1
CHAPTER ONE
INTORDUCTION
1.1 BACKGROUND OF THE STUDY
The small and medium scale enterprises (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, (19999:9), these reasons are:
i. Transformation of traditional or indigenous
industry
ii. Increase in job creation.
iii. Redistribution of wealth and income
2
They also provide training grounds, for
entrepreneur even as they generally rely on 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 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
3
system for SMEs to foster better implementation of
small and medium industries equity investment scheme
(SMES).
Federal government has facilitate SMEs by
established National Association of Small and Medium
Industries (NASSI), Central for management
development (CMD), Fund for Small Scales Industries
(FUSSI). This is because of her 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
organized 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).
4
The owner of SMEs are people of average means
with specialized or no specialized skill, therefore,
because of financial constraints, 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 relaxed about the situation.
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.
5
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 main of this
research is therefore to articulate the challenges posed
to the development of a dynamic SMEs. Sub-sector
arising from some lingering constraints. Such problems
include:
Inability of SMEs to understand, appreciate and utilize
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 bank process request immediately, lack of
collateral security, high cost of production and over
heads due to spiral inflation and non-availability of
infrastructures. Poor location and currently due to fail
bank problems we are experiencing in the recent time
and inefficiency in the administration of incentives
which discourage rather than promotes SMEs growth.
6
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 OBJECTIVES OF THE STUDY:
This study has earlier identified some of the
problems facing the Small and Medium Scale
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 its major aim of financing and
promoting small and medium scale enterprises in
Enugu state. There are as follows:-
7
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 exists between
the performance of SMEs and economic
development in Nigeria.
5. To establish the relationship that exists between
commercial banks loan and the performance of
SMEs in Enugu state.
6. To identify the problems encountered by the banks
in the process of administering loans to SMEs.
7. To investigate the real effect of financing and
promoting SMEs, on their performance.
8
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 towards socio-economic
development of the state.
In order to realize the main aim of this study
therefore answers to the following questions were
sought:
9
Is lack of adequate capital a restraint to
small and medium enterprises?
What are the various problem militating
against effective management of SMEs 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:
10
H0: 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 economic.
1.6 SIGNIFICANCE OF THE STUDY
This researcher would be invaluable benefit to both
the financial institution and small and medium sale
industries in Nigeria, as well as the counties policy
makers who have 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.
11
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
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,
constraint and therefore, service as a sample
representative of the entire state and indeed Nigeria as
a whole. The convenience of data collection is another
reason behind the researcher‟s choice of the study.
12
1.8 DEFINITIONS OF TERMS
This section defines related concept used in this
research.
Small Scale Enterprise: an enterprise with a labor size
of 11-1000 workers or a total cost of not more than 50
million including working capital but excluding cost of
land (Sule, 1986:207).
Medium Scale Enterprise: An industry with a labor
size of between 10-300 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).
13
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.
Ploughing back the profit into the 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.
14
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 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.
Liedhoolum, C, Mead, D. (1987) Small scale industries
in developing countries Empirical evidence and
15
policy implications. International development
paper No 9: Department of Agriculture
Economics, Michigan state University, East
lansing, Mi, USA.
Nnanna, O.J (2003). The role of Central bank of Nigeria
in Enterprise financing, BN, 27 (1).
Osbaba, A.M 91981) towards the Development of Small
and Medium Industries in Nigeria Caxton Press:
Ibadan.
Owualah, S.I (1999) Entrepreneurship in small
business forms, Entrepreneurship, Nigeria, 2
Small by business Nigeria Management Ikeja,
Lagos (GMAG 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
16
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 .
17
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 reactions
from prominent people in private and public sector
including the government.
Many developing countries have consequently
becomes increasingly aware of an 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 contributions ion topic
related to this course of study in wider horizon.
18
In the Nigeria economy, attention have drawn to
the fact that small and medium scale enterprise has
very little attention, 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
ENTERPRISES
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.
