Economy
Why Foreign Investors Avoid Nigerian Stocks—Omordion
Ambrose Omordion is one of the ubiquitous experts providing deep analyses of market trends in the Nigerian capital market. He is the Chief Research Officer (CRO) of Investdata Consulting Limited, leading a team of other experts in the firm.
In this interview with a select media, the capital market guru takes a wide look around the market environment to spot lurking opportunities and risk factors for investors and the economy while hinting the government and market regulators on few tips that can help the market deliver its mandate as an enabler of economic growth. Excerpt:
What is your appraisal of what happened in the Nigerian capital market in 2020?
If you look at what happened in the market in 2020, I’ll say it is something that surprised many analysts and investors. The return was unprecedented because following the outbreak of COVID-19 in Nigeria around February 2020, the market reacted negatively and there was a lot of sell-offs in the market that dropped the market to 11-year’s low by the end of March. This was caused by panic sell-offs.
The outbreak of the pandemic also affected the oil price which fell as low as $12 per barrel, and the market also reacted to that.
But the good thing is that immediately the prices were undervalued, and there was value in the market and the price of crude oil started looking up again in April, market responded because of positive sentiments from the recovery of crude oil price. These are factors that drove the market higher especially in April.
Then, numbers that came in 2019 also supported the market recovery in April because the financial performance of most of the companies beat market expectation. Dividends were still coming and Q1 numbers for many companies were not too bad and that supported the market in April and May.
However, the market slowed down in June because of expected Q2 numbers. And despite that there was a whole month lockdown, the Q2 numbers of many companies were still above expectation. People expected that the pandemic will gravely affect performance because the lockdown led to low activities in the economy and that was reflected in the Purchasing Manager Index (PMI) for the month.
However, that didn’t affect the Q2 numbers of many companies and that also gave the market another leaf of support. Then, the crude oil price sustained its recovery and the sentiment of low interest that also affected the fixed income market was a plus for the equities market because people were seeing opportunities in the market. These are what kept the market throughout the year and positioned the Nigerian equities market for 50.034 per cent gain to close 2020. This is the same market that recorded a loss of 18.2 per cent as at the end of March. For the market to have risen by more than 50 per cent from that points means that in essence, the market even gained more than the 50 per cent.
However, our concern was that the market rally was not general or even. It was driven by very few securities and these are highly capitalized stocks that control about 70 per cent of market capitalisation and they were responsible for the gain recorded in 2020.
What direction do you see the market going in 2021 and what factors will likely give it the impetus?
Regarding the new pattern that we are seeing in 2021, we expect that vaccine discovery is going to help economic recovery in 2021 which also will have an impact on our market, knowing that our market is driven by two major things that I call: low-interest rate and oil price movement.
When you see the oil price moving up, Nigerian stocks should go up because our market responds to oil price movement since it will always impact our external reserves. Both local and foreign investors show interest in the oil price factor believing that any time it high, Nigeria will have enough money and when the price falls, the reverse is going to be the case. That’s why as the oil price appreciated and the market was in the overbought region, investors were still buying.
Secondly, the low-interest rate has been a major driver of the market. If you go back to 2006 when the then CBN governor, Mr Charles Soludo, crashed rate, the market recorded tremendous gain but since then, the market has not experienced such a low-interest rate again.
Go and check, as at 2017, the interest rate was around 15 per cent and the market was struggling. But now, it is almost around 3.2 per cent which shows that interest rate is low and opportunity funds would move into the equities market. These are the things we hope will drive the market in 2021; vaccine discovery, low-interest rate and crude oil price.
Another factor that will support all these is corporate earnings. Even when there was serious fear for the economy, companies’ corporate earnings were still positive which tells you that economic recovery is already underway.
If you are seeing corporate earnings from companies that represent different sectors of the economy and the numbers are good, this means economic recovery is underway. That is why I tell people that coming back to the growth of the economy will come around in the second quarter because the way it is going, once we see the full-year GDP by February, it we tell us how less contracted the economy is or if it has crossed positive already. Even Q1 GDP too should say something positive and any improvement in the economy will always tell on the equities market because more companies will report better numbers that will drive the prices.
