Financing Small Scale Industry (A Case Study Industry In Edo State)

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Financing Small Scale Industry (A Case Study Industry In Edo State)


Abstract


This study was carried out to critically assess the financing of small scale industry using Andy Industries Nigeria Edo State as a case study. The study was specifically carried out to find out whether small scale industry is adequately financed in Edo State, investigate the source of of small scale industry in Edo State, and identify the challenges of financing of small scale industry in Edo State. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprises of staff of Andy Industries Nigeria Edo State. In determining the sample size, the researcher conveniently selected 41respondents while 38 were received and 35 were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using frequency tables and mean scores. The result of the findings reveals that the small scale industry is not adequately financed in Edo State. The findings also revealed that the source of of small scale industry in Edo State includes: Personal Savings, Microfinance Banks, The study recommends that the government through the Central Bank of Nigeria should establish the much awaited National Credit Guarantee Scheme for SMEs, which should guarantee at least 80 percent of loans needed by small and medium enterprises in Nigeria. To mention but few.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


Introduction

1.1 Background of the Study

Small and Medium Enterprises {SMEs} as defined by the Central Bank of Nigeria, in its credits guidelines to banks, state that in the case of Commercial Banks, refer to business enterprises whose annual turnover not exceeding N500,000. In case of merchant Banks, they are enterprises with capital investment not exceeding N2 million {excluding cost of land} or with maximum turnover not more than N5 million (CBN 1993). The need for finding sources to provide adequate supply of fund is a prime concern to management of small scale enterprises and in particular where to obtain the fund.

A lot has been said and written about SMEs the world over. It has also formed the subject of discussions in so many seminars and workshops both locally and internationally. In the same token, governments at various levels (local, state and Federal levels) have 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.

International Agencies and Organizations (World Bank, United Nations Industrial Development Organization (UNIDO), International Finance Corporation (IFC), United Kingdom Department For International Development (DFID), European Investment Bank (EIB) etc are not only keenly interested in making SMEs robust and vibrant in developing countries but have also heavily invested in them. Locally, the several NonGovernmental Organizations such as Fate foundation, Support and Training Entrepreneurship Programme (STEP), the Nigerian Investment Promotion Commission (NIPC), the Association of Nigerian Development Finance Institutions (ANDFI), as well as individual Development Finance Institutions (DFIs) have been promoting the growth of SMEs in Nigeria through advocacy and capacity-building initiatives, and havecontinued to canvass for better support structures for operators in the SME sub sector (Basil, 2005).

All the massive attention and support given to SMEs relate to the widely acclaimed fact that SMEs are job and wealth creators. In justifying the introduction of SMIEIS in 2003, the then Governor of the Central Bank of Nigeria, Chief Joseph Sanusi said “With a concerted effort and renewed commitment from all stakeholders, this scheme will surely succeed and realize its intended objective of revamping the SMEs as engines of growth in the economy and a veritable tool for the development of indigenous technology, rapid industrialization, generation of employment for our teeming youths and the pivot for sustainable economic development in Nigeria” (Anyawu, 2003). It has however been worrisome that despite the incentives, policies, programmes and support aimed at revamping the SMEs, they have performed rather below expectation in Nigeria. Different people, organizations, and operators have advanced various reasons as to why SMEs have not been able to live up to their billing. While an average operator would always hinge his failure on lack of access to finance, some others think otherwise arguing that inappropriate management skills, difficulty in accessing global market, lack of entrepreneurial skills and know how, poor infrastructure etc are largely responsible (Ekpenyong, 1992).

The Association of Nigerian Development Finance Institutions (ANDFI) in 2004 issued this statement in relation to why SMEs perform poorly in Nigeria: “Finance is usually considered as the major constraints of SMEs. While this may be true, empirical evidences have shown that finance contributes only about 25 percent to the success of SMEs. Thus, the creation of other appropriate support system and enabling environment are indispensable for the success of SMEs in Nigeria”.


1.2 Statement of the Problem

Small and Medium Enterprises {SMEs} in Nigeria have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria. This situation has been of great concern to the government, citizenry, operators, practitioners and the organized private sector groups. Year in year out, the governments at federal, state and even local levels through budgetary allocations, policies and pronouncements have signified interest and acknowledgement of the crucial role of the SME sub-sector of the economy and hence made policies for energizing the same. There have also been fiscal incentives, grants, bilateral and multilateral agencies support and aids as well as specialized institutions all geared towards making the SME sub-sector vibrant. Just as it has been a great concern to all and sundry to promote the welfare of SMEs, it has also been a great cause of concern to all, the fact that the vital sub-sector has fallen short of expectation. The situation is more disturbing and worrying when compared with what other developing and developed countries have been able to achieve with their SMEs. It has been shown that there is a high correlation between the degree of poverty hunger, unemployment, economic well being (standard of living) of the citizens of countries and the degree of vibrancy of the respective country’s SMEs {Ekpenyong; 1992}.