Not with standing, the basic definitional parameters are
not the same. They include numbers of employees,
Assets and turnover.
19
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 capital invested and aiding the
developing of local technology. Small scale 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, 1986:2007)
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).
SMEs and NERFUND (2004) define SMEs as an
enterprise with an asset base not exceeding
N200,000,000.00 excluding land and working capital
20
with staff strength of not less than 10 and not more
than 300.
A cursory glance a 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 Nigeria 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 institutions (Ibru, 2004).
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 (2-20) 2 to 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.
21
However, in Nigeria more than 83% of the SMEs
operate under the first two businesses type, while the
third one operate mainly as family business (Ibru,
2004).
2.3 WHY SMALL AND MEDIUM SCALE
ENTERPRISES
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;
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;
22
5. They are able to compete (but behind protective
barriers) – thus has less foreign exchange
requirement.
6. They cater for the need of the poor; and low income
earners.
7. They adapt easily to customer requirement (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 are
yet to develop, unemployment should be 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
23
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 makes goods and
services available to the needy at any point in time
even in the Western world.
iii. Acceleration of the Development of both the
Urban and Rural Areas:
24
With more enterprises in the community, more
infrastructural facilities are attracted, like good
roads, electricity, mobile phone 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 that
area 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 and rural electrification etc.
iv. Direct Creation of Wealth by Increasing
Contribution to the Gross National Product
(GNP):
25
The Gross national product (GNP) is the total
naira value of all the gods and services produced in
the country in a 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
persona and company taxes, SMEs contributes to
increasing government revenues.
26
vi. Utilization of Local Resources: small and
medium scale enterprise are know 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 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 SAMLL AND MEDIUM
SCALE ENTERPRISES:
27
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 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
28
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 institutions 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 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.
29
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
SMES 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 businesses 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 SMES operators end up in the
ugly trap under investment. This leads to very low
returns on capita which in turn leads to the premature
death of the business.
Writing on the same view Jarret, 91977:322) in
this book noted that: “the dilemma of the les developed
countries is that it can provide only very limited capital
30
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 businesses 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” a book of reading and
reach stated that:
“The business man‟s lack of capital makes
him dependent on his supplier for credit; and
upon his customers, and his financier is one
31
person, his position deteriorates to one
compete 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 articles “self Reliance and
small enterprises” stated that “the problem of finances
is characteristics 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 finance for investment
and working capital. In addition, institutional sources of
funds are often unwilling to provide facilities for these
enterprises. This made the SMEs to fact the perennial
problem of shortage of working capital which hinders
their ability to produce efficiently. The result is that
32
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 has
shown that the relative burden of the private
provisioning of infrastructural facilities is such heavier
on SMEs than on large scale enterprise.
33
HIGH RATE ENTERPRISE MORTALITY
The incidence of inadequate working capital, which
constraints 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 frequently early
demise of SMEs. Moreover, the persistence of unstable
macro economic environment, arising mainly from fiscal
policy excesses has other smothered many SMEs.
FINANCIAL INDISCIPLINE
Some SMEs 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).
34
LACK OF EXPERIENCES AND TRAINING:
Another serious problems is lack of experience and
training. Many apparently successful buiness 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 results from
situations where people go into business without
previous experience, so farmers, civil servants, lorry
drivers 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:
35
“The ultimate failure of business could be directly
attributed to lack of experience in accounting,
purchasing, advertising, budgeting, pricing and other
aspects of management”.
To support the above view, Onyemelukwe
(1976:10) in his book tiled “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 local calls for a place that
suits the particulars business to be located and certain
factors are considered.
36
When the choice of location is poorly made it will
surely affect the activities of such business. It is for this
reason that promoted Jorenem (1983:10) to state that:
“A poor location is a serious handicap to
any business. Often the reason for a
venture‟s shrinking sales has been
attributed to the declining quality of the
location”.