However, we expect price adjustment in the market because the way the price moved from almost 20,000 index points to above 41,000 is about 100 per cent rise. We expect a little pullback.
Regardless, the opportunity in the market is that those stocks that are wrongly priced and mispriced in different sectors should be the target of investors that have a good history of dividend payment and fundamentals. But now that the trading pattern in the market has changed, you can see that the high-caps moved the market in 2020 but now the low-caps and the medium-caps are the ones gaining in this New Year. This is a sign that we are coming out of recession.
Anywhere in the world, when you see low cap stocks, medium cap stocks and dividend-paying stocks rallying, it means that those companies have expectations. And anywhere in the world, the stock market is a leading indicator that tells you whether the economy is going down or coming up.
The year 2020 witnessed lower participation from portfolio investors and local investors dominated share deals at the NSE, what does this really imply and how do you see it playing out this year?
For me, the policy of the Central Bank of Nigeria (CBN) on foreign exchange has been a major factor behind in and out of foreign investors. When they find it difficult to exit after they have made money in Nigeria, it is discouraging; or when they come in and there is a devaluation of the naira, it wipes off all their gains within that period.
The expatriates are being careful. Nigeria has different exchange rates for different people. The portfolio investors want the various rates to be harmonized. Just let there be one rate for everybody within the economy. If that is achieved and our external reserves are still up, it will attract them.
Regardless, I believe that anywhere in the world, if you depend on foreign investors, your market will not be stable for planning. In any country, the stock market is for long term investment which people can plan with.
But when foreign investors come into the market and have 80 per cent of the market when they are going, the market will start bleeding and you cannot plan with such a market. Now, the reverse is the case in Nigeria as we are seeing local investors taking big chunk of the market; it is a welcome development for the local equities market.
Also, despite the usual fear in January, the January effect did not really play out in our market this year because the market is not in the hands of those who start running once they hear a cough. Now, we have people with long term funds that are also dividend players in the market because they are pension administrators.
For me, it is a welcome development that we have less participation from the expatriate side. However, I believe that the foreign investors would come back and it would be a plus but they cannot dominate the market again like before and that would support retail investors.
With the current arrangement, the market is becoming more stable and that is what we need to plan and know that a market is a good one. For foreign investors, they are welcome anytime, but I think policy direction is what they are just waiting for.
The coming on board of new companies via IPO still remains on the low side at the NSE. Few right issues were recorded in 2020, but going forward, what do you think could be done to attract more IPOs?
It pains me that companies on the Exchange are delisting for one reason or the other. I think it is the work of the regulators to sit down and find out why companies are delisting because the economy is not fully represented in the economy. There are some sectors that are not represented on the Exchange. Anywhere in the world, if you look at the exchange of any country, it tells you how the economy is doing because it represents different sectors of the economy.
For example, it is only recently that we had the telecoms sector represented in the capital market via the listing of MTN Nigeria and Airtel Africa. We need to encourage other sectors. For me, if the cost of getting listed is what is scaring people away, then, the regulators should reduce it to encourage and retain more companies. This will deepen the market. When the market is deep, it will attract more funds; but when it is shallow, such as what people say about Ghana today that their market is shallow because they have just a few listed equities, the fund would not come.
So, we need to encourage more listings. In the United States, there more than 18,000 listed companies trading on their floor. We do not have up 200 here in Nigeria. I think we should do more and that will help the market to play its role as an economic driver because anywhere in the world, long term fund is what supports economic development and you get that long term fund from the stock market where you can borrow to expand your business. But if the market is not deep and is not attractive, it will not attract fund into the economy.
In addition, the government and the regulators should make policy that will attract more people. The fundamental issue about that is that the participants in the market are not increasing because the regulators have not performed their work of educating Nigerians on how to invest.
People that have their fingers burnt when the market crashed in 2008 and 2009 are still nursing their wounds. You need to go back and tell them that the market has changed and has become more transparent with the use of technologies.
