Effects Of Government Funding Schemes On Development Of Small And Medium Enterprises (SMEs) In Nigeria (A Case Study Of SMIEIS)
Effects Of Government Funding Schemes On Development Of Small And Medium Enterprises (SMEs) In Nigeria (A Case Study Of SMIEIS)
Abstract
The study was conducted to investigate the effects of government funding schemes on development of Small and Medium Enterprises (SMEs) in Nigeria. To meet the objectives of the study, survey research method was applied and a sample of 50 respondents was administered to SMEs Owners and Staff in Ojo Local Government Area. Data collection was done through questionnaire administration and the data collected were statistically analyzed with the aid of SPSS software. It was found that government funding schemes significantly affects SMEs growth and development in Nigeria. However, only few entrepreneurs have access to the loans. Therefore, the study recommends that entrepreneurs need to be educated about the procedures and processes required to secure loans from the financial schemes available to SMEs.
Table Of Contents
Preliminary Page(s)
- Title
- Declaration
- Approval
- Dedication
- Acknowledgement
- Abstract
- Table of Content
Chapter One
Introduction
- 1.1 Background of the study
- 1.2 Statement of the problem
- 1.3 Objectives of the study
- 1.4 Research questions
- 1.5 Research hypothesis
- 1.6 Significance of the study
- 1.7 Scope and limitations of the study
- 1.8 Plan of the study
- 1.9 Definition of terms
Chapter Two
Literature Review
- 2.1 Introduction
- 2.2 Conceptual Framework
- 2.2.1 Definition of SMEs
- 2.2.2 Role of SMEs in an Economy
- 2.2.3 Challenges of SMEs
- 2.2.4 Emergence of the Small and Medium Industries Equity Investment Scheme (SMIEIS)
- 2.3 Theoretical Framework
- 2.4 Empirical Framework
Chapter Three
Research Methods
- 3.1 Introduction
- 3.2 Restatement of research questions
- 3.3 Restatement of research hypothesis
- 3.4 Research design
- 3.5 Population of the study
- 3.6 Sample size and sampling techniques
- 3.7 Source of Data
- 3.8 Data collection instrument
- 3.9 Administration of research instrument
- 3.10 Method of data analysis
Chapter Four
Data Presentation, Analysis and Presentation
- 4.0 Introduction
- 4.1 Data analysis and presentation of result
- 4.2 Data analysis of the demographic characteristics
- 4.3 Test of hypothesis
- 4.3.1 Hypothesis one
- 4.3.2 Hypothesis two
- 4.3.3 Discussion of result (tested hypothesis)
Chapter Five
Summary, Conclusion and Recommendation
- 5.0 Introduction
- 5.1 Summary of findings
- 5.2 Conclusions
- 5.3 Recommendations
- References
Chapter One
Introduction
1.1 Background to the Study
Small and Medium Enterprises (SMEs) occupy a place of pride in virtually every country or state. Because of their (SMEs) significant roles in the development and growth of various economies, they (SMEs) have aptly been referred to as “the engine of growth” and “catalysts for socio-economic transformation of any country” (Onugu, 2005). Several studies (i.eSanusi, 2003; Onugu, 2005; Osuagwu, 2006; Ehinomen and Adeleke, 2012) have revealed that funding has been one of the major challenges facing the growth and development of SMEs in developing countries. Hence, the significance of government funding schemes towards the development of SMEs sector cannot be over emphasis.
Governments at various levels (Local, State and Federal levels) had in one way or the other focused on the Small and Medium Enterprises. While some governments had formulated policies aimed at facilitating and empowering the growth and development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives.
According to Onugu (2005), various special measures and programmes have been designed and policies enunciated and executed by government to encourage SMEs development and make them more vibrant in Nigeria. The highlights of these measures include; Fiscal incentives and protective fiscal policies, Specialized financial institutions and funding schemes for the SMEs, Favourable tariff structure, Small and Medium Industries Equity Investments Scheme (SMIEIS), Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) and Bank of Industry (BOI).
The various SMEs financing schemes have been in operation for dose to three decades and it is expected that the scheme should have contributed immensely to SMEs growth and development in Nigeria. It is against this background that this study shall be conducted to examine the effect of government funding on development of in Lagos state.