He added that „for a manufaturi1ng 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
37
the reason for a firm‟s shrinking sales can be traced
directory to the declining quality of the locative advert.
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
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
38
wakes prospective customers to develop
strong opinions on their products in
particular and the firm in genera;
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 service s 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 marketing strategy includes not
only personal salesmanship, but also a saleable line of
products or services, appropriate pricing, and a good
business location.
39
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 scare resources.
Most of them do not have any plan for the future, they
give insufficient attention of 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 promoted 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 managerial skills of planning abnd budgeting
for business success.
40
Writing of 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 business attests to the need to
understand and learn now to perform these
essential 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.
According to Ifedi (1992) “recent surveys in
Nigeria highlight various symptoms of business failure.
41
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 world except”.
UNWISE COMPETITION WITH THE BIG FIRM
Some of the SMEs not minding their size of
operation try to rub shoulders with the bigger firms in
42
trying to gain share in the market, this often led them
to serious problems.
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 complete with
large enterprise or because they know nothing about
costing usually mess themselves up financially when
43
they sell at prices that are very low in order to sell off
their products in the competitive market.
Tootelian etal (1976) have also comments that
“prices or service fees set too low to recover costs and
still finish a reasonable profit plague many small
enterprises.
Some operators are forced into this situation by
general prices 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 GOVERNMENTT POLICIES:
Obliviously, there are some decrees and polices
which the government impose of SMEs which instead of
aiding its growth, scare away investors. The government
acts as a secondary and tertiary party through official
44
control and administration of polices by its use of
weapons such as tariffs, subsides, various taxes and
other ordinance. These policies present obstacles to the
development of private Nigeria centerpieces.
Writing on this Ifedi (1992) stated that;
“Government intervention can be
disruptive such as price control, new
taxes interest rates or under 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 fall 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 position to run down the SMEs
45
they are supposed to build up, there are occasions in
which the SMEs expand too fast and run short of cash,
managers many lose control because the SMEs affairs
becomes too complex for the information system, to
cope with some SMEs should not have started in the
first instance as there was no proper feasibility study or
market reassert.
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 enterprise (SMEs). Specially, the
government has been active in the following areas.
i. Funding and setting up of industrial estates
to reduce overhead cost.
46
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.
iii. Facilitating and guaranteeing 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 scales businesses,
particularly those located in the rural areas
47
vi. Provision of technical training and advisory
services through the industrial development
Centre (Chibundu, 2006).
Although Government has been showing some
concern to this sub-sector. Evidence still show
inadequate to the overall effort of the government to
lessen the problem of this enterprise.
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
48
TOWARDS SMEs FINANCING
One of the developmental role of the Central Bank
of Nigeria as the apex of final institution in the country
is to facilitate the flow of financial 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 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
49
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 polices 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 sectors. The capital market
deals in both government securities (which are issue,
managed by CBN) and private ones. The volume of
private securities was boasted in 1978, following the
implementation of the Nigeria enterprises promotion
50
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 hold substantial equities
shares.
The CBN also facilitated the setting up of the N100
million agriculture credit guarantee up to a maximum
of 75 percent of commercial and merchant banks
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
facility to export firm CBN, (2004). These developmental
51
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 as therefore the need to
generate savings 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
monetary policies would fail in the absence of
concomitant development of money and capital
markets. even now, the inquiring problems in these
52
markets still constraints the smooth transmission
of monetary polices.
iii. Need for a Sustainable 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. The CBN
therefore is to ensure the development of the
economy through establishment and nurturing of
requisite institutions that would facilitate the
allocation of resources for instance both the
agricultural and industrial sectors of the economy
needs 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 in the performance in the real
sector is enhanced and focused, such that demand pills
53
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 GROWTH OF SMALL AND MEDIUM
ENTERPRISES
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
least 60% equity and minority foreign interest as Nigeria
54
law does not allow the establishment of foreign bank
with a majority foreign interest (Femi: 1986)
TYPE OF CREDIT FACILITIES:
Commercial banks are more interested in
providing short team 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 in payable on the outstanding
balance on a daily basis.
