Increase in investment: taking insurance polices to serve as boost to investo
rs and entrepreneurs, various fields of business that are looked upon as very ri
sky are being ventured into, meaning that with introduction of insurance many pe
ople are investing without fear of losing their capital.
g. Mobilization of financial resources: different participants in insurance busi
ness/ classes of insurance normally pay their consideration/ premium. These insu
rers mobilize these funds which they utilizes to indemnify losses. Some of these
funds are usually invested in other variable businesses or companies. For examp
le, the mobilized fund may be used to buy shares of a blue chip company, attract
ing dividend to the insurance company yearly.
h. Industrial growth and economic development: insurance business do stimulate e
ntrepreneur to invest, expand, and diversify their various business. By so doing
, they are contributing to the over all industrial, commercial and economic deve
lopment of the nation.

Small & Medium Scale Enterprises and Funding in Nigeria

NIGERIAN ECONOMY DEPENDS ON THE RECOGNITION OF SMEs
Historical facts show that prior to the late 19th century, cottage industries, m
ostly small and medium scale businesses controlled the economy of Europe. The in
dustrial revolution changed the status quo and introduced mass production. The t
win oil shocks during the 1970s undermined the mass production model, which trig
gered an unexpected reappraisal of the role and importance of small and medium s
ized enterprises in the global economy. Findings by economists over the years sh
ow that small firms and entrepreneurships play a much more important role in eco
nomic growth and development.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small
businesses. They are seen to be characterised by dynamism, witty innovations, e
fficiency, and their small size allows for faster decision-making process. Gover
nments all over the world have realised the importance of this category of compa
nies and have formulated comprehensive public policies to encourage, support and
fund the establishment of SME's. Developments in small and medium enterprise ar
e a sin quo non for employment generation, solid entrepreneurial base and encour
agement for the use of local raw materials and technology.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam M
ohammed Hayatu Deen, titled "Stakeholders Roles and the Development Benefits in
a Virile Small Enterprise Sector", pointed out that small business operations ar
e propelled by the dynamic theory, which makes them efficient and prone to const
ant change. He gave a comparative statistic using 9 developed countries on how S
MEs create employment, increase job growth, induce change, innovation and compet
ition.
Benefits of the SME
The benefits of SME's to any economy are easily noticeable, they include: contri
bution to the economy in terms of output of goods and services; creation of jobs
at relatively low capital cost, especially in the fast growing service sector;
provide a vehicle for reducing income disparities; develop a pool of skilled and
 semi-skilled workers as a basis for the future industrial expansion; improve fo
rward and backward linkages between economically, socially and geographically di
verse sectors of the economy; provide opportunities for developing and adapting
appropriate technological approaches; offer an excellent breeding ground for ent
repreneurial and managerial talent, the critical shortage of which is often a gr
eat handicap to economic development, among others.
Challenges faced by SME s in Nigeria
The challenges facing SME's in many developing countries are monumental. The mos
t worrying among these challenges is funding. Most new small business enterprise
s are not very attractive prospects for banks, as they want to minimise their ri
sk profile. In Nigeria, the situation is not very different, until recently when
the Banker's Committee intervened in 2001 with a scheme themed the Small and Me
dium Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the b
ackground government credit schemes that are not well thought-out and implemente
d.
The SMIEIS Scheme
The Banker's Committee is a body constituted by representatives of banks in Nige
ria. The scheme was approved at their 246th meeting on December 21, 1999. Accord
ing to them, this was a response to President Obasanjo's concern and policy meas
ures for the promotion of small and medium industries (SMI) as a vehicle for rap
id industrialisation, sustainable economic development, poverty alleviation and
employment generation. The scheme requires all banks in Nigeria to set aside 10%
of their profit before tax (PBT) for equity investment in small and medium scal
e industries. The scheme commenced on June 19th 2001.
The scheme aims among other things to assist the establishment of new, viable SM
I projects, thereby stimulating economic growth, development of local technology
, promote indigenous entrepreneurship and generate employment. The funds will be
available for projects in the real sector of the economy which include: agro-al
lied, information technology and telecommunication, manufacturing, educational e
stablishments, services (directly related to production in the real sector or to
enhance production), tourism and leisure, solid minerals, construction, and any
other activity as may be determined from time to time by the Bankers Committee.
To qualify for the scheme, an enterprise, in addition to being engaged in any of
the activities listed above, must have a maximum asset base of N200 million exc
luding land and working capital; with the number of staff employed by the enterp
rise not less than 10 and not more than 300. The enterprise must be registered a
s a limited liability company with the Corporate Affairs Commission and comply w
ith all relevant regulations of the Companies and Allied Matters Act (1990) such
as filing of annual returns including audited financial statement. Comply with
all applicable tax laws and regulations and render regular returns to the approp
riate authorities. Timing of investment exit shall be a minimum of 3 years.
