ABSTRACT
Small and medium scale enterprises (SMEs) constitute
a catalyst for industrial growth and development of any nation. The development of SMEs is very much
dependent on availability of finance.
However, financing of SMEs has always been a challenge to operators of the sector, the financial
institutions and government. In addition
to the financing problem, the sector is beset with lack of proper planning and
strategies for their growth and viability.
It is in view of the foregoing that this research
project was undertaken to find out whether financing arrangements available for
the SMEs are adequate. The project also
examined whether the impact of various government industrial policies have
positively impacted on the development of the SMEs. Taking note of the conclusions and
recommendations of the research study, the goal of the government to sustain
the growth of the economy with the development of small and medium enterprises
is realisable.
However, the scope of the research is limited to the
various small and medium enterprises in two local government areas in Oyo State. This limits the level of generalization of
the research.
In the course of the
research, questionnaires were randomly administered on 73 operators of various
small and medium enterprises in Ibadan South-West and North West Local
Government areas of Oyo State to elicit the desired information.
The study revealed among other things that:
(i) formal financing methods are
not popular among SMEs in Ibadan South-West and Ibadan North-West Local
Government areas of Oyo
State;
(ii) adequate institutional
finance is not available to small and medium scale industries as they are
considered risky ventures;
(iii) there is association between the level of the capital invested by a
small scale industry and the level of its income. Besides this, activities of development,
banks have not solved the problems of SMEs.
Suggestions are made on the basis of the research findings as follows:
To be written in prose form to include:
- Objective
- Methodology
- Findings & Implications
Operators of SMEs are to be encouraged to acquire skills on presentation
of feasibility reports, documentation of their activities and presentation of
their financial requirements to banks;
- Government should closely monitor banks and ensure that they fulfil their
obligations to SMEs under the credit policy and SMEEIS scheme;
- Intensive public enlightenment programmes are to be embarked upon to
sensitise operators of SMEs to the existence of various government schemes to
ensure that SMEs derive the desired benefits therefrom.
TABLE OF
CONTENTS
Title Page
Title Page…………………………………………………………….
i
Certification …………………………………………………………… ii Dedication……………………………………………………………… iii
Abstract…………………………………………………………………
iv
Table of Contents………………………………………………………
vii
List of Tables……………………………………………………………
x
Chapter One: Introduction
1.1 Background of the study………………………………………… 1
1.2 Statement of the problem………………………………………… 5
1.3 Significance of the Study ………………………………………… 6
1.4 Objective of the Study ………………………………………… … 7
1.5 Scope………………………………………………………………... 8
1.6 Research Question and Hypothesis ……………………………... 9
1.7 Research Methodology ……………………………………………. 10
1.8 Limitation…………………………………………………………….. 10
Chapter Two: Literature Review
2.1 Introduction…………………………………………………………… 12
2.2 Definition of small and medium scale enterprises……………… 12
2.3 An overview of SMEs financing in Nigeria……………………… 18
2.4 Problem of financing and promoting SMEs in Nigeria………… 20
2.5 Review of Government Policy for small and medium scale
enterprises development in Nigeria
……………………………… 27
2.6 Other sources of finance ………………………………………….. 27
2.7 Microfiance banks ……………………………………………….… 63
Chapter Three: Methodology
3.1 Introduction…………………………………………………………. 67
3.2 Statement of hypothesis…………………………………………… 67
3.4 Characteristics of the
study……………………………………….. 67
3.5 Sampling design and
procedure………………………………….. 69
3.6 Sources of Data
……………………………………………………. 70
3.7 Validity and Reliability of
Research Instrument …………………. 72
3.8 Administration of Research
Instrument …………………………. 73
3.9 Method of Data Analysis
…………………………….……………. 73
Chapter Four: Data presentation analysis
and Analysis
4.1 Introduction…………………………………………………………. 75
4.2 Analysis of respondents characteristics …………………………. 76
4.3 Analysis of Research Question …………………………………… 79
4.4 Discussion of Recruit ……………………………………………… 93
Chapter Five: Summary, Conclusion and
Recommendation
5.1 Introduction………………………………………………………… 107
5.2 Summary of findings……………………………………………… 107
5.3 Conclusion………………………………………………………… 107
5.4 Recommendation………………………………………………… 112
5.5 Suggestion for Further Studies ………………………………… 114
Questionnaire………………………………………………………. 115
Bibliography………………………………………………………… 120
LIST OF TABLES
TABLE 4 COVERAGE OF SAMPLES BY OCCUPATIONAL GROUPS
TABLE 4.2 COVERAGE SAMPLES – GEOGRAPHICAL SPREAD
TABLE 4.3 PREFERENCE AMONG SMES BETWEEN FORMAL AND INFORMAL METHODS.