It is generally granted to business customers large,
medium and small scale enterprise. An overdraft is
55
granted until can be renewed as long as the bank
consider that the customer is still “good risk” (Reed etal
1984 in Femi 86).
THE PRIMARY FUNCTION OF COMMERCIAL BANK
TO SEMs:
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 aspect of the economy
ii. Business Advisory Services: The main aim of
this advisory services is to assist small business
customers to develop their business in such a way
they can attract bank finance. Entrepreneurs are
taught how to introduce simple record keeping and
accounting in their operations. Commercial Banks
help SMEs in national and international business
56
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 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 enterprise and since then, the
commercial banks has increased their loan
portfolio to the private sector enterprise because of
government policy of the development of the
development of the nation economy through the
private sector.
2.8 CHALLENGES AND OPPORTUNITIES FOR SMEs
FUNDING:
57
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
bank like the people banks. There are also development
bank like the Nigerian Industrial Development Bank
(NIDR), Nigerian Bank for Commerce and Industry
(NBCI) and Nigeria Agricultural Credit Bank (NACB)
which provides support to SMEs.
Micro-Finance institutions such as corporate
societies and credit union also fund SMEs. The
donor agencies are sources for funding SMEs
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
58
support SMEs due to the perceived risk in lending
to SMEs (Slastter, 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 rate
and short tenor or such loans. Banks therefore no
longer lend to the real sector of the economy. Loanable
funds are now used to 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 SMEs:
59
In Nigeria, policy framework for the supportive of
SMEs is in its infancy while the funding institutions are
not favorably 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.
Low returns on SMEs investment due to high
operating cost.
Promoters low education, management and
entrepreneurial skills. The market for SMEs
goods.
60
Poor and unreliable financial records which
make financial review both difficult and
unreliable.
Both financial and other buiness records are
not adequate to meet capital market listing
requirement.
61
REFERENCE
Alonge, S. (1992:12) Managing your Enterprise to
maturity, Buiness times, May, 25.
Ani N.B, Nwandu E.C (1999:42) Entrepreneurial
Management: 3rd Publication Nerce Publishers
2007
Bosewell, 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 SMEs
1993-2000; Central Bank of Nigeria Statistical
Bulletin, 10(18),25
Chibundu, (2006) strategies for Nigeria SMEs to Grow
Economy:http://blog.Emcnet.ccom/voip-
62
enterpreisetrucnet/strategies-for-Nigerian-smes-to-
gro-econo
Dennis H, Tootelain and Ralph M. Gaedeke (1976:232)
Small Buiness 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
Buiness, John Hopkin: Baltimore
Ibik P.N, Oluka G.A, Agu P.A (2009:6) Small Buiness
Entrepreneurship: A Pragmatic Approach in the
New Millenniums
Ifedi, V. (1992:8) Survival Strategy for Small Scale
industries Buiness times, April 20
Jarret, H.R (1977:159) geography of manufacturing 2nd
Edition, Macdonlad and Evans ltd, Plymouth.
63
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-
frinelt.asp?fn=%2fDocuments%2FNews%2F2003%f
nr200........
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 Buiness
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
64
Oresolu F.O (1985) A strategy for the development of
small scale industries. Central bank of Nigeria
Economic and Financial review, 24, (4) 15-16
Oruiuwa, J. O 91994:7) 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, Manin Lagos
Nigeria
Shanon, L.W. (1977:235) under-developed Areas, a
Book of Readings and research Harper and
Brothers publisher, New York
Slatter, P. (1990) cases in Strategic management for the
smaller Business Stuart Illinois: Homewood
(SMEDAN), (2004). Small and Medium sale enterprises
development Agency Government Fiscal and Macro
economic Policies. Small Buiness Journal, 2(232)
65
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)
Tootelain, D. (1976:232) Small Business management
Good and Gaedeke, RM Year publishing Company
Inc. Santa Monica California
Uzowulu, V.C (1987:8) Analyzing the problems of small
sale Business firms
Yerima Wim, David M.D 92007) Small medium sale
Enterprises: A veritable tool for sustaining job
creation in Nigeria, Journal of Buiness and public
policy (ISSN: 1936-9794) volume 1, number 4 (Fall
2007)
66
67
CHAPTER THREE
3.0 RESEARCH METHODOLOGY
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.
