TABLE OF CONTENTS
TABLE OF CONTENTS
1.1 Background of the study
1.2 Statement of Problem
1.3 Objective of Study
1.4 Research Questions
1.5 Research Hypothesis
1.6 Significant of the study
1.7 Scope and Limitation of the Study
1.8 Research Methodology
1.9 Organization of the study
2.2 Conceptual Clarifications
2.3 Banking sector Reforms
2.4 Post-Banking Sector Consolidation
2.5 Nigerian Banks and the Problem of Financing SMES
2.6 Government Involvement in Development of Small and
Medium Scale enterprises
2.7 Definition of Small and Medium Enterprise
2.8 Government Agencies as Source of Finance
2.9 Survival Strategies for Small Scale Business in Nigeria
2.l0 Sources of Finance and small Scale Business in Nigeria
2.l1 The Role of Banks in Providing Dept. Finance to SMES
2.12 Survival Strategies for Small Scale Business in Nigeria
3.2 Research Design
3.3 Restatement of Research Questions
3.4 Restatement of Research Hypothesis
3.5 Characteristics of the Studied Population
3.6 Sampling Design and Procedure
3.7 Data Collection Instrument
3.8 Administration of the Data Collection Instrument
3.9 Procedure for Analyzing collected Data
3.10 Limitations of the Research Methodology
DATA PRESENTATION ANALYSIS AND INTERPRETATION
4.2 Data Presentation and Analysis
4.3 Analysis of Respondents
4.4 Test of Hypothesis
SUMMARY, RECOMMENDATIONS AND CONCLUSION.
5.1 Summary of Findings
1.1 BACKGROUND OF THE STUDY
In most of the developing countries, the
corporate world is usually characterized by low investment rate
occasioned by inadequate of instable funds and poor economic condition.
Many of such nations therefore feel the need to revitalize their
economies by embarking on economics reform programs expected to boost
the level of activity in the economy Olaleye, (2002).
The promotion of small and medium
enterprises is cornerstone of economic policy for a large number of
industrialization countries. Public support for small and medium
enterprises appears to be based on the widely held perception that small
business sector is an incubator of economic growth, a place where
innovation takes place and new ideas become economically viable business
enterprises Craig, Jackson and Thompson, (2005).
In line with this, the role of small and
medium scale enterprises in fosters economic development has been well
articulate in different form of government policies. The specific
attention on them is based on their expected impact and potential
contribution as well as accelerative effort in achieving macro
objectives pertaining to full employment of local technology. They also
serve as catalyst for increase national productivity and a veritable
launching pad into the world export market.
Giving an insight into the small and
medium scale enterprises phenomenon, the Nigerian economy does not seem
to have been able to reap the advantages obtainable from the SMEs in the
past. In the same vein, these industries complain about neglect or lack
of government interest in their quest for rapid growth and development.
The existing lukewarm relationship is not in the best interest of the
It is for these reasons that the
Nigerian government started to show interest in the affairs of SMEs in
the 1970s to the present. Some of the positive actions taken by the
government Include providing funds for some research into these
industries, creating small scale industries division or departments, as
well as small scale credit schemes in various states and at the federal
level and giving the subject a pride of place in national development
plans to the 1970s and 1980s particularly 1981-1985 plan.
Hence; in view of the growing public
interest and governments realization of the many advantages of SMEs, the
government has made some policies and distinct pronouncement with
regards to the operation and promoting the sector (both economically and
monetary). The monetary measures include the establishment of financial
institutions to provided finance to the sector. Banks were also
required to provide a specified proportion of their available credit to
indigenous borrowers with particular emphasis to SMEs. In addition,
various financial intermediaries were established by monetary
authorities to provide incentives to these growing industries and
business with the specific purpose of aiding them financing managing
In line with the above statements, it is
obvious that the study of this nature cannot be overemphasized because
of the new look of the Nigerian banks and other financial institutions
in providing the needed funds to small and medium scale enterprises.
1.2 STATEMENT OF THE PROBLEM
It is a common knowledge that the small
and medium scale enterprises have the potential of lifting the economy
out of the doldrums in which it is presently languishing Ajonbadi,
(2002). The opportunities are simply, enormous. However, the cry has
been the lack of investible funds. Thus is moreso, when allegations have
been raised against the Nigerian government and the Nigerian banks in
particular, that business policies have been largely made to favour the
large scale to the detriments of the SMEs sub-sector. Hence, SMEs does
not have better access to funds.
