The Influence Of Poor Financing On The Operation Of Small Scale Industries In Nigeria (A Case Study Of Selected Industries In Awka Metropolis) 

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The Influence Of Poor Financing On The Operation Of Small Scale Industries In Nigeria (A Case Study Of Selected Industries In Awka Metropolis)


The every economy a critical look into it will reveal that the need and desire of people are sissified by numerous small-scale manufactures not withstanding the existence of big business organizations which are locally and internationally famous.

Small-scale industries contribute immensely in the growth and development of an economy through their contributions to the national income of such economy. infact small scale industries were the mainstay of every economy world wide.

Inspite of the contribution of small-scale industries financial constraint ahs been confronting their growth and development. It is because of this that the researcher decided to delve into the influence of poor financing on the operation of small scale industries in Nigeria.

A critical look showed that this teething problem of finance was caused by inability of small scale industrialist to sources fund externally through the issue of shares to the public loan overdraft, grant etc. this implies that for the financing of operations of small scale industries the fund sourced internally have proved inadequate for the operations of the industries

In collection of data to know the reason behind this poor financing so that a useful solution will be offered the use of questionnaires and interview were employed. The use of questionnaires and interview analyzed to ascertain the truthfulness and authenticity of data collected. In doing this the use of co-efficient of variation (C.V) was adopted in which case the response with he lower or lowest co-efficient of variation is rejected.

At the end of the study it was discovered that:

  1. Inadequate capital contributed to the failures of small scale industries.
  2. Lack of proper management which resulted from inadequate fund to employ competent employees contributed to the failure of small scale industries.
  3. Absence of eternal equity contributed to the failure of small scale industries.

Following the result from the study. It could be concluded that if adequate fund is provided to them the performance of small scale industries will be improve upon.

To wipe-out this ugly trend some suggestion and recommendations were offered

  1. The gearing of the firms should be increased.
  2. Staff should be well remunerated and motivated.
  3. Government should be given grants and tax relief’s to small scale industrialists
  4. Finally the should go for external sources of fund to finance their operation.

Therefore if the suggestions and recommendation proffered by the researcher in this study as strictly adhered to the objective of growth and development of the small scale industries will be achieved thereby improve the state of Nigeria economy.

Chapter One


A look around us will reveal that that our economy consists of people whose material needs and wants are satisfied by numerous business organizaiton especially in the manufacturing sector we can comfortably count on the roster of business organizations both locally and internationally famous such as lever brothers Plc Nigeria bottling company (NBC) Plc Pfizer Plc UAC etc.

American writers have pointed out that the world view of the UAS as a “land of industrial grants” a national of big operation is misplaced of all manufacturing industries in USA 89% Employs fewer than 100 people and 65% have fewer than 20 employees. In all developed and developing countries all over the world the greater proportion of their productive sector are mainly of small sizes. It then becomes imperative to point out that grant industries with their mass production not with standing it is the small scale industries not withstanding it is the small scale industries that from the backbone of every nations economy.

To some writers (Cofie, 2012; Ahiawodzi and Adade, 2014), the SMEs sector can do better with respect to its current contribution to GDP growth. Invariably, the sector can grow faster and better contribute to employment in Awka metropolis. These arguments are indirect ways of saying that the sector is not realizing its full potential logically as a result of some constraints. Ackah and Vuvor (2011) are among several writers who have acknowledged that some of these constraints are challenges faced by SMEs in having access to credit facilities from financial institutions ( banks, micro-finance firms, savings and loans companies among others), which are the sector’s financiers.

In the microfinance and SMEs literature, several challenges are identified as militating against access to credit facilities among SMEs. Some of these challenges are: SMEs lacking collateral security; poor records keeping; poor credit rating as a result of poor savings history , and stringent lending criteria used by financiers (Ackah and Vuvor, 2011; Cofie, 2012). The fact is that small firms have been found to have less access to external finance and to be more constrained in their operation and growth (Galindo and Schiantarelli, 2003).

Small and Medium Enterprises (SMEs) are viewed as a key driver of economic and social development in the African context. They represent a large number of businesses in a country, generate much wealth and employment and are widely considered to be vital to a country’s competitiveness. SMEs are hailed for their pivotal role in promoting grassroots economic growth and equitable sustainable development (Pelham 2000). SMEs tend to be large in number, accounting for about 90 percent of all enterprises in many African countries and over 80 percent of new jobs in a given country (Reinecke, 2002).

