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1
ONYISI VIRGINIA
CONSTRAINT ON GROWTH OF SMALL AND MEDIUM ENTERPRISES IN ENUGU STATE”.
MANAGEMENT
A THESIS SUBMITTED TO THE DEPARTMENT OF MANAGEMENT, FACULTY OF
BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA ENUGU CAMPUS
Webmaster
Digitally Signed by Webmaster’s Name
DN : CN = Webmaster’s name O= University of Nigeria, Nsukka
OU = Innovation Centre
2011
2
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Small and medium scale enterprise (SMEs) have
been generally acknowledged as the bedrock of the industrial
development of any country. Apart from the numerous goods
and services, they provide a veritable means of large scale
employment as they are usually labour intensive. (Yerima et al
2007). In developing countries, Nigeria have since the 1970‟s
shown increased interest in the financing and promoting
small and medium scale enterprises from three main reasons.
According to Owuallah, (1999:9). These reasons are:
i. Transformation of traditional or indigenous industry.
ii. Increase in job creation.
iii. Redistribution of wealth and income.
iv. Redistribution of wealth and income.
3
They also provide training grounds, for entrepreneur even
as they generally rely more on the use of local materials.
Osaba, (1987:105) says that, the distribution of goods has
continued to be the only viable and reliable option for
development, growth and survival of any economy. The work
explore the role and contribution, constraints and prospects of
the small as it contributes to the growth and development of
the Nigeria economy, and the government efforts, internal
and external support.
(SMES) have been full recognized by government and
development experts as the main engine of economic growth
and a major factor in promoting private sector development
and partnership (Adeusiyi, 1997: 95).
Ajakaiye (2003) state that the Central Bank of Nigeria
(CBN) has initiated a project for baseline economic studies to
develop in integrated information system for SMEs to foster
better implementation of small and medium industries equity
investment scheme (SIMES).
4
Federal government has facilitate SMEs by established
National Association of small and medium industries (NASSI),
Central for Management Development (CMD), Fund for
Small scale industries (FUSSI). This is because of have
concern for the survival of the SMEs.
SMEs in Nigeria can be categorized into urban and rural
enterprise. The former can be sub-divided into organize and
unorganized enterprise. The organized ones tends to have paid
employee with a registered office whereas the unorganized
category mainly made up of artisan who work in open space
temporary wooden structures, or at home and employ little or
in some no salaries workers (Lied Holm and Mead, 1987,
World bank, 1992).
The owner of SMEs are people of average means with
specialized or no specialized skill, therefore, because of
financial constraint, location of market, managerial skills, lack of
information etc they are unable to meet their target objective.
As a result, efficiency and productivity are low, Due to hard
condition which Nigerian are facing, SMEs has failed. As a
result we cannot feel relaxed about the situation.
5
This research will therefore find out the difficulties of SMEs in
Enugu State.
1.2 STATEMENT OF THE PROBLEM:
Promoter of small and medium enterprises are people with
ideas, dreams and imaginations but majority of the entrepreneurs
lack the needed financial means to translate their dreams and
aspirations into concrete that will earn them the desire wealth.
In spite of the roles play by SMEs in the Nigeria economy,
the sub sector has continued to suffer from the other numerous of
problems. The aim of this research is therefore to articulate the
challenges posed to the development of a dynamic SME. Sub-
sector arising from some lingering constraints. Such problems
includes:
Inability of SMEs to understand, appreciate and utilize available
information for project selection opportunity.
Lack of access to finance due to delay in granting approval
and or non-availability of information/material to enable banks
process request immediately. Lack of collateral security, high cost of
6
production and over heads due to spiral inflation and non availability
of infrastructures. Poor location
and inefficiency in the administration of incentives which
discourage rather than promotes SME growth. Social and
environmental; problems due to high rate of business failure
as the result of poor resources and infrastructure base a state
of economy. Attitudinal disposition of Nigeria towards made-
in-Nigeria goods, low educational background and lack of
management and entrepreneur skill. It is against this backdrop
that the researcher intends to search out solutions to the
above problems of SMEs.
1.3 OBJECTIVE OF THE STUDY:
This study has earlier identified some of the problems
facing the small and medium enterprises in Enugu State. It is
in the light of these problems that the following objectives
would be set to help the study to achieve eh major aim of
7
financing and promoting small and medium scale enterprises in
Enugu State. There are:
1. To identify the major problems militating against
effective management of SMEs in Enugu State.
2. To identify the problems encountered by the small and
medium scale enterprises in obtaining loans from the
banks.
3. To find out whether SMEs have helped to solve the
problem of unemployment.
4. To establish the relationship that exist between the
performance of SMEs and economy development in
Nigeria.
5. To establish the relationship that exist between
commercial banks loan an the performance of SME in
Enugu State.
6. To identify the problems encountered by the banks in
the process of administering loans to SMEs.
8
7. To investigate the real effect of financing and
promoting SMEs, on their performance.
8. To evaluate various measures introduced to boast
industries production and its‟ financing and how this
affected the realization of the set goals.
9. To offer suggestions and recommendation that could
help for this success and advancement of small and
medium scale enterprises in Enugu State.
1.4 RESEARCH QUESTIONS:
It is clear that SMEs living within Enugu state
encountered various problems in their bid to make profit or to
succeed as thriving business owners despite their numerous
contributions toward socio-economic development of the state.
In order to realize the main aim of this study therefore,
answers to the following questions were sought:
Is lack of adequate capital a restraint to small
and medium enterprises?
9
What are the various problem militating against
effective management of SME in Enugu State.
What are the various problems encountered by
SMEs in an effort to obtaining loan from
commercial banks?
What are the problems encountered by banks in
the process of administering loan to SMEs.
To what extent does the government encourage
SMES?
1.5 RESEARCH HYPOTHESES:
The researcher for this study has chosen this hypothesis.
Ho: Small and medium scale enterprises are not
veritable tool for economic growth and development
and has no impact on the economy.
Hi: Small and medium scale enterprises are veritable
tool for economic growth and development and has an
impact on the economy.
10
1.6 SIGNIFICANCE OF THE STUDY:
This research would be invaluable benefit to both the
financial institution and small and medium scale industries in
Nigeria, as well as the countries policy makers who have eh
desire to place Nigerian on a sound economic and industrial
footing. When this research is concluded, it would have
contributed to the study of knowledge already pilling on the
issue of constraints on growth of SMEs, which cannot over
look an aspiring nation like Nigeria.
Finally, since it is the aspiration of our national policy on
education to train our youths to be self reliant or self employed
after school, this study will therefore stimulates their zeal to
involve in the establishment of SMEs.
1.7 SCOPE OF THE STUDY:
11
This scope of this study in terms of its contents is
restricted to the concept of constraints on growth, financing and
promoting SMEs in terms of achieving its organizational goal
and objective. The study is limited to five selected small and
medium scale enterprises in Enugu State. The researcher
restricted the study to Enugu State because of limited finance
and time, and therefore, services as a sample representative
of the entire state and indeed Nigeria as a whole. The
convenience of data collection is another reason behind the
research‟s choice of the study.
1.8 DEFINITION OF TERMS:
This section defines related concept used in this
research.
Small scale enterprise: An enterprise with a labour size of
11-100 workers or a total cost of not more than 50 million
including working capital but excluding cost of land (Sule,
1986:207).
12
Medium scale enterprise: An industry with a labour size of
between 1010-300 workers or a total cost of over 50 million but
not more than 200 million including working capital but
excluding cost of land (Clifford, 1972:85).
Business: Business includes any trade, industry, professional
and any occupation carried on for profit Jerome (1996:2).
Growth: According to Anyanwu (1998:300) growth refers to
an increase in output as a result of bank loans invested in
small and medium scale business.
Constraints: A hindrance of business not forwarding or not
prospering.
Enterprises: It means any establishment engaged in
production, repairs or services to satisfy human wants and
make room for profits.
13
REFERENCES:
Adebuiyi, B. S. (1997), Performance Evaluation of Small and medium Enterprises (SMES) in Nigeria Central Bank of Nigeria Bullion, 21 (4), 7-8. Anyanwu, C. M. (1996). Efficient Administration of credit for Small scale industries development in Nigeria, Central Bank of Nigeria Bullion 18 (2) 15-17. Ajakaiye, A (2003) Central Bank of Nigeria to develop SMEs information system. Business day, 3 (332). Ayodele, A. (1997). Macro Economic Environmental Investment Stimulation and Economic Growth. The Nigeria experience. Ibandan Nigeria Economic Society.