There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Cen
tral Bank of Nigeria (CBN), Bankers Committee and the individual banks, each pla
ying a unique role to ensure the success of the scheme. Available data as at Feb
ruary 2003 indicate that 80 banks have set aside N13.07 billion with 28 banks in
vesting around N2.87 billion based on 67 investments in 47 enterprises.
Alternative Sources of Funding
For small businesses shopping for funding can be quite a Herculean experience. B
ut, recent development like the SMIEIS and some other funding sources are now op
en. One of such is the independent fund manager called the SME Manager Limited (
SML), which is an investment advisory company established by African Capital All
iance (ACA) to promote SME sector-led investments in Nigeria by making equity in
vestments in Nigerian SMEs. Also, available are: the Bank of Industry, the New P
artnership for African Development (NEPAD) initiative and the African Growth and
Opportunity Act, AGOA, of the United States.
Way Forward and Conclusion
Much is expected from the government to provide basic social and infrastructural
facilities to assist small businesses. Nigeria s economic terrain is very const
raining with the focus being concentrated on the big firms which are constantly
down-sizing. Business people that fall in the SME category have frequently accus
ed the banks of providing funding to only their cronies and favoured companies.
But the banks have denied such allegations saying that many of the SMEs cannot m
eet up with banks requirements.
With services sector having 73.1% investments in number and 64.6% of value and L
agos-based investments accruing 86.6% of total number and 87.7% of value, the ba
nks are advised to spread their funds wider. Also, the CBN should monitor closel
y some of the defaulting participating banks in the SMIEIS scheme. On the part o
f government, policies that promote inward induced investment should be encourag
ed far and above
Small & Medium Scale Enterprises and Funding in Nigeria (Posted 25th Aug, 2003)
NIGERIAN ECONOMY DEPENDS ON THE RECOGNITION OF SMEs
Historical facts show that prior to the late 19th century, cottage industries, m
ostly small and medium scale businesses controlled the economy of Europe. The in
dustrial revolution changed the status quo and introduced mass production. The t
win oil shocks during the 1970s undermined the mass production model, which trig
gered an unexpected reappraisal of the role and importance of small and medium s
ized enterprises in the global economy. Findings by economists over the years sh
ow that small firms and entrepreneurships play a much more important role in eco
nomic growth and development.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small
businesses. They are seen to be characterised by dynamism, witty innovations, e
fficiency, and their small size allows for faster decision-making process. Gover
nments all over the world have realised the importance of this category of compa
nies and have formulated comprehensive public policies to encourage, support and
fund the establishment of SME's. Developments in small and medium enterprise ar
e a sin quo non for employment generation, solid entrepreneurial base and encour
agement for the use of local raw materials and technology.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam M
ohammed Hayatu Deen, titled "Stakeholders Roles and the Development Benefits in
a Virile Small Enterprise Sector", pointed out that small business operations ar
e propelled by the dynamic theory, which makes them efficient and prone to const
ant change. He gave a comparative statistic using 9 developed countries on how S
MEs create employment, increase job growth, induce change, innovation and compet
ition.
Benefits of the SME
The benefits of SME's to any economy are easily noticeable, they include: contri
bution to the economy in terms of output of goods and services; creation of jobs
at relatively low capital cost, especially in the fast growing service sector;
provide a vehicle for reducing income disparities; develop a pool of skilled and
semi-skilled workers as a basis for the future industrial expansion; improve fo
rward and backward linkages between economically, socially and geographically di
verse sectors of the economy; provide opportunities for developing and adapting
appropriate technological approaches; offer an excellent breeding ground for ent
repreneurial and managerial talent, the critical shortage of which is often a gr
eat handicap to economic development, among others.
Challenges faced by SME's in Nigeria
The challenges facing SME's in many developing countries are monumental. The mos
t worrying among these challenges is funding. Most new small business enterprise
s are not very attractive prospects for banks, as they want to minimise their ri
sk profile. In Nigeria, the situation is not very different, until recently when
the Banker's Committee intervened in 2001 with a scheme themed the Small and Me
dium Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the b
ackground government credit schemes that are not well thought-out and implemente
d.