I think that is the area where the regulators should do more. If we can have more people playing in the market, I am telling you that unemployment in Nigeria would be solved. I will say it anywhere that this market can solve the problem of unemployment in Nigeria if the government can open their mind and put enabling regulation in place. With the technologies that we are having today, youths would be engaged and when they are engaged in making money, there would be a shift away from crime. I believe our market can be empowered to play that role.
Also, if we have more companies doing well and expanding, they will employ more people. That is why I said the Nigerian capital market should be put in the right perspective so that it can adequately play its role in driving the economy and create jobs for Nigerians.
The NSE created the growth board not quite long ago. So far, how well have investors been interacting with that segment of the market?
I will say that the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC) occasionally taking journalists for training is not a bad thing. However, journalists just report. But more importantly, the people that they need to educate more are the ones on the street earning money – the entrepreneurs, the artisans, the students. If you educate them, this market would become overactive.
Those stocks that they put on the growth board include Chams Plc and a few others. I think these are not enough as growth stocks. I see growth stocks as those stocks that have a future. Even though they are still low, they definitely are going somewhere. There are many of them in the market but I continue to wonder why they have picked just the few. And does the public know about the importance of the growth stocks? That is another issue to deal with. There are many categories of stocks and the growth category happens to be a very important one in an economy such as Nigeria. A stock listed in the growth board has been in the market for years without giving dividend to investors. The company is also not going into new businesses. Now that we are in a tech world, I believe growth stocks are those ones stepping into that tech environment to grow and expand. If you are talking of stocks like Omatek, fine! It has good potentials even if it has not harnessed it. Talk of stocks like Cham, you will know they are going into a space that is full of a lot of opportunities. You do not put a stock on the growth board just because the price is low.
The year 2021 started with the national budget already signed by the President. What impact do you expect this to have on the market outlook?
Just as I said earlier, 2021 is a very mixed and dicey year in the sense that there are factors that will impact the economy positively if there is policy match. Before now, we have been having mismatch policy in the country. If we can put the best policy together this year, I believe we will make progress. The CBN is reducing the interest rate, which is good. The budget has come early as expected and you know when a country releases its budget, it helps the government and even players in the economy to plan because they can see where the economy is going.
Like in Nigeria now, we have seen the benchmark oil price for 2021. Right now, the crude oil price is above the benchmark for the 2021 budget which translates into more money for the government.
Also, if you look at the borrowing rate of the government from 2020 to 2021, it’s huge. That means the fiscal authority also have to look inwards to drive those infrastructures that will support economic growth. All this money that the government is borrowing, if it used to build our railways and develop road networks such that there is easy movement of stocks across the country at cheaper rates, inflation will not be high. It has been observed that the inflationary pressure on most of the goods emanates from the high cost of transporting them.
Now, we have seen a hike in electricity tariff and fuel price. If the government can find a way to address this, and give us active rail system that will connect the different parts of the country, goods will move with ease and prices would crash in the market. What I am saying, in essence, is that we need to harness both monetary and fiscal policies so that we can have a good 2021.
Amidst all these, what should be the right move by investors?
For investors in the market, they have to be very careful because any change in policy will directly affect the equities market. We have enjoyed the rally in the market because of the low interest in the fixed income market. Any adjustment in that area alone would change the face of the market. That is why as a discerning investor; you do not just follow all those stocks with low prices that have no fundamentals. Instead, target stocks that have fundamentals such that despite the expected change in rate, they will still be able to offer reasonable returns that will attract investors to the company.
Between now and March ending or April, we will see the most active earnings season because many companies at the exchange have December as their year-end and we will see more results; and because this is coming with rewards in terms of dividend.
For me, I think 2021, generally is a mixed year and we might see a positive performance in the first quarter. But going to the second quarter, the equities market might not be as favourable as what we have seen so far. This is because when there is any adjustment in interest rate, it is going to hit the stock market. More so, the market is ripe for profit-taking and many investors are ready to pull out to make a capital gain.
How have you been contributing to the growth of the market and wealth creation for investors?
Investdata Consulting Limited is an independent research company with a focus on the economy, quoted and unquoted companies, market research, and sector analysis and investment education, with different customised investment education products to help investors achieve their investment objectives, by making an intelligent and knowledgeable investment decision.