In Awka metropolis, Nigeria the small business sector has both the potential and the historic task of bringing millions of people from the survivalist level including the informal economy to the mainstream economy. According to the last comprehensive survey conducted in 1999, the sector was estimated to employ over 50 percent of the working population (accounting for 2.3 million people). As much as majority of the SMEs in Nigeria operate informally, there are over 35,000 formal SMEs that employ over 40 percent of the working population.

Recognizing the critical role small businesses play in the Awka metropolis, Nigeria economy, the government through Nigeria Vision 2020 envisages the strengthening of SMEs to become the key industries of tomorrow by improving their productivity and innovation. However, it is generally recognized that SMEs face unique challenges, which affect their growth and profitability and hence, diminish their ability to contribute effectively to sustainable development. The International Finance Corporation (IFC) (2011) has identified various challenges faced by SMEs including lack of innovative capacity, lack of managerial training and that these and other challenges have been consistently found in researches conducted in both developed and developing country contexts, making them strongly confirmed constraints faced by SMEs in the global SMEs industry. However, these challenges have been found in previous studies (Adjei, 2012; Cofie, 2012) only from the perspective of SMEs. Zairani and Zaimah (2013) are of the view that this situation is unwholesome and poses a major gap in the literature because some of the challenges faced by SMEs in accessing credit are best identified from the viewpoint of financiers. Thus they contend that a holistic framework of challenges associated with access to financial resources among SMEs in any jurisdiction comes from two sets of people: (1) employees of financial institutions; and (2) SMEs (i.e. SME owners and employees).

1.2 Background to the Study

According to African Development Bank Group Report (2012) Small and Medium Enterprises are the best candidates to achieve inclusive growth in Africa as they contribute significantly to the income generation and joint creation. However, financial access is consistently reported as one of the major obstacles to SME’s growth and development. Only 20 percent of African SMEs have a line of credit from a financial institution. There has been a growing recognition of the importance of the role that Small and Medium Enterprises (SMEs) play in the economic development globally and Nigeria in Particular. Small and Medium Enterprises (MSEs) are lifeblood of most economies. To be successful in this and other business sectors, finance plays a major role. As far as SMEs are concerned as part of business enterprises, they need finance to start up, expand, diversify and for working capital of the business firms. Without finance, no one business enterprise can achieve its objectives. Finance is the backbone of SMEs and any other business enterprise (McKernan & Chen, 2005). Both in the developing and developed world experience, inadequate education and skills, technological change, poor infrastructure, scanty market information and lack of access to credit.

The catalytic roles of micro and cottage businesses have been displayed in many countries of the world such as Malaysia, Japan, South Korea, Zambia, and India among other countries. They contribute substantially to the Gross Domestic Production (GDP), export earnings and employment opportunities of these countries. SMEs have been widely acknowledged as the springboard for sustainable economic development (Osotimehin, Jegede, Akinlabi, & Olajide, 2012). Apart from the fact that it contributes to the increase in per capital income and output, it also creates employment opportunities, encourage the development of indigenous entrepreneurship, enhance regional economic balance through industrial dispersal and generally promote effective resource utilization that are considered to be critical in the area of engineering economic development (Oboh, 2004; Odeh, 2005).

1.3 Statement of the Problem

In almost all economies of the world especially in developing countries in Africa, micro and small enterprises are crucial and are a key factor for sustained growth and development. SMEs play pivotal roles in creating dynamic, market oriented economic growth, employing the growing workforce in developing countries, alleviating poverty and promoting democratization.

Though, small business owners often have more information about the potential of their own businesses, in some situations it can be difficult for business owners to articulate and give detailed information about the business as the financiers want (Aryeetey et al., 1994). In addition, some small business managers tend to be restrictive when it comes to providing external financiers with detailed information about the core of the business since they believe that information about their business may leak through to the competitors (Winborg and Landstrom, 2009).

Lack of planning, improper financing and poor management have been reflected as the main cause of failure to small enterprises to obtain credit has been revealed by (Longenecker et al., 2006). This is yet to be evaluated in the context of a growing self-employment environment and SMEs platform such in Nigeria. Though shortage of credit facility has ever being identified as one of the most serious constraints, facing SMEs and hindering their development in Millennium Goals Reports. Hence, a necessity for this study.

1.4 Objectives of the Study

The main objective of this study is to examine the challenges faced by SME’s in accessing credit in financial institutions of Awka metropolis. Others are:

  1. To determine the access to finance/Capital which represent the greatest problem confronting SMEs in Nigeria
  2. To ascertain first hand, the opinions, feelings, and the pulse of some key SME operators as well as professionals in the SME sub-sector of the economy with respect to the unhealthy state of SMEs in Nigeria.
  3. To assess the top three greatest problems facing SMEs in Nigeria Management, Access to Finance/Capital and infrastructure in descending order of intensity

1.5 Research Questions

In view of the consequence of SMEs in obtaining credit facilities from financial Institutions, it is necessary to formulate some research question which will enable the researcher prefer solution to the identified problems.