Clifford, B. (1972). Basic Small Business Management, University Press, New York. Jerome , A. F. (1996:11) Legal Requirement of Business in Nigeria New. Nigeria March. Liedholm, C. Mead, D. 1987 Small scale industries in developing countries Empirical evidence and policy implications. International Development paper No . 9: Department of Agriculture Economics, Michigan State University, East Lansing, MI, USA.
14
Nnanna, O.J. (2003). The role of Central Bank of Nigeria in enterprise Financing, CBN, 27 (1). Osbaba, A. M. (1981) towards the Development of Small and Medium Industries in Nigeria Caxton Press: Ibadan. Owualah, S. I. (1999) Entrepreneurship in small business firms. Entrepreneurship, Nigeria, 2 small by business Nigeria management Ikeja, Lagos (G MAG investment Ltd Edunal publisher P.O.B. 1284). Sule, E. I. K.(1986), Small scale industries in Nigeria: Concept, Appraisal of government policies and suggested solutions to identified problems Central Bank of Nigeria Economic and Financial review, 24 (4), 6-8. Yerima W, M & David M, D (2007) Journal of Business and Public (ISSN: 1936 9704) Volume 1, Number 4 (Fall 2007).
15
CHAPTER TWO
2.0 REVIEW OF RELATED LITERATURE
2.1 INTRODUCTION
The constraints of setting up and running small and
medium scale enterprise have become a nation wide issue. As
a result, it has attracted many reaction from prominent people
in private and public sector including the government.
Many developing countries have consequently become
increasingly aware of and interested in assessing the role that
small and medium scale enterprises might play in their
industrialization process. Hence, this chapter will examine
some vital literature under several topics to shed light on this
work. Some other writers made immense contribution on topic
related to this course of study in a wider horizon.
In the Nigeria economy, attention have drawn to the fact
that small and medium scale enterprise has very little attention,
16
whereas they provide employment for approximately triple the
number engage in large scale manufacturing as well as playing
their roles of crucial importance to the developing economy.
This is why it is important to reconsider the constraints
hindering the growth of their sector.
2.2 THE CONCEPT OF SMALL AND MEDIUM SCALE
ENTERPRISE
The concept and definition of small and medium scale
enterprise is dynamic in character and varies with time and also
varies among institutions and countries. Notwithstanding, the
basic definitional parameters are the same. They includes:
Number of employees, Asset and turnover.
Sule (1986) stated that, it is evidence around the world
that small and medium scale enterprise provide an effective
means of stimulating indigenous entrepreneurship, enhancing
greater employment opportunities per unit of capital invested
and aiding the development of local technology. Small scale
17
enterprise: An enterprises with a labour size of 11-100 workers
or a total cost of not more than 50 million including working
capital but excluding cost of land (Sule, 1986:207) while
medium scale enterprises is an industry with a labour size of
between 101-300 workers or a total cost of over 50 million, but
not more than 200 million including working capital but
excluding cost of land (Clifford, 1972: 85).
SMIES and NERFUND (2004) define SMES as an
enterprise with an asset base not exceeding N200,000,000.00
excluding land and working capital with staff strength of not less
than 10 and not more than 300.
A cursory glance at the structure of SMES in Nigeria
reveals that 50% are engage in distributive trade, 10% in
manufacturing, 30% in agriculture and the rest 10% in services.
A special feature of Nigerian SMES is that distributive trade
component is generally considered more commercially viable
than the manufacturing component hence they attract more
funding from bank and other financial institution (Ibru, 2004).
18
In summary SMES can therefore be said to be conducted
in the following terms .
i. As a Proprietorship: Single ownership .
ii. As a Partnership: Where of and 20 people
polled their resources together.
iii. As a Legally Incorporated Entity: Having
the characteristics of a legal person and this
could be a private limited sole company.
However, in Nigeria more than 83% of the SMES operate
under the first two businesses type, while the third one operates
mainly as family business. (Ibru, 2004).
2.3 WHY SMALL AND MEDIUM SCALE ENTERPRISE?
The choice of small and medium scale enterprise within
the industrial sector is based on the following propositions:
Small And Medium Scale Enterprise
1. SMES mobilize funds which otherwise would have
been idle;
19
2. They have been recognized as a seed-bed for
indigenous entrepreneurship;
3. They are labour intensive, employing more labour per
unit of capital than large enterprises;
4. They promote indigenous technological know-how;
5. They are able to compete (but behind protective
barriers) – thus have less foreign exchange
requirements;
6. They cater for the needs of the poor; and
7. They adapt easily to customer requirements (flexible
specialization) Yerima et al, 2007: vol 1, No. 4)
Ibik etal (2009:5), According to his book, stated the
economic and social need for SMES as follows:
i. Creation of Employments: Small and medium scale
enterprise employ more labour per unit of capital and less
capital per unit of output, therefore, an efficient way of creating
employment. As we can observe in third world countries that
20
are yet to develop, unemployment is one of the principle cause
that resulted to mass poverty and there is no real possibility that
increases in output in existing agricultural and industrial output
in existing agricultural and industrial enterprises will absorb the
current excess of labour e.g. in Nigeria today unemployment is
on High side which has decrease in labour that is finally
affecting development in the future.
In USA today, so many Nigeria over there are under the
employment of small business sector which confirm that small
business plays a very vital role in employment and
development of so many countries.
ii. Independence/Self Reliance: Small and medium
scale enterprise makes people in the third world
countries rely on home made goods and not much on
foreign goods. This also make goods and services
available to the needy at any point in time even in the
western world.
21
iii. Acceleration of the Development of Both
the Urban and Rural Areas:
With more enterprises in the community, more
infrastructural facilities are attracted , like good roads,
electricity, telephone services etc, more people get
employment and they are able to better their standard of
living and save for investment. All these, accelerate
development both in the urban and rural area. For
example, if more enterprises are established in the rural
areas people from areas get employed and at the end of
the month they are paid, this means getting more income,
they can improve their standard of living and they may
also think of improving their lot by embarking on community
development like building hospitals, school etc.
iv. Direct Creation of Wealth by Increasing Contribution
to the Gross National Product (GNP):
The Gross National Product (GNP) is the total naira
value of all the goods and services produced in the country in a
22
particular year. If the GNP increases each year, it is a sign
that the economy is growing and wealth is being created. For
example, if in 1990 the number of enterprises in the country
were two hundred and six (206) and by 1998 it has increased
to three hundred and forty two (342), it means that more
products and /or services have been introduced or are
available in the economy and thus, increasing the GNP. This
increase has been achieved by the establishment of new small
and medium scale enterprise. Ani etal (2007: 42).
v. Increase in Revenue Base of Government: This occur
through various form of taxes, including personal and
company taxes, SMES contributes to increasing government
revenues.
vi. Utilization of Local Resources: Small and medium
scale enterprise are known for their creativity in the utilization
of local raw materials that do not require high level
technology to process. In Nigeria, for instance SMES are
concentrated in such enterprise as food processing, textile,
23
wood work, leather product, soap and detergent sub-sector that
require simple technology and the raw material are in
abundance. Small enterprises as recycle discarded by product
of large firm as a primary input in their own productive
processes (Sule, 1986). These is why government or many
countries show interest in the promotion of SMES.
2.4 THE CONSTRAINTS OF SMALL AND
MEDIUM SCALE ENTERPRISE:
The economic history of industrial countries points to the
obvious fact that surest to an industrial revolution is through
small and medium scale enterprise. We have also come to
know the obvious importance of SMES and their
contributions to the national economy. Experience has
shown that when given proper attention SMES contributed to
the national development unfortunately, despite the
importance of small and medium scale enterprise in the
economy of the nation, the sector is still having some
24
constraints. Following these constraints therefore, many
eminent and ordinary people writing on this issue have been
quoted in various circumstances concerning these
constraints and their corresponding solutions:
LACK OF FUND:
One of the main constraints is lack of fund, writing
on this Moh, (1991) stated that; “there is hardly any doubt
that the core of the constraints in the business sector is one
with a financial coloration. Most of the sector problems in
the areas of production, marketing and indeed general
management can be resolved by a financial solution.
Therefore, capital is critical for the efficient organization of all
productive activities. He continued that although various
institution that are presumably supposed to provide credit to
the small business sector exist such as the bank, ministry of
industries loan scheme, world bank small business loan,
NBCI etc, their impact has remained largely minimal. Unlike
25
large enterprise, lending to small business is thought to be
inherently a more risky understanding principally due to
the following:
a. Lack of Adequate Data Base and Track Record
b. Insufficient collateral.
c. Relative high cost of administering and monitoring
small loan portfolios.
d. High rate of default.
In practice, it would appear that banks prefer to pay
stipulated fines rather than comply with Central Bank of Nigeria
provisions. Indeed access to loans SME is really difficult
especially in these days.
