PROBLEMS OF FINANCING SMALL-SCALE INDUSTRIES AND POSSIBLE SOLUTIONS TO IT

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.

For many centuries our people had been involved in the management of small-scale business.  The art of trade by barter is an example if small scale business which had been in existence even before the advent of large corporations.  In our traditional secreties where the head of a house hold cultivates some crops for use and then sells the remaining to those who need them can be looked at as a small scale business, though a crude form of small scale management.  Since he has to maintain the farm invest some capital in the form relations or brought from the market, he buys or produces his farming implements and then hires labour for the planting and harvesting of the crops, he is unknowingly engaging in a small scale business. There are thousands of business units operating in the country today with the majority being in the small scale business category – they are usually owned by a single individual known as sale proprietorship and some of the partnership business are operated on a small scale basis.  Some will end up in bankruptcy, others will end when the owner get a letter job elsewhere some small scale business short having problems from their very beginning due to the amount of capital invested by the owner.  This is because immediately the uniting capital is used up, the business is finished.

1.2  STATEMENT OF THE PROBLEM

Small scale business are not able to take business ventures with high yielding potentials because of the numerous problems in obtaining adequate fund this financial problems hampers all important objectives of the business, its growth and survival.  This study is aimed at identifying these problems and determining to what extent these problems could be solved for the overall welfare of small business in the state in particular and the nation in general. Moreover, it is an attempt to know why despite all the good policies formulated by the government for the financing of small scale industry they still have problem of growth and development.  It is hope that by the end of the whole study the problem facing small scale industrial credit financing in the country will be identified and possible solution proffered.

1.3    PURPOSE OF THE STUDY

This study is basically aimed at the following:

(i)  To examine the financing of small scale industries in general and an aid to profit maximization and increase in the level of employment.

(ii) To carryout a general evaluation of, and assess to what extent the government and other financial institutions have helped through the provision of financial assistance to the industry.

(iii) To make suggestions and recommendations that would be useful in solving the identified problems.