TABLE 4.4 NATURE OF PROBLEM FACING THE SMALL AND MEDIUM INDUSTRIES IN
IBADAN
METROPOLIS
TABLE 4.5 RELATIONSHIP BETWEEN THE AMOUNT OF INITIAL CAPITAL INVESTED
AND THE LEVEL OF MONTHLY INCOME OF SMES.
TABLE 4.6. SMALL SCALE INDUSTRALIST AND BANK ASSISTANCE
TABLE 4.7 SMALL SCALE INDUSTRALIST AND SMEEIS FACILITIES
TABLE 4.8 OCCUPATIONAL GROUPS AND THEIR PREFERENCES FOR FORMAL AND
INFORMAL FINANCING METHODS.
TABLE 4.9 RELATIONSHIP
BETWEEN INITIAL CAPITAL
INVESTMENT AND
INCOME OF THE SMALL SCALE
INDUSTRIES.
CHAPTER ONE
INTRODUCTION
1.1. BACKGROUND TO THE STUDY
The early
days of trade by barter could be regarded as the origin of small and medium
scale industries. Then, traders employed small amounts in carrying on business
that in most cases were arts and crafts and they generated some level of profit
for them.
Small and medium
scale enterprises have been identified as an engine for promotion of
sustainable and enduring economic growth. This is so because small businesses
grow to medium; and medium to large.
The pivotal roles of SMEs in development arise from their
characteristics and they are therefore likely to facilitate the development of
indigenous entrepreneurial culture for the country and increase domestic
production as highlighted below:
·
Sustainable employment
generation: Since SMEs often employ simple technology and are generally labour
intensive, they have a higher capacity to create employment, at least for the
unskilled and uneducated members of the society.
·
Development of
entrepreneurial and management skills:
More people are exposed to the opportunity of owning and managing their
own businesses since the capital outlay for SMEs is not so high. SMEs may thus be regarded as a training
ground for managers of bigger and more formal business organizations.
·
Promotion of Innovation
and technology development: SMEs
facilitate the development of both indigenous and adopted technology as new
process, methods, machinery, raw materials and equipment are constantly being
developed and improved upon. Research
and development are also encouraged as there are constant needs for improvement
of processes and methods.
·
Creation of markets and
generation of local demands for raw materials.
Since SMEs create employment for people who otherwise would be
unemployed, the per capital income is
increased and there is a general improvement in the standard of living.
·
SMEs build export capacity and encourage the optimal
utilization of the country’s resources.
It was in consideration of the above attributes
of SMEs that it became imperative for the government to formulate appropriate
policy framework for the promotion and development of SMEs.
Prior to 1999, there had been some SME focused
programmes initiated by government to encourage investment in SMEs and boost
their development and contribution to the growth of the economy. Some of the past initiatives are:
·
Small- scale Industries
Scheme 1971
·
Agricultural Credit
Guarantee Scheme 1973
·
Nigerian Agricultural
& Co-operative Bank 1973
·
Nigerian Bank for
Commerce and Industry 1973
·
Small and Medium Scale
Enterprises Loan Scheme 1992
·
National Economic
Reconstruction Fund 1994
·
Family Economic
Advancement Program 1991
In addition to the above, government also
introduced the following specialized banks:
·
Peoples Bank 1989
·
Community Banks 1992
Efforts by government to formulate policies
that will encourage the growth of SMEs and alleviate their problems, made it
apparent that financial problems constitute the toughest hinderance encountered
by the sector. Banks usually offer
short-term financing, which is not suitable for SMEs. Furthermore, demands are made for collaterals
which small scale entrepreneurs seldom have.
However, most of these initiatives failed due
to lack of adequate funding. Clearly, an underfunded body is not well
positioned to fund such a monumental project. The various initiatives were also
bedevilled by nepotism, favoritism, red-tapism, unnecessary political meddling
and corruption. Lack of adequate monitoring also contributed substantially to
the failure of the initiatives.