The SMIEIS Scheme
The Banker's Committee is a body constituted by representatives of banks in Nige
ria. The scheme was approved at their 246th meeting on December 21, 1999. Accord
ing to them, this was a response to President Obasanjo's concern and policy meas
ures for the promotion of small and medium industries (SMI) as a vehicle for rap
id industrialisation, sustainable economic development, poverty alleviation and
employment generation. The scheme requires all banks in Nigeria to set aside 10%
of their profit before tax (PBT) for equity investment in small and medium scal
e industries. The scheme commenced on June 19th 2001.
The scheme aims among other things to assist the establishment of new, viable SM
I projects, thereby stimulating economic growth, development of local technology
, promote indigenous entrepreneurship and generate employment. The funds will be
available for projects in the real sector of the economy which include: agro-al
lied, information technology and telecommunication, manufacturing, educational e
stablishments, services (directly related to production in the real sector or to
enhance production), tourism and leisure, solid minerals, construction, and any
other activity as may be determined from time to time by the Bankers' Committee
.
To qualify for the scheme, an enterprise, in addition to being engaged in any of
the activities listed above, must have a maximum asset base of N200 million exc
luding land and working capital; with the number of staff employed by the enterp
rise not less than 10 and not more than 300. The enterprise must be registered a
s a limited liability company with the Corporate Affairs Commission and comply w
ith all relevant regulations of the Companies and Allied Matters Act (1990) such
as filing of annual returns including audited financial statement. Comply with
all applicable tax laws and regulations and render regular returns to the approp
riate authorities. Timing of investment exit shall be a minimum of 3 years.
There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Cen
tral Bank of Nigeria (CBN), Bankers' Committee and the individual banks, each pl
aying a unique role to ensure the success of the scheme. Available data as at Fe
bruary 2003 indicate that 80 banks have set aside N13.07 billion with 28 banks i
nvesting around N2.87 billion based on 67 investments in 47 enterprises.
Alternative Sources of Funding
For small businesses shopping for funding can be quite a Herculean experience. B
ut, recent development like the SMIEIS and some other funding sources are now op
en. One of such is the independent fund manager called the SME Manager Limited (
SML), which is an investment advisory company established by African Capital All
iance (ACA) to promote SME sector-led investments in Nigeria by making equity in
vestments in Nigerian SMEs. Also, available are: the Bank of Industry, the New P
artnership for African Development (NEPAD) initiative and the African Growth and
Opportunity Act, AGOA, of the United States.
Way Forward and Conclusion
Much is expected from the government to provide basic social and infrastructural
facilities to assist small businesses. Nigeria's economic terrain is very const
raining with the focus being concentrated on the big firms which are constantly
down-sizing. Business people that fall in the SME category have frequently accus
ed the banks of providing funding to only their cronies and favoured companies.
But the banks have denied such allegations saying that many of the SMEs cannot m
eet up with banks' requirements.
With services sector having 73.1% investments in number and 64.6% of value and L
agos-based investments accruing 86.6% of total number and 87.7% of value, the ba
nks are advised to spread their funds wider. Also, the CBN should monitor closel
y some of the defaulting participating banks in the SMIEIS scheme. On the part o
f government, policies that promote inward induced investment should be encourag
ed far and above
Small & Medium Scale Enterprises and Funding in Nigeria (Posted 25th Aug, 2003)
NIGERIAN ECONOMY DEPENDS ON THE RECOGNITION OF SMEs
Historical facts show that prior to the late 19th century, cottage industries, m
ostly small and medium scale businesses controlled the economy of Europe. The in
dustrial revolution changed the status quo and introduced mass production. The t
win oil shocks during the 1970s undermined the mass production model, which trig
gered an unexpected reappraisal of the role and importance of small and medium s
ized enterprises in the global economy. Findings by economists over the years sh
ow that small firms and entrepreneurships play a much more important role in eco
nomic growth and development.
Importance of SMEs
Many economies, developed and developing have come to realise the value of small
businesses. They are seen to be characterised by dynamism, witty innovations, e
fficiency, and their small size allows for faster decision-making process. Gover
nments all over the world have realised the importance of this category of compa
nies and have formulated comprehensive public policies to encourage, support and
fund the establishment of SME's. Developments in small and medium enterprise ar
e a sin quo non for employment generation, solid entrepreneurial base and encour
agement for the use of local raw materials and technology.
Giving insight into the SME phenomenon, a paper delivered at a forum by Mallam M
ohammed Hayatu Deen, titled "Stakeholders Roles and the Development Benefits in
a Virile Small Enterprise Sector", pointed out that small business operations ar
e propelled by the dynamic theory, which makes them efficient and prone to const
ant change. He gave a comparative statistic using 9 developed countries on how S
MEs create employment, increase job growth, induce change, innovation and compet
ition.