Investdata has developed a product and platform that can help the nation’s stock market play its role in creating jobs for Nigeria youths and wealth for investors.
We have continued to attract more participants to equity market through our investment education organised every quarter in Lagos, Port Harcourt and Abuja with an annual summit in December to position for the coming year.
What particular gap that we have noticed over the years is poor investor education. We have been doing all we can to bridge this gap with our timely analyses, trainings and platforms. What we believe is that more people will only participate in the capital market in a way that will support the economy only when they understand what is happening there.
By Modupe Gbadeyanka
The planned implementation of the new tax laws from Thursday, January 1, 2026, will not be reversed, the federal government has emphasised.
This emphasis was made amid controversies over discrepancies in the harmonised and gazetted copies of the laws.
A lawmaker in the House of Representatives, Mr Abdussamad Dasuki, raised this alarm last week during plenary.
He said parts of the laws passed by the National Assembly were different from the gazetted, calling on the leadership to look into this.
In June 2025, President Bola Tinubu signed the four tax-related bills in law as part of his government’s reform programme
The new tax laws are the Nigeria Revenue Service (Establishment) Act, the Joint Revenue Board of Nigeria (Establishment) Act, the Nigeria Tax Act, and the Nigeria Tax Administration Act.
Addressing newsmen after a meeting with Mr Tinubu in Lagos on Friday, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr Taiwo Oyedele, stressed there were no plans to suspend the implementation of the laws from next Thursday, despite calls for this.
However, he welcomed the decision of the House of Representatives to investigate the matter, stressing that the federal government is ready to work with the National Assembly if any action becomes necessary, but maintained that the reform timeline remains unchanged.
Mr Oyedele explained that the reforms are aimed at providing relief to Nigerians and stimulating economic growth rather than generating immediate revenue, noting about 98 per cent of workers would either pay no personal income tax or pay less, while 97 per cent of small businesses would be exempted from corporate income tax and VAT withholding tax.
He added that large businesses would also benefit from lower effective tax rates, noting that the reforms are designed to promote inclusivity, shared prosperity and improved tax compliance.
The tax expert said preparations for the reforms began in October 2024 when the bills were first submitted to the National Assembly and have continued through capacity building, system upgrades and stakeholder sensitisation since the laws were signed in June 2025.
By Adedapo Adesanya
The oil market depreciated by more than 2 per cent on Friday as investors weighed a looming global supply glut, while also keeping an eye on a potential Ukraine peace deal.
Brent crude futures lost $1.60 or 2.57 per cent to trade at $60.64 per barrel and the US West Texas Intermediate (WTI) crude futures crumbled by $1.61 or 2.76 per cent to $56.74 a barrel.
The global oil supply next year will exceed demand by 3.84 million barrels per day, according to figures from the International Energy Administration (IEA) in its December oil market report.
Supply rose sharply this year boosted by output hikes from the Organization of the Petroleum Exporting Countries and allies (OPEC+) as well as growth in the United States and other producers. The group also paused output increases for the first quarter of 2026.
Meanwhile, OPEC kept its global demand growth forecast for year next unchanged in its monthly report, with its data indicating that world oil supply will match demand closely in 2026, in contrast to the IEA’s view.
While supply disruptions have helped oil prices rebound in recent sessions from their near five-year low, they are on track for their steepest annual decline since 2020. Brent and WTI are down 19 per cent and 21 per cent respectively on the year, as rising crude output caused concerns of an oil glut heading into next year.
Investors are watching for developments in the Russia-Ukraine peace process ahead of talks this weekend between Ukrainian President Volodymyr Zelenskiy and US President Donald Trump.
They will be focusing on the possible impact on future oil prices as a peace agreement could lead to the removal of international sanctions against Russia’s oil sector.
The Ukrainian president has said he would be willing to call a referendum on an agreed peace framework if Russia agrees to a ceasefire.
In Venezuela, the White House ordered the US military forces to focus on a “quarantine” of Venezuelan oil for at least the next two months, indicating the Trump administration is currently more interested in using economic rather than military means to pressure the South American OPEC member.
