Small And Medium Scale Enterprises, Financing And Economic Growth In Nigeria

Introduction

1.1 Background of the Study

Financing Small Scale business involves the establishment and maintenance of business ventures. It will be ideal to make a brief analysis of what small scale business involves.

This ranges from services to manufacturing and repairs. One distinctive feature of small scale business is the capital adequacy which must be within the required minimum as required by the Company and Allied Matters Act of 1991 as amended and other legal requirements governing and regulatory various forms of business. Example, Bank and Other Financial Decree 1991 (BOFID) and Insurance Decree 1991.

Service Venture:

This encompasses professional services such as, Accountancy, Secretariat. Legal Services, it may also include liquidate and receivership, management constancy to mention but a few.

Manufacturing Venture:

This involves production of goods for local companies which may also involves the production of local equipment’s like form implements and machinery.

Repairs and Maintenance:

This plays a predominant role in the survival of both the repairs and maintenance plays a predominant role in the survival of both the large and small scale businesses. This ranges from the auto-mechanic and hi-tech maintenance, officer automation maintenance and repairs are not left out. The gathering pace of industrialisation in the North America and Western Europe in the early 19th Century, which had manifested to a gigantic venture, which the whole world cannot dare. In perspective is the Cable News Network (CNN) established by TED Turner in the United State of America, which started with about $5,000 Operating within a mini block of flat in the early ninety, could hardly manage the whole of the earth for its operations due to the rate of US expansion. Growth in Nigeria Small Scale business has a restricted. Immediately after independent, the orientation of people towards work and earning a living with diverted to secure employment with the government or in the private sector; people were not encourage to establishing their own business and farming ventures were mainly subsistence.

Lack of education and enlightenment from the government is assured to have caused this problem. In the recent past, the unfavourable economic problem, which could be partially linked to the unstable political situation, stand as the major obstacle for the establishment and survival of the small-scale business and it has also brought about retarded growth to the existing ones.

The problem of unemployment and the need for self-sufficiency and self-actualisation necessitate the need for financing small scale business. The main problem for the establishment and maintenance of small scale business is finance. It has been observed that, many prospective investors do not know the types and source of financing available to them and other means of raising funds for the survival of their business.

1.2 Statement of the Problem

The microfinance banks (MFIs) promoted by the Federal Government of Nigeria was meant to purview credits entrepreneurs who owned Small and Medium Scale Enterprises because of their limited access to sources of finance. Small and Medium Scale Enterprises face a lot of problems in obtaining finance from the conventional finance banks because of the cost of finance, collateral security and the bureaucracy involved in accessing loans; the high interest rate etc. In addition, these entrepreneurs are predominantly made up of illiterates who cannot understand all the paperwork involved in applying for a loan. Also the banks are not very excited because of the fact that the credit deposited by them is so little compared to what is deposited by customers in other big businesses. These problems and more necessitated the emergence of the MFBs.

Furthermore, in case of a new business venture, one will need to show how feasible and viable the venture will be by making available the feasibility report, projected cash flows or the estimated profit and loss account.

The most important of all these problems however, is that of finance. Indeed, it could be rightly said that all other problems facing small scale project emanates from lack of finance. Small scale projects are usually faced with the problem of where to obtain funds, whether commercial banks or merchant banks or other specialized financial houses.

It should however be noted that the funds required for a particular project could be raised from various sources. If this happens, a situation of capital mix is said to be in existence. Since each sources of income has their associated costs, which will be different from other source, and where there is capital mix, the company should ensure that they obtain the best possible combination of the various sources of capital.

Another feasible problem is that of collateral and high interest rate in securing the needed finance. All these problems would however be dealt with in the main text of this project.

1.3 Objective of the Study

The purpose of this study is to evaluate the various sources of finance to small and medium scale enterprises and its impact on economic growth and development.

Other objectives of the study include;

To examine the role of microfinance banks’ in the growth of SMEs

To examine the problems Microfinance banks face in providing finance to SMEs.

To examine the relationship between SME financing and economic growth in Nigeria.

 

1.3 Research Hypotheses

Hypotheses One

Ho: There is no relationship between SME financing and economic growth in Nigeria.

Hi: There is no relationship between SME financing and economic growth in Nigeria.

 

Hypotheses Two

Ho: micro financing has a negative impact on SME growth in Nigeria.

Hi: micro financing has a positive impact on SME growth in Nigeria.

 

1.5 Significance of the Study

To the government and policy makers, the study on small and medium scale enterprises financing and economic growth in Nigeria will enable them come up with policies like fiscal and monetary policies to improve the efficiency of the SMEs. The result from this finding would enable the stakeholders to employ ways to improve the contribution of SMEs to the country. This research work will contribute to the literatures on the impact of SME financing on the growth of Nigeria for the benefit of researchers.

1.6 Scope and Limitation of the Study

This study is primary concerned with small and medium scale enterprises, financing and economic growth. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following.

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 Definition of Terms

Financing:

This is the act of raising money necessary to organise, re-cognize or extend an enterprises, whether by the sales of stocks, shares, bonds, notes and otherwise.

Project / Business Financing:

This term is used to describe a variety of financing arrangement for individual investment business. Often, a separate legal entity is formed which owns project for repayment of their loan or for the return on their equity small scale business. These are business whose total assets do not exceed two million Naira.

Ordinary Share Capital:

This type of finance is acquired through the stock exchange market, where prospective subscribers would be members of the company if they succeeded in acquiring the shares of the company.

SMEs:

SME is defined in terms of employment i.e. as one with between 10 and 300 employees.

Entrepreneurs:

This refers to the proprietor or owner of a privately owned business enterprise. The entrepreneur employs his capital in the business, manages the business resources and takes the risk of business alone. He is self-employed i.e he is not employed by anyone but instead he employing others to work for him.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concerned with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.

Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.

Chapter three deals on the research design and methodology adopted in the study.

Chapter four concentrate on the data collection and analysis and presentation of finding.

Chapter five gives summary, conclusion, and recommendations made of the study