chapter one intorduction 1.1 background of the study

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-

http://blog.emcnet.ccom/voip-enterpreisetrucnet/strategies-for-Nigerian-smes-to-gro-econo

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

http://www.adb.org/pinter-frinelt.asp?fn=%2fDocuments%2FNews%2F2003%25fnr200



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)

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

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


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:


Finance

sources


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


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


Finance

sources


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



Finance

sources


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


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)


[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


94

4.2.2 TEST OF HYPOTHESES TWO:

Ho: A small medium scale enterprise is not veritable



Hi: Small and medium scale enterprises are veritable


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


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)


[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

http://blog.emcnet.com/voip-enterprisetrucnet/strategies-for-Nigeriam-smes-to-gro-econo



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

http://www.adb.org/pinter-frinely.asp?fn=2fDocumenst%2FNews%2f2003%25fnr2000



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 [ ]