PROBLEMS OF FINANCING SMALL SCALE ENTERPRISES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Finance has been identified as one of the major factors for the development of small scale Industries in Nigeria.  For the establishment of a small scale business in Nigeria, the first factor to be considered is the availability and source of fund for setting up the industry, small scale business is an organization that can be measured by various characteristic and some of these are its sales volume, capital investment, ownership structure and the member of paid employees.

Small scale industrial sector occupies a very significant place in the industrial sector of this country there are basically two broad categories of small scale industry.  The first are those carried out by additional craftsmen and artisans, some of them might need assistance to moderise their skills.  Tools and techniques of production.  The second are those carried out by groups of small manufacturing enterprises which produce a variety of consumer and sample producer goods.

The small scale industry has been given different definition by different people and authorities at different times.  However, the level of capital employed remains a relevant criterion for identifying the small scale industrial operation.  Based on the general motion in the third National development plan 1976 –1980, a small  scale industry means an industrial undertaking involving total investment of up to but not exceeding one hundred and fifty thousand (150,000).

Small scale industries are given different definitions both by NBCJ and CBN policy the Central Bank of Nigeria based on the federal government 1988 budget defines a small scale industry in case of Merchant Banks as one with limit of capital investment of two million Naira (N2m) capital cost of land, or one with a maximum turn over of five Million Naira (N5m) and for the commercial banks, it is an enterprises with annual turnover not exceeding five hundred thousand naira (N500,000).

Additionally, the small scale industries division of the federal ministry of commerce and industry defines a small-scale industry “as establishment with capital investment holding totaling two hundred and fifty thousand naira (N250,000) with between 50 – 150 employees”?  But judging from the recent industrial policy guideline, small scale unites means industries with capital outlay of between one hundred and two hundred thousand naira (N100,000 and N200,000) excluding land and building but including working capital.3

Having examine the various definitions with regards to the concept of small scale business,  it is deemed necessary, for the purpose of this study to provide a basic framework by adopting a more common definition.  Small scale industry can be defined as one which I independently owned and operated.