68
For the purpose of clarity, the industries are designated
by letter of the alphabet as follows
Palm Olive Oil industries Designated by A
Innoson Nigeria PLC Designated by B
Uchechukwu Bread Industries Designated by C
Autor Star Industries Limited Designated by D
Palm kernel Industries Limited Designated by 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
69
TABLE 3.1 STAFF STRENGTH OF THE FIVE (5)
RANDOMLY SELECTED SMALL AND MEDIUM SCALE
INDUSTRIES
Industry Staff strength
A
B
C
D
E
40
60
25
20
90
Total 235
3.4 SMAPLE SIZE DETERMINATION
From the population size of 23, the sample size
was determined for a limited population using Yamane‟s
statistical formular as follows:
N = n
1 = ne 2
70
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
N
71
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
Firms D: 20 x 148 = 12
235 1
Firm E: 90 x 148 = 57
235 1
n = 25+38 + 16+12+57 =148
72
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 DATE
Two set of data utilized for the study: primary and
secondary sources:
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 personnel interviews. The data
from these sources shall be analyzed with the aim of
73
answering the research questions to either accept or not
accept the null hypotheses respectively.
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
74
simple percentage for testing the research questions
and correlation coefficient for testing the hypothesis.
75
REFERENCES
Kothari C. (2004) Research methodology: methods and
techniques, New Age International limited, New
Delhi
76
REFERENCES
Kothari C. (2004) Research methodology: methods and
techniques, New Age International limited, New
Delhi
77
78
CHAPTER FOUR
4.O DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTIONS
This chapter is devoted to the presentation and
analysis of the data collected for the study. The data
colleted were analyzed using percentage and person
correlation coefficient.
TABLE 4:1: DISTRIBUTION/RETURN OF QUESTIONNAIRE
Distribution of Questionnaire
Industry No administered No returned
A 25 22
79
B 38 35
C 16 12
D 12 12
E 57 54
TOTAL 148 135
Source: Field Survey 2011
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
Total 148 100
Source: Field Survey 2011
From table 4.2, it can be deducted that 69%
of the respondent are married while 48% are not.
80
TABLE 4.3 AGE DISTRIBUTION OF
RESPONDENTS
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
Total 148 100.00
Table 4.3 shows age distribution of respondents
form the complication, only 7 percentage of age bracket
engaged in small and medium scale business while 44%
81
of age bracket engaged in such business, this implies
that greater percentage of people between 36-45 of age
dominate such business.
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 81 48 84 122 82
Personal
saving
2 8 5 13 2 13 1 8 7 12 17 12
Contribution 2 8 4 11 1 6 0 1 2 4 9 6
From friends 0 0 0 0 0 0 0 0 0 0 0 0
Total 25 100 38 100 16 100 93 100 57 100 148 100
source: Field Survey 2011
From table 4.4 shows that 82 percent of the
respondent financed their business by obtaining loan
82
from banks, 12 percent through personal saving and 6
percent through contribution from friends.
TABLE 4.5 AWARENESS FOR GOVERNMENT POLICY
TOWARD FUNDING OF SMALL AND MEDIUM SCALE
ENTERPRISE:
Industries A B C D E total
Finance
sources
Freq % Freq % Freq % Freq % Freq % Freq %
YES 22 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, 2011
Table 4.5 indicate that 95 percent of the
respondents affirmed that they are quite aware of the
policy towards funding small an medium scale
83
enterprise while 5 percentage claimed ignorant of such
policy.