In support of the above view, Ovuorie (1995:9) in his
article “ coping with small size business” noted that : “ Small
scale business in Nigeria have very little or no access to
loanable funds.
Lending institutions conspicuously; Every body wants to
do business with millionaire. It is not surprising therefore that
26
SMES operators end up in the ugly trap of under investment.
This leads to very low returns on capital which in turn leads to
the premature death of the business.
Writing on the same view Jarret, (1977:322) in his book
noted that; “The dilemma of the less developed countries is
that it can provide only very limited capital income of its people
is so low , since this is the case, there is a corresponding
limitation upon capital investment and this in turn means that
productivity and therefore income remains low” This is main
reason why for so long par countries have remained poor, They
are in the grip of economic situation which is very difficult
indeed to change.
Writing on the same view Callaway (1975:31) A study of
225 business in Ibadan observed that, the majority of the
entrepreneurs mentioned capital shortages as the greatest
obstacle to their business expansion. In his contribution,
Shanon, 1977:255) in book Under-developed Area.”
27
A book of reading and research stated that;
“The business man‟s lack of capital
makes him dependent on his supplier
for credit; and upon his customer,
and his financier are one person, his
position deteriorates to one complete
dependence”.
Uzowulu,(1987:8), mentioned difficulties in obtaining local
and foreign finance for the big projects as one of the major
problems of SMES.
Marsha (1986:35) in his article “Self Reliance and Small
Enterprises“ stated that “The problem of finance is
characteristic of small scale industries in both the developed
and the developing countries. Indeed virtually all the other
problems confronting small scale industries emanate from lack
of finance.” Dr. Masha also observed that small scale enterprise
often lack knowledge of the right sources of finances for
investment and working capital. In addition, institutional
28
sources of funds are often unwilling to provide facilities for
these enterprise. This made the SMES to fact the perennial
problem of shortage of working capital which hinder their ability
to produce efficiently. The result is that many SMES have to
depend on alternative sources of capital in the form of family
savings or borrowing from middlemen and money lenders
where interest rate, collaterals and terms of repayment are
much more exacting than those of the normal banking
institutions.
LACK OF INFRASTRUCTURAL FACILITIES:
Inadequate provision of essential services such as
telecommunication, access roads, electricity, water supply
constitutes one of the greatest constraints to SMEs
development. Most SMEs resorts to private provisioning of
these at great expense. A world Bank study (1989) estimated
that cost accounted for 15-20 percent of the cost of establishing
a manufacturing enterprise in Nigeria. Contemporary evidence
29
has shown that the relative burden of the private provisioning of
infrastructural facilities is much heavier on SMES than on large
scale enterprise.
HIGH RATE OF ENTERPRISE MORTALITY:
The incidence of inadequate working capital, which
constrains productive capacities of the SMES as well as
absence of succession plan in the event of the death of the
proprietor, leads in many cases to frequent early demise of
SMES. Moreover, the persistence of unstable macro economic
environment, arising mainly from fiscal policy excesses has
often smothered many SMEs.
FINANCIAL INDISCIPLINE:
Some SME proprietors deliberately divert loans obtained
for project support to ostentatious, expenditure. Others refuse
to pay back as and when due, the interest and the principal,
because of political involvement and the misconceived notion of
sharing the so called national cake. (Chibundu, 2006).
30
LACK OF EXPERIENCES AND TRAINING:
Another serious problem is lack of experience and
training. Many apparently successful business owners often
neglect the need for experience and training. They rely on their
skills and talent, completely ignoring the need for experience in
accounting, personnel, advertising, budgeting, purchasing and
other aspects of management. Again, many business failure
result from situations where people go into business without
previous experience. So farmer, civil servants, lorry driver etc
in the past entered into business because when they saw
traders making money, they felt the business was very easy
and profitable profession. They were doomed to fail because
they never had thorough preparation before launching their
business.
Writing on lack of experience, Dennis etal (1976)
stated that;
“the ultimate failure of business could
be directly attributed to lack of experience
in accounting, purchasing, advertising,
31
budgeting, pricing and other aspects of
management”.
To support the above view, Onyemelukwe (1976:10) in
his book titled” Problems of Industrial Planning and
Management in Nigeria” stated that “It is well accepted that lack
of necessary know how is the main cause of the slow rate of
industrialization in Nigeria”.
POOR LOCATION:
The location of a business plays a major role in overall
performance. Business location calls for a place that suits
the particular business to be located and certain factors are
considered.
When the choice of location is poorly made it will surely
affect the activities of such business. It is for this reason that
prompted Jorenem (1983: 10) to state that;
“A poor location is a serious handicap
to any business . Often the reasons for
a venture „s shrinking sales has been
attributed to the declining quality of the
location”
32
He added that “for a manufacturing enterprise finding the
right location involves the selection of the region or town with
low transport cost reasonable amount or relevant labour,
power-supply, accessibility to suppliers and customers, and
freedom from burden –some local regulation and taxation.
To support the above view, Tootelian etal (1976) also
observed that a “poor or mediocre location is a severe handicap
to any business whether soap factory, advertising agency or
piano store. He added that often the reason for a firm‟s
shrinking sales can be traced directory to the declining quality
of the location.
MARKETING CONSTRAINTS:
One of the unnoticed grave problem facing small scale
entrepreneur is marketing of her products. The small scale
businessman experiences tremendously difficulties finding the
appropriate market for her products, and even when the market
is there, the technique of identifying the proper distribution
33
channels may be another set of problem, this made Jorenem
(1983:11) to comment that:
“Small business owners often don‟t see the
need for advertising or sales promotion.
Most of them hardly go beyond erecting a
signboard which merely indicates their
location. Hardly do they realize that
effective advertising wakes prospective
customers to develop strong opinions on
their product in particular and the firm in
general.”
The first concern of every business is to get and keep
customers. The best products, equipments, facilities and
personal avail nothing unless they stimulate sales. Few
products are electrifying, however and rarely is the old myth
true about a better mouse trap bringing the world to one‟s door.
Unless revolutionary inventions or services are brought to the
attention of the public, they have little chance of being sold. To
build customer awareness and demand an organized and
vigorous marketing Champaign is essential. A complete
34
marketing strategy includes not only personal salesmanship,
but also a saleable line of products or services, appropriate
pricing, and a good business location.
LACK OF PLANNING AND BUDGETING:
Without proper planning and budgeting any small scale
business is bound to fold up after a year or two of operation.
In Nigeria situation, most SMEs do not make proper
planning and budgeting of their scarce resources. Most of them
do not have any plan for the future, they give insufficient
attention to planning.
Take the case of civil servants who jumped into business
during the 1975 purge when they were dismissed from service.
They are certainly not prepared for business and because of
this many of them failed.
Some are prompted to go into business in order to make
a living to support the family when an attractive job is not at
hand such business owners might lack the necessary
35
managerial skills of planning and budgeting for business
success.
Writing on this , Alonge (1992:12) stated that;
“ The importance of proper planning and
budgeting cannot be over emphasized.
The experience of many thousand of small
or newly started businesses attests to the
need to understand and learn now to
perform these essentials in the financial areas”.
He added that, “entrepreneurs may be excellent sales
people and may be able to superbly market their products, but if
they cannot properly plan and budget, their business will fail”.
GENERAL STATE OF THE ECONOMY:
In the heat of ongoing economic recession the collapse of
small scale enterprises has created considerable concern in
Nigeria.
36
According to Ifedi (1992) “recent surveys in Nigeria
highlight various symptoms of business failure. Some of the
factors mentioned derive from SAP. He added that companies
may come across difficulties caused a downswing of an
economic cycle or the ups and downs of business”.
On his own part, Boswell (1973) stated that;
“General state of the economy is a key
influence very broadly in years of economic
„squeeze‟ and slowdown fewer new businesses
seem to be set up, also the number of
Bankruptcies and liquidations tends
to be high. Conversely in boom years
more firms enter the field and relatively
few are forced out , as one would expect”.
UNWISE COMPETITION WITH THE BIG FIRM
Some of the SMEs not minding their size of operation try
to rub shoulders with t he bigger firms in trying to gain share in
the market, this often led them to serious problems.
37
Commenting on this, Tootelian etal (1976)
stated that; “In spite of limited resources ,
many smaller entrepreneurs attempt to
challenge large , strong concerns for a
share of the market. After rude awakenings,
they belatedly recognize that the corporate
giant with its volume production and massive
economies of scale has greater capacity of
offer similar products in broader product line
less money.”
INACCURATE PRICING:
Some small SMEs in their bid to compete with large
enterprises or because they know nothing about costing
usually mess themselves up financially when they sell at prices
that are very low in order to sell off their products in the
competitive market.
