The Chief Executive Officer, SEL Capital Limited, Mr Segun Opaleye, in this interview with FEYISAYO POPOOLA, speaks about the company’s support for Small and Medium Enterprises and interest in investing in captive power plant project
Funding has become a protracted problem for SMEs. What is SEL Capital doing to help address this?
One of the major challenges facing SMEs is that a lot of times, the business is not in a position where one can go to sleep as a lender or a potential equity investor. What we usually do for them is to start them off with advisory services, helping them to understand exactly how the business should be structured for easy access to capital.
So, we take so much time in guiding them through what is required to run a proper business. We try as much as possible to help them create a structure that clears the usual doubts about SMEs. Although everybody talks about providing support to SMEs, but the question is: Are you really giving them the solutions that set them apart from the pack? First and foremost, you have to get them to the point where the structure supports transparency, good governance and sustainable business. That is what we are doing, guiding them through the process and helping them to fund and grow their businesses.
Your company is going through an expansion, are you going to lend more to deepen your market penetration as a result of this?
The whole idea is to increase our clientele base across all our touch points, be it our physical locations or e-channels. We have also in the short period, been very instrumental in capital raising for clients’ projects in key growth sectors of the economy. For instance, we just concluded a $12m capital raising for a captive power plant project for a client. We are also lending to businesses and individuals as well as helping SMEs to meet their funding requirements. We are helping SMEs to establish Letters of Credit, fund their Purchasing Orders and support their treasury management needs.
On the wealth management side, we have a few new products and at the appropriate time, we will let you know about some of these products as soon we get the regulatory approvals.
Can you tell us about your financial inclusion project and how you are exploring opportunities in the retail market space?
As part of our financial inclusion strategic drive, we are planning to float a N2bn SMEs Fund. We are starting with tranche one of N1bn, which is expected to close within the third quarter of this year.
What areas of operations is SEL Capital Limited focused on?
SEL Capital Limited was incorporated to seize emerging business opportunities in the financial services sector. Our vision is to become a leading Pan-African financial institution, offering financial advisory, wealth management and investment advisory services and provision of funding solutions to individuals and SMEs. We also help project promoters to create bankable projects and access funding for their projects. Our aspiration is to be the gateway and catalyst for mobilising capital for growth and development across Africa.
And that is essentially the way we are structured. We are starting off with consumer finance, SMEs structured finance, all advisory services around project finance, corporate finance and wealth management.
We are a one-stop funding solution. We want to leverage our transactions experience working in one of the biggest financial institutions in Africa to drive business growth, which we believe is the required catalyst for growth and development in any economy.
What is your growth plan?
Our plan as an institution is to move from this initial phase, and in the next three years, translate to a merchant bank.
So, some of the things we are doing today are geared towards ensuring that we can easily move into the merchant banking space, which is our end game. We believe that with the support of our customers and other key stakeholders, we are on track to achieving this goal.
While we acknowledge that it is a tough order, if you see what we have done in the last one year, everything is geared towards that goal and we are poised to achieving it.
Do you have any plan to deepen your operations in the oil and gas sector?
I will not sit here and say that we can compete with the big players in that market. We define what we can do based on our understanding of the market. So, our goal is to support every SME across sectors. As I said earlier, we are also planning to become a merchant bank where we can take on bigger players within that market.
What do you think gives you an edge over others given the highly competitive environment you play in?
For us, the business model is very clear. You really cannot support customers if you do not know their business. We do not intend to play in a sector we do not understand. Remember what I said earlier concerning the SMEs space. You can lend to anybody. But the question is: Are you creating value for your customers? Value creation is the only way to create emotional connection with your customer.
In our own case, what we do first is to create value through our advisory services. The same thing goes with our other lines of business. We work with them, give them the best by understanding their needs and being able to provide the solution that meets their specific needs as demonstrated in the example I gave you concerning the power plant. It is all about providing solutions. If you do not provide solutions to their issues, there is no way you can keep them.
Apart from the captive power project, do you see any risk in funding other areas of the power sector?
The major problem in the power sector is illiquidity. When you look at the entire value chain, you have the Gas Company, the Gencos and the Discos and government agencies as well. For example, you have a Genco that is supplying about 900 megawatts to the grid but getting paid half of that due to aggregate technical, commercial and collection losses. So, today, no investor will want to lend to any sector that is plagued with illiquidity. For us, we are very careful and that is why we support captive power plant projects.
With a captive power plant, there is a willing buyer and a willing seller. So, you are only taking the risk of the off-taker or the buyer. If you see any power project getting funded easily, it is most likely to be a captive power plant because all the illiquidity challenges are not there. So, you really will not go wrong with such.
As long as those challenges in the sector are not addressed, the sector will not be attractive to funding.
What are you doing for start-ups?
The fact is most of the start-ups are SMEs. According to the International Finance Corporation, nine out of 10 new jobs worldwide are created by small businesses. Therefore, for an economy to develop, such economy must develop the SMEs space.
At SEL Capital, we help entrepreneurs to create sustainable businesses and make them more bankable.
If we understand what you are doing as a business, then the question is: Is it in a sustainable/ bankable state that equity investors or lenders will be comfortable to fund the business? So, we guide you through the process to ensure you get the needed support.
Many SMEs have complained about the high cost of loans. What is your company doing in that area?
Let me take you back to the commercial banks today. In commercial banks today, as a non-prime borrower, you will probably get loans at 20 per cent plus. The question has always been why have we not achieved a single digit lending rate?
The truth is that the same customer that wants you to do a single digit lending is the same person that will bring funds to you and ask for 20 per cent. And remember, financial institution’s role is purely intermediation.
The good news is there are government initiatives and policies geared towards supporting SMEs.
Why is it difficult to bring down the Monetary Policy Rate to the level where the funds will be cheap to achieve lower lending rates?
It is not as if the Central Bank of Nigeria is not mindful of the need to have a lower lending rate. But the reality is that we are a nation that depends on a lot of Foreign Direct Investments and Foreign Portfolio Investment. And one of the things you can do to encourage these investors is high yield.
Some of them understand the problems in developing nations. There is a premium they require for foreign investors to find your economy attractive. If you keep the rates low and you do not get what you need to reflate the economy, it is a big problem.
There must be strategic direction and plans and at the minimum, it is a three to five-year plan. It is not a knee-jerk response; otherwise, you will kill a lot of things.