During the week, the American Petroleum Institute (API) estimated that crude oil inventories in the United States saw a build of 2.4 million barrels in the week ending December 19. Crude oil inventories data from the Energy Information Administration (EIA) will be released next week due to the Christmas holidays.
Finance may be the single most essential element when it comes to the progress and sustainability of businesses in Nigeria. The level of funding available to businesses, small and big, determines their ability to function, grow, and compete. The Nigerian business environment, due to the interplay between the local economy, financial institutions, government, and private investors, offers multiple financing opportunities. The dynamics of these financing opportunities helps business owners and managers make the right decisions that best respond to their objectives and the level of risk they are willing to take.
Start your Livescorebet registration and discover more as this article analyzes the different sources of business finance in Nigeria in a systematic and detailed manner. It defines and explains internal and external financing options and the criteria relevant businesses may use in their search for the best financing instrument.
Understanding Sources of Business Finance
Before one can delve into the different options of business financing available, it is important to define business finances and categorize it. The objective of this is to establish a foundation for understanding the extent to which some options may be more appropriate for different businesses than others.
What Are Sources of Finance?
Sources of finance are how a business acquires funds to begin activities, settle daily operations, or pay for additional business activities like acquisitions, expansions, and long-term projects. Businesses may need to finance the purchase of new equipment, hire and pay additional staff, manage business cash flow, develop new products, or finance the expenses required to enter or compete in new markets.
In Nigeria, the Sources of finance are determined by interest rates, availability of bank services, regulations, and the growth stage of capital markets, among other things. A business may use its own cash resources, borrow from a financial institution, receive funds from an investor, or receive a government grant or other government-funded assistance program. Each of these also offers different-related costs, obligations, and levels of control.
Types of Finance: Major Categories
Business finance is typically subdivided into two larger subsets: internal finance, and external finance. Internal finance is from the business and its resources; external finance is from third parties.
The classification of finance by time is also an option. Short-term finance is used for the working capital needs like inventory and operational expenses. Medium-term finance is used for the purchase of an asset like a machine. Long-term finance is used for significant investments like expansion or infrastructure. These classifications often overlap with internal and external sources and help a business structure their financing efficiently.
Key Principles and Examples
Cost is the most influential principle when it comes to the choice and method of utilizing finance. Aspects like interest and dividends affect profitability. Additionally, other opportunity costs must also be focused on. Another principle is risk. Increased borrowing equates to an increase in financial obligations. Control and flexibility are also essential, especially in terms of the original decision makers.
For instance, a small retail shop could potentially rely on the profits previously obtained to purchase stock and restock their shelf. On the other hand, a manufacturing business may need to obtain a bank loan in addition to leasing an arrangement in order to get the needed equipment. These principles must be understood so that finance can be used to support the objectives of the company.
Internal Sources of Business Finance
Internal sources of finance are the finance obtained within a business without the need of external lenders or investors. These sources are often preferred as with them, the business relies a minimal amount on external parties to minimize financial risk.
Retained Earnings
Profits that a company reinvests rather than giving out to owners or stockholders is called retained earnings. Within Nigeria, retained earnings is a common type of financing for SMEs that do not have access to external funding.
This type of financing is cost effective as it does not incur interest or have repayment schedules. Retained earnings financing ensures owners have complete operational control. However, retained earnings depend on profitability, meaning they can be limited or unavailable for new businesses or those that are struggling. Overreliance on retained earnings can also slow expansion if significant capital is needed for growth.
Ordinary (Equity) Shares
For incorporated businesses, it is understood that issuing ordinary shares is considered an internal source if funding is collected from existing owners/shareholders. When an owner nets additional funding, they are strengthening the business’ finances without taking on additional debt.
Equity shares do not have to be paid back, relieving some pressure from cash outflows. This does mean that ownership and profit rights, in the form of dividends, will be repealed. Equity financing in Nigeria is more prevalent in larger businesses and startups with growth potential, especially those that are preparing for future investment rounds or new public listings.
