Problems of Financing Small Scale Enterprises in Nigeria

Problems of Financing Small Scale Enterprises in Nigeria

This chapter Examines different relevant literature and theories dealing on the problems of financing small scale industries. In fact much work has been done. Small scale industrial development has assumed a leading role in the rapid industrialization and development of different countries of the world. As a result of this leading role and importance of small scale industries in the industrialization of nations. What has been said about this sector. According to Mazi Chibuzor M. O. Eze in a paper he presented at the seminar on the development of small scale industrie4s in Aguata, “The issue of small-scale industries has been over-flagged by development bankers, academicians, government officials and small scale industrialists themselves. 1

The president, general Ibrahim Badamosi Bagangida has this to say on the establishment of the national Economic Reconstruction Fund (NERF). “The establishment of the NERF was not another cake sharing exercise but was designed to aid in the process, hence fund disbursement would be based on competitive efficiency”.2   This was to ensure the efficiency and conformity of the fund scheme (NERF). It was also among the highlights of the new national policy on small – scale industries under Decree 2 of 1989. This fund was designed to correct any inadequacies over the past years which have stiffed financing of small scale and medium industries, it is expected that the fund will mobilize funds through provision of medium and long term loans either in Naira or in foreign currencies. To participating commercial and merchant banks for on – lending to small and medium scale industries.

In the words or Mr. Victor Ogunye, “The basis presumption underlining the desirability of maturing the sector, are the perceived multiplier effect which small scale industries have on the performance of the colony and economic growth in general.3   He further stressed that “an element of urgency in supporting of the sector of the dramatic impact of the second – tier foreign exchange market and other components of structural adjustment programme (SAP), which undesirable complicate the production Cost components of industry in general”.

In recent years, both the federal and the state government have been placing much emphasis on the development of small-scale industries due the vital role the sector is expected to play in the economy. It is in the pursuance of the development policy that the federal government of Nigeria has set up a number of organization and specialist institutions in the small – scale industrial sector of the economy. These institutions include the Nigerian Agricultural and co-operative Bank (NACB) others include institutions such as fund for small-scale industries (FUSSI) the state small-scale industries credit scheme (SSICS).

The main objective of the governments involvement in small scale industries promotion and development were to help create employment opportunities, mobilization of local resources and in checking of rural – urban migration etc. These were to be achieve through offering small scale industries financial, management and technical assistance to ensure their growth and survival. Thus, Ogundipe suggested the following as the reason why small – scale industries should be encouraged in the country.

  1. More rapid employment generation
  2. Development of indigenous technology and entrepreneur
  3. Utilization of local resources
  4. Mobilization of domestic earnings
  5. Provision of a training ground for indigenous mangers and semi skilled workers.
  6. Reduction of Rural – urban migration
  7. A means of nurturing indigenous raw materials and processing industries to support larger enterprises.

A part from the establishment of development and specialized financial institutions to aid small scale industries, the government has also introduce other several incentives to encourage the growth and development of small – scale industries in the country for instance, in 1988, the federal minister of finance and Economic planning made know the intention of the federal military government to introduce a national economic reconstruction fund for the activities of the small-scale and medium scale enterprises. The fund according to the minister shall aim at removing some of the important factors that have been constituting problems to the channeling of the bank credit to the small scale industrial enterprise was spelt out in the country sector.

The government policy on small scale enterprises was spelt out in the country’s second national development plan 91970 – 1974). It states thus, “In furtherance of government policy to increase rapidly the present level of indigenous ownership and participation in manufacturing, active support will be given to the development of small-scale industries”. The government determined effort in making sure that the small-scale industrial sector developed as soon as possible could be seen in its annual budgets to the nation every year for instance in 1988, the government in her budget proposal announced that commercial banks can or are allowed to take up; equity participation in small-scale industries in Nigeria. Also in the budget of 1989, the federal government had this to say:

“during the year attention will be focused on the development of small-scale industries in view of their importance as the engine of growth, and the fact that they are conducive to the creation of more dobs per unit of naira investment”5. It further stressed that they are easily located in the rural areas, the Nigerian Bank for commerce and industry and the commercial banks will be expected to create small scale industrial department with management capabilities in getting easier access to credit and to the management advice. Government will also examine the possibility of licensing more special banks that will be devoted to assisting small scale farmers and small scale industries.

Moreover, the federal government budget of 1990 says thus. “Similarly, for purposes of sustained promotion of small scale enterprises it has been decide that the existing minimum of 16 percent of commercial banks total credit outstanding allocated to small scale enterprises, outstanding allocated to small scale enterprises, excluding activities in general commerce, be raised to 20 percent as from 1st January, 1990”.6 This is aimed at making more fund available to small scale industries. It will also help to reduce the problems which finance poses for this sector.

On the 12th of August, 1989, the entrepreneurship development programme (EDP) was launched by the federal government with the Nigeria Bank for commerce and industry as the main agent. The programme was aimed at bringing self-reliance and fighting unemployment through the following policy the objectives:

  • General of productive self-employment through the establishment of small and medium scale industries
  • Improvement in the performance of small and medium scale enterprises through training.
  • Generating, invoking and encouraging behaviourial attitude necessary for the evaluation of heating industries culture.

As the major agent of this programme, the Nigerian Bank for commerce and industry believes that the best way of creating productive self employment is the need to develop not only the small-scale industries sub-sector but the crop of businessmen themselves . they disagreed that lack of capital is the major constraints to the development of a viable small – scale enterprises sub-sector. This view has held by Prince B. A. Olateru Olagbegi, the general manager finance and administration of the Nigeria Bank for commerce and industry in a paper he presented of a symposium organized by the Nigeria institute of Bankers. In his own words, he said we maintain that the problem of small businessmen and more than financial, assuming that he is by means able to raise the capital, he cannot succeed if he lacks the necessary acumen.” 7 This is because money given enough capital even when the acumen is not there, the businessmen can hire the service of experts with the know thereby created yet more employment opportunities for the youth and the unemployed secondly, it should be noted that most people who divert business loans of other purposes such as buying luxurious cars, building expensive mansions etc, are not really the small operators themselves who are mainly business and young school – learvers but rather the highly placed individuals the society who falsily claim to be a small scale businessmen. They obtain theloans and use it for other purposes other than the reason for which the loans are procured.   When a business tarts to lack fund at any time, then problems will start hence forth, which might even lead to an untimely death of the business. In fact finance is” Sine qua non” in the establishment of small scale industries in Nigeria and any place in the world.

—-This article is not complete———–This article is not complete————

This article was extracted from a Project Research Work Topic


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