Definition of Small and Medium Scale Enterprises (SME)

Finding a global definition for SMEs has often proved very problematic due to the varying sizes and depth of individual country economies which have resulted in varying SME definitions by different institutions and countries. As the IFC (2010) noted, defining SMEs depends on the local banking context and economy size so while international organizations like the World Bank including the IFC tend to set high sales, assets and staff employment thresholds for SMEs in developed countries definitions vary by country according to the size of the economies and structure of the corporate sector.

On the other hand thresholds set by local institutions (banks and government agencies) in developing economies like Nigeria tend to be lower. The Central Bank of Nigeria (CBN) has through its various circulars and intervention fund programmes generally defined Small and Medium Enterprises (SMEs) as entities with asset base of N5 million and not more than N500 million excluding land and buildings with employees between 11 and 200. However, the Central Bank of Nigeria has not formally stipulated this definition of SMEs for reporting purposes so commercial banks mostly use account debit turnover to determine categories but even such turnover parameter varies widely from bank to bank.

The Nigerian commercial banks’ survey in Berg et al (2012) describes such SME definition variations in Nigerian banks which mostly use the account turnover criteria noting that “for small enterprises, the median maximum turnover is N60 million, the 1st quartile is N38 million and the 3rd quartile is N322 million, over five times the median.” For medium enterprises the median turnover is N480million, 1^st quartile threshold is N200million while the 3^rd quartile threshold is N2,500 million.  The 3^rd quartile thresholds for both small and medium enterprises lean more towards the World Bank’s SME definition.

Table 1: Some Nigerian Commercial Banks’ SME Definition

Source: Berg et al (2012)

The Small and medium Enterprises Agency of Nigeria (SMEDAN) definition shown below does not stipulate account turnover volumes and uses similar criteria as the Central Bank of Nigeria but with tiered thresholds.

Table 2: SMEDAN definition of SME

Large companies have 200 employees or more with assets excluding land and buildings worth more than N500 million.

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