Other Internal Sources
The other internal sources include the streamlining of cash flows, the sale of unused assets, and the reduction of working capital. For instance, a business might dispose of old vehicles or equipment to obtain cash for more productive investments. Likewise, enhanced control of inventories and the speedy collection of receivables can liberate cash for other operational uses.
The techniques described here are often undervalued, especially since they provide short-term relief without incurring external liabilities. Nevertheless, the main limitation of these techniques is scale. They are unlikely to provide the necessary funds to sustain larger projects.
External Sources of Business Finance
External sources imply sourcing funds from outside the business. These sources are particularly necessary for new ventures and rapidly expanding businesses as well as for capital intensive industries.
Bank Lending
Bank lending is, and continues to be, a major source of business finance in Nigeria. Commercial banks, microfinance banks, and development finance institutions all grant businesses loans, overdrafts, and other credit facilities.
Bank loans are easier to obtain and can provide in a short time big amounts of money, making them more attractive for funding major business expansions and for acquisition of new assets. However, such loans are usually associated with a range of challenges such as high-interest rates and demands for strict repayment periods and collateral. Many Nigerian SMEs do not easily gain access to such bank credit due to their limited credit history and insufficient collateral.
Loan Stock
Loan stock is a long-term debt financial instrument provided by companies to obtain funding from customers and pays a fixed interest and is repaid after a determined time. In Nigeria debt stock is more prevalent with large established companies.
A loan stock has the benefit of providing long-term financing without losing partial company control. But the financial risk of the company rising during poor economic times increases, as loan interest rates must always be paid.
Venture Capital
Venture capital, funds provided by the investors of a business with the potential of high growth, is in exchange for equity. Venture capital in Nigeria is more common in technology, fintech, and agri-business.
Venture capitalists do not just provide funding; they also provide their experience in the field, their connections, as well as their planning and do-adding-knowledge, making it highly beneficial for new companies. However, these investors more often than not expect the high amounts of profit; therefore, a greater stake of their ownership of the valuable business is lost.
Leasing and Hire Purchase
Hire purchase and leasing, in asset financing, provide the means for firms to use equipment without the need to make the full payment for the equipment up front. Leasing allows the renting of a fixed-term asset, while hire purchase enables the attainment of the full ownership of the asset after making a series of payment installments.
These techniques are common in Nigeria for acquiring college textbooks, vehicles, office technology, etc. These techniques allow one to maintain positive cash flow, while avoiding large capital expenses. The main disadvantage is the total expenditure is higher than buying the item outright.
Government Assistance and Grants
The government of Nigeria, through its various agencies, has a wide range of funding programs aimed at supporting businesses, particularly for Small and Medium Enterprises (SMEs) and start-ups, which come in the form of grants, subsidised loans, and intervention funds.
When it comes to government assistance, there are lower interest rates for longer periods of time, more flexibility for the beneficiary. However, the availability of such assistance is often restricted, which is often accompanied by complex application procedures and lengthy delays. At the end of the day, although there is a lack of availability, government funding is still a major contributor to the country’s entrepreneurship base development and the economy’s overall growth.
Franchising
From a financing standpoint, franchising is a business model where an entrepreneur receives the right to operate a business under a specified brand for a fee or royalty. While it is not a direct cash resource, the model helps startup a business with lower risk and reduces the financing needed as it comes with brand recognition and an established business system.
In Nigeria, franchising is an approach that is widely adopted, particularly in the food services and hospitality industries. It is especially helpful to startups, as they do not need to build a business model from scratch, and if they need it, the franchising becomes a solid base for acquiring additional funds.
How to Choose the Right Source of Finance
How to choose the right Source of Finance will need balancing what the business needs, how much money is available, and the other goals they want to accomplish over time, since finance refers to how a business entity plans to raise funds from various sources of finance to support business operations and long-term business development.
Step-by-Step Approach to Choosing a Source of Finance
The first thing to do is say what the finance will go towards. Will it be designed to go towards working capital, purchasing raw materials, buying new assets like a new factory, or is it going to be used for expanding into new markets and securing capital for growth? After that, the company decides how much money it will need and how long it will need it for. This helps clarify whether the required sources of funds fall under short-term sources, often needed within one year, or long-term sources used to finance strategic investments.
