ASSESSMENT OF CREDIT ACCESSIBILITY TO SMALL AND MEDIUM SCALE ENTERPRISES (SMES) IN NIGERIA

ABSTRACT

This study was carried out to asses the accessibility of credit to small and medium scale enterprises in Nigeria (SMEs) it aimed at assessing the accessibility of SMEs to organized private sector credit facilities and government institutional funds and credit scheme.  A sample size of 100 SMEs in the study area was drawn. Questionnaire and interview schedules were analysed in simple percentage forms and tested with (spearman- rho correlation). The main findings of the study are that the organized private sector credit facilities are accessible to SMEs in Nigeria; that the government institutional funds and credit schemes are accessible to SMEs. These financial institutions are willing to extend credit to SMEs because of the enermous economic growth and development brought by SMEs. The researcher recommend that there is every need for the organized private sector and government financial institutions to design and package a credit delivery policy that will suit the peculiar nature of problems of SMEs in Nigeria.     

CHAPTER ONE

1.0   INTRODUCTION

1.1   BACKGROUND OF THE STUDY

The dynamic role of Small and Medium Scale Enterprises (SMEs) as engine of growth in developing countries has long been recognized. According to Ukeje (2004), it’s accelerative effect in achieving macro economic objectives, such as full employment, income distribution, development of local technology as well as diffusion of management skills and stimulation of indigenous entrepreneurship, have been well documented in economic literature.

SMEs in Nigeria account for substantial part of the total industrial employment, production, and value-added in Nigerian business concerns (Osuagwu, 2001).

This is the view held by Okongwu (2001), who states that SMEs generate the industrial wealth of Nigeria in addition to being a major agent in the economic, technological, social and political growth and development in Nigeria, not minding the presence of multinational and other large firms in Nigeria.

It is in recognition of this role of SMEs as a veritable tool of economic development that according to Deen (2003), government all over the world have formulated comprehensive public policies to encourage, support and fund their establishment and growth. Also, various Nigerian governments, to some extent, have been involved in encouraging the conceptualization, development, survival and expansion of SMEs (Osuagwu, 2001).

However, in playing their role as a catalyst of economic growth and development, SMEs in Nigeria are bedeviled with a plethora of problems which include:

1.           Lack of adequate financing

2.           Incompetent management

3.           High operating cost

4.           Poor location

5.           Unstable socio-economic climate

6.           High labour turn-over, among others

Of all the problems which SMEs encounter in their day-to-day struggle for survival, lack of adequate financing seems to be the most salient factor to observe. This is the view of Nwana (1995) who observed that an acute problem facing the SMEs is inability to raise enough fund to finance its operations. Also in agreement with this, is the view of Osuagwu (2001) when he states that lack of adequate financing is a common reason for SMEs failures.

The sources of finance open to SMEs include personal funds, organized private sector funds, informal financial institutions funds, government funds, customer financing, as well as trade credit from suppliers and others. The most readily available of these funds to SMEs is the owner’s capital, which is usually insufficient to sustain the business, hence, the need to source for external fund. Experience has shown that SMEs have difficulties in producing external funds. The reasons for this are well documented in economic literature, and include in particular the fact that lending institutions regard them as high risk ventures and shy away from them (Okeke, 2001). According to Mbadiwe (2005), the financial system in Nigeria has been biased against SMEs.

However, in Nigeria, the Federal Government, in recognizing the crucial role of capital to the survival of SMEs, has enunciated series of fiscal policies and incentives aimed at encouraging the establishment, growth and survival of this group of enterprises (Adebusuyi, 1997).

Government financial support given to SMEs comes in form of series of programmes on small and medium scale industries financing through the provision of “soft loan” by government owned development financial institutions. It also include directives to commercial banks on the provision of soft loan to SMEs. In addition, new lending schemes and credit institutions such as the Small and Medium Industries Equity Investment Scheme (SMIEIS), Bank of Industry (BOI), National Economic Reconstruction Fund (NERFUND), Nigerian Export and Import Bank (NEXIM), National Directorate of Employment (NDE), Nigeria Aqricultural and Cooperative Bank (NACB), amongst others and the World Bank SMEs assisted loan scheme have also emerged at both the state and national levels to boost the flow of fund to SMEs.

Unfortunately, inspite of all the available financial institutions and the government’s efforts in ensuring the flow of funds to SMEs, finance has continued to remain a Major problem of SMEs in playing their role as an engine of economic development. Many firms in this group had either ceased operations or are operating for below their full capacity due to lack of adequate financing among other factors. It is in view of this, that the researcher tends to establish the impact of financing on the survival, growth and development of SMEs in the challenging and dynamic Nigeria business environment.

Poor capitalization, which seems to be responsible for the failure of most SMEs in Lagos State as observed by the researcher, is a consequence of low level of owner’s capital and lack of access to external funding.