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IMPACT OF COVID-19 ON FINANCIAL INSTITUTIONS, SMALL BUSINESS AND
MICRO-ENTREPRENEURS IN NIGERIA
John Nma Aliu PhD
Department of Banking and Finance,
College of Business and Management Studies,
Kaduna Polytechnic.
Phone NO: +2348023615001
Email: johnaliu33@hotmail.com
ABSTRACT
This study examined the Impact of COVID-19 on financial institutions, small businesses and
micro-entrepreneurs in Nigeria. The study used the Narrative-Textual Case study (NTCS) method
employing both descriptive and explanatory approaches. The study relied on text contents and
official statistics for the purpose of analysis. The study found that Covid-19 had negative impact
on small businesses and micro-entrepreneurs due to lockdown measures adopted to stop the
spread of the virus. Countries came up with multiple measures to cope and minimize the negative
effects of the disease. Nigeria like many other countries , adopted monetary, fiscal, public and
human control measures to manage the scourge of the covid-19 pandemic. The study found that,
globally the stock market was negatively affected. In the United States of America, the S&P 500,
which measures the performance of stocks of 500 large companies, the Nasdaq and Dow Jones
Industrial average allfell woefully. Germany’s DAX and United Kingdoms FTSE 100 also
dropped in March, 2020. The study concluded that the Nigerian Capital Market was not
significantly affected. The Lockdown measures however, affected the economic activities and the
banking activities in Nigeria. The study, therefore recommends that lockdown measure should be
lifted, and citizens be advised to embark on strict adherence to personal hygiene and use of
protective devices.
Keywords: Small Businesses, Micro-entrepreneurs, Financial Institution, Covid-19, Poverty.
1
Introduction
Small Businesses and Micro entrepreneurs are the pillars upon which Nigeria’s economy rest on.
They have been acknowledged as the driving force for the growth of the country’s economy
(Oke and ALuko, 2015). The Nigerian government has taken concerted efforts aimed at fostering
the growth of small businesses and the development of entrepreneurship in the nation. The small
businesses and entrepreneurs play significant role in Nigeria’s industrialization process. A sure
way of ensuring the development of entrepreneurship and growth of small business in Nigeria is
the steady supply of finance to this sector. Unfortunately, lack of easy access to finance has been
recognized as a main obstacle faced by the small businesses and micro-entrepreneurs in Nigeria
(Afolabi, 2013).
This position is further worsened by the outbreak of Covid-19 pandemic which has transformed
itself into a glovbal economic shock. As reported by the International Labour Organization (ILO)
(2020), Covid-19 is impacting not only provision of services but also consumption and
investment. The ILO (2020) reiterates that sustenance of business operations will be difficult-
particularly for the small businesses, micro-entrepreneurs as well as informal and casually
-employed workers.
The economic shock created by Covid-19 is novel as described by Ozili and Arun (2020) who
also posit that it has “triggered a new type of recession” that is clearly distinct from the past
triggers of economic and financial crisis. The 2008 world-wide financial crisis readily comes to
mind here. Allen and Carletti (2010) report that the 2008 global economic recession was a result
of poor monetary policy measures, weak financial regulations and high leverage in the banking
sub-sector of the financial service industry. The Nigeria’s 2016 recession was a fall out of
dramatic reduction in the price of crude oil in the international market, adaption of improper
exchange rate (Fixed-float) regime, balance of payment deficit and weak infrastructure (Ozili
and Arun, 2020).
It is clear that the decline in banking and economic activities occasioned by the massive
lockdown measures in Nigeria is negatively impacting the financial institutions, small businesses
and micro-entrepreneurs in the country. But the negative impact of Covid-19 is not limited to
Nigeria alone. Data from the National Bureau of Statistics of China indicates that the total value
added of industrial enterprises in China (Where the Covid-19 started) declined by 13.5 per cent
in the first two months of 2020.
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While trying to save lives through lock-down and other measures, economic activities suffered
set backs impacting negatively on the performance of financial institutions, small businesses and
entrepreneurs. This paper attempts to discuss the impact of Covid-19 thus far on banks, small
businesses and micro-entrepreneurs in Nigeria.
