DOWNLOAD THE COMPLETE PROJECT

1120 Users found this project useful

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

The small and medium Enterprises have long been recognized the world over as the key driver of economic growth and development. This is because SMEs have provided the mechanism for stimulating indigenous enterprise in many countries by creating employment opportunities, training entrepreneurs, generating income, aiding the development of local technology and providing a source of livelihood for the majority of low-income households which enhances pro-poor economic growth in many countries. Having globally acknowledged, SMEs is required to lubricate the engine of socio-economic transformation of developing nations’ economies by improving per capita income, export earnings and stepping up of capacity utilization in key industries ( Obasan and Arikewuyo, 2012). With the Nigeria’s quest to grow the economy, the sustained growth of the SME sub-sector is even more germane. Thus, in contributing meaningfully to inclusive economic growth, access to finance SME has become critical, especially as they rely on Deposit Money Banks and other financial institutions to raise funds for investment.

The important role played by Small and medium enterprises (SMEs, thereafter) in the growth and development of developing countries is well rested in the literature. SMEs have been reported by Ayozie and Latinwo, (2010), Safiriyu and Njogo, (2012) to encourage entrepreneurship. In addition, Muritala, et al.(2012) posit that there is the greater likelihood that SMEs will utilise labour-intensive technologies thereby reducing unemployment particularly in developing countries and thus have an immediate impact on employment generation (Ariyo, 2008; Ayozie and Latinwo, 2010). According to the United Nations Industrial Development Organization UNIDO (2001), for developing countries, integration into the global economy through economic liberalization, deregulation, and democratization is seen as the paramount way to triumph over poverty and inequality. The importance of this process is the development of a vibrant private sector, in which small and medium enterprises can play a central role. The problems bedeviling the SMEs in Nigeria are multi-faceted.

Ekpenyong (1997) and Utomi (1997) identified inadequate capital, inaccessible credit facilities. Long term development institutional credit was known not to be available to SMEs because they are generally considered high credit risks by financial institutions. The study by Evbuomwan, et al. (2012) indicated that 75.7% of their survey respondents relied mostly on own funds to finance their businesses. A widespread concern is that the banking system in the sub sector (which supposed to be the major financier of SMEs) is not providing enough support to new economic initiatives and in particular to the expansion of SMEs and agriculture sector. It is noted that commercial and the hitherto merchant banks which retained liquidity levels in excess of regulation have shown reluctance in financing SMEs (Sacerdoti, 2005). While Micro Finance Institutions (MFIs) have expanded vigorously in a number of countries, the size of their credit remains limited, so that their support is not on the scale needed for many medium sized projects. Also, the interest rate on micro-credits is very high, due to large administrative costs in relation to their scale of operations. (Mahmoud, 2005).

Other constraints include poor power supply and inadequate infrastructure (Evbuomwan et al. 2012). This in-depth study into the essential features of the existing micro, small and medium scale industries is justified on the grounds that many policies in the past, which sought to address the problems of the real sector of the Nigerian economy, seemed to have failed. This, it has been realized, was due mainly to their reliance on big "white elephant" projects, which appeared physically impressive but had no linkages with the rest of the economy. In addition, the industrialization strategy adopted then, was neither resource-based nor was it technology-based. It simply relied on the blind optimism that the establishment of these industries would eventually lead to the transfer of appropriate technology and its adaptation to suit the Nigerian environment. Needless to say, these strategies have failed (Kayode, 2004). The failure of the past industrialization policies favoring medium and large enterprises to stimulate economic growth and development has generated a renewed interest in the SMEs as a catalyst to industrialization quest and its resultant effect on economic growth in Nigeria (World Bank, 1995; Chizea (2002). The Nigerian economy in pursuing this agenda placed SMEs development and promotion a top priority. The SMEs constitute the foundation for the sustained growth and development of the economy.

Deposit money banks, also known as commercial banks, are financial institutions that provide services, such as accepting deposits, giving business loans, mortgage lending, as well as channelling of funds from surplus to deficit units for even development of the economy (Uzonwanne, 2015).  The financial system of Nigeria is largely dominated by the banking sector, especially the deposit money bank which provides the bedrock for economic growth. Their credit component constitutes a major link between the monetary and the real sectors of the Nigerian economy, and their role is seen by many financial experts as a catalyst for economic growth and development.

1.2       Statement of the Problem

Over the years, the government of Nigeria at different levels have in one way or the other involved in the financing and development of Small and Medium-scale Enterprises (SMEs) through establishment of SMEs enhanced-financing institutions. These include the Nigerian Industrial Development Bank (1962), Small Scale Industries Credit Scheme (1971), the Nigerian Bank for Commerce and Industry (1973), the Mandatory Bank’s Credit Allocation to SMEs Scheme (1992) and the Bank of Industry established in 2001. Furthermore, the Central Bank of Nigeria also intervened by establishing several schemes for SMEs financing such as, the Refinancing and Rediscounting Facility, N200 Billion Restructuring/Refinancing Scheme, N200 Billion Commercial Agricultural Credit Scheme (2009) and of recent, establishment of N200 billion Small and Medium-scale Enterprises Credit Guarantee Scheme (SMECGS) in 2010. Besides government and the CBN, other private institutions in Nigeria also came up with SMEs’ credit support schemes, one of such was the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) established in 2001 largely by the contributions of Bankers’ Committee.

  DOWNLOAD THE COMPLETE PROJECT