Problems and Prospect of Small Scale Enterprise in Nigeria


Business is said to small when compared to larger ones. Also small-scale business is know to be an individual company which could be expanded depending on the individual intention. In this aspect small-scale business has been variously defined. It can be defined as a business, which is owned and controlled by one or a few persons, with direct owner influenced in decision making and having a relative small share of the market and having a low capital requirement. By Diaku (1989) observe that the service of small-scale business are mainly for the demand of their immediate local environment, and that their properties are usually conservative and suspicious, unwilling to release information about their business for fear of taxation and unwanted competition. Moreover the reason is that different countries are at different economic condition so far there is no consensus on the definition.

The definition adopted by a country is according to its economic circumstance.

Furthermore, the relative condition of different firm in different industries the size may not be the same. A firm in a particular industry may be small relative to other in the same industry. But when compared with a firm in a firm a particular industry may be seen as large but relative, it is difficult to adopt a consensus definition for small scale business.

In Nigeria a member of different definition have been adopted by different agencies.

Definition is based on one or combination of the following.

  • capital base
  • turnover number of employee and
  • size of market control in small-scale business enterprises.

National economic re construction fund(NERFUND) and world bank sponsored small-scale enterprises scheme defined small-scale business as the enterprises whose total fixed assets (excluding land) plus cost of investment do not exceed N100 million at 1989, price (Chima 1993:3).

The central bank of Nigeria (C.B.N) defines small-scale enterprise for commercial and merchant bank loans, as one whose capital investment (including land and working capital) does not exceed N25m annually.

While the Nigeria bank for commerce and industry (NCB) defines small-scale business as a firm who assists (including working capital but excluding land) does not exceed N1,50,00. Because of changing economic condition, it is considered necessary to adopt a base year when using capital base or turnover to define small-scale enterprise (Chima, 1993:2)


The problems of small-scale enterprises may be seen and described in many different ways. Some problem may emanate from the manager while other may come from certain environmental forces, which are external to the business, e.g. government and competition. Some problems can be identified as local, for instance the problem of location, disaster and unplanned expansion. Most of the problems however are managerial, for example the problems of organization, funding and control. The later problems are internal to the enterprise and the business entrepreneur must solve them or else his efforts are doomed since efficiency and organizational goals cannot be achieved in the presence of these problems. Many writer have grouped the problems of small-scale enterprise in different ways depending on their requirement. A former president of the Anambara state branch of the Nigeria association of small-scale industrialist (NASSI) grouped these problems into three classes namely:- land, industrial expertise and fiancé (by Chijioke 1984) William D.Hailes, Jr, Raymond, T.Hubbard (1977) classified them as training, experience administration and planning. Again Iwuoha (1996) on the other hand grouped these problems into: management, physical sociological, political and miscellaneous. Whichever, the classification adopted, the most important thing is to identify these problems that plague small-scale enterprises.



Management is a key factor in economic growth and progress. It is the key factor that organizes, controls, directs, and coordinators money, man and machine in order to achieve efficiency and progress in business. As Obukohown (1996) said the basic quality required in a manager is the capacity to work effectively to switch off distraction, curb mental indiscipline and boredom and get down to the job on hand. Managerial problem is the greatest problem facing small-scale enterprises in Nigeria as a whole and especially in our country Nigeria. Managers, of small-scale enterprises are unable to plan, direct, organize, control, co-ordination and fund the business as expected. The primary cause of this inability is that these entrepreneurs fail to be in a continuous state of education and training throughout their working lives. Managerial problem facing small-scale enterprises have been defined as the inability of the entrepreneur to plan, organize, direct and control, his business in such a way that the benefits (profits ) will outweigh the cost (loses) or in such a way that the profit he should earn assuring he is employed elsewhere Iwuoha (1996).