  1. What access of finance/capital does not represent the greatest problem confronting SMEs in Nigeria?
  2. What management does not represent the greatest problem facing the manufacturing sub- sector of SMEs in Nigeria?
  3. What are the problems faced by SME’s in Nigeria Management, Access to Finance/Capital and infrastructure in descending order of intensity?

1.6 Statement of Hypotheses

In order to enable the researcher confirm the greatest drawback for SMEs in Awka metropolis, Nigeria and fully appreciate their respective relevant significance, he had to postulate the following hypotheses:

  1. H0: Access to finance/Capital has no significant relationship with the greatest problem confronting SMEs in Nigeria.
  2. H0: Management has no significant relationship with the greatest problem facing the manufacturing sub-sector of SMEs in Nigeria.

1.7 Significance of the Study

The study will be significant to the policy makers-especially in the Ministry of Industry and Trade to understand the challenges and prospects of enhancing SMEs to accessibility to financial credit not only Nigeria.

Additionally, to other researchers, the study will be useful since it will add knowledge to other researchers intending to study about SMEs financial credit accessibility, their strategies and operations. To Small and Medium Scale Enterprises, the present research will build an understanding of the challenges and prospects of SMEs in regard to financial credit markets. This will provide them with a high range choices, opportunities and knowledge of the challenges that are being faced by business entrepreneurs, especially the small and medium enterprises.

The current study provides a way forward on how SMEs should be able to adapt themselves across changes in Nigeria and Global arena in this era of competitive business and economy. Furthermore the study germinates a clear view for researchers in the future to have a background for them to extend towards new frontiers of the study for the future-best of SMEs growth and operations.

Critical policy issues will benefit the current and future government and policy makers in understanding the challenges and needed solution for SMEs to serve socio-economic issues. To other sectors of the economy, a better understanding of SMEs and financial credit operations provide a chance for stakeholders and other sectors to utilize resources more rationally through linking the sectors of the economy efficiently. Awka metropolis, Nigeria needs SMEs for a common man livelihood and also linkage in the sectors development SMEs perspectives need to be understood clearly.

1.8 Justification of the Study

The outcome of this study will be a little guide for the SME’s on how to overcome the problem of accessing credits from financial institutions.

The research will also serve as a source base to other scholars and researchers interested in carrying out further research in this field in future. The study therefore will extend the frontiers of the existing literature by emphasizing the challenges inhibiting SME’s in accessing credit from the financial institutions in Nigeria.

1.9 Scope of the Study

The study focused on the study of challenges inhibits SMEs in accessing credit in financial institution in Awka metropolis, Nigeria which was used for the researcher’s analysis. All references therefore relate to Awka metropoliss financial institutions in Nigeria. The structured questionnaire will be sampled in three (3) selected companies of SME’s in which One hundred and twenty (120) respondents will be administered. The collected samples will be analyzed with statistical package; secondary sources will also be used for review of related literature.

1.10 Definition of Terms

Various bodies, organizations and institutions have defined SMEs differently depending upon their purpose, objective and use.

For this research, the following definitions have been adopted:

i. Micro Enterprise:

A firm, whose total cost including working capital but excluding cost of land is not more than ten million naira (N10,000,000) and/or with a labour size of not more than thirty (30) full-time workers and/or a turnover of less than two million naira (N2,000,000) only.

ii. 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.

iii. 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.

iv. 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. Other abbreviations, terms and notations used in this study include but are not limited to the following:


Nigerian Association of Small and Medium Enterprises, which is an umbrella association of all SMEs

vi. MAN:

Manufacturers Association of Nigeria is the official association of manufacturing companies in Nigeria


Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture is an association of various Chambers of Commerce in Nigeria

viii. NASSI:

Nigerian Association of Small Scale Industries is the umbrella association of all the Small Scale Enterprises in Nigeria

ix. DFIs:

Development Finance Institutions are companies involved in project and development finance such as the Bank of Industry (BOI)

x. SMEs:

Small and Medium Enterprises are those firms, which satisfy the definitions given above

xi. CBN:

Central Bank of Nigeria, the apex bank in Nigeria, which supervises other banks

Chapter Five

Summary, Conclusion and Recommendations

5.0 Summary of Findings

The cardinal driving fulcrum around which the researcher’s efforts revolved all through the course of this study has remained the theme “Challenges inhibiting SMEs in accessing credit in financial institutions in Nigeria”. This propelled and guided the researcher in his efforts in the literature review, the construction of the questionnaires as well as in the selection of the population and sample for the study. This accounts for why the questionnaire was geared at eliciting the entire gamut of problems confronting the SMEs and their fortunes and expectations going forward.

