Abstract
This study tries to look at the accessibility of credit facility from financial institutions by small and Medium Scale Enterprises: Evidence from Nigeria. Small and Medium Scale Enterprises have been faced with poor funding when developing nations like ours are considered. This however distorts the outstanding function of SMEs as the engine and pivot for the economic growth and national development. No wonder Nigeria has continued to experience high level of emergence of new enterprises that would only exist for two to three years and fizzle out. This study has a broad objective of determining the degree of accessibility of credit facility by SMEs from the financial institution in Nigeria with such variables like government policies, collaterals, tax incentives etc. The study adopted the analytical survey method to gather information on the variables. The population was made up of all the financial controllers in the 360 manufacturing enterprises in the three states under study. We in turn used judgmental sampling technique to select the financial controllers in these manufacturing enterprises. Data were collected by means of questionnaires with response option graduated into a five- likert scale designed to capture information on the variables that affect SMEs. The linear regression analysis was used to test hypotheses one, three and four. One sampled t-test was used to test hypothesis two while a multiple regression analysis was used to test the multiple effects of three independent variables on credit accessibility. The result obtained using the test statistics shows a positive relationship between government policies, access to credit as the greatest problems facing SMEs, tax incentives, availability of collaterals as regards the accessibility of credit facility by SMEs. The research questions proved that international financial assistance abounds for SMEs. The study also showed that the level of the operation of SMEs has not improved when compared with other developed nations. SMEs in Nigeria are faced with numerous challenges and such has affected their performances. We therefore recommend that attention and support be given to the sub- sector so as to enhance their performance as the engine of growth and catalyst for socio- economic transformation in Nigeria. The study has provided opportunities for further research into other factors that could affect SMEs credit accessibility, in order to ascertain if such factors actually affect them in equal measures
CHAPTER ONE
1.1 Background of the Study
INTRODUCTION
A business whether small or big, simple or complex, private or public is created to either provide competitive prices make profit, provide social services or add value (Ayozie ,1999). Business in Nigeria has been classified as small, medium and large. However, (SMEs) Small and Medium Enterprises does not have a one way definition rather, its definition is best understood from its characteristic features; level of project costs, turnover, number of employees, ownership composition and capital outlay (Akinsurile,2006).
The Federal and State Ministries of Industry and Commerce have adopted the criteria of value of fixed capital to determine what Small and medium scale enterprises (SMEs) definition would be. The National Council of Industries defined SMEs as those businesses whose capital base excluding land is not more than N2m only and employee ranges from 10 to 300 persons (Akimade,1991). However, this value rose from N60, 000 in 1972, N159, 000 in 1975, N250, 000 in 1986 before rising to N2m in 1991. On the other hand, small and Medium Scale Industries development Act 2003 specified that SME employee rages from 10-199, Assets excluding land and building fall between (5 and 499) million Naira only.
Small and Medium Scale Enterprises in Nigeria constitutes a greater percentage (75%) of all the registered companies in Nigeria. They have been in existence for quite a long time as majority of SMEs’ grew from Cottage Industries. The operations of SMEs’ are found in all the areas of human endeavours: Manufacturing, Production, information, Services, Agriculture, Hotel and Restaurants, Financial Intermediation, Real Estate, Education, Building and Constructions, Mining and Quarrying.
For SMEs’ to operate in these sub-sectors of the economy, they are not left without controls. Federal government through the apex bank (CBN) monitors the activities of SMEs to ensure that they work in line with the set standards in other countries. The government set several agencies like small and medium scale industries equity investment schemes (SMIEIS),small and medium enterprise development agency(SMEDAN),Nigerian agricultural cooperative and rural development bank,(NACRDB),Bank of industry(BOI), Nigerian bank for commerce and industry(NBCI),Nigerian industrial development bank(NIDB). They are set to moderate, monitor, finance and control SMEs’ to ensure that they are resurrected to be the major driver of our economic development and growth (Onugu, 2005).
On the other hand, the Federal government liaises with international agencies and organizations World Bank, International Finance Corporation (IFC), United Kingdom Department for International Development (DFID), United Nations Industrial Development Organizations (UNIDO), and Europeans Investment bank (EIB) .The essence is not only to invest heavily on SMEs but to make them work vibrantly.
