ABSTRACT
The study was carried out to examine the financial Problems and
Survival Strategies of Small Scale enterprise in Aguata Local
Government Area of Anambra State. The purpose of the study is to find
out the financial problems and survival strategies of small and medium
scale enterprises. Four research questions and four null hypotheses were
raised. The sample size was 140. Questionnaire was used to collect the
data. Frequency tables, percentages, and z-test were used to analyse the
four hypotheses. The result revealed that small and medium scale
industry face a lot of financial problems and these problems is mainly
as a result difficulty in raising capital. These problems have hampered
its survival. In view of these findings the researcher made some
recommendations to these problems.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Since Nigeria attained independence in 1960, considerable
efforts have been directed towards the nation’s industrial development.
The initial efforts were government-led through the vehicle of large
industry, but lately emphasis has shifted to Small Scale Industries
(SSIs) following the success of SSIs in the economic growth of Asian
countries (Ojo, 2003). Thus, the recent industrial development drive in
Nigeria has focused on sustainable development through small business
development. Prior to this time, particularly judging from the objective
of the past National 4-Year Development Plans, 1962-68 and 1981-85,
emphasis had been on government-led industrialization, hinged on
import-substitution.
Since 1986, government had played down its role as the major
driving force of the economy by a process of commercialization and
privatization (Beyene, 1999). Emphasis, therefore, shifted from
large-scale industries mainly to small scale industries, which have the
potentials for developing domestic linkages for rapid and sustainable
industrial development. Attention was focused on the organized private
sector to spearhead subsequent industrialization programmes. Incentives
given to encourage increased participation in these sectors were
directed at solving and/or alleviating the problems encountered by
industrialists in the country, thereby giving them greater leeway
towards increasing their contribution to the national economy.
Interest in the role of Small Scale enterprises in the development
process continues to be in the forefront of policy debates in developing
countries. The advantages claimed for Small Scale enterprises (SSEs)
are various, including: the encouragement of entrepreneurship, the
greater likelihood that SSEs will utilise labour intensive technologies
and thus have an immediate impact on employment generation
(Ayozie&Latinwo, 2010); they can usually be established rapidly and
put into operation to produce quick returns; SSIs development can
encourage the process of both inter- and intra-regional decentralization
(Ogujiuba et al., 2004); and, may become a countervailing force against
the economic power of larger enterprises (Salami, 2003). More generally
the development of SSIs is seen as accelerating the achievement of
wider economic and socio-economic objectives, including poverty
alleviation (Safiriyu and Njogo, 2012; Ayozie and Latinwo, 2010;
Udechukwu, 2003).
The role of finance has been viewed as a critical element for the
development of Small Scale enterprise 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 (Hossain, 1998; Wattanapruttipaisan, 2003;
Berger and Udell, 2004; Ogujiuba et al., 2004; etc). According to
Valverde et al (2005) bank credit play a crucial role in providing
external financing to Small Scale Industry (SSIs). But in Nigerian
context, this crucial source of finance for Small Scale Industry is
apparently non-functional (Kadiri, 2012). This is evident in the ratio
of loans to Small Scale Industry to Commercial banks’ total credit,
which shows that a meager 0.16% of commercial banks’ total credit was
granted to Small Scale Enterprises in the last quarter of 2011 (CBN,
2011). More worrisome is the fact that this ratio has been falling over
the years and continued unabated in the post-consolidation era (Iorpev,
2012).
Typically, smaller enterprises face higher transactions costs than
larger enterprises in obtaining credit (Olorunshola, 2003). 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.
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
centrepiece of industrial development of many countries such as India,
Malaysia, Pakistan and Indonesia, 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.
Therefore, this study seeks to investigate the financial problems and
survival strategies of small scale industries.
1.2 Statement of The Problem
The key problem facing most small scale enterprises is lack of
finance whether for the establishment of new industries or to carry out
expansion plans. The inability to attract financial credit or resources
has hindered or stifled the growth of small scale enterprise. The
reasons for the lack of fund include the followings:
- High rate of inflation that led to the vast depreciation of
Naira exchange rate, thus making it difficult for most Small Scale
enterprise to obtain required inputs for expansion.