38
Tootelian etal (1976) have also comments that “prices or
services fees set too low to recover costs and still furnish a
reasonable profit plague many small enterprises.
Some operators are forced into this situation by general
price decline in the market while others are trapped by trying to
compete with larger, stronger enterprises. Frequently this
practice, they continued, results from ignorance of actual
company costs and pricing theory”.
UNFAVOURABLE GOVERNMENT POLICIES:
Obviously, there are some decrees and policies which the
government impose on SMEs which instead of aiding its
growth, scare away investors. The government acts as a
secondary and tertiary party through official control and
administration of policies by its use of weapons such as tariffs,
subsidies, various taxes and other ordinances. These policies
represent obstacles to the development of private Nigeria
enterprises.
39
Writing on this Ifedi (1992) stated that;
“Government intervention can be
disruptive such as price control, new
taxes interest rates or undue interference
with market forces”.
Other reasons for business failure according to Ifedi
include; “bad corporate communication, ageing product arising
from lack of innovation and inability to keep up with change in
technology, bad luck in which a thriving firm suddenly falls in
the face of a misfortune such as an accident or unforeseen
tragic event, massive frauds in which managers misuse their
positions to run down the SMEs tragic event, massive frauds in
which managers misuse their positions to run down the SMEs
they are supposed to build up, there are occasions in which the
SMEs expands too fast and runs short of cash, managers may
lose control because the SMEs affairs becomes to complex for
the information system, to cope with, some SMEs should not
40
have started in the first instance as there was no proper
feasibility study or market research
2.5 ATTITUDE OF GOVERNMENT TOWARDS THE
GROWTH OF SMEs:
Over the years, the Federal government has taken
various steps, including monetary, fiscal and industrial policy
measures to promote the development of small and medium
scale enterprises (SMEs). Specifically, the government has
been active in the following areas.
i. Funding and setting up of industrial estates to
reduce overhead costs.
ii. Establishing specialized financial institutions,
including the Small Scale Industry Credit
Scheme (SSICSs), Nigerian Industrial Development
Bank (NIDB), Nigerian Bank for Commerce and
Industry (NBCI) to provide long-term credit;
41
iii. Facilitating and guaranteeing external finance by
the World Bank, African Development Bank and
other international financial institutions;
iv. Facilitating the establishment or the National
Directorate of Employment (NDE), which also
initiated the setting up of new SMEs;
v. Establishment of the National Economic
Reconstruction Fund (NERFUND) to provide
medium to long-term local and foreign loans for
small, and medium scale businesses, particularly
those located in the rural areas;
vi. Provision of technical training and advisory services
through the Industrial Development Centre.
(Chibundu, 2006).
Although Government has been showing same concern
to this sub-sector, evidence still show inadequacies to the
overall efforts of the government to lessen the problem of this
enterprise.
42
Concerning this, Ovuorie (1990) stated that “the
establishment of the people‟s Bank and NERFUND has not
solved the financial problem of small companies in Nigeria.
What the people‟s Bank provide is not enough to do any
serious business. And the technical details required by
NERFUND are beyond the scope of most small companies.
Above all, the more fact that the commercial banks are the
executing organ of the FUND is enough to scare many small
scale businessmen away.
2.6 THE ROLE OF CENTRAL BANK OF NIGERIA
TOWARDS SMEs FINANCING
One of the developmental role of the Central Bank of
Nigeria as the apex of financial institution in the country is to
facilitate the flow of finance to the needy areas of the economy,
the section therefore, is to provide an overview of the role of
CBN of Nigeria in SMEs financings, the objectives of the CBN,
highlighting the need for the developmental roles of the bank.
The support of the CBN in the past institutional arrangement for
43
the SMEs will also be considered, furthermore, an overview of
the current financing initiatives and proposal on the way forward
will be discussed.
The role of capital in enterprise growth and development
has been recognized over the years and well documented in
various literatures. Capital is needed for the establishment of
new businesses as well as the expansion, modernization and
diversification of existing ones. Although, there is evidence that
there are many bottlenecks in the growth and development of
enterprises in Nigeria such as difficulties in local sourcing of
raw materials, capital inadequacy, poor managerial and
technical know how.
In recognition of this and in order to address the
problems, various efforts and policies have been put in place.
Consequently, the CBN has been very active in the
establishment and development of the Nigerian capital market.
The Nigeria capital market is a source for raising long-term
finance for project development in both public and private
44
sectors. The capital market deals in both government securities
(which are issued, managed by CBN) and private ones. The
volume of private securities was boasted in 1978, following the
implementation of the Nigerian enterprises promotion scheme
which the CBN through it‟s monetary and credit policy
effectively facilitated.
Also, in order to endure steady availability of long term
finance to enterprises, the CBN contributed to the
establishment of Development Finance Institution (DFIS) in
which the CBN holds substantial equities shares.
The CBN also facilitated the setting up of the N100 million
agricultural credit guarantees up to a maximum of 75 percent of
commercial and merchant bank‟s agricultural sector.
The fund is currently managed by the CBN, other
institutions, which the CBN facilitated their establishment,
include the Nigeria export, import Bank which was established
in 1991, provides expert financing and export related service
such as rediscounting and refinancing facilities and stocking
45
facility to export firm CBN, (2004). These developmental roles
of the Bank have been justified on the following grounds:
i. Acute Shortage of Capital and Low Rate of Domestic
Saving Independence:
The Nigeria economy as at 1960, was characterized by
acute shortage of capital and low rate of savings. There
was therefore the need to generate saving within a
short time to enhance economic development.
ii. Need for Requisite Institutional Framework:
The traditional functions of the CBN would be hampered
if the bank did not undertake some developmental
functions. For instance, issuance of legal tender currency
as well as the execution of momentary policies would fail in
the absence of concomitant development of money and
capital markets. Even now, the inquiring problems in these
markets still constrain the smooth transmission of monetary
policies.
46
iii. Need for a Sustainable Rate of Economic
Growth:
There is need to have a government agency
capable of carving out a growth path for the
economy. This is common to emerging economies
and constitutes the divergence in the roles
assigned to the Central Banks of the developed
and those of the developing economies. The CBN
therefore is to ensure the development of the
economy through the establishment and nurturing
of requisite institutions that would facilitate the
allocation of resources for instance both the
agricultural and industrial sectors of the economy
need supportive policies the much needed
employment and transformation of the economy.
This is an appreciation that the achievement of macro
economic stability which the bank pursue would be better
facilitated if the performance in the real sector is enhanced
47
and focused, such that demand pills inflation can be controlled
through improved productivity.
In a nutshell, an appreciation that the sources of the
traditional functions of the CBN requires an enabling and
conducive productive environment which is a prerequisite for
the growth and development of the economy provides a strong
basis for the development roles of CBN (CBN, 2000).
2.7 THE CONTRIBUTION OF COMMERCIAL BANK TO THE
GROWHT OF SMALL AND MEDIUM ENTERPRISE.
Commercial banking institution in Nigeria can be
classified into two. The purely indigenous bank owned 100%
by Nigeria (Government and individuals) and the mixed banks
with a majority indigenous shareholding at lest 60% equity and
minority foreign interest as Nigeria law does not allow the
establishment of foreign bank with a majority foreign interest
(Femi : 1986).
48
Types of Credit Facilities:
Commercial banks are more interested in providing short
term loan facilities to their customers. These are:
a. Loan account: The loan is mainly used to supplement
what they already have. The amount granted is generally
small and it is repayable in the shortest possible time.
b. Overdraft: Commercial banks also lend funds to their
customers on overdraft, and funds advanced on this basis are
in theory repayable on demand, while interest is payable on
the outstanding balance on a daily basis.
It is generally granted to business customers large,
medium and small scale enterprises. An overdraft is granted
until can be renewed as long as the bank consider that the
customer is still “good risk” (Reed etal 1984 in Femi ‟86).
49
THE PRIMARY FUNCTION OF COMMERCIAL BANK TO
SMEs:
i. The Extension of Credit to Worthy Borrowers.
a. They are vehicles for implementing government
national development plans.
b. They make funds available for general
development in all aspects of the economy.
ii. Business Advisory Services: The main aim of this
advisory service is to assist small business customers to
develop their business in such a way that they can attract
bank finance. Entrepreneurs are taught how to introduce
simple record keeping and accounting in their operations.
Commercial Banks also help SMEs in national and
international business transaction for instance giving
letters of credit, bill of exchange etc to facilitate business
transaction. Because government has substantial
ownership interest in the commercial bank in Nigeria, they
have served as an indirect means by which the business
50
enterprises operate. In 1980, the Central Bank of Nigeria
(CBN) credit policy guideline required the commercial
banks to allocate a minimum of 16% of this total loans
and advances to small scale enterprises and since then,
the commercial banks has increased their loan portfolio to
the private sector enterprise because of government
policy on the development of the nation economy through
the private sector.