SMEs are mostly likely to suffer severe
problems of asymmetric, information because of their size and background
and the lack of formal credit rating measures for firms. Many
economists, 'mostly notably Slightz and Weiss (1981). Contend that
private lending institutions may indeed fail to allocate loans
efficiently because of fundamental information problems in the market
for SMEs business loans. Slightz and Weiss (1981) argue that banks
consider both the interest rate they receive on the loan and the
riskness of the loan when deciding to make a loan. Thus, the inability
to merge these two factors together hinders SMEs in accessing the needed
Also, it has been observed that one of
the reasons for the slow growth of SMEs in Nigeria is their limited
access to long and medium term credit facilities for the acquisition of
fixed assets and necessary expansion. The scarcity 'of funds for this
purpose is mainly due to the short term nature of banks deposits which
are the major sources of finance to the economy. Evidently in trying to
reduce the risk inherent on the mismatch of the term of their deposits
and loans, banks have been overtly cautions in selecting projects to be
granted medium long term finance, while at the same time charging
relatively high interest rates. Therefore, the study focuses on the
problem of financing as it relate to small and medium enterprises.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to
examine the effect of financing on the performance of small and medium
scale enterprises in Lagos State. Thus, in order to achieve the above
objective, the following specific objectives services as our guide:
- To examine whether small and medium scale enterprises have better access to funds due to bank consolidation.
- To examine whether government policies and reform programmes have impact on SMEs performance.
- To examine whether adequate financing of SMEs by financial institution will enhance the growth of the sector.
- To examine whether the interest rate charge by banks and other financial intermediaries on loan affects SMEs performance.
- To enumerates possible recommendations and solutions that may prove useful in better financing of SMEs.
1.4 RESEARCH QUESTIONS
In order to achieve the objectives of this study, the study attempts to provide answers to the following research questions:
- To what extent does finance has impact on the performance of SMEs?
- Does SMEs have better access to funds due to bank consolidation?
- Does government policies and reform programmes have impact on the performance of SMEs?
- Does adequate financing or SMEs enhance the growth of the sector?
- Does interest rate charge by banks and other financial intermediaries on loans affect SMEs performance?
1.5 RESEARCH HYPOTHESIS
Hypothesis is a tentative assumption
made in order to draw out and test its logical or empirical
consequences. A hypothesis is a tentative statement about relationships
that exist between two or more variables (Osuagwu, 2002). Hypothesis is
state in two forms, "Null" which is denoted by "Ho" and "Alternative"
which is denoted by "Hi". As general rule null hypothesis is always
negative, while the alternative is positive in relation to the variables
of the research topic.
In order to provide answers to the research questions, the following are the hypothesis of this study:
1. Ho: Finance does not hinder the growth of small and medium scale enterprises.
Hi: Finance hinders the growth of small and medium scale enterprises.
2. Ho: SMEs does not have better access to funds due to bank consolidations.
Hi: SMEs has better access to funds due to bank consolidations.
3. Ho: Government policies and reform programmes does not have impact on the performance of SMEs.
Hi: Government policies and reform programmes has impact on the performance of SMEs.
1.6 SIGNIFICANCE OF THE STUDY
The essence or significance of this
research study can be seen in the expected goal the study is to achieve.
This range from exposing the immense economic benefits derivable from
SMEs when giving enough backing (financial) from the financial
institution in terms of its contribution to the national economy and
employment generation to the people.
This study will also delve into some
other areas of sources of finance to SMEs. This is because some small
scale entrepreneurs may not even be aware of some of these credit
schemes to help and assist them.
This study also contributes to knowledge
in terms of provisions of additional information in the form of ideas,
opinions and views from the field (industry operators) to develop and
move the sector forward by way of checking the relationship that exists
between the financial institution and SMEs in Nigeria.
1.7 SCOPE AND LIMITATION OF THE STUDY
The study covers Financial Institutions
and SMEs in Nigeria, particularly in Lagos State and does not extend to
other sectors. This study is restricted to selected small scale
enterprises in Ikeja Local Government of Lagos State. The study covers a
representative numbers of the generality of SMEs. No special
consideration is given to sex, age and nationality in collecting data
from the respondents.
The level of accuracy of this study is
proportional to the availability of information that the respondents are
willing to give. Also, there is this uncertainty that information given
is without bias. Also, undertaking a research study is a serious.
business. It requires a commitment of time, money and energy, both
intellectual and physical. Hence, balancing the study with academics and
going to work is an Herculean task.
1.8 RESEARCH METHODOLOGY
The design of this research study is to
investigate the effectiveness of financial institution on SMEs
performance in Lagos State. The data that will be collected for this
study will be obtained from both primary and secondary source of
information. The primary data will be collected through questionnaire,
while the secondary data will be collected from organization news,
journals and other related publications.
Responses to the research questions will
be analyzed using frequency, mean standard deviation and simple
percentage analysis. Findings from the study will be comprehensively
discussed in the light of the research problems, hypothesis, purposes,
research questions, literature of the research, and other relevant
issues to the research. Conclusions will be drawn and recommendations
1.9 DEFINITIONS OF TERMS
- Banks: This is a financial institution that aid in collection of deposit and granting loans and other auxiliary service to the public.
- Banking: Is a service delivery business in which information is pivotal, whether in the honoring of cheques or other withdrawals.
- Consolidations: This is another term used in place of merger and acquisition.
Thus, it is the combination of two or more corporation.
- Enterprises: This is any
commercial undertaking that is either publicity or privately owned or
controlled. The word is used interchangeably with organization in this
- Performance: The degree of efficiency and effectiveness with which the organization objectives are achieved.
- Small Scale Enterprises: These are enterprises in which power consumptions, number of employees, quantum of raw materials, output like are small in size.