Financing Small Scale Industries In Nigeria (A Case Study Of Selected Small Business In Lagos Sub-Urban)
Project and Seminar Material for Accountancy / Accounting
Abstract
The study was conducted on Financing Small and Medium industries in Nigeria (A Case Study of Selected small business in Lagos State sub-urban).
The roles play by SSEs as been confirmed by this study. It therefore means that the SSEs can be effectively used to improve the country’s employment and growth if the above stated problems that they face are tackled. More activities of the government should therefore be directed to the industry.
The data were gathered through the administration of questionnaire to respondents from different department status in the organization.
The findings of this work do not differ significantly from what have been said by former researcher as reviewed in chapter two of this work. However, this does not mean that further study into this area cannot be undertaken since new facts are emerging every day.
Small Scale Industries do not prepare proper and regular financial report that makes them not to have one for loan purposes. Policy should be put in place to make compulsory preparation of business name so that names of from which do not subsequently prepare financial report may be struck off from the register book.
Table of Contents
Preliminary Page(s)
- Title Page
- Certification
- Dedication
- Acknowledgement
- Abstract
- Table Of Contents
Chapter One:
Introduction
- 1.1 Background of the Study
- 1.2 Statement of Research Problem
- 1.3 Objective of the Study
- 1.4 Statement of Research Operators
- 1.5 Statement of Research Hypothesis
- 1.6 Significance of the Study
- 1.7 Scope and Delimitation of the Study
- 1.8 Plan of Study
- 1.9 Definition of Term
Chapter Two:
Literature Review
- 2.1 Definition of Small Scale Enterprises
- 2.2 Advantage of SSE’s
- 2.3 Roles of SSE’s In National Development
- 2.4 Problem of Small Scale Enterprise
- 2.5 Conceptualizing Unemployment /Employment
- 2.6 Economic Growth
- 2.7 The Roles of Small-Scale Enterprise
- 2.8 Finances of Small – Scale Enterprise
- 2.9 The Nigeria Bank for Commerce And Industry (NBCI)
Chapter Three:
Research Methodology
- 3.1 Introduction
- 3.2 Research Design
- 3.3 Restatement of Research Questions
- 3.4 Restatement of Research Hypotheses
- 3.5 The Population of the Study
- 3.4 Sample Size and Sampling Procedure
- 3.5 Source of Data / Method of Data Collection
- 3.6 Method of Data Analysis
Chapter Four:
Presentation and Analysis of Data Collected
- 4.1 Introduction
- 4.2 Data Presentation and Analysis
- 4.2.1 Testing of Hypothesis
Chapter Five:
Summary Recommendation and Conclusion
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
- 5.4 Suggestion to Further Studies
- Bibliography
- Questionnaire
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 (2011) 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, 2004).
The role of finance has been 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, 1993). 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, 1996). 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
- Does SMEs identify the financial incentives
- Does financial institutes improve SMEs activities
- Is their any economy potential of SMEs in Nigeria enterprise
- Can the strategies in place improve the growth and survival of SMEs
- 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.
Chapter Five
Summary Recommendation and Conclusion
5.1 Summary
This research work is generally about the financing small scale industries in Nigeria. It has also tried to define the meaning of financing small scale industry, as the creation of employment and economic growth. The project has undertook the general introduction into the research work led to the review of various literature that relates to the major variables involved in the research work especially small-scale, employment and economic growth under which was pointed out that there is no unanimous agreement among the individual on the definition of small-scale enterprises. Each country tends to define the category of enterprises base on the peculiar needs of public policies; however, there are common indicators in the definition given, such as size of capital invested, value of annual turnover and number of paid employees.
In view of the growing public interest and government realization of the many advantages as well as problems being faced by the enterprises, the government has come out with some monetary measure to offer support, for SSEs development. Banks were also directed to provide specified proportion of their loan/credit to SSEs and financial intermediates were established to provide incentives to SSEs. However, despite the provisions of finance by those institution as well as government effort at promoting SSEs, much is yet to be achieved.
Full employment does not mean that the economic is experiencing 100 percent employment of the labour force since there are always frication and structural unemployment. There are various theories of unemployment ranging from the classical to Keynesian. There are also the search theory, and the dualistic theory. The Marxist and Neo-Marxists theory of unemployment also emphasize the structural causes of unemployment in a society ‘developing’ or ‘developed’.
Economic growth is a long-term increase in the GOP of a country. The controversy that revolves around the difference between growth and development is resolved around structural changes in the mode of production. The relationship between growth and employment can be summarized through the Okun’s law that states that for every percent point rise in the unemployment rate, the national output o goods and services falls by 3 percent point.
Over the years different forms of financial institutions have been established by the government, some of are now defunct, they include small-scale industries credit scheme. The Nigeria bank for commerce and industries. Industrial development centre, the national economic reconstruction fund, small and medium enterprises loan scheme.’
5.2 Conclusions
The roles play by SSEs as been conformed by this study. It therefore means that the SSEs can be effectively used to improve the country’s employment and growth if the above stated problems that they face are tackled. More activities of the government should therefore be directed to the industry. As it has been shown in the findings, most of the small-scale entrepreneurs do not know about the existence of government financial institutions that are meant to provide loans to them. The government should therefore do more by creating proper awareness programme. Since most SSEs are in the rural areas, the awareness programme should be directed at this area.
Though the national environment is not so conducive for a lot of reason ranging from political to non-availability of infrastructure facilities, the small-scale industries seem to be more affected since the large scale counterpart can adjust due largely to availability of capital. The government should therefore create policies that will ensure and guarantee good business environment so that the advantages embedded in small-scale enterprises can be achieved.
This research project work do not differ significantly from what have been said by former researcher as reviewed in chapter two of this work. However, this does not mean that further study into this area cannot be undertaken since new facts are emerging everyday.
The data analysis of the data collected that was carried out in chapter four of this study result in the following findings:
- Most of SSEs are financed through personal savings an loans from associates such as friends and relatives with small proportion of capital coming from private profit oriented banks.
- Most of the entrepreneurs do not know about the existence of most of the financial institutions established by the government to provide finance to their sector.
- Small-scale enterprise effectively involved in employment generation in Nigeria.
- Small-scale enterprises effectively play significant role in economic growth in Nigeria.
- The main factor that militate against most SSEs are capital shortage and bad environment under which they are operating.
- The main reason why loans are difficult to obtain from banks has to do with the inability to produce well- prepared financial statements.
5.3 Recommendations
As stated in chapter one of this study one of the objectives of the study is to make necessary recommendations based on the findings of the study. Recommendations are necessary in order to put policy maker in the right step during the formulation of policies that have to do with the small and medium scale industries.
Firstly as indicated in the findings, mist of the small and medium scale enterprises are financed through personal saving and loans from associates that include friends and relatives. As other findings show, the inability to obtain loan is due to the fact that banks perceive the small-scale industry as having a very high level of credit risks. However, it must be not that the credit risk of small scale enterprise is not too high if necessary monitory activities are put in place as they are for their large-scale counterpart.
Also, most SSEs do not prepare proper and regular financial report that makes them not to have one for loan purposes. Policy should be put in place to make compulsory preparation of business name so that names of from which do not subsequently prepare financial report may be struck off from the register book.
5.4 Suggestion to Further Studies
Since the environment we stay and live is a dynamic and ever changing one, it is pertinent for researcher to suggest from his own perspective, what could be needed and this has to do with setting up a research and training institute (workshop) where people can be taught and trained to carry out research on how to finance a small scale industries in Nigeria for the creation of employment and economic growth.
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