Review of Related Literature
The contributions of small businesses and micro-entrepreneurs to the development of Nigeria’s
national economy cannot be over-emphasized. Imafidon and Itoya (2014) observed that
contributions of small scale businesses in the industrialization process of Nigeria is very glaring.
And this is not just a new development. Osuagwu (2001) points to the fact that 10% of total
manufacturing output and 70% of industrial employment are made by the Small and Medium
Enterprises (SMEs) in Nigeria. However, Imafidon and Itoya (2014) identified financial
constraints as a main challenge faced by Micro and Small Scale businesses in Nigeria.
This situation is further aggrevated by the outbreak of Covid-19 (Otherwise known as
Coronavirus) pandemic. ILO (2020) observes that the impact of Covid-19 goes beyond the health
concerns of the frontline health workers and their families to economic impact across three key
areas:
i. Job Quantity
ii. The Quality of Work, and
iii. Effects on the vulnerable, such as micro-entrepreneurs and labour market outcomes.
ILO’s preliminary estimates of increase in unemployment is between 5.3 million (“Low”
Scenario) and 24.7 million (“High” Scenario) from a base level of 188 million in 2019. The
“Mid” Scenario meant an increase of 13 million (7.4 Million in High – income countries). These
figures are scaring when compared to 22 million increase in unemployment during the entity of
2008/2009 global financial crisis. In Nigeria, the commercial banks and some other businesses
are already contemplating job lay-offs as a result of the Covid-19 pandemic. The decline in
economic activities as a result of covid-19 pandemic did not only affect banks but also
entrepreneurship development. Entrepreneurship plays significant role in free enterprise
economy (Popoola 2014).
In Nigeria, poverty level is already high with 40.1 per cent of total population classified as poor
(NBS, 2020). That is, on the average, four (4) out of every ten (10) Nigerian Lives below the
poverty line-having real per capita expenditures below 137,430 Naira in a year. By extension,
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this means that more than 82.9 million Nigerians are poor by Nigeria’s National Standards. Table
1 below shows Nigeria’s poverty head count rate per state.
Table 1: Poverty Head Count Rate per state in Nigeria (Percentage of
Population 2019)
S/N
o
State % of Poverty
Rate
S/No State % of Poverty
Rate
1. Sokoto 87.73 19. Cross River 36.3
2. Taraba 87.72 20. Benue 32.9
3. Jigawa 87.02 21. Abia 30.7
4. Ebonyi 79.76 22. Imo 28.9
5. Adamawa 75.41 23. Kogi 28.5
6. Zamfara 73.98 24. Ekiti 28.0
7. Yobe 72.34 25. Akwa Ibom 26.8
8. Niger 66.11 26. Rivers 23.9
9. Gombe 62.31 27. Bayelsa 22.6
10. Bauchi 61.53 28. Kwara 20.4
11. Enugu 58.13 29. Anambra 14.8
12. Nasarawa 57.3 30. Ondo 12.5
13. Katsina 56.42 31. Edo 12.0
14. Kano 55.1 32. Oyo 9.8
15. Plateau 55.1 33. Ogun 9.3
16. Kebbi 50.2 34. Osun 8.5
17. Kaduna 43.5 35. Delta 6.0
18. FCT 38.7 36. Lagos 4.5
Source: National Bureau of Statistics - 2020
It is clear from table 1, that 18 states of the Nigerian federation are above the National Average
of 40.1 per cent, with seven states recording above 70%. It is to be noted that Borno State is not
covered by this survey. Discussing entrepreneurship development and poverty alleviation in
Nigeria, Mamman (2008) identified inadequate capital, obsolete technology, lack of incentives
and lack of sufficient infrastructural facilities as some of the problems affecting entrepreneurship
development. The outbreak of Covid-19 and the attendant issues associated with lockdowns and
weakening economic activities will only add more problems to small business owners and micro-
entrepreneurs.
Table 2: Estimated Decline in labour income and increase in Poverty Level.