1.2 Statement of the Problem
For the past 30 years, the Federal Government’s policy interventions for the Small and Medium Enterprises (SMEs) sector of the economy have not produced the desired results as the sector currently contributes one per cent to the GDP (Alli, 2012). It is a common knowledge that SMES in Nigeria find it relatively difficult to obtain institutional credits from financial houses. The need to address these problems comprehensively for a sustainable source of long term financing necessitated the introduction of the Small and Medium Industries Equity Investment Scheme (SMIEIS) by Bankers’ Committee at the initiative of the Central Bank of Nigeria.
The scheme as at the end of 2009 had attracted a total of N42.03 billion with N28.87 equity investment in 336 projects (Alli, 2012). However, it is unclear how beneficiaries in Lagos state access loan from the SMIEIS in order to develop their SMEs. Therefore, the problem of this study is to investigate the mode of operation of SMIEIS, impact of its financial advisory services, challenges facing SMEs operators to access loan from the scheme and find out the extent to which the, SMIEIS have contributed to SMEs development.
1.3 Objective of the Study
The main objective of the study is to examine effects of government funding schemes on development of Small and Medium Enterprises (SMEs) in Nigeria. However, the specific objectives are:
- To examine the effect of Small and Medium Industries Equity Investments Scheme (SMIEIS) on provision of loans to small business entrepreneurs.
- To examine the conditions for accessing SMIEIS loan and its effect on growth of SMEs in Lagos state.
- To examine the effect of financial advisory services by SMIEIS administrators on application of loan.
- To assess the compliance of banks to the disbursement arrangement for administering SMIEIS loans to SMEs operators.
1.4 Research Questions
The following research questions guide the study;
- What are the effects of Small and Medium Industries Equity Investments Scheme (SMIEIS) on provision of loans to SMEs?
- Does SMIEIS loan have effect on the growth of SMEs in Lagos state?
- How does the financial advisory service by SMIEIS administrators affect application of loans by SMEs in Lagos state?
- Does banks complied with the disbursement arrangement for administering SMIEIS loans to SMEs operators?
1.5 Research Hypotheses
The research tests the following hypotheses;
- Ho: Small and Medium Industries Equity Investments Scheme (SMIEIS) does not have significant effect on SMEs operations in Lagos state.
Hi: Small and Medium Industries Equity Investments Scheme (SMIEIS) has significant effect on SMEs operations in Lagos state. - Ho: SMIEIS does not enhance the growth of SMEs in Lagos state.
Hi: SMIEIS enhances the growth of SMEs in Lagos state. - Ho: Financial advisory service by SMIEIS administrators does not have significant effect on application of loans.
Hi: Financial advisory service by SMIEIS administrators has significant effect on application of loans.
1.6 Significance of the Study
The study contribute to knowledge in the area of SMEs development in Nigeria. The study will examine the Small and Medium Industries Equity Investment Scheme (SMIEIS) and how SMEs have benefited from the scheme.
The study shall unravel the factors that hinder SMEs access to loan from government financial schemes in the country and proffer solutions to any problem identified in the course of the study.
The findings of the study will assist SMEs operators and policy makers in finding a better way of improving SMEs performance in Nigeria.
Also, the study will be relevant to students who may conduct similar study in the future.
1.7 Scope and Limitations of the Study
The study covers government funding schemes in support of SMEs growth and development in Lagos State. Focus will be on the mode of operation, challenges of the scheme and its contribution towards providing financial assistance to SMEs in Lagos State. The study shall be limited to Small and Medium Industries Equity Investment Scheme (SMIEIS) implementation in Lagos state.
The study will further be limited by availability and access to data from the Central Bank of Nigeria (CBN) on SMIEIS fund disbursement in Lagos state. However, time and financial constraints are expected to be a major limitation of the study. Also, getting beneficiaries (respondents) to comment on how they secure and implement funds from SMIEIS is another limitation to the study.
1.8 Plan of the Study
The researcher presented the study in five chapters as follows
Chapter One presented general background to the study followed by statement of the research problem; objectives of the study, research questions, research hypotheses, significance of the study, scope and limitation of study, organization of the study and definition of terms.
In Chapter Two literatures were review with respect to SMEs funding scheme in Nigeria under conceptual framework, theoretical framework and empirical study.
Chapter Three cover the research methodology with respect toresearch design, population of the study, sample and sampling technique, instrument of data collection and data analysis.
Chapter Four cover data analyses, presentation and discussion of findings from the data analysis.