TABLE 4:6 PROBLEM OF LACK CAPITAL
Industries/Option A B C D E total
Freq % Freq % Freq % Freq % Freq % Freq %
5=SA 15 60 20 53 10 83 7 74 23 48 72 50
4=A 5 20 12 32 4 4 25 2 17 22 37 44
3=UC 2 8 2 5 1 1 1 8 5 9 10 3
2=D 2 8 2 5 1 6 1 8 6 11 12 2
1=SD 1 4 2 5 1 6 1 8 6 8 17 1
Total 25 100 38 100 17 100 38 100 57 100 148 100
Source: Field Survey, 2011
From tables 4.6, it can be deduced that 72 percent
of respondents strongly agreed that lack of capital pose
a serious problem in the running of their business, 44
84
percentage agree to the same view, 10 percent were
indifferent while 2 percent disagree to the fact that 10
percent strongly disagree.
Table 4:7 problem associated with securing loan from
bank
Industries A B C D E total
Finance
sources
Freq % Freq % Freq % Freq % Freq % Freq %
SA 10 40 15 39 6 38 4 33 15 15 60 34
A 10 40 17 44 5 31 3 25 25 42 60 41
UC 2 8 2 8 1 6 1 8 2 15 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
Source: Field survey, 2011
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.
85
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.
Decision Rule:
In testing the hypotheses, the Whitaker (1982) rule
was applied as follows:
(a) If the value of the correlation coefficient
® is greater than zero (i.e positive) it
means that the variables correlates, then
accept Hi and reject Ho.
(b) If the value of the correlation coefficient
(r) is less than zero (i.e. negative) or equal
to zero, it means that the variables are
uncorrelated, hence accept Ho and reject
Hi.
86
The data generated from the survey were classified
and presented in tables in for easy handing 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 verifiable tool
for economic growth and development and has impact
on the economy.
The value of the correlation coefficient (r) is given
by the following formular.
r = n ∑XY – ∑XY
√ [n ∑X2 – (∑X2) (n ∑Y2)]
Where:
n = the number of all observations or perceptions
of the staff of the selected small and medium scale
industries in Enugu State, rated as:
i. Strongly agree (5)
87
ii. Agree (4)
iii. Uncertain (3)
iv. Disagree (2)
v. strongly disagree (1)
Y = respondents rating of the relationship between
the variables under consideration.
4.2.1 TEST OF HYPOTHESES ONE
Ho: 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.
88
TABLE 8: RESPONSES AS PER THE RELATIONSHIP
BETWEEN
Small and Medium scale enterprises are veritable
tool for economic growth development and has an
impact on the economy.
Industries A B C D E total
Finance
sources
Freq % Freq % Freq % Freq % Freq % Freq %
SA 15 60 20 53 10 63 8 67 33 58 86 60
A 5 20 10 26 3 19 2 17 20 35 40 34
UC 2 8 4 11 1 6 0 0 1 2 8 3
D 5 8 2 5 1 6 1 8 2 4 8 2
SD 2 4 2 5 1 6 1 8 1 1 6 1
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field Survey 2011
89
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 25 430
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)
r = n ∑XY – ∑XY
[n ∑X2 – (∑x2)] [n ∑Y2 – (∑Y2]
= 5(636 – (148) (15)
[5 (9160) – (148) 2] [5 (55) – (15) 2
90
= 3180 – 2220
[45800 -21904] [275 – 225]
= 960
(23896) (50)
= 960
1194800
= 960 1093 = 0.8783
INTERPRETATION
Following the available statistics dawn 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 56 percent strongly agree, 40
respondent representing 28 percent agree that a
91
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 respective.
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 (1989) decision rule, the
null hypothesis (Ho) was rejected, 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.
