ROLE OF CREDIT INSTITUTIONS ON THE PROFITABILITY AND OPERATIONS OF A SMALL AND MEDIUM SCALE BUSINESS

ABSTRACT

This study is on role of credit institutions on the profitability and operations of small and medium scale business. The total population for the study is 200 staff of selected SMEs in Uyo. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up managers, secretaries, senior staff and junior staff was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

 CHAPTER ONE

INTRODUCTION

• Background of the study

Credit provision is absolutely crucial to the success of Small and medium enterprises, it directly impacts on their day-to-day operations, and, in turn, their profitability (Lam & Burton, 2005). The concept of credit institution can be traced back to an obscure experiment in Bangladesh 30 years ago. It has since become a worldwide movement as a development activity, as a way of helping poor people out of poverty (Dicher, 2006). Buckley (1997) captures their prominence role in development of economies; he describes them as the newest darling of the donor community. Other authors have described them as the newest silver bullet for alleviating poverty (Karmani, 2007) while Greer (2008), Gupta and Aubuchon (2008) claim that microfinance shines as a proven way to improve the lives of the poor. In reference to Kenya, the Small scale enterprise market is an important part of the business banking market. Findings of the Strategic Business Advisors Africa Ltd. (SME Banking Sector, 2007) revealed that there are about 2.2 million small and medium enterprises in Nigeria of which 23 percent had bank accounts. The definition given by the Central Bureau of statistics, 2004 is that” Small and medium enterprises constitute of semi organized and an unregulated activity largely undertaken by self-employed persons in the open markets, stalls, in under eloped plots or streets within urban areas and centers. They often pay fees to the municipal or local councils. A positive relationship has been documented between small and medium enterprises development and economic growth in developed countries (Harris and Gibson, 2006; Monk, 2000; Sauser, 2005; Birch, 1987; Birch, 1981). Since the 1980s, almost all African countries implemented economic and financial reforms to achieve macroeconomic stability and improve economic governance. In many countries these reforms have led to greater macroeconomic stability, improved fiscal and monetary management as well as better, though still unsatisfactory, overall economic performance.

Small-scale enterprises play an important small and medium enterprises in the Nigerian economy and are accorded high priority in the development policy (GOK, 2007). They offer many advantages including the creation of jobs in both the rural and urban areas, support for larger industries including the agricultural sector and the utilization of local resources. These types of businesses require very little capital to create jobs, rely primarily on family savings and often provide their own skill training at no cost to the government (Maithaet al., 1997). The focus of the study is on the on the growth of Small and medium enterprises in Kisii Town. In reference to Nigeria, the Small enterprise market is an important part of the business banking market. In spite of the sub-sector being a major source of livelihoods for a large majority, especially those living below the poverty line, the government has not managed to implement major policy provisions geared for the development of the sub-sector and according to Maitha, et al. (1997), the support and attention accorded to small and medium enterprises has not been commensurable to their critical importance in national development.

• STATEMENT OF THE PROBLEM

The contribution of SMEs to the economic development has not been adequately highlighted. The small and medium enterprises (SMEs) play an important small and medium enterprises in the Nigerian Economy. According to the Economic Survey (2006), the sector contributed over 50 percent of new jobs created. Despite their significance, past statistics indicate that three out of five businesses fail within the first few months of operation (Kenya National Bureau of Statistics, 2007). Approximately 80% of Nigeria enterprises are Small and medium enterprises which are highly attractive to banks, (Ministry of Trade and Industry, 2003). Some town has over 20 financial institutions, all of which offer credit to the SMEs for growth. The purpose of this study will be to determine and identify the role the credit institutions play in the growth of the small enterprisers and how provision of credit, training and savings account influences the growth of Small and medium enterprises.