Chapter Five however present summary, conclusion drawn and recommendation.
1.9 Definition of Terms
The courses of the study, some basic concepts were used. These concepts are defined below;
Funding:
Is the act of providing resources, usually in form of money (financing), or other values such as effort or time (sweat equity), for a project, a person, a business, or any other private or public institutions.
Government Funding:
Refers to financial support from government to SMEs in Nigeria.
Small Enterprise:
An enterprise whose total cost including working capital but excluding cost of land is between ten million naira (N10,000,000) and one hundred million naira (N100,000,000) and/or a workforce between eleven (11) and seventy (70) full-time staff and/or with a turnover of not more than ten million naira (N10,000,000) in a year.
Medium Enterprise:
A company with total cost including working capital but excluding cost of land of more than one hundred million naira (N100,000,000) but less than three hundred million naira (N300,000,000) and/or a staff strength of between seventy-one (71) and two hundred (200) full-time workers and/or with an annual turnover of not more than twenty million naira (N20,000,000) only.
Large Enterprise:
Any enterprise whose total cost including working capital but excluding cost of land is above three hundred million naira (N300,000,000) and/or a labour force of over two hundred (200) workers and/or an annual turnover of more than twenty million naira (N20,000,000) only.
Small and Medium Industries Equity Investments Scheme (SMIEIS):
Refers to the funding scheme by which the government directive from the CBN that commercial banks should set aside 10% of the profit after tax to provide loan for SMEs in Nigeria.
Chapter Five
Summary, Conclusions and Recommendations
5.0 Introduction
This chapter present the summary of findings, conclusions drawn and recommendations from the study on the effects of government funding schemes on development of Small and Medium Enterprises (SMEs) in Nigeria.
5.1 Summary of Findings
There are various SMEs financing schemes in operation for close to three decades and it is expected that the scheme should have contributed immensely to SMEs growth and development in Nigeria. Based on this study, the following are the summary of findings;
The study found that the Bank of Industries (B0I) have made significant impact on SMEs development in Nigeria through provision of low interest rate loans to entrepreneurs.
The study also found that BOI is an effective government funding scheme that adhere to her mandate. However, like every otherfunding schemes. Following the above findings, government funding does not totally resolve the problem of capital to entrepreneurs as micro business owners do not have access to the loan and services of the establishment.
From the study it was discovered that financial schemes enhance the overall development of SMEs. Thus, making sure entrepreneurs in the SMEs subsector have access to loan has dominated government policies in previous years.
However, the study found that the effectiveness of SMEs is largely dependent on their ability to procure loans. To date, the problem of how to access loan by following the guidelines and procedures still remain the biggest challenge to potential borrowers.
5.2 Conclusions
The study examines the effect of government funding schemes on development of SMEs in Nigeria. From the findings on BOI operations as it affects SMEs the following conclusions are draw from the study;
The study concluded that adoption of SMIEIS impact significantly on SMEs operations through provision of financial support therefore aiding SMEs growth and development.
With respect to SMEs in Lagos state, the study found that SMIEIS enhance the growth of SMEs in Lagos State.
However, the percentage of those who benefited from such loans are relatively small compare to those SMEs that operates without access to government funding loan schemes.
Lastly, it was concluded that the financial advisory service by SMIEIS administrators have significant effect on application for loans. Entrepreneurs who consulted the loan department often have the support of the financial adviser on the documents needed and method of applying for SMEs loans from the government schemes.
5.3 Recommendations
Having considered the findings and conclusions drawn from the study, the following are suggested recommendations by the researcher as ways of improving government financial schemes toward SMEs operators;
First and foremost, entrepreneurs need to be educated about the procedures and processes required to secure loans from the financial schemes available to SMEs. As discovered in this study, lack of adequate knowledge of how to apply for loans is the major reasons entrepreneurs are not benefiting from the financial schemes.
Secondly, lack of properly prepared business plan that will reflect the financial projections of the business an entrepreneur intended to lend money to promote is a major hindrance to access to loans from financial schemes. Therefore, it is imperative for entrepreneur to learn how to prepare business plans before applying for loans. Lastly, government should endeavour to put everything in place that will enhance access to loans by potential entrepreneurs. This should however include putting monitoring machinery inplace to ensure that SMEs funding scheme operators adhere to the mandate for which they are establish and to ensure that access to loan is not based on primordial sentiments.
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