Income group Low Mid High
Labour income (US$ billion) -860 -1,720 -3,440
Extreme and moderate working poverty (millions)
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World 8.8 20.1 35.0
Low income 1.2 2.9 5.0
Lower-middle income 3.7 8.5 14.8
Upper-middle income 3.6 8.3 14.5
Source: International Labour Organization ILO-2020
From table 2, it can be seen that the resultant decline on economic activities occasioned by
Covid-19 will further add pressure on the income of workers who are either below the poverty
line or close to it. According to ILO (2020), the impact of Covid-19 for the unemployment
estimates increased by 8.8 million people in working poverty globally than originally thought.
Both mid and high scenarios also record increases in the number of the working poor on the
earlier estimates over the pre-covid-19 estimate for the year 2020. This analysis excludes
potential impacts on working poverty in advanced countries.
The unfortunate thing about Covid-19 is its disproportionate impact on some segments of the
society. The micro-entrepreneurs, who are already faced by lack of easy access to finance are
vulnerable as the small businesses. The unemployed and the under employed will also suffer the
same consequences as it happened during the 2008/20009 global financial; crisis. Unfortunately
the Nigerian government policies on loans and credit facilities do not significantly impact on
entrepreneurship development (Tende, 2014). Covid-19 will only make matters worse.
Methodology
The study used Narrative-Textual Case Study (NTCS) method employing both descriptive and
explanatory approaches. The NTCS method is suitable in circumstances where data set are scarce
as in the case of Covid-19. This is understandable, since this corona virus is a new disease and
the world is still trying to understand its nature. The NTCS as a social science research method
make use of data, information and research materials available and accessible through the
internet facilities, and other information and communication facilities such as world wide
web(www), eliberies and so on.
This research is essentially descriptive and non-empirical since information collected do not
necessarily require a change of environment. The study relied on text content and available
official statistics for the purpose of analysis.
Findings and Discussions
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In reaction to the Covid-19 pandemic, various countries have come up with multiple measures to
cope and minimize the negative effects of the diseases. Ozili and Arun (2020) classify these
policy measures into four broad categories: monetary, fiscal, public healthy, and human control
measures. Nigeria like some other countries adopted the granting of regulatory forbearance to
banks, lowering of interest rates by the apex regulatory body-the Central Bank of Nigeria (CBN).
Also contained in the monetary policy measure is the granting of sustained flow of credit to
banks, small and medium enterprises as well as individuals.
The prominent fiscal measures adopted by the Nigerian Federal and the state government is the
provision of palliatives to the vulnerable persons and communities and stimulus packages to the
organizations and sectors that are most affected by the Corona virus pandemic.
The public health measures are principally preventive measures aimed at curtailing the spread of
the virus. These are social distancing policy, the use of face masks and lock-down (stay at home)
policy. Most states of the federation applied the stay at home policy with few days/hours
allowances for people to go out and buy foodstuff/essential materials. The Federal government
specifically instructed residents of Lagos and Ogun States as well as the Federal Capital Territory
to stay at home. All the states prohibited inter-state travels in order to prevent the spread (7) of
covid-19. Later the presidential order on lock-down was extended to Kano to half the community
transmission in that state.
The Human Control measures of Nigeria’s national response measures include Visa denial and
suspension, closure of all boarders-air, land and sea and the closure of all public and private
academic institutions (Primary, Secondary and Tertiary). The Presidential Task Force (PTF) on
Covid-19 is charged with the responsibility of working out the modalities of implementing the
national guideline on the control of the spread of Covid-19.
The Central Bank of Nigeria reports that Nigeria’s total increase in Direct Spending amounts to
3.5tn Naira which 2.3 per cent of the GDP. Also as can be seen from table 3 below Nigeria’s
Fiscal support through loans and guarantees amounts to $6.9bn which is 7.5 per cent of the GDP.
Table 3: Fiscal Policy Measures of Mitigating the Spread of COVID-19
Countries Increase of
Direct Spending
% of GDP Fiscal
Assistance
through loans &
Guarantees
% of GDP
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USA USD $484bn 2.4 USD2.3tn 9.3
UK GBP 350bn 11.8 GBP330bn 10.7
Czech Rep. CZK 100bn 1.8 CZK900bn 15.9
India 1.7 lakh crore 967 $1 billion 0.04
Nigeria NGN3.5tn 2.3 $6.9bn 7.5
Source: CBN Press Release.
Table 3 above contains certain data on fiscal policy measures announced aimed at mitigating the
spread of Covid-19. While that of India is World Bank loan as was reported.