Benefits of the SME
The benefits of SME's to any economy are easily noticeable, they include: contri
bution to the economy in terms of output of goods and services; creation of jobs
at relatively low capital cost, especially in the fast growing service sector;
provide a vehicle for reducing income disparities; develop a pool of skilled and
semi-skilled workers as a basis for the future industrial expansion; improve fo
rward and backward linkages between economically, socially and geographically di
verse sectors of the economy; provide opportunities for developing and adapting
appropriate technological approaches; offer an excellent breeding ground for ent
repreneurial and managerial talent, the critical shortage of which is often a gr
eat handicap to economic development, among others.
Challenges faced by SME's in Nigeria
The challenges facing SME's in many developing countries are monumental. The mos
t worrying among these challenges is funding. Most new small business enterprise
s are not very attractive prospects for banks, as they want to minimise their ri
sk profile. In Nigeria, the situation is not very different, until recently when
the Banker's Committee intervened in 2001 with a scheme themed the Small and Me
dium Industries Equity Investment Scheme (SMIEIS). The scheme relegated to the b
ackground government credit schemes that are not well thought-out and implemente
d.
The SMIEIS Scheme
The Banker's Committee is a body constituted by representatives of banks in Nige
ria. The scheme was approved at their 246th meeting on December 21, 1999. Accord
ing to them, this was a response to President Obasanjo's concern and policy meas
ures for the promotion of small and medium industries (SMI) as a vehicle for rap
id industrialisation, sustainable economic development, poverty alleviation and
employment generation. The scheme requires all banks in Nigeria to set aside 10%
of their profit before tax (PBT) for equity investment in small and medium scal
e industries. The scheme commenced on June 19th 2001.
The scheme aims among other things to assist the establishment of new, viable SM
I projects, thereby stimulating economic growth, development of local technology
, promote indigenous entrepreneurship and generate employment. The funds will be
available for projects in the real sector of the economy which include: agro-al
lied, information technology and telecommunication, manufacturing, educational e
stablishments, services (directly related to production in the real sector or to
enhance production), tourism and leisure, solid minerals, construction, and any
other activity as may be determined from time to time by the Bankers' Committee
.
To qualify for the scheme, an enterprise, in addition to being engaged in any of
the activities listed above, must have a maximum asset base of N200 million exc
luding land and working capital; with the number of staff employed by the enterp
rise not less than 10 and not more than 300. The enterprise must be registered a
s a limited liability company with the Corporate Affairs Commission and comply w
ith all relevant regulations of the Companies and Allied Matters Act (1990) such
as filing of annual returns including audited financial statement. Comply with
all applicable tax laws and regulations and render regular returns to the approp
riate authorities. Timing of investment exit shall be a minimum of 3 years.
There are 4 categories of stakeholders in the SMIEIS scheme, the Government, Cen
tral Bank of Nigeria (CBN), Bankers' Committee and the individual banks, each pl
aying a unique role to ensure the success of the scheme. Available data as at Fe
bruary 2003 indicate that 80 banks have set aside N13.07 billion with 28 banks i
nvesting around N2.87 billion based on 67 investments in 47 enterprises.
Alternative Sources of Funding
For small businesses shopping for funding can be quite a Herculean experience. B
ut, recent development like the SMIEIS and some other funding sources are now op
en. One of such is the independent fund manager called the SME Manager Limited (
SML), which is an investment advisory company established by African Capital All
iance (ACA) to promote SME sector-led investments in Nigeria by making equity in
vestments in Nigerian SMEs. Also, available are: the Bank of Industry, the New P
artnership for African Development (NEPAD) initiative and the African Growth and
Opportunity Act, AGOA, of the United States.
Way Forward and Conclusion
Much is expected from the government to provide basic social and infrastructural
facilities to assist small businesses. Nigeria's economic terrain is very const
raining with the focus being concentrated on the big firms which are constantly
down-sizing. Business people that fall in the SME category have frequently accus
ed the banks of providing funding to only their cronies and favoured companies.
But the banks have denied such allegations saying that many of the SMEs cannot m
eet up with banks' requirements.
With services sector having 73.1% investments in number and 64.6% of value and L
agos-based investments accruing 86.6% of total number and 87.7% of value, the ba
nks are advised to spread their funds wider. Also, the CBN should monitor closel
y some of the defaulting participating banks in the SMIEIS scheme. On the part o
f government, policies that promote inward induced investment should be encourag
ed far and above
This article may be outdated following the current development in Nigeria used a
s context. Though useful, am still working on the supplementaary current roles o
f SMS in Nigeria Economy.
Thanks.