In spite of the fact that SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect on the economy. In a seminar titled “Industrial Financing in Nigeria: Problems and Prospects”, Olorunshola {2001}, identified in his paper the following as the main problems of SMEs, which are however not insurmountable: constrained access to money and capital markets, poor infrastructural facilities, low level of entrepreneurial skills, poor management practices, inadequate equity capital, high rate of enterprise mortality, shortages of skilled manpower, multiplicity of regulatory agenciesand overbearing operating environment, societal and attitudinal problems, integrity and transparency problems, restricted market access, lack of skills in international trade; bureaucracy, lack of access to information given that it is costly, time consuming and complicated at times. The problem and challenges that SMEs contend which are enormous but it is curious to know that some SMEs are able to overcome them. This gives hope and should provide a basis for optimism that there is a way out.


1.3 Objective of the Study

The overall aim of this study is to critically assess the financing of small scale industry using Andy Industries Nigeria Edo State as a case study. Hence, the study will be channeled to the following specific objectives;

  1. Find out whether small scale industry is adequately financed in Edo State
  2. To investigate the source of of small scale industry in Edo State.
  3. Identify the challenges of financing of small scale industry in Edo State.

1.4 Research Questions

The following research question will guide the study:

  1. Is the small scale industry adequately financed in Edo State?
  2. What are the source of of small scale industry in Edo State?
  3. What are the challenges of financing of small scale industry in Edo State?

1.5 Research Hypotheses

  • H0: There is no relationship between financing and performance of small scale industries in Edo State.
  • Ha: There is s relationship between financing and performance of small scale industries in Edo State.

1.6 Significance of the Study

This study will assist small scale industries in identifying other sources of funding for their businesses other than their own personal funds. It will be extremely useful to the current government in identifying potential areas of support for financing small scale industries, and also benefits the government and its small business development agencies, such as SMEDAN, the Bank of Industry, the Ministry of Trade, etc., in formulating policies that can help them to perform better. Finally, the study will be of great use to students and scholars interested in SME funding, and it will serve as a starting point for future research.


1.7 Scope of the Study

This study is carried out to assess the financing of small scale industry using Andy Industries Nigeria Edo Stateas a case study. Specifically the focuses on finding out whether small scale industry is adequately financed in Edo State, investigating the source of of small scale industry in Edo State, and identifying the challenges of financing of small scale industry in Edo State. The respondents of this study will be obtained from staff of Andy Industries Nigeria Edo State.


1.8 Limitation of the Study

As every human endeavor is once faced with a constraint, the same was tenable during the period of this study. In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other tertiary institutions in other , states, and other countries in the world.


1.9 Operational Definitions of Terms

Finance:

Is described as the provision of money when and where it is needed.

Loan:

Is a certain sum of money borrowed SMIEIS: Small and Medium Industries Equity Investment Scheme

Collateral:

It is described as the asset used for the purpose of guaranteeing the amount collected that is, any negligence the lender will impound it for debt recovery.


1.10 Organization of the Studies

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.


Chapter Five


Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the financing of small scale industry using Andy Industries Nigeria Edo State as a case study. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was to critically assess the financing of small scale industry using Andy Industries Nigeria Edo State as a case study. The study was specifically carried out to find out whether small scale industry is adequately financed in Edo State, investigate the source of of small scale industry in Edo State, and identify the challenges of financing of small scale industry in Edo State.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 35 responses were validated from the enrolled participants where all respondent were staff of Andy Industries Nigeria Edo State.


5.3 Conclusions

Based on the findings of this study, the researcher concluded that;

  1. The small scale industry is not adequately financed in Edo State.
  2. The source of of small scale industry in Edo State includes: Personal Savings, Microfinance Banks, The Non-institutional Financial Market, and Family & Friends Sources of Finance.
  3. The challenges of financing of small scale industry in Edo State includes: Inadequate infrastructural facilities, Inconsistent monetary, Fiscal and industrial policies, and Multiple taxation and levies.

5.4 Recommendations

Based on the findings of the study, the following recommendations are proffered:

  1. The federal government should establish Industrial Development Centres (IDCs) in every state of the federation, revamp old ones, and make all of them functional.
  2. The government through the Central Bank of Nigeria should establish the much awaited National Credit Guarantee Scheme for SMEs, which should guarantee at least 80 percent of loans needed by small and medium enterprises in Nigeria.
  3. The government should tackle accelerated development and upgrade of rural/urban road and rail network, water and air transport system and other infrastructural facilities head on and review tariff in favour of local manufacturers especially the SMEs.
  4. There should be a renewed emphasis on science and technical education and the introduction of entrepreneurial studies in all the Nigerian Universities. Entrepreneurial studies should be compulsory and taught up to the four hundred level in the Universities. Quite relatedly, the dichotomy between technicaleducation/qualification such as the Higher National Diploma (HND) and Bachelors Degree should be abolished. In fact, those with requisite technical and functional educational qualification should be given an edge or incentive in the labour market. This would excite talented people to go into technical areas and develop themselves.
  5. If SMEs are to increase their investments substantially, the question of risk capital for the sector becomes of utmost importance especially in the long term. The government should therefore stimulate the development of Venture Capital Market for SMEs through the provision of specific tax incentives for venture capitalists.
  6. The government should reduce the tax rate for SMEs to zero percent (0%) within their first three years of life and then to 20% from the fourth year and beyond. SMEs located in rural areas should enjoy 10% tax rate from their fourth year of operation.
  7. Government should institutionalize the policy of all its ministries, agencies and departments buying only made-in-Nigeria goods and services except where such is not made or manufactured locally.
  8. SMEs should honour payment obligations to banks, government or other grant/loan agencies.

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