92
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
= 0.88 148 -2
1-(0.88)2
= 0.88 148 = 146
1 -0.7744 0.2256
= 25.4
0.88 x 25.4 = 22.3
t = 22.3
tcal = 32.7, 1.70
93
ttab at 0.05 significance level is 1.70
DECISION RULE:
(a) Accept Ho and respect Hi if:
tcal………….. ttab
(b) Reject Ho and accept Hi if:
tcal = 22.3
ttab = 1.70
Showing that t cal > t tab; this implies that we reject Ho
and accept Hi.
We therefore affirm that alternative hypothesis one
which stated 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
impact on the economy.
94
4.2.2 TEST OF HYPOTHESES TWO:
Ho: A small medium scale enterprise is 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 10: Responses as per relationship between small
and medium scale enterprise and economic
development:
Industries A B C D E Total
Finance
sources
Freq % Freq % Freq % Freq % Freq % Freq %
SA 12 48 20 5 10 69 6 56 25 40 74 55
A 8 32 10 26 3 13 2 17 18 21 40 25
UC 1 4 2 5 1 6 1 1 2 24 7 5
D 2 8 4 11 1 6 1 8 8 10 17 10
SD 2 8 2 5 1 6 1 8 4 5 10 5
Total 25 100 38 100 16 100 12 100 57 100 148 100
Source: Field survey, 2011
95
Table11 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)
r = n ∑XY – ∑XY
[n ∑X2– (∑X2)] [n ∑Y2– (∑Y2)
96
= 5(595-(148) (15)
[5 (7514)-(148)2] [5(55)-(15)
= 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 and medium
scale enterprises and economic development, 74
respondents, representing 50 percent strongly agree, 40
respondents representing 27 percent agree. 17 and 10
respondent representing 11 percent and 6 percent
97
disagree and strongly disagree that any significant
relationship exists between the two variables.
Decision rule
From the decision rule, the null hypothesis (Ho) is
reject and the alternative hypothesis (Hi) which state
that there is a significant relationship between the
variables.
Test of significant
Since r = 0.88, N = 148
Therefore,:
t = r N - 2
1 - r2
= 0.85 148 – 2
1- (0.85) 2
= 085 146
0.2775
98
0.85 x 526 0.85 x 23
= 19.5
t = 19.5
tcal = 19.5
ttab = 1.73 at 0.05 significance level
DECISION RULE
(a) Accept Ho and reject Hi if:
tcal < ttab
(b) Reject Ho 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 state that “There is a significant
99
relationship between the performance of small and
medium scale enterprises and economic development.
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 Enugu state”. Chapter
one was the introduction, the objectives of the study
were to find constraints which SMEs owners were facing
finally make some suggestion towards eliminating these
constraints or at least lessening them.
In chapter two, some related literature on the issue
was review while chapter three treated the methodology
100
of the study. Chapter four dealt on the analysis of data
already collected based on the questionnaire.
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 constraints 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 source their fund by
obtaining loans from banks. IT also shows that past
101
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.
Most of small and medium scale enterprise
encounters 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.
102
5.2 CONCLUSION
In the light of the above findings and other
previously discussed in the study, it could be concluded
that constraints 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 complementary and competitive roles together
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 enterprise. It is the sub sector that holds
the promise of meeting the industrial challenges and job
103
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 the sub sector is
given all the support it needs to play its role effectively.
5.3 RECOMMENDATIONS
Based on our findings, the following
recommendations are put forward:
1. Commercial banks should be strongly encouraged
to assist small and medium scale enterprises by
providing cheap sources of finance and making
their requirements for soft loan to be easier and
more reasonable.
2. 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
104
Central bank directives for lending to small scale
businesses.
3. Small scale industrialist should try to develop good
relationship with their suppliers, bankers, lawyers,
management consultants, and indeed all experts
and utilize their services.
4. 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.