The 3rd thing to do is to look at the advantages and disadvantages of each funding option, including risks and costs. Some of these will be interest payments, specific repayment terms, and whether financing involves debt or equity financing, which may dilute ownership or preserve the owner’s control. The business must assess if it will rely on borrowed funds, a secured loan, or equity capital, and whether it can manage repayment with interest, including principal and interest, without risking default or bankruptcy. In the end, the business should look at what it will be able to do and whether it should mix together a few main sources from various sources of finance to meet different business needs.
Factors Affecting the Need for Finance
There is a range of different reasons, that can affect the decisions that are made. Things like how big the business and what point in its lifecycle it’s at, which sector it’s in, and how stable its cash flow is. A new business is likely to need finance in the form of equity and government programs while an older company will likely go for a bank loan or use the money that is already in the company.
The economic climate will also have an influence on the cost and availability of finance in a certain country. Things like inflation and interest rates can make it more difficult to get finance in a certain country. Also the absence of certain regulations and the rules that have to be followed will affect what kind of external finance can be used or what type of external finance will be available.
Comparing Major Sources at a Glance
Internal sources lack scale but are less risky and cheaper. External sources are costly and more risky but can provide larger amounts. Equity financing is less risky in terms of repayments but ownership is diluted, while in debt financing, control is maintained but the risk is higher. Businesses need to understand these trade-offs to incorporate financing into their business strategy.
Conclusion
There are several sources of business finance in Nigeria, and these continue diversifying with the progress of the economy and the financial sector. Each of these sources, from internal such as retained earnings, to external like bank lending, government programs, and venture capital, are tailored to address specific business requirements.
This understanding enables entrepreneurs, managers to make accurate and timely decisions, mitigate risks, and facilitate growth. The optimal level of financing is more than a simple matter of availability as is often the case with entrepreneurs, but ensuring the financial architecture of the business is coherent with its objectives in the long term.
FAQs
What is the difference between internal and external sources of finance?
Internal sources are from the business itself like retained earnings and selling of assets, while external sources are from outside the business like banks, investors and government programs. Internal finance poses less risk, but external finance allows access to much larger funds.
How can startups access venture capital in Nigeria?
Accessing venture capital entails constructing sound business models, designing robust business plans, and then forming relationships with investors through incubators, accelerators, and other platforms. A clear organizational structure and the ability to catalyze substantial interest are invaluable.
What are the advantages of retained earnings as a source of finance?
The cost of retained earnings as a source of finance is low, as money does not need to be repaid. Furthermore, the business owner does not need to share control over the company. Retained earnings are also complementary to the financial position of the business. On the downside, retained earnings can only be used if a business is profitable, and may restrict growth if insufficient profits are generated.
How does leasing differ from hire purchase?
When leasing, a company can use an asset for a specified period of time, but ownership stays with the original owner. In hire purchase agreements, a business can use an asset for a specified time but takes ownership after making the required payment. A leasing agreement is flexible but hire purchase agreements are better for a purchase where an ownership is intended.
What government programs are available for business funding in Nigeria?
The Nigerian government, through its development finance institutions and government agencies, provides a wide range of activities, including lending to small and medium enterprises, offering intervention funds, as well as providing grants. These activities aim to support entrepreneurial activities, stimulate job creation, and develop specific sectors.
-
Feature/OPED6 years agoDavos was Different this year
-
Travel/Tourism9 years ago
Lagos Seals Western Lodge Hotel In Ikorodu
-
Showbiz3 years agoEstranged Lover Releases Videos of Empress Njamah Bathing
-
Banking8 years agoSort Codes of GTBank Branches in Nigeria
-
Economy3 years agoSubsidy Removal: CNG at N130 Per Litre Cheaper Than Petrol—IPMAN
-
Banking3 years agoFirst Bank Announces Planned Downtime
-
Banking3 years agoSort Codes of UBA Branches in Nigeria
-
Sports3 years agoHighest Paid Nigerian Footballer – How Much Do Nigerian Footballers Earn