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Product Category: Projects

Product Code: 00003767

No of Pages: 109

No of Chapters: 5

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This study sets out to examine the relationship between borrowing and the performance of small and medium scale enterprises in Nigeria. The study reviewed some relevant and related literatures. The descriptive survey research was applied for the assessment of the opinions of the respondents with the use of the questionnaire and the sampling technique. A total of 100 (one hundred) copies of questionnaire were administered and all were retrieved duly completed. Finding from the analysis of research questions and hypothesis revealed that SMEs experience finance problems most and for this reason, they borrow money mainly from banks. The fund raised is used to expand their scale of operation, increase quantity of goods produced, purchased and supplied into the market. The operators believed that with their financial problem solved, they do not have anymore. However, the borrowing rather than helping them create additional problem of repayment of both the principal and interest. This forces them to sell their goods at very ridiculously low prices to increase sales turnover thereby denying them of normal profit they should realise.


Title page                                                                                           i

Certification                                                                                      ii

Dedication                                                                                         iii

Acknowledgements                                                                            iv

Abstract                                                                                             v

Table of Contents                                                                              vi


CHAPTER ONE:   INTRODUCTION                                                  1

1.1        Background of the Study                                                         1

1.2     Statement of Problem                                                              4

1.3     Purpose of the Study                                                               5

1.4     Research Questions                                                                 5

1.5     Statement of Hypotheses                                                         6

1.6        Scope of the Study                                                                   6

1.7        Significance of the Study                                                         7

1.8        Definition of Terms                                                                  7



2.0        Introduction                                                                            8

2.1     An Overview of Small and Medium Enterprises Financing

in Nigeria                                                           8

2.2        Problems Militating Against the Development of Small and

Medium Scale Enterprises in Nigeria                         10

2.3        Factors affecting the Growth of Firms                 13

2.4        An Overview of SMEs Financing and Regulatory

Environment in Nigeria                                        19

2.5        Sources of Financing SMEs                              27

2.6        Effective Financing of Small and Medium Scale Enterprises

(SMEs) as an Impetus for Poverty Alleviation in

Nigeria: An Analytical Approach                            29


CHAPTER THREE:       Research Design and Methodology           31

3.1     Introduction                                                    31

3.2        Research Design                                         31

3.3        Population of the Study                                         31

3.4        Sample and Sampling Technique                       32

3.5        Sources of Data                                                 32

3.6        The Instrument                                                  32

3.7        Procedure for Data Collection                             33

3.8        Procedure for Data Analysis Method                   33


CHAPTER FOUR: Data Presentation and Analyses      34

4.1        Introduction                                                                            34

4.2        Data Presentation                                                                    34

4.3        Analysis of Research Questions                                               37

4.4        Hypothesis Testing                                                                  41


CHAPTER FIVE:  Summary, Conclusion and Recommendations      43

5.1        Introduction                                                                            43

5.2        Summary of Findings                                                              43

5.3        Conclusions                                                                             44

5.4        Recommendations                                                                   45

References                                                                               47

Appendices                                                                              51







1.1       Background of the Study

In the present day economies of the world, small and medium scale enterprises have come to be recognized as veritable engines of growth, employment, poverty reduction and innovative development. Government of various nations and indeed, world economic development and financial institutions such as the Brethonwood Institution (International Monetary Fund and World Bank), the United Nations have all in recognition of the potentials of SMEs embarked on deliberate developmental policies aimed at creating a productive base for world economies (Englama, et al, 1997).

Lofty as these aims and aspirations are, the problem of finance has remained insurmountable. For instance, Fatunla and Adebayo (1985) note that inadequate finance has always been a constraint to the development of small-scale industries. Oshunbiyi (1989) equally noted the critical role of finance at every stage in an organization’s life and the restricted access of small industrialists to the capital market and opines that they could improve their financial position through exploitation of institutional credit sources or borrowing from banks.

As emphasized by Harper (1995), with the large increase in world population (especially Nigerian and many developing countries) “governments can certainly not afford to employ many more, and larger scale industry as this has dramatically failed to absorb more than a tiny fraction of the multitudes who need jobs. In many countries small enterprises are, therefore, possibly the hope of employment creation, and it is hardly surprising that policy-makers in developing nations and almost everywhere else have so eagerly strived to promote and encourage them”. The availability of efficient infrastructural services is a key requirement for the take-off of private investment (CBN, 2000). The take-off and efficient performance of any enterprise, be it small or large, will require the provision of funds for its capitalization, working capital and rehabilitation needs, as well as for creation of new investments (Nnanna, 2001).

Reflecting countries experiences, SMEs employ more than 50 percent of the industrial workforce in Columbia, India, Indonesia, Kenya, Philippines, Tanzania and Zambia. They are the real job creators in the European Union (EU) accounting for 99.9 percent of 11.6 million enterprises (excluding enterprises in agriculture, fishing and other sectors, 72 per cent employment of the 80.7 million persons employed by all enterprises, and generate 69.7% percent of turn-over in EU (Deloittee, Touche and Tohmatsu, 1995). SMEs were equally responsible for more than 50 per cent of total employment in Canada (Government of Ontario, 1995).

Studies have shown that, SMEs have in many countries, provided the mechanism for stimulating indigenous entreprenuership, enhancing greater employment opportunities per unit of capital invested and aiding the development of local technology (Sule, 1986; World Bank, 1995). They help to mobilize savings for investment and promote the use of local raw materials. Through their dispersal nation-wide, they contribute to more equitable income distribution among individuals and regions, as well as mitigate rural-urban migration.