2.8 CHALLENGES AND OPPORTUNITIES FOR SMEs
FUNDING:
There are various funding windows available to SMEs.
The banking system provides the major sources of funds.
There are funding from the Commercial Banks (even if limited),
the community banks and specialized banks like the people
banks. There are also development bank like the Nigerian
Industrial Development Bank (NIDR), Nigerian Bank for
51
Commerce and Industry (NBCI) and Nigerian Agricultural Credit
Bank (NACB) which provide support to SMEs.
Micro-finance institutions such as corporate societies and
credit union also fund SMEs. The Donor Agencies are sources
for funding SME through grant for development projects.
Despite the entire above list, SMEs continue to lack adequate
funding. The funding sources from the above listing are limited
in scope and not always available. Commercial banks do not
readily support SMEs due to the perceived risk in lending to
SMEs (Slatter, 1990:115).
2.9 OPPORTUNITIES FOR FINANCIAL
INSTITUTIONS TO LEND TO SMEs:
Most Large Scale Enterprises (LSE) have reduced their
borrowing from banks due to the high interest rates and short
tenors or such loans. Banks therefore no longer lend to the real
sector of the economy. Loanable funds are now used to
52
finance consumer imports and to speculate in the Foreign
Exchange Market (Oresole, 1985:2000).
SMEs present opportunity to banks to support the growth
sector of the economy. Unfortunately, SMEs will remain
unattractive due to the risk presented below.
2.10 CHALLENGES IN LENDING TO SME’s:
In Nigeria, policy framework for the supportive of SMEs is
in its infancy while the funding institutions are not favourably
disposed to SMEs. The banks have historically and until
recently been very averse to supporting SMEs.
Some of the common reasons for the lack of appetite for
SMEs by bank include the following : (Gruver, 1999),
Unfavourable bank lending strategies which
do not meet SMEs requirement.
High risk associated with lending to SMEs.
Lack of adequate collateral by SMEs.
53
Low returns on SMEs investment due to high
operating cost.
Promoters low education, management and
entrepreneurial skills.
Competition from cheap imports which erode
the market for SMEs goods.
Poor and unreliable financial records which
make financial review both difficult and
unreliable.
Both financial and other business records are
not adequate to meet capital market listing
requirement.
54
REFERENCES
Alonge, s. (1992:12) Managing your Enterprise to Maturity, Business Times, May, 25. Ani N. B., Nwandu E.C. (1999:42) Entrepreneurial Management: 3rd Publication Nerce Publishers 2007. Boswell, J. (1973; 10) “The Rise and Decline of Small Firms.” George Aclen and Unwin Limited, London. Callaway, A (1975:31) Nigeria Enterprises and the Employment of Youth, a study of 225 Businesses in Ibadan. Ibadan University Press, Nigeria. Central Bank of Nigeria (2000) Commercial and Merchant Banks Loans and Advances to SME s 1993 -2000. Central Bank of Nigeria Statistical Bulletin, 10 (18), 25. Chibundu, (2006) Strategies for Nigeria SMEs to Grow Economy;http://blog.Emcnet.com/voip- enterprisetrucnet/strategies-for-Nigerian-smes-to-gro-enono Dennis H., Tootelian and Ralph M. Gaedeke (1976: 232) Small Business Management. Good and Gaedeke, R.M. Year Publishing Company Inc. Santa Monica California. Femi, Adekanye (1986) The elements of Banking in Nigeria: F& A Public share Marina Lagos Nigeria.
55
Gruver, S. (1999). The Changing Environment of Business, John Hopkin: Baltimore. Ibik P.N., Oluka G. A., Agu P.A (2009:6) Small Business Entrepreneurship: A Pragmatic Approach in the New Millenniums : Ifedi, V. (1992:8) Survival Strategy for Small Scale Industries Business times, April 20 Jarret; H.R. (1977:159) Geography of Manufacturing 2nd Edition, Macdonald and Evans Ltd, Plymouth. Published by: EL-Felys Creation 56 Robinson Street, Uwani Enugu. Manila P. (2003) Accelerating Small and Medium Enterprise Financing In Philippines: http://www.adb.org/pinter- frinely.asp?fn=%2fDocuments%2FNews%2F 2003%fnr200……. Masha, R. A (1986: 33) Self Reliance and Small Scale Enterprises, the Central Banks Role Bullion, vol. 10 No 2. April / June. Moh Reference (1991) The Future of Small Scale Business in Nigeria Savanna Bank News, vol 6, No. 4 April. Obitayo, K.M. (2000). Creating an enabling environment for Small Scale Industries, CBN, 25 (3). Onyemelukwe C.C (1976 : 101) Problem of Industrial Planning and Management In Nigeria, William Clowes and Sons Ltd. London, great Britain.
56
Oresolu. F.O. (1985) A Strategy for the development of Small Scale Industries. Central Bank of Nigeria Economic and Financial Review, 24, (4) 15-`6. Oriuwa, J.O. (1994:7) Problem and Prospects of Small Scale Businesses in a Depressed Economy Business Times, July 23. Reed, etal (1984) in Femi, A. (1986). The element of Banking in Nigeria F & A Publisher, Manina Lagos Nigeria. Shanon, L.W. (1977:235) Under – developed Areas, a Book of Readings and Research. Harper and Brothers Publishers, New York. Slatter, P. (1990). Cases in Strategic Management for the Smaller Business Stuart Illinois: Homewood (SMEDAN).(2004). Small and Medium Scale Enterprises Development Agency Government fiscal and Macro economic Policies. Small Business Journal, 2 (232). Sule, E. K. (1986) Small scale Industries in Nigeria concept: Appraisal of Government Policies and Suggestions Solutions to Identified Problems CBN Economic and financial Review, 24 (4). Tootelian, D, (1976:232) Small Business Management. Good and Gaedeke, R.M. Year publishing Company Inc. Santa Monica Califonia.
57
Uzowulu, V.C. (1987 :8) “Analyzing the Problems of Small Scale Business Firms” Yerima Wim, David M. D. (2007) Small Medium Scale Enterprises: A veritable Tool for Sustaining Job Creation in Nigeria, Journal of Business and Public Policy (ISSN:1936-9794) Volume 1, Number 4 (Fall 2007).
58
CHAPTER THREE
3.0 RESEARCH METHODOGY
3.1 RESEARCH DESIGN
Research design is a kind of blue print that guides the
researcher in his or her investigation: a format which the
researcher employs in order to systematically apply the
scientific method in the investigation of the problems.
This work employed an exploratory survey research
design. This suit the purpose and it‟s appropriate for the study,
in assessing the constraints on growth of Small and medium
enterprise in their performance.
3.2 AREA OF THE STUDY
The study covered five randomly selected small and
medium industries in Enugu State.
For the purpose of clarity, the industries are designated by
letter of the alphabet as follows:
Palm Olive Oil Industries Designated by A
59
Innoson Nigeria PLC Designated by B
Uchechukwu Bread Industries Designated by C
Autor star Industries Limited Designated by D
Palm Kernel Industries Limited Designated E
3.3 POPULATION OF THE STUDY
The population of the study covers all the staff of the five
randomly selected industries. However, the staff strength of
each stratum (industry) is outline in table 3.1 below.
60
TABLE 3.1: STAFF STRENGTH OF THE FIVE (5)
RANDOMLY SELECTED SMALL AND MEDIUM SCALE
INDUSTRIES
3.4 SAMPLE SIZE DETERMINATION
From the population size of 235, the sample size was
determined for a limited population using Yamane‟s statistical
formular as follows:
Industry Staff Strength
A
B
C
D
E
40
60
15
20
90
Total 235
61
N = N
1 + Ne2
Where:
n = Sample Size
N = Estimated population
E = Error margin or level of significant
0.05 or 5% :. Substituting, we have
n = 235
1 + 235 (0.05)2
= 235
1 + 235 (0.025)
= 148.0315 = 148
Hence, 148 represent the sample size for the population.
The sample size for each stratum is estimated using Bowley‟s
proportional allocation formular.
nh = n Nh
62
N
Where nh = the number of unit allocated to each stratum
Nh = the number of staff in each stratum
n = the total sample size
N = the actual or total population
Firm A: 40 x 148 = 25
235 1
Firm B: 60 x 148 = 38
235 1
Firm C: 25 x 148 = 16
235 1
Firm D: 20 x 148 = 12
235 1
Firm E: 90 x 148 = 57
235 1
:. n = 25 + 38 + 16 + 12 + 57 = 148
63
3.5 SAMPLING PROCEDURE
A stratified sampling technique of probability sampling
was used to carry out the study. This enables the researcher to
make an optimal representation of the population.
