CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Interest in the role of small and
medium-sized enterprises (SMEs) in the development process continues to
be in the forefront of policy debates in developing countries. The
advantages claimed for SMEs are varies, this include: the encouragement
of entrepreneurship; the greater likelihood that SMEs will utilize
labour intensive technologies and thus have an immediate impact on
employment generation; they can usually be established rapidly and put
into operation to produce quick returns. SME development can encourage
the process of both inter- and intra-regional decentralisation; and,
they may well become a countervailing force against the economic power
of larger enterprises. More generally the development of SMEs is seen as
accelerating the achievement of wider economic and socio-economic
objectives, including poverty alleviation.
Staley and Morse
(2001) identify a ‘developmental approach’ to SME promotion which has as
its objective the creation of ‘economically viable enterprises which
can stand on their own feet without perpetual subsidy and can make a
positive contribution to the growth of real income and therefore to
better living levels’. This approach emphasises the importance of
efficiency in new SMEs. Small producers must be encouraged to adopt new
methods, move into new lines of production and in the long-run, wherever
feasible, they should be encouraged to become medium- or even
large-scale producers.
More recent concerns associated with the
growth and efficiency of smaller enterprises has also become prominent.
Using the case of Northern Italy, Piore and Sabel (2009) have argued
that small enterprises are more efficient because they have adopted a
flexible specialisation approach. Correspondingly, there has been
growing interest in whether this model has or can be replicated in
developing countries (Schmitz, 1998; Pederson, 2002; Schmitz and Musyck,
2003; Schmitz, 2008).
The viewed as a critical element for the
development of small and medium-sized enterprises. Previous studies
have highlighted the limited access to financial resources available to
smaller enterprises compared to larger organisations and the
consequences for their growth and development (Levy, 2003). Typically,
smaller enterprises face higher transactions costs than larger
enterprises in obtaining credit. Insufficient funding has been the major
problem confronting SMEs (Peel and Wilson, 2006). Poor management and
accounting practices have hampered the ability of smaller enterprises to
raise finance. Information asymmetries associated with lending to
small-scale borrowers have restricted the flow of finance to smaller
enterprises. In spite of these claims however, some studies show a large
number of small enterprises fail because of non-financial reasons
(Liedholm, McPherson and Chuta, 2004).
The panacea for solving problems of
economic growth in developing countries often reside in the development
of small scale industries. The establishment of those industries has
been the centerpiece of industrial development of many countries such as
India, Malaysia, Pakistan, Indonesia and Nigeria to mention a few. It
is expected that the gains to be derived from the establishment of
small-scale industries will be translated into the generation of
employment at a low investment cost. These industries will also be able
to harness raw materials locally and serve as raw inputs to the
large-scale industries.
1.2 STATEMENT OF RESEARCH PROBLEM
The growth of output of any economy
depends on capital accumulation, and capital accumulation requires
investment and an equivalent amount of saving to match it. Two of the
most important issues in developing countries, are how to stimulate
investment, and how to bring about an increase in the level of saving to
fund investment.
The primary focus of this research work
emanates from the fact that small scale enterprises owners do not have
sufficient finance to carry on due to the low saving culture of the
people in this part of the world. Besides, the Central Bank stipulated
that 20% of banks’ credit should be granted as loan to the Small Scale
Enterprises but this was not adhered to because of the reason that most
loans granted to Small scale holders were not repaid and so the banks
did not consider them as creditworthy. In the light of these, this
research shall evaluate the financial incentive available to the
small-scale enterprises.
1.3 OBJECTIVE OF THE STUDY
The main purpose of this study is to
identify and consequently analyze the financial incentives that are
available to small and medium scale enterprises. Other objective
include:
- Contribution of growth of the Nigeria Company.
- Role played by financial market in financing small and scale enterprises in Nigeria.