- Low level of savings in the economy, which leads to low capital formation.
- High rate of interest charged on loans, which scares off potential Small Scale enterprise.
- The unwillingness of retail banks to grant credit to Small Scale
enterprise because of the low creditworthiness of these enterprises has
also hampered their growth over the years.
Bothered by the persistent decline in the performance of the
industrial sector and with the realization of the fact that the small
and medium scale enterprises hold the key to the revival of the
manufacturing sector and the economy, the Central Bank of Nigeria
successfully persuaded the Bankers’ Committee in 2000 to agree that each
bank should set aside 10 percent of its annual pre-tax profit for
equity investment in small and medium scale enterprises. To ensure the
effectiveness of the programme, banks were expected to identify, guide
and nurture enterprises to be financed by the scheme. The activities
targeted under the scheme included agro-allied, information technology,
telecommunications, manufacturing, educational establishments, services,
tourism and leisure, solid minerals and construction. The scheme was
formally launched in August 2001. As at end-December 2009, the
cumulative sum set aside by banks was N42.2 billion. The sum of N28.2
billion or 67.1 per cent of the sum set aside had been invested (CBN,
2009). But the fact still remains that with these provisions made are in
most cases not accessible to the Small Scale Industries.
The main thrust of this study is to evaluate the financial
problems and survival strategies of Small Scale enterprise in Aguata
Local Government Area of Anambra State.
1.3 Purpose of the Study/Objective Of The Study
The purpose of this study is the financial problems and survival
strategies of small scale enterprises and specifically, the study seeks
to
- To ascertain if the financing options available to the SSE are
practically obtainable to support the capital required for their
operation.
- To examine the extent to which Small Scale enterprise contribute to economic development.
- To identify the problems they encounter in sourcing out funds.
- Identify survival strategies needed by Small scale industries.
1.4 Research
Questions
This study was guided by the following research questions:
- What are the various sources of funds available to the small enterprise ?
- To what extent do small scale enterprise contribute to towards economic development of a nation?
- What are the problems encountered by the small scale enterprise in sourcing for funds?
- What are the survival strategies to be adopted by the small scale enterprise?
1.5 Statement Of The Research Hypothesis
The following null hypothesis was given for this study
i.Ho:There is no significant relationship between the source of fund
available to small scale enterprises and the funds available to them.
Hi: There no is significant relationship between the source of fund
available to small scale enterprises and the funds available to them.
ii.Ho: There is no significant relationship between the development
of small and medium scale industries and the economic development of
that nation.
Hi: There is significant relationship between the development of
small and medium scale industries and the economic development of that
nation.
iii.Ho:There is no significant relationship between the problems
encountered by the small scale enterprises in their source of funds.
Hi :There is significant relationship between the problems encountered by the small scale enterprises in their source of funds
iv.Ho:There is no significant relationship between the survival
strategies adopted by the small and medium scale industries and the
survival of small and medium scale enterprise.
Hi. There is no significant relationship between the survival
strategies adopted by the small and medium scale industries and the
survival of small and medium scale enterprise.
1.6 Scope Of The Study
This research covers the area of financing and survival
strategies of small-scale enterprises in Nigeria, paying special
attention to Aguata Local government Area of Anambra State.
1.7 Significance of the Study
Small-Scale Enterprises in Africa rely largely on own savings,
not only to grow but also to innovate, firms often need real services
support and formal finance assistance. This study will be of benefit to
the operators of the Small and Medium Enterprise, the government, and
the general public on the possible financing options and survival
strategies available to the Small and Medium Scale enterprise and give
the possible means of accessing them
1.8 Limitation of the Study.
Some factors may limit the level of accuracy and reliability of this study. Such factors include.
i. Difficulty in obtaining data.
ii. Low response rate from involved parties.
In the absence of the above mentioned limitations, all other errors and omissions are entirely those of the researcher.