3.6 SOURCES OF DATA
Two set of data was utilized for the study: primary and
secondary source:
3.6.1 PRIMARY SOURCES OF DATA
The primary data for the research was collected
throughout the use of questionnaire administered to the
necessary personnel in the selected industries in the study area
and through personal interviews. The data from these sources
shall be analyzed with the aim of answering the research
questions to either accept or not accept the null hypotheses
respectively.
64
3.6.2 SECONDARY SOURCE OF DATA
Secondary data may be published data or unpublished
data (Kothari, 2004). The secondary data for the study was
obtained from published sources. They include mainly relevant
text books, journals of CBN and material from internet.
3.7 METHOD OF DATA ANALYSIS
Description statistical tools (tables, figures, and
percentage) were used in presenting and analyzing the data.
Data collected was coded, grouped into frequencies, computed
and arranged into table for easy reference and analysis.
Presentation methods used include sample percentages, tables
etc. The main methods of analyzing data collected for the
study were simple percentage for testing the research
questions and correlation coefficient for testing the hypothesis.
65
REFERENCES
Kothari C. (2004) Research Methodology: Methods and Techniques, New Age International Limited, New Delhi.
66
CHAPTER FOUR
4.0 DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION
This chapter is devoted to the presentation and analysis
of the data collected for the study. The data collected were
analyzed using percentage and Pearson correlation coefficient.
Table 4.1: Distribution/Return of Questionnaire:
Distribution of Questionnaire
Industry No administered No returned
A 25 22
B 38 35
C 16 12
D 12 12
E 57 54
Total 148 135
Source: Field Survey, 2010
From table 4.1 above, it can be seen that a total number
of 148 questionnaires were distributed to the selected
industries under study and 135 of them were returned
representing 91.2% of responses.
Table 4.2: Marital Status of Respondents
Marital Status Number Percentage (%)
Married 102 69
Single 46 31
148 100
Source: Field Survey 2010.
67
From table 4.2, it can be deduced that 69% of the
respondent are married while 48% are not.
Table 4.3: Age Distribution of Respondent:
Marital Status Number Percentage (%)
16-25 10 7.0
26-35 50 34.0
36-45 65 44.0
46-55 15 10.0
56 and above 8 5.0
148 100.00
Table 4.3 shows age distribution of respondents from
the complication, only 7 percentage of age bracket engaged in
small and medium scale business while 44% of age bracket
engaged in such business, this implies that greater percentage
of people between 36-45 of age dominate such businesses.
Table 4.4 Source of fund
Industries A
B
C
D E TOTAL
Finance sources
Freq % Freq % Freq % Freq % Freq % Freq %
Bank loans 21 84 29 76 13 81 92 11 48 84 122 82
Personal savings
2 8 5 13 2 13 1 8 7 12 17 12
Contribution 2 8 4 11 1 6 0 0 2 4 9 6
From friends
2 8 4 11 1 6 0 0 2 4 9 6
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field Survey 2010
68
Table 4.4 shows that 82 percent of the respondents
financed their business by obtaining loan from banks, 12
percent through personal saving and 6 percent through
contribution from friends.
Table 4.5: Awareness of Government Policy toward Funding of small and Medium scale Enterprise: Industries/Option A
B
C
D E TOTAL
Finance sources Freq % Freq % Freq % Freq % Freq % Freq %
Yes 21 88 36 95 15 94 12 100 56 98 141 95
No 3 12 2 05 1 6 0 0 1 2 7 5
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field Survey, 2010.
Table 4.5 indicate that 95 percent of the respondent
affirmed that they are quite aware of the policy towards
funding small and medium scale enterprise while 5 percentage
claimed ignorant of such policy.
Table 4.6: Problem of Lack of Capital Industries/Option A
B
C
D E TOTAL
Freq % Freq % Freq % Freq % Freq % Freq %
5=SA 15 60 20 53 10 63 7 58 20 35 72
4=A 5 20 12 32 4 4 25 2 17 21 37 44
3=UC 2 8 2 5 1 0 1 8 5 9 10
2=D 2 8 2 5 1 6 1 8 6 11 12
1-SD 1 4 2 5 1 6 1 8 6 8 10
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field Survey, 2010.
69
From tables 4.6, it can be deduced that 72 percent of
respondent strongly agreed that lack of capital pose a serious
problem in the running of their business, 44 percent agree to
the same view, 10 percent were indifferent while 12 percent
disagree to the fact that 10 percent strongly disagree.
Table 4.7 : Problem Associated with Securing Loan from Bank
Industries/Option A
B
C
D E TOTAL
Freq % Freq % Freq % Freq % Freq % Freq %
SA 10 40 15 39 6 38 4 33 15 26 50 34
A 10 40 17 44 5 31 3 25 25 44 60 41
UC 2 8 2 5 1 6 1 8 2 35 8 5
D 1 4 1 2 3 19 2 17 10 18 7 11
SD 2 8 3 7 1 6 2 17 5 9 13 9
Total 25 100 38 100 16 100 12 100 57 100 148 100
Sources: Field Survey, 2010.
Table 4.7 shows that the problem that the respondents
experienced in getting loans from banks. From the table, 60
percent admitted that they experienced problem in getting
loans from banks while 50 percent strongly affirmed.
4.2 ANALYSIS OF HYPOTHESES
This sections is concerned with examining the
relationship that exist between the data collected /analyzed
and the hypotheses earlier stated in chapter one.
70
Decision Rule:
In testing the hypotheses, the Whitaker (1982) rule was
applied as follows:
(a) If the value of the correlation coefficient ( r )
is greater than zero (ie positive) it means that
the variables correlates, then accept HI and
reject H0.
(b) If the value of the correlation coefficient ( r) is
less than zero (ie negative) or equal to zero.
It means that the variables are uncorrelated,
hence, accept H0 and reject HI.
The data generated from the survey were classified and
presented in tables in for easy handling and interpretation. As
earlier stated, the Pearson product moment correlation
coefficient ( R ) was used for the analysis to determine the
degree of relationship between small and medium scale
enterprises are veritable tool for economic growth and
development and has impact on the economy.
71
The value of the correlation coefficient ( r) is given by
the following formula:
r = n ∑XY - ∑Xy
√[ n∑X2 –(∑X
2) [ n ∑Y
2)]
Where:
n = the number of all observations or perceptions of t he
staff of the selected small and medium scale industries in
Enugu State, rated as:
i. Strongly agree (5)
ii. Agree (4)
iii. Uncertain (3)
iv. Disagree (2)
v. Strongly disagree (1)
Y. = Respondents‟ rating of the relationship between the
variables under consideration.
72
4.2.1 TEST OF HYPOTHESES ONE
H0: Small and medium scale enterprises are not veritable tool
for economic growth and development and has impact on
the economy.
HI: Small and medium scale enterprises are veritable tool
for economic growth and development and has an
impact on the economy.
Table 8: Responses As Per The Relationship Between
Small and medium scale enterprises are veritable tool
for economic growth and development and has an impact
on the economy.
Industries/Option A
B
C
D E TOTAL
Freq % Freq % Freq % Freq % Freq % Freq %
SA 15 60 20 53 10 63 8 67 33 58 86 58
A 5 20 10 26 3 19 2 17 20 35 40 28
UC 2 8 4 11 1 6 0 0 1 2 8 5
D 2 8 2 5 1 6 1 8 2 4 8` 5
SD 1 4 2 5 1 6 1 8 1 2 6 4
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field Survey, 2010
73
Table 9 : Computation Of Correlation Coefficient Between
Small And Medium Scale Enterprise Are Veritable Tool For
Economic Growth And Development And Has An Impact
On The Economy:
X Y X2 Y2 XY
86 5 7396 25 18430
40 4 1600 16 160
8 3 64 9 24
8 2 64 4 16
6 1 36 1 6
148 15 9160 55 636
Using the correlation coefficient ( r ) n∑XY - ∑XY r = [ n ∑X2 – (∑X2 )] [n ∑Y2 - (∑Y2]
= 5(636-(148) (15)
[5 (9160)-(148)2 ] [5 (55)-(15)2
= 3180-2220
[45800-21904] [275-225] 960 = (23896) (50)
74
960 = 1194800 = 960 1093 = 0.8783 Interpretation: Following the available statistics drawn from table out of
148 responses to the question as to whether any relationship
exist between Small and medium scale enterprises are
veritable tool for economic growth and development and has
an impact on the economy, 86 respondent representing 58
percent strongly agree, 40 respondent representing 28 percent
agree that a significant relationship exist between three
variables. Eight (8) of the respondents were uncertain as to
whether any relationship 8 and 6 respondents disagree and
strongly disagree, representing 5 percent and 4 percent
respectively.
75
From table 9, the computed value of the correlation
coefficient showed a positive relationship (0.88) between the
two variables. It implies that, there is 88 percent degree
correlation between the variables.
Going by the Whitaker (1982) decision rule, the null
hypothesis (H0 ) was rejected while the alternative hypothesis
(HI), while the alternative hypothesis (HI), which states that,
“ there is a significant relationship between Small and medium
scale enterprises are veritable tool for economic growth and
development and has an impact on the economy was
accepted.
Test of significance of hypothesis one, using the t-test
distribution with N-2 degree of freedom at 0.05 level of
significance.
Since r = 0.88, N = 148
Therefore;
t = N - 2
r 1 – r2
76
=
0.88 148 - 2
1- (0.88)2
= 0.88 146
1 – 0.7744
0.88 x 25.4 = 22.3
t = 22.3
tcal at 32.7, tab = 1.70
ttab at 0.05 significance level is 1.70
Decision Rule:
(a) Accept H0 and respect HI if;
tcal ….ttab
(b) Reject H0 and accept HI if;
tcal = 22.3
ttab = 1.70
77
Showing that t cal > t tab, this implies that we reject H0
and accept HI.
We therefore affirm that alternative hypothesis one which
states that “there is a significant relationship between Small and
medium scale enterprises are veritable tool for economic
growth and development and has an impact on the economy.
However, this implies that Small and medium scale enterprises
are veritable tool for economic growth and development and
has an impact on the economy.
4.2.2 TEST OF HYPOTHESES TWO:
H0: Small and medium scale enterprises are not veritable tool
for economic growth and development and has impact on
the economy.
HI: Small and medium scale enterprises are veritable tool
for economic growth and development and has an
impact on the economy.
78
Table 10: Responses as per Relationship between Small and
Medium Scale Enterprises and Economy Development:
Industries/Option A
B
C
D E TOTAL
Freq % Freq % Freq % Freq % Freq % Freq %
SA 12 48 20 53 11 69 6 50 25 43 74 50
A 8 32 10 26 3 13 2 17 18 31 40 27
UC 1 4 2 5 1 6 1 0 2 34 7 5
D 2 8 4 11 1 6 1 8 8 14 17 11
SD 2 8 2 5 1 6 1 8 4 7 10 6
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field Survey, 2010.
Table 11 Computation of the Correlation Coefficient between
Small and Medium Scale Enterprises and Economy:
X Y X2 Y2 XY
74 5 5476 25 370
40 4 1600 16 160
7 3 49 9 21
17 2 289 4 34
10 1 100 1 10
148 15 7514 55 595
Using the correlation coefficient ( r)
n∑XY - ∑XY r = [ n ∑X2 – (∑X2 )] [n ∑Y2 - (∑Y2]
= 5(595-(148) (15)
[5 (7514)-(148)2 ] [5 (55)-(15)2
79
= 755
783300 755 = 885 = 960 1093 = 0.8783 Interpretation From the data presented in table 11 of the 148
responses to the question as to whether there is a significant
relationship between small an medium scale enterprises and
economy development, 74 respondents, representing 50
percent strongly agree, 40 respondents, representing 27
percent agree. 17 and 10 respondent representing 11 percent
and 6 percent disagree and strongly disagree that any
significant relationship exists between the two variables.
80
Decision:
From the decision rule, the null hypothesis (H0) is rejected
and the alternative hypothesis (HI) which states that there is a
significant relationship the variables.
Test of significant
Since r = 0.88, N = 148.
Therefore;
t = N - 2
r 1 – r2
= 0.85 148-2
1- (0.85)2
= 0.85 146
0.2775
0.88 x 526
0.85 x 23
81
= 19.5
t = 19.5
tcal = 19.5
ttab = 1.73 at 0.05 significance level
Decision Rule
(a) Accept H0 and respect HI if;
tcal < ttab
(b) Reject H0 and accept HI if:
tcal > ttab
From the analysis
tcal = 19.5
ttab = 1.73
Obviously, tcal >ttab it means that we reject HO and accept HI
which states that “ There is a significant relationship between
the performance of small and medium scale enterprises and
economy development.
82
CHAPTER FIVE
5.0 SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
The purpose of this chapter is to present the summary of
this study, draw some conclusions and finally make some
recommendations.
The study was on “constraint on growth of Small and
medium scale enterprise in Engu State. Chapter one was the
introduction. The objectives of the study were to find the
constraint which SMEs owners were facing and finally make
some suggestions towards eliminating these constraints or at
least lessening them.
In chapter two, some related literature on the issue were
reviewed while chapter three treated the Methodology of the
study. Chapter four dealt on the analysis of data already
collected based on the questionnaire.
83
Finally, chapter five treated the summary of the study,
conclusion, recommendations, then References, Bibliography
and Appendix.
5.1 SUMMARY OF FINDING:
This research work was carried out to determine the
Constraint of Small and medium enterprises in Nigeria. The
study employed both primary and secondary instrument in
generating data that were analyzed using simple percentage
and correlation coefficient. Based on the result of the analysis
the following findings are made:
Our empirical result reveals that small and medium scale
enterprises sources their fund by obtaining loans from banks. It
also shows that past saving are made use of and profit
ploughed back into the business.
On statistical ground, the empirical result reveals that
“there is a positive relationship between Small and medium
scale enterprises are veritable tool for economic growth and
development and has an impact on the economy.
84
Most of small and medium scale enterprises encounter
problems in getting loans from bank especially when it comes
to collateral security requirement.
Also an analysis of the survey report showed that lack of
capital has greatly contributed to the decline and poor
performance of SMEs.
It was also observed that small and medium scale
enterprises played a significant role in the development of
nation‟s economy.
5.2 CONCLUSION:
In the light of the above findings and other previously
discussed in the study, it could be concluded that constraint has
a step down on the performance of Small and medium
enterprises but still SMEs has immense contribution in the
growth of the economy.
Small and medium enterprise importance to capital
formation in Nigeria can not be contested. They provide
85
complementary and competitive roles to other financial
institutions and which are of benefit to the people and economy.
The future of industrialization process and job creation in
developing economies, Nigeria in particular is largely
dependent on the fortune of the small and medium scale
enterprises. It is the sub sector that holds the promise of
meeting the industrial challenges and job creation opportunities
in the 21st century. Consequently, all the parties involved in the
promotion of the sub sector; government, private sector and the
financial system most jointly ensure that the sub sector is given
all the support it needs to play its role effectively.
5.3 RECOMMENDATION:
Based on our findings, the following recommendations are put
forward:
1. Commercial bank should be strongly encouraged to assist
small and medium scale enterprises by providing cheap
sources of finance and making their requirements for
86
loans less stringent and accessible in order to enhance
growth of small and medium scale businesses and build
a self reliant economy in general.
2. Government should give priority attention to the growth of
small and medium businesses by making sure that
expenditures geared towards its growth and properly
channeled.
3. A conducive environment should be created for small and
medium scale enterprises as well as provide all the
necessary support they need to play their role effectively.
Government all level are implored to develop industries
estate with adequate and reliable infrastructures,
including roads, water, energy security and
communication.
4. Efficient financial system: Efficient and responsive
financial system that could serve the economy and the
introduction of delivery mechanisms of financial support to
SMEs in particular.
87
5. Banks should liberalize their lending policy. Premium
should be attached to good feasibility report and skills
rather than physical securities. Also the commercial
banks should try to meet the Central bank directives for
lending to small scale businesses.
6. Small scale industrialists should try to develop good
relationship with their suppliers, bankers, lawyers,
management consultants and indeed all experts and
utilize their services.
7. Market research should be carried out regularly by
business owners. Market research in simple terms, is the
objective fact finding and analysis of problems
encountered in the transfer or sale of goods and services.
If a business owner lack the time and “know – how to
personally undertake extensive research, an outside
research agency or consultant might be employed.
8. Establishment of Entrepreneur Development Institute
(EDIs) for managerial and technical skills buildings.
88
BIBLIOGRAPHY
Adebuiyi, B. S. (1997), Performance Evaluation of Small and medium Enterprises (SMES) in Nigeria Central Bank of Nigeria Bullion, 21 (4), 7-8. Ajakaiye, A (2003) Central Bank of Nigeria to develop SMEs information system. Business day, 3 (332). Alonge, E. (1992:12) Managing your Enterprise to Maturity, Business Times, May, 25. Ani N. B., Nwandu E.C. (1999:42) Entrepreneurial Management: 3rd Publication Nerce Publishers 2007. Ayodele, A. (1997). Macro Economic Environmental Investment Stimulation and Economic Growth. The Nigeria experience. Ibandan Nigeria Economic Society. Anyanwu, C. M. (1996). Efficient Administration of credit for Small scale industries development in Nigeria, Central Bank of Nigeria Bullion 18 (2) 15-17. Boswell, J. (1973; 10) “The Rise and Decline of Small Firms.” George Aclen and Unwin Limited, London. Callaway, A. (1975:31) Nigeria Enterprises and the Employment of Youth, a study of 225 Businesses in Ibadan. Ibadan University Press, Nigeria. Central Bank of Nigeria (2000) Commercial and Merchant Banks Loans and Advances to SME s 1993 -2000. Central Bank of Nigeria Statistical Bulletin, 10 (18), 25.
89
Chibundu, (2006) Strategies for Nigeria SMEs to Grow Economy;http://blog.Emcnet.com/voip- enterprisetrucnet/strategies-for- Nigerian-smes- to- gro-enono.............. Clifford, B. (1972). Basic Small Business Management, University Press, New York. Dennis H., Tootelian and Ralph M. Gaedeke (1976: 232) Small Business Management. Good and Gaedeke, R.M. Year Publishing Company Inc. Santa Monica California. Femi, Adekanye (1986) The elements of Banking in Nigeria: F& A Public share Marina Lagos Nigeria. Gruver, S. (1999). The Changing Environment of Business, John Hopkin: Baltimore. Ibik P.N., Oluka G. A., Agu P.A (2009:6) Small Business Entrepreneurship: A Pragmatic Approach in the New Millenniums: Ifedi, V. (1992:8) Survival Strategy for Small Scale Industries Business times, April 20 Jarret; H.R. (1977:159) Geography of Manufacturing 2nd Edition, Macdonald and Evans Ltd, Plymouth. Published by: EL-Felys Creation 56 Robinson Street, Uwani Enugu. Jerome , A. F. (1996:11) Legal Requirement of Business in Nigeria New. Nigeria March.
90
Kothari C. (2004) Research Methodology: Methods and Techniques, New Age International Limited, New Delhi. Liedholm, C. Mead, D. 1987 Small scale industries in developing countries Empirical evidence and policy implications. International Development paper No . 9: Department of Agriculture Economics, Michigan State University, East Lansing, MI, USA. Manila P. (2003) Accelerating Small and Medium Enterprise Financing In Philippines: http://www.adb.org/pinter- frinely.asp?fn=%2fDocuments%2FNews%2F 2003%fnr2000 Masha, R. A (1986: 33) Self Reliance and Small Scale Enterprises, the Central Banks Role Bullion, vol. 10 No 2. April / June. Moh Reference (1991) The Future of Small Scale Business in Nigeria Savanna Bank News, vol 6, No. 4 April. Nnanna, O.J. (2003). The role of Central Bank of Nigeria in enterprise Financing, CBN, 27 (1). Obitayo, K.M. (2000). Creating an enabling environment for Small Scale Industries, CBN, 25 (3). Onyemelukwe C.C (1976 : 101) Problem of Industrial Planning and Management In Nigeria, William Clowes and Sons Ltd. London, Great Britain.
91
Oresolu. F.O. (1985) A Strategy for the development of Small Scale Industries. Central Bank of Nigeria Economic and Financial Review, 24, (4) 15-`6. Oriuwa, J.O. (1994:7) Problem and Prospects of Small Scale Businesses in a Depressed Economy Business Times, July 23. Osbaba, A. M. (1981) Towards the Development of Small and Medium Industries in Nigeria Caxton Press: Ibadan. Owualah, S. I. (1999) Entrepreneurship in small business firms. Entrepreneurship, Nigeria, 2 small by business Nigeria management Ikeja, Lagos (G MAG investment Ltd Edunal publisher P.O.B. 1284). Reed, etal (1984) in Femi, A. (1986). The element of Banking in Nigeria F & A Publisher, Manina Lagos Nigeria. Shanon, L.W. (1977:235) Under – developed Areas, a Book of Readings and Research. Harper and Brothers Publishers, New York. Slatter, P. (1990). Cases in Strategic Management for the Smaller Business Stuart Illinois: Homewood (SMEDAN).(2004). Small and Medium Scale Enterprises Development Agency Government fiscal and Macro economic Policies. Small Business Journal, 2 (232).
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Sule, E. I. K.(1986), Small scale industries in Nigeria: Concept, Appraisal of Government policies and suggested solutions to identified problems Central Bank of Nigeria Economic and Financial review, 24 (4), 6-8. Tootelian, D, (1976:232) Small Business Management. Good and Gaedeke, R.M. Year publishing Company Inc. Santa Monica Califonia. Uzowulu, V.C. (1987 :8) “Analyzing the Problems of Small Scale Business Firms” Yerima W, M & David M, D (2007) Journal of Business and Public (ISSN: 1936 9704) Volume 1, Number 4 (Fall 2007). Yerima Wim, David M. D. (2007) Small Medium Scale Enterprises: A veritable Tool for Sustaining Job Creation in Nigeria, Journal of Business and Public Policy (ISSN:1936-9794) Volume 1, Number 4 (Fall 2007).
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Department of Management , University of Nigeria, Enugu Campus. Enugu.
Dear respondent,
I am a postgraduate student of the above department in
University of Nigeria, Enugu Campus. As a perquisite for the
award of master in Business Administration (MBA). I am
carrying out a research study on “ Constraint on Growth of
Small and medium enterprises in Enugu State”.
I therefore plead for your kind assistance in completing
the attached questionnaire and returning same to me. You are
therefore assured that all information given will be treated with
utmost confidence and used for the purpose of the study.
Yours faithfully,
Onyishi Virginia N.
94
QUESTIONNAIRE TO SMALL AND MEDIUM SCALE
ENTERPRISES
SECTION A: BIO DATA:
1. Sex: male [ ] Female[ ]
2. Marital status: single[ ] married[ ]
3. Age range: 16-25 [ ] 26-36 [ ] 36-45[ ]
46-56 and above[ ]
4. Educational qualification: FSLC[ ] WASC[ ]
OND/NCE[ ] HND[ ] B.SC[ ] MBA[ ] MSC[ ]
5. Other qualifications:
Please specify…………………………………………………
SECTION B
1 What is the name of your firm?
…………………………………………………………………
…………………………………………………………………
2. When was your firm established?
3. What types of goods does your firm produce?................
95
4. What do you understand by the concept small and
medium scale industries?
(a) Any enterprise with a maximum asset base of N200
million excluding land and working capital and with the
number of staff employed not less than 10 or more than
30[ ].
(b) The ability to understand, alters, lead and control the
behaviour of other individuals and group.
5. What is the approximate asset base of your firm?
6. Please state how the firm financed initially?
(a) Loan from bank[ ]
(b) Personal saving[ ]
( C ) Contribution from friends[ ]
7. Are your aware of any government policy towards the
funding of small and medium scale enterprise?
(a) yes[ ] (b) No[ ]
8. Does lack of capital pose serious problem in the running
of your business?
96
(a) Strongly agree[ ] (b) Agree[ ] (c) Uncertain
(d) Disagree[ ] (e) Strongly disagree[ ]
9. Have you ever obtained loan from financial institution to
finance your business activities?
(a) Strongly agree[ ] (b) Agree[ ] (c) Uncertain
(d) Disagree [ ] (e) Strongly disagree[ ]
10. Please tick (√) the financial institution in which you have
obtained loan to finance your business.
(a) Oceanic Bank[ ] (b) First Bank[ ]
© United Bank for Africa (UBA) [ ] (d) Union Bank [ ]
(e) Zenith bank [ ] (f) Diamond Bank [ ]
(g) Eco Bank [ ] (h) Inter-continental Bank [ ]
(i) Fin Bank [ ] (j) Community Bank [ ]
(k) Other banks [ ]
11. Do you consider the interest rate charged by these banks
as reasonable?
a) Strongly agree [ ] (b) Agree [ ]
97
(c) Uncertain [ ] (d) Disagree [ ] (e) Strongly
disagree [ ]
12. Do you see small and medium scale enterprises playing a
major role in development of nation‟s economy?
(a) Strongly agree [ ] (b) Agree [ ] (c) Uncertain
(d) Disagree [ ] (e) Strongly disagree [ ]
13. Does the loan obtained from these financial institutions
helps in boasting your business performance?
(a) Strongly agree [ ] (b) Agree [ ] (c) Uncertain [ ]
(d) Disagree [ ] (e) Strongly disagree [ ]