- Economic potential of small and scale enterprises in Nigeria
- Strategies that would improve the development, growth and survival of small-scale enterprises
1.4 STATEMENT OF RESEARCH QUESTIONS
- 1. Does SMEs identify the financial incentives
- 2. Does financial institutes improve SMEs activities
- 3. Is their any economy potential of SMEs in Nigeria enterprise
- 4. Can the strategies in place improve the growth and survival of SMEs
- 5. What are the roles played by financial market to improve SMEs in Nigeria
1.5 STATEMENT OF RESEARCH HYPOTHESIS
Hi: There is no relationship between Small and Medium enterprise and economic growth in Nigeria
Ho: There is significant relationship between Small and Medium enterprise and economic growth in Nigeria
HI: The role played by financial market does not improve SMEs activities in Nigeria
Ho: The role played by financial market improve SMEs activities in Nigeria
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study can be
viewed from the perspective of the importance of the industrial sector
as a whole to the economy, which could in turn be examined from the
government policies that are meant to promote industrial development and
provide a solid foundation for the long-term growth in the industrial
sector.
Above all it is believed that small and
medium scale enterprises will propel the rationalism of economic
independence, long after political independence thus there is a need to
evaluate and promote small and medium scale enterprises. This research
work shall contribute to existing literature on SMEs by providing a
detailed analysis of the financing strategies that are available to
small and medium scale industries in Nigeria with the aim of improving
their operations and effectiveness.
1.7 SCOPE AND DELIMITATION OF THE STUDY
The study will be limited to SSEs as defined. Also the study shall limit the number of SSEs to be study to fifty.
1.8 PLAN OF STUDY
The study will be divided into five main
chapters. Chapter one will cover the general introduction into the
study under which introduction, statement of problems, objectives of the
study, statement of the study are discussed. Chapter two focus on
literature review, which has to do with a general presentation of views
by of former researchers as well as scholars on the main variables of
the study. Chapter three will contain the structural composition of the
study under which the source the finance of small scale enterprises are
discussed. Chapter four will be devoted to data presentation and
analysis. The last but by no means the least in importance chapter will
be used for summary, conclusion and recommendations.
1.9 DEFINITION OF TERM
Small-Scale Industry:
An industry with a labour size of 11-100 workers or a total cost of not
more thanN50 million, including working capital but excluding cost of
land.
Medium Scale Industry:
An industry with a labour size of between 101-300 workers or a total
cost of over N50 million but not more than N200 million, including
working capital but excluding cost of land.
Large Scale: An
industry with a labour size of over 300 workers or a total cost of over
N200 million, including working capital but excluding cost of land.
Finance: The act of
providing funds for business activities, making purchases or investing,
financial institutions and banks are in the business of financing as
they provide capital to business, consumer and investors to help them
active them goals.
REFERENCES
Liedholm C (2000), “The Dynamics of
Small-Scale Industry in Africa and the Role of Policy” Gemini Technical
Report 2, Washington DC
Liedholm C, MacPherson M and Chuta E
(2004), “Small Enterprise Employment Growth in Rural Africa”, American
Journal of Agricultural Economics, Vol. 76, 1177-1182
Pedersen Poul Ove (2004), “Structural
Adjustment and the Structure of the Economy of Small Towns in Zimbabwe”
in Pedersen P Ove et al Flexible Specialisation: the Dynamics of
Small-Scale Industries in the South, London, IT Publications, 21-41
Peel M and Wilson N (2006) “Working
Capital and Financial Management Practices in the Small Form Sector”,
International Small Business Journal, Vol. 14, 52-68
Poire M and Sabel C (2009), The Second Divide: Possibilities for Prosperity, New York, Basic Books
Saito K and Villanueva D (2002),
“Transactions costs of credit to the small-scale sector in the
Philippines”, Economic Development and Cultural Change, (29), 3
Schmitz H (2008), “Flexible
Specialization: A New paradigm of Small-Scale Industrialization”, IDS
Discussion Paper, 261, IDS, Brighton