5. Establishment of Entrepreneur Development
Institute (EDIS) for managerial and technical skills
buildings.
105
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 Publisher 2007
Ayodele, A (1997) Macro Economic Environmental
Investment Stimulation and Economic Growth.
The Nigeria Experience. Ibadan Nigeria Econ0mic
Society
106
Anyanwu, C.M (1996). Efficient Administration of Credit
for Small Scale Industries development in Nigeria,
Central bank of Nigeria Bullion 18 (2) 15-17
Bosewell, J. (1973:10) “The Rise and deckine 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 SMEs
1993-2000. Central Bank of Nigeria Statistical
Bulletin, 10 (18), 25
Chibundu, 92006) Strategies for Nigeria SMEs to grow
economy; http://blog.Emcnet.com/voip-
enterprisetrucnet/strategies-for-Nigeriam-smes-to-
gro-econo.......
Clifford, B (1972). Basic Small Business management,
University press, New York
107
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 92009:6) Small business
Entrepreneurship: A Pragmatic Approach in the
new millenniums:
Ifedi, V. 91992:8) 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
108
Jerome, A.F (1996:11) legal Requirement of Business in
Nigeria New, Nigeria March
Kothari . (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
implication. International development paper No 9:
Department of Agriculture Economics, Michigan
state University, East Lansing, Mi, USA
Manila P. 92003) Accelerating Small and Medium
Enterprise Financing in Philippines:
http://www.adb.org/pinter-
frinely.asp?fn=2fDocumenst%2FNews%2f2003%fnr
2000
Masha, R.A (1986:33) Self Reliance and Small Scale
Enterprises, the Central Banks Role Bullion, vol.
10 No 2 April/June
109
Moh References: (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 (3)
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
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 91994:7) problem and prospects of Small
scale Businesses in a Depressed Economy
business times, July 23
110
Osababa, 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
(GMAG 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. 91977:235) Under-developed Areas, a
Book of Readings and Research: Harper and
brothers publishers, New York
(SMEDAN). (2004) small and Medium Scale Enterprises
Development Agency Government Fiscal and Macro
economic Policies: Small Business Journal, 2 (232)
111
Sule, EI.K 91986), 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 California
Uzowulu, V.C 91987:8) “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)
112
Department of Management,
University of Nigeria,
Enugu Campus,
Enugu.
Dear respondents,
I am postgraduate student of the above department
in University of Nigeria, Enugu Campus, as prerequisite
for the award for 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. Yu are therefore assured that all
information given will be treated with utmost confidence
and used for the purpose of the study
Yours faithfully,
Ndubuisi Mark N
113
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 [ ] BSC [ ] MBA [ ] MSC [
]
5. Other qualifications
Please specify……………………………………………….
SECTION B:
1. What is the name of your firm?
__________________________________________________
_
__________________________________________________
_
114
2. When was your firm established? _________________
3. What types of goods does your firm produce?
____________________________
4. What do you understand by the concept small and
medium scale industries?
(a) Any enterprise with 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 [ ]
115
7. Are you 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? (a) Strongly agree [ ] (b)
agree [ ]
9. Have you ever obtained loan from financial
institutions 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 [ ]
(c) United Bank for Africa (UBA) [ ] Union Bank [
]
(e) Zenith Bank [ ] (f) Diamond Bank [ ]
(g) Eco Bank [ ] (h) Inter-continental Bank [ ]
(i) Fin Bank [ ] (j) Community Bank [ ]
116
(k) other Banks [ ]
11. Do you consider the interest rate charged by these
banks as reasonable/
(a) strongly agree [ ] (b) agree [ ]
(c) uncertain (d) disagree [ ] (e) strongly disagree [
]
12. Do you see small and medium scale enterprises
laying 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 help in boasting your business
performance?
(a) strongly agree [ ] (b) agree [ ] (c) uncertain [ ]
(d) disagree [ ] (e) strongly disagree [ ]