The data presented and analyzed are drawn from the answers of the respondents on whom the questionnaires were administered. The SMEs that were employed in this study cut across the strata of virtually all the legal forms of companies, ranging from sole proprietorships through family businesses, partnerships up to public limited liability companies. In terms of nature or kind of operations, the respondents also spanned various forms of economic activities including services, trading, educational, construction, leisure and tourism, agro-allied, information and telecommunications as well as solid minerals.

The majority of the respondents incidentally showed a lot of interest and swiftly completed the questionnaires and returned them, thus indicating that many SMEs have been groaning under heavy problems and have been looking out for a ‘saviour’ or respite. Hence they embraced this study and thus expect that the outcome would positively impact on their (SME’s) fortunes.

From the responses to the questionnaires and the personal interviews, ten key broad problem areas militating against SMEs in Nigeria crystallized in the following decreasing order of intensity:

  1. Management problems
  2. Access to finance/capital
  3. Infrastructural problems
  4. Government policy inconsistency and bureaucracy
  5. Environmental factor related problems
  6. Multiple taxes and levies
  7. Access to modern technology problems
  8. Unfair competition
  9. Marketing related problems
  10. Non-availability of raw materials locally

These problems manifest and are indicated in various forms, dimensions and configurations according to the respondents. Other problems relate to government fiscal policy measures especially in the areas of tax administration, which has remained weak resulting in massive tax evasion, extortions, illegal levies, low compliance, and corruption at the ports, inefficient duty drawbacks and refund of taxes.

The federal and state governments have done a lot in the past to stimulate the growth and development of the SME sector through the establishment of institutions and programmes that aid SMEs. Despite these laudable efforts and those by the donor agencies, the contribution of the sector to the economic development of Nigeria has remained rather low.

An in-depth examination of the responses revealed that SMEs involved in manufacturing/assembling ventures rated poor infrastructure as their greatest challenge. Worst among the infrastructural problems facing the SMEs relates to electrical energy supply, which is rather hydra-headed. In some cases it is nonexistence in which case the entrepreneur has to provide his own energy supply.

In other cases it is either epileptic in supply with incessant outages with the attendant damages to equipment or the voltage supplied is too low as to support the plant and machinery in use for the respective operation. The increase in production cost emanating from inadequate electric power supply to SMEs is said to be enormous. These costs relate to loss in output due to down time as a result of power outages, cost of fixing damaged equipment resulting from outages, poor quality of products as a result of bumpy production process, the high cost of fuel to operate own generating plants, costs of maintaining and servicing these generating sets. Respondents regretted the frustration they encounter daily from power outages adding that the plant and equipment they use, especially the locally fabricated ones, can hardly absorb the shocks they are routinely subjected to. This impact reduces the efficiency and the life span of these machines.

Many of the results and findings in this research generally appear consistent with prevailing views, feelings, and knowledge saves for the following critical revelations:

  1. Funding or access to capital does not represent the most critical factor for establishing and running a successful business enterprise generally and an SME in particular. Funding remains a necessary but not a sufficient condition for a viable SME development.
  2. This research revealed that managerial problems that manifested in several ways including lack of capacity, lack of clear vision, lack of basic skills, lack of transparency, lack of adequate control, lack of business plan and business strategy, lack of accountability, lack of proper record keeping, lack of business acumen inter alia represent the greatest challenge militating against SMEs in Nigeria. This finding is contrary to the generally perceived belief and notion that access to funding represents the main problem of SMEs in Nigeria.

Recent happenings whereby some retired public servants who were paid their gratuities and pensions did not know how best to deploy them lend credence to this finding. The Nigerian educational system, which is largely geared toward producing “white collar” job seekers as opposed to preparing students for entrepreneurial development significantly contributes to the poor performance of SMEs in Nigeria and also accounts for why many Nigerians generally do not have entrepreneurial spirit and knowledge.

This study evaluated the challenges inhibiting SME’s in accessing credit in financial institutions in Nigeria with a view of finding out how finance value addition could be attained. The study was conducted in SME’s in Awka metropolis. The literature review covered the concept of challenges in relation to finance operations. The reviewed literature established that there was knowledge gap on the challenges faced SMEs in obtained in accessing credit in financial institutions. The study employed a descriptive research design. Data were obtained through questionnaires and documentary reviews. Purposively sampling was used to obtain the data from the respondents. The sample for the study constituted 120 respondents.