Some of the Identified Managerial Problem Include:-

  • planning
  • Organization
  • Funding
  • Control
  • Directing
  • Co-ordination

Planning:- most business failures are as a result of manager’s inability to plan, planning is one of the most important function of the predict future events. Nwachukwu (1990) defines planning as involving the establishment of objectives strategies to achieve the activities and a step- by step determination of the activities and resources for their achievement. As Mr. Ohiri in a lecture on personnel management pointed out ‘planning’ is used by individuals and institutions to approach the future in such a way as to maximize uncertainty and surprise and to eliminate mistake and waste. Here lack of basic education is a major hindrance to the skills, expectation and capabilities of small- enterprises. Planning helps the manager to define the planning mission of the organization and credit strategies, policies and procedure.


Small scale enterprises are always unable to organize the business of quite good ground. The problem arises because it is not possible for the small firm to employ suitable qualified personnel since they do not generate capital. Hence they cannot engage the services of Accountants, Engineers surveyors, e.t.c.. As a result one man performs the function of Accountant, Training Manager e.t.c and therefore becomes unable to organize the business very well. Hailer et al (1977) stated that the small business owners must be sufficiently prepared to handle the business. The manager must know when to reply on his or her own knowledge and foresight and when to seek an expert’s advice.


The most common problem that faces small-scale enterprise is shortage of fund for establishing, obtaining raw material and equipment and meeting the running expenses of the business. The capital usually invested in the business is not always big. Small machine are purchased in order to have funds for other organizational responsibilities. Small machine can only produce according to their capabilities and efficiencies hence the reason why the products of small-scale enterprise are usually interior. United National Technical Services for small-scale industries (1970) stated that: usually the cost of handing small loans, including the cost of investigating the credit standing of the small applicants of loans and the risk of default are factors placing scale firms at a disadvantage and tendency to raise the rate of interest charge to small borrowers.


The managers of small-scale enterprises are generally unable to control the business as expected. The largest investment a manager should make is inventory control is one of the most neglect of all the managerial responsibilities.

Managers are unable to control the business because of some factors such as laziness, over-extension, extensive, vacationers and unethical behavior on part of the manager.

A manager that is not able to comfort himself very well, cannot possibly control the business as desired lines hence the failure of the business.

DIRECTING:  small-scale enterprise encounter problem in the directing of the business. Directing is the ability of the enterprise to motivation, guide and communicate to his subordinates throughout the performance of role assigned to them.

The manager of small-scale business is expected to provide employees with leadership in the accomplishment.

He should create work environment that motivate his employees to produce to their fullest capacity (Osuala 1993).

Lack of proper serve of direction has caused most business failure of small-scale enterprise in Nigeria.


To Koontz and his colleagues, this is the offense of management. The reasoning here is that one need to achieve harmony of effort of accomplish the desired goal, and this in itself the purpose of management coordination in the unification of effort and the ensuring that all activities of a business organization are in pursuance of the same policies

Some of the local problem of small-scale entrepreneur in Nigeria is:

1        Location:  it is the major problem of small-scale enterprises.

2        Disaster natural disaster in form of erosion and flooding also prove problem of the striving of small-scale enterprises.

3        Unplanned expansion:  it is also one of the problem facing small-scale enterprises



  • Lack of collateral: most often, these small-scale enterprises doesn’t have enough asset to make a collateral with, in other to get money or loan from banks or from financial houses. They lack these because they don’t have enough capital to invest in their business, because more capital bring more asset in return, they use the assets for collateral.


2   Risk of lending: this will require the risk of lending because, when you mighty not be able to return it when they told you to return. For instance you might borrow money, which succeed; moreover you don’t have any other asset to pay back the money inconvenience which you would not know how to solve it. So when lending money you should have the assets of returning it

3   Interest rate:  if the interest rate is high they will not meet up with the requirement, the financial institute may need for their rate. Because, when the central bank directed the commercial bank to increase their rate, then I strongly believe that the small-scale enterprise will not meet up with such rate.

4   Death maturity period:  this is the director on the validity for who ever that borrower or lead to bring back the money, because their capital is too small and their business moves slowly, they may not meet up with the period the financial institution may required them in other words, it is a for small-scale enterprises in Nigeria.

5   Ability to pay back:  Unlike risk of lending, you should have this ability to pay back or return when needed. When you don’t have any mix to pay back it might cause you not to be borrowing when you full into problems.


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