In view of these advantages, greater attention has been given to the promotion of SMEs globally as tool for poverty alleviation and economic development. Even in the most buoyant economies, such as the United State of America, small scale enterprises have played an important role in her transition from the industrial age of the post industrial information technology era. Also, in other countries like Japan and South Korea, the use of sophisticated technology has reduced to the minimum efficient scale of production in industries known for product innovation, such as the electronics and computer industries (Olorunshola, 2000).

In the same vein, the Nigeria budget for 2003 was designed among other things to reduce poverty. According to Sanusi (2003) it is “to pursue macroeconomic policies and sector growth strategy that will achieve fiscal stability, improve non-oil sector competitiveness, lower levels of inflation, stable and competitive exchange rate in order to engender growth and reduce poverty through increased employment”. Specifically, attention has been directed at the development of small medium scale enterprises with the aim of turning them into engines of growth for the various economies.

One of the major economic tools being used in combating slow economic growth and poverty in various nations is the complete turn-around of the economy from consumer economy to productive economy by rendering assistance to SMEs through adequate financing and creation of enabling environment.

1.2   Statement of Problem

One of the critical problems facing economic growth in African Sub-Saharan and indeed the developing countries generally is the harnessing of resources to achieve desired goals.

In the case of the SMEs in Nigeria in particular, various problems confront its growth and hence, the objective of its establishment and management as engine of growth. These include among others, market; raw materials; manpower, lack of information; lack of management and technical skills; poor ethical values and lack of transparency; proper policy formulation and implementation; and funding/financing.

The issue of inadequate financing usually derives from inadequate proprietorship and equity participation. A strong capital base and financial outlook are required for successful business. However, small scale entreprenuers are usually reluctant to bring in partners, even at the risk of under-capitalization. The under-funding of SMEs has led government to formulate measures aimed at assisting this sector in form of loan packages through World Bank, National Directorate of Employment, National Economic Reconstruction Fund (NERFUND) and other financial assistance schemes.

Owualah (2001) argues that, among the problems of small scale business whether by their owners or by those interested in their well being, their financial problems have tended to overshadow others which they also encounter in their daily struggle for survival. In other words, their other problems in production, marketing, personnel and even day-to-day management usually have a financial colouration. The success of these enterprises however, will depend largely on the efficiency of the financing strategies they employ.

1.3   Purpose of the Study

This study sets out to investigate the effect of borrowing on Small and Medium Scale Enterprises.

Other specific objectives are:

-                     To establish the most difficult problem facing SMEs.

-                     To discover reasons for borrowing.

-                     To investigate how often borrowing is done.

-                     To establish the major source of borrowing.

-                     To determine the extent to which borrowing has negatively impacted on SMEs performance.

-                     To make recommendations based on facts obtained from answers to the research questions.

1.4   Research Questions

The following research questions were raised in this study:

-                     What is the most difficult problem facing SMEs?

-                     How often do SMEs borrowing money?

-                     What is the major source of borrowing available to SMEs?

-                     What problem(s) is associated with borrowing?

-                     To what extent has borrowing negatively impacted on the small and medium enterprises’ performance?

-                     What will be the state of SMEs performance if financial problem is solved?

1.5   Statement of Hypothesis

The following research hypotheses were formulated and tested in this study:

H0:    There is no significant difference among respondents that borrowing has positively impacted on the small and medium scale enterprises performance in Nigeria.

H1:    There is a significant difference among respondents that borrowing has positively impacted on the small and medium scale enterprises performance in Nigeria.

Adequate funding has no significant influence on the small and medium scale enterprises performance in Nigeria.

Adequate funding has significant influence on the small and medium scale enterprises performance in Nigeria.

Commercial bank does not play any significant role in the growth and development of SMEs in Nigeria.

Commercial bank play significant role in the growth and development of SMEs in Nigeria.

1.6   Scope of the Study

The scope of the study is within the concept of SMEs and the place of finance in a developing economy like Nigeria.

The scope of the study is also limited to some SMEs  located in Mainland Local Government Area of Lagos State.

This study will be constrained by time, finance and sourcing out of relevant materials and respondents’ unreadiness to give out correct information on the subject-matter.


1.7   Significance of the Study  

The significance of this research study on the contribution of SMEs in the developing economy cannot be over­estimated, as this study will be of benefit to the management and operators of SMEs and the governments, the small and medium scale entrepreneurs, and individual stake holders. The study will help to define to the problems and challenges being faced by most SMEs. Governments of both federal and states would have an insight through this study because it will enable them to grant more funds to the SMEs in Nigeria so as to sustain their growth and development for the improvement of the Nigerian economy.

1.8       Definition of Terms

Financial Institutions: This is referred as places where funds are kept and lent out to prospective customs or individuals.

Capital Market: This is where stocks are bought or sold.

Borrowing: This means obtaining some loans (funds) from a bank or other financial institutions in order to expand one’s business enterprise.

CBN: Central Bank of Nigeria.

Small - Scale Industry: An industry with a labour size of 11-100 workers or a total cost of not more than N50 million, including working capital but, excluding cost of land.

Medium Scale Industry: An industry with a labour size of between 101-300 worker’s or a total cost of over N50million, but not more than N200million, including working capital, but, excluding cost of land.

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