The first specific objective of this study assessed the nature of the SMEs in accessing credit in financial institutions in Nigeria. The findings from the study have shown that majority of the SMEs had registered as the Private Limited Liability company.

The second specific objective of this study identified the challenges inhibiting SMEs operators as well as professionals in the SME sub-sector of the economy with respect to the unhealthy state in Awka metropolis, Nigeria. Majority of respondents do not like Bank loan which hinder them in accessing loans from financial Institutions.

5.1 Conclusion

Based on the research findings SMEs in accessing credit in financial institution in Awka metropolis, Nigeria represent other SMEs in the country still face challenges in accessing credit. This study has consistently shown that the traders in the sampled SMEs are so determined to excel in their businesses. The point is justified by data in which 41% of the respondents said that financing is not really a set back to the growth of the organizations. This implies that the SMEs sector in Nigeria remains largely unexploited. Due to the importance of the SMEs sector, there is a need to revitalize it so that it may positively contribute to the implementation of the National Development Vision 2020.

Most of the SMEs required training in the area of finance, legal aspect for them to be able to control their finances assets and build trusts in their operations.

Financial institutions policies and regulations need to be focused not only on security but also on how flexibility to accommodate more SMEs for financial accessibility to raise their capital for operation in Awka metropolis so as to help socio-economic issues of the community. Less than half of the SMEs samples are yet to access financial credit in the financial institutions in Nigeria.

Taxes and interest rates are hinder accessibility of SMEs to access reasonable finances from financial institutions. In addition to that, lack of planning, information and financial knowledge is factors which hindering SMEs acceding financial credits.

Majority of SMEs found in Awka metropolis are based in retail trade. Most of the SMEs found to have large turnover are the one have more chances to access financial credit from financial institutions which in turn build their assets and income flow again gives sense of collateral trust.

5.2 Recommendations

Driven by the findings in this research, SMEs in Nigeria have a long way to go for the sector to be relevant, focused, productive enough, and play the crucial role it is expected to in relation to contributing to the growth and development of the economy of Nigeria.

The challenges and problems of the SMEs in Nigeria are hydra-headed and hence can only be effectively tackled by a multi-dimensional and concerted approach by all stakeholders i.e. the governments (Federal, State and Local) and their agencies and parastatals, banks, regulatory authorities, tax authorities, SMEs (owners and management), the employees of SMEs, multilateral and bilateral agencies and donors.

It behooves the government to create an enabling environment that is appreciably devoid of corruption and bureaucracy, and at the same time, motivating and entrepreneurially friendly. It has to be a two-pronged approach for the government efforts to be effective in recreating a conducive environment in which SMEs can thrive and blossom. It has to be an environment full of opportunities and incentives which would sufficiently attract investors and would-be entrepreneurs including young school leavers who would be motivated enough to opt to be employers instead of looking for paid jobs.

For the government to succeed in reinventing the future of SMEs, it has to extend the current reforms to our educational system to make it more functional, relevant and need-oriented and driven. The thrust and emphasis should be on modern technology, practical technological and entrepreneurial studies aimed at producing entrepreneurs. This implies a change in our culture, value system and orientation as well as Nigerians’ overall attitude, ethics and appreciation of the need for every Nigerian to contribute in making our country better than we met it.

The transformation of our educational system has to start from primary through secondary and tertiary emphasizing the cultural reorientation and focus on technological studies through all the stages. Where possible, the technological and entrepreneurial studies can be thought in the indigenous or local dialect to ensure full understanding and appreciation by the pupils and students. This method is bound to enhance fast and full integration of the new values into the culture of these young impressionable Nigerians.

In the same vein, morality, civics and war against corruption should also be introduced at the primary, secondary and tertiary levels of our education alongside entrepreneurial and technological studies. Corruption should be viewed as a canker worm, which eats deep into the fabrics of any progressive nation and certainly destroys the value system as well as economic growth and development. Civic studies should also be vigorously pursued in our educational system, as it will help the fight against corruption.

There is need to restructure and strengthen policy in favour of a rapid growth and development of SMEs so that they could serve as the hub for industrial transformation. SMEs are expected to champion local sourcing of raw materials and export drive if the environment is enabling enough.

Entrepreneurs and prospective entrepreneurs should appreciate that funding is not the most important element in the successful development of an enterprise. Funding is necessary but not a sufficient condition for success in enterprise development. SME promoters should not be thinking only about money but should be prepared to learn so that they can enhance their capacity to sustain their enterprises.

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