Seen by many as unthinkable, Covid-19 came as a black swan event akin to an outbreak of world
war that had a devasting effect on both the health and industrial sectors of many countries. In
fact, it has not only affected the heath care sector, it has a ripple effect on every aspect of human
existence. The financial service industry is not left out of the negative effect of Covid-19. As
reported by Nicola, Alsafi, Sohrabi, Kerwan, Al-Jabir, Iosifidis, Agha, and Agha (2020), in
China, initially the effect of Lockdown led to serious decrease in product supply from their
factories, while sef-isolation and quarantine measures resulted in demand decrease for products
and services and even in the consumption patterns. But as China recovered fast enough from the
disease, Covid-19 spread to other countries thereby strengthening China’s trade negotiating
power against the likes of United States of America.
Globally, the stock market was also affected, in the United States, the S& P 500, which is the
stock market index that measures the performance of stocks of 500 large companies, the Nasdaq
and Dow Jones industrial average fell drastically. Nicola et al ( 2020) note that the United States
government had to secure the Corona Virus aid, Relief and Economic Security (CARES) Act to
see the indexes rising by 7.3%, 7.73% and 7.33% respectively. Europe’s bond yields declined as
10-years US Treasury bond yields went down to 0.67%. Germany’s DAX and UK’s FTSE 100
also dropped in March, 2020. However, Nigeria’s capital Market has not been heavily threatened
by Covid-19 as it occasionally record Marginal gains in its daily trading. For example the
Nigeria capital market close on a positive note (0.29%) on 18th may, 2020.
The effect of Covid-19 pandemic has got some banks contemplating reduction in the workforce.
It is heartwarming to the labour unions and bank workers, that the Central Bank of Nigeria has
allayed the fears of workers on possibility of lay-offs. Although the stay-at-home order in Nigeria
will mean a decrease in the rate of economic and banking activities, it is to noted that central
banks in some countries have embarked on active fiscal policy and accommodative monetary
policy to stimulate their economy and labour demand.
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The International Labour Organization (ILO 2020) reports that Canada, Australia and United
States are among the countries that have cut interest rates. Some countries, such as South Korea
have decided to give special support packages while Italy has announced a tax break and waivers
for contributions on social security.
Many countries have decided to offer financial assistance to some sectors. For example, China
provided a subsidized 300 billion Yuan as Credit facility to enable the production of face masks
and other health items. The UK, Ireland and South Korea have all announced financial support to
affected sectors. The German government announced an “Unlimited” financial assistance to
small and medium enterprises to cushion the effect of Covid-19.
Conclusion and Recommendations
This paper attempts to discuss the impact thus far, of Covid-19 on financial institutions, small
businesses and micro-entrepreneurs in Nigeria. Although, the research study is limited by
availability of data set due to the short period of the disease out break, it has been able to
establish that small businesses and micro-entrepreneurs are at the receiving and as a result of the
pandemic.
Expectedly, the decrease in economic and banking activities due to the lockdown measures have
had and still having negative impacts on the profitability of the financial institutions. Since the
small businesses and micro-entrepreneurs depend on banks for their funding needs, the negative
impact on them is obvious. It is to be noted though, that use of modern technology in banking
and financial transactions has mitigated to some extent, the negative effect of the pandemic on
the financial institutions. Little wonder, the Nigerian Capital Market has not been badly hit by
the effect of the pandemic.
Aside from the lock-down measure, the Nigerian government introduced some policy measures
to curb the spread of Covid-19 pandemic. These measures, especially, social distancing and stay
at home policies hurts the economy because of decrease in the level of economic activities. Some
critics of these policies are of the opinion that they are contradictory as the accommodative
monetary policy aimed at encouraging activities, while lock-downs or stay at home and social
distancing policies limit economic activities.
It is the view here that the lockdown measure be lifted, and citizens be advised to embark on
strict adherence to protective measures of personal hygiene and use of protective devices-such as
face mask. Social assistance benefits should be used as in some countries to boost the economy.
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Financial support and tax relief should be extended to small businesses. A guarantee system for
up to 90% of loan values to small businesses and micro-entrepreneurs be introduced to support
them.
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