In order to ameliorate the above problems and
add impetus to the growth of SMEs, that the Bankers’ Committee (a committee of
Chief Executives of banks in Nigeria) at its 246th meeting held on 21st
December, 1999 approved the Small and Medium SMEIS (The scheme is now known as
Small and Medium Enterprise Equity Investment Scheme [SMEEIS] – by virtue of
the revised guideline of April, 2006)
The scheme requires all banks in Nigeria to set aside ten percent of
their profit after tax (PAT) for equity investment in small and medium
industries.
1.2 STATEMENT OF PROBLEM
Realities on ground have shown that in spite of
the government initiatives aimed at encouraging small and medium scale
entrepreneurs, SMEs are yet to fully exploit their potentials. SMEs’ contribution to the gross domestic
product has been negligible (A.T. Salami 2003).
Presently, the problem of lack of adequate
financing of SMEs seems to persist.
Apart from the Small and Medium Enterprises
industries Equity Investment Scheme (SMEEIS), the only formal sources of funding
available to SMEs are the capital market and credit facilities from
conventional banks which have not been favourably disposed to doing business
with small enterprises.
1.3
SIGNIFICANCE OF THE
STUDY
The pivotal roles of SMEs in
the growth and development of the real sector have attracted a lot of attention
to it in recent times. However, lack of
adequate funding through capital investment and credit facility has remained
the bane of SMEs.
In view of the foregoing, this research is
aimed at assessing the adequacy of funding arrangements available to SMEs in
the areas of study and generally in Nigeria. Shortcomings in the
existing arrangement will be highlighted and remedial measures suggested. These will be undertaking as a contribution
towards ensuring that financial problems
will not hinder the growth of this vital sector of the economy.
1.4
OBJECTIVES OF THE STUDY
The objectives of this study are:
i To examine the various sources of
finance available to SMEs in Ibadan South West and Ibadan North West Local
government areas of Oyo
State.
ii To appraise the various government policies and
incentives towards promoting SMEs in Nigeria and how these have impacted
on the finances of SMEs within the areas of study.
iii To demonstrate through a survey, the
contributions of both formal and informal sources of finance so that effective
sources of finance to SME may be known.
iv To appraise the latest policy initiative
of the Bankers’ Committee which makes it mandatory for banks to make ten
percent of their profit after tax available for SME financing through equity
investment.
1.5 SCOPE
The location of this study is limited to Ibadan
South West and Ibadan North West
local govt. areas of Oyo
State. The study was directed to some small and
medium scale industrialists within the area through the use of questionnaires.
The study is organized in chapters which were divided into
five. The first consists of general
introduction to the study, statement of the problem, objectives and
significance of the study. Chapter Two
deals with previous works, opinions and appraisal of works of different authors
on the financing of small and medium scale industries while the third chapter
explains the method used in order to show the relationship which exists between
SMEs and the various sources of fund available to them. Chapter Four focuses on the analysis and the
effects of financing of small and medium scale industries while the last
chapter summarizes the major findings and made some useful suggestions to
enable small and medium scale industries conduct their financing on efficient
and effective manner that will make for efficiency.
1.6 RESEARCH QUESTIONS AND HYPOTHESIS
The questions focused in this study are:
1.
Are formal financing
methods popular amongst small and medium industries?
2.
How does finance affect
small and medium industries?
3.
Is there any nexus
between the initial capital investments of small and medium scale industries
and the level of their incomes?
4.
Are small and medium
scale industrialists aware of the existence
of SMEEIS and making adequate use
of it?
1.7 RESEARCH METHODOLOGY
In the course of the study, arrays of research
tools were employed. Questionnaires were administered as a survey tool.
However, owing to poor educational background of respondents, personal
interviews were also used to assist in the filling of the questionnaires with
information supplied by the respondent. Secondary data were also used to gather
information from both published and unpublished sources.
1.8 LIMITATION
As stated earlier, the research work did not
cover all the population of SMEs in area of study, as this was practically
impossible. Random sampling of the
population was therefore employed to measure the problem of financing in the
local government areas.
Time constraint was another challenge
encountered in the course of the research.
Time limitation did not give room for adequate sampling. Workers in financial institutions were also
not readily forthcoming with relevant information.
Another challenge was the low level of literacy and
exposure of the entrepreneurs that were served with questionnaires. Many of
them were not able to complete the questionnaires because they could not read
and/or write. Those who were literate could not supply information such as
capital employed. This is owing to lack
of adequate documentation. Some entrepreneurs were reluctant to divulge
information on their activities and financial needs thinking that the
information would be used against them in tax assessment.
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