CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Since Nigeria attained independence in
1960, considerable efforts have been directed towards the nation’s industrial
development. The initial efforts were government-led through the vehicle of
large industry, but lately emphasis has shifted to Small Scale Industries
(SSIs) following
the success of SSIs in the economic growth of Asian countries (Ojo, 2003).
Thus, the recent industrial development drive in Nigeria has focused on
sustainable development through small business development. Prior to this time, particularly
judging from the objective of the past National 4-Year Development Plans,
1962-68 and 1981-85, emphasis had been on government-led industrialization,
hinged on import-substitution.
Since 1986, government had played down
its role as the major driving force of the economy by a
process of commercialization and privatization (Beyene, 1999). Emphasis,
therefore, shifted from large-scale industries mainly to small scale
industries, which have the potentials for developing domestic linkages for
rapid and sustainable industrial development. Attention was focused on the
organized private sector to spearhead subsequent industrialization programmes.
Incentives given to encourage increased participation in these sectors were
directed at solving and/or alleviating the problems encountered by
industrialists in the country, thereby giving them greater leeway towards
increasing their contribution to the national economy.
Interest in the role of Small Scale
enterprises in the development process continues to be in the forefront of
policy debates in developing countries. The advantages claimed for Small Scale
enterprises (SSEs) are various, including: the encouragement of
entrepreneurship, the greater likelihood that SSEs will utilise labour intensive
technologies and thus have an immediate impact on employment generation
(Ayozie&Latinwo, 2010); they can usually be established rapidly and put
into operation to produce quick returns; SSIs development can encourage the
process of both inter- and intra-regional decentralization (Ogujiuba et al.,
2004); and, may become a countervailing force against the economic power of
larger enterprises (Salami, 2003). More generally the development of SSIs is
seen as accelerating the achievement of wider economic and socio-economic
objectives, including poverty alleviation (Safiriyu and Njogo, 2012; Ayozie and
Latinwo, 2010; Udechukwu, 2003).
The role of finance has been viewed as a
critical element for the development of Small Scale enterprise Previous studies
have highlighted the limited access to financial resources available to smaller
enterprises compared to larger organisations and the consequences for their
growth and development (Hossain, 1998; Wattanapruttipaisan, 2003; Berger and
Udell, 2004; Ogujiuba et al., 2004; etc). According to Valverde et al (2005)
bank credit play a crucial role in providing external financing to Small Scale
Industry (SSIs). But in Nigerian context, this crucial source of finance for
Small Scale Industry is apparently non-functional (Kadiri, 2012). This is
evident in the ratio of loans to Small Scale Industry to Commercial banks’
total credit, which shows that a meager 0.16% of commercial banks’ total credit
was granted to Small Scale Enterprises in the last quarter of 2011 (CBN, 2011).
More worrisome is the fact that this ratio has been falling over the years and
continued unabated in the post-consolidation era (Iorpev, 2012).
Typically, smaller enterprises face
higher transactions costs than larger enterprises in obtaining credit
(Olorunshola, 2003). Poor management and accounting practices have hampered the
ability of smaller enterprises to raise finance. Information asymmetries
associated with lending to small-scale borrowers have restricted the flow of
finance to smaller enterprises. In spite of these claims however, some studies
show a large number of small enterprises fail because of non-financial reasons.
The panacea for solving problems of economic growth in developing
countries often reside in the development of small scale industries. The
establishment of those industries has been the centrepiece of industrial
development of many countries such as India, Malaysia, Pakistan and Indonesia,
to mention a few. It is expected that the gains to be derived from the
establishment of small-scale industries will be translated into the generation
of employment at a low investment cost. These industries will also be able to
harness raw materials locally and serve as raw inputs to the large-scale
industries. Therefore, this study seeks to investigate the financial problems
and survival strategies of small scale industries.
1.2 Statement of the Problem
The key problem facing most small scale enterprises is lack of finance
whether for the establishment of new industries or to carry out expansion
plans. The inability to attract financial credit or resources has hindered or
stifled the growth of small scale enterprise. The reasons for the lack of fund
include the followings:
·
High rate of inflation that led to the vast depreciation of
Naira exchange rate, thus making it difficult for most Small Scale enterprise
to obtain required inputs for expansion.
·
Low level of savings in the economy, which leads to low
capital formation.
·
High rate of interest charged on loans, which scares off
potential Small Scale enterprise.
·
The unwillingness of retail banks to grant credit to Small
Scale enterprise because of the low
creditworthiness of these enterprises has also hampered their growth over the
years.
Bothered by the persistent decline in the
performance of the industrial sector and with the realization of the fact that
the small and medium scale enterprises
hold the key to the revival of the manufacturing sector and the economy,
the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in
2000 to agree that each bank should set aside 10 percent of its annual pre-tax
profit for equity investment in small and medium scale enterprises. To ensure
the effectiveness of the programme, banks were expected to identify, guide and
nurture enterprises to be financed by the scheme. The activities targeted under
the scheme included agro-allied, information technology, telecommunications,
manufacturing, educational establishments, services, tourism and leisure, solid
minerals and construction. The scheme was formally launched in August 2001. As
at end-December 2009, the cumulative sum set aside by banks was N42.2 billion.
The sum of N28.2 billion or 67.1 per cent of the sum set aside had been
invested (CBN, 2009). But the fact still remains that with these provisions
made are in most cases not accessible to the Small Scale Industries.
The main
thrust of this study is to evaluate an investigation into the problem of
financing small and medium scale enterprise in Nigeria, a case study of Awka South L.G.A, Anambra State.
1.3
Purpose of the Study/Objective Of The Study
The purpose of this study is the
financial problems and survival strategies of small scale enterprises and
specifically, the study seeks to
i.
To ascertain if the financing options available to the small and
medium scale enterprise are practically obtainable to support the capital
required for their operation.
ii.
To examine the extent to which small and medium scale
enterprise contribute to economic development.
iii.
To identify the problems they encounter in sourcing out
funds.
iv.
Identify survival strategies needed by Small scale
industries.
1.4 Research Questions
This study was guided
by the following research questions:
1.
What are the various sources of funds available to the small and
medium scale enterprise?
2.
To what extent do small scale enterprise contribute to towards
economic development of a nation?
3.
What are the problems encountered by the small scale
enterprise in sourcing for funds?
4.
What are the survival strategies to be adopted by the small
scale enterprise?
1.5
Statement of The Research Hypothesis
The following null hypothesis was given
for this study
i.Ho: There is no significant relationship between the source of fund
available to small scale enterprises and the funds available to them.
Hi: There no is significant relationship between the source of fund
available to small scale enterprises and the funds available to them.
ii.Ho: There is no significant relationship between the development of
small and medium scale industries and the economic development of that nation.
Hi: There is significant relationship
between the development of small and medium scale industries and the economic
development of that nation.
iii.Ho:There
is no significant relationship between the problems encountered by the small
scale enterprises in their source of funds.
Hi
:There is significant relationship between the problems encountered by the
small scale enterprises in their source of funds
iv.Ho:There
is no significant relationship between the survival strategies adopted by the
small and medium scale industries and the survival of small and medium scale
enterprise.
Hi.
There is no significant relationship between the survival strategies adopted by
the small and medium scale industries and the survival of small and medium
scale enterprise.
1.6
Scope of The Study
This research
covers the area of investigating the financial problems and survival
strategies of small scale industries in Nigeria, paying special attention to Awka south Local
government Area of Anambra State.
1.7 Significance of the Study
Small and
medium Enterprises in Africa rely largely on own savings, not only to grow but
also to innovate, firms often need real services support and formal finance
assistance. This study will be of benefit to the operators of the Small and
Medium Enterprise, the government, and the general public on the possible
financing options and survival strategies available to the Small and Medium
Scale enterprise and give the possible means of accessing them
1.8
Limitation of the Study.
Some factors may limit the level of accuracy and reliability of this study.
Such factors include.
i. Difficulty in obtaining data.
ii. Low response rate from involved parties.
In the absence of the above mentioned limitations, all other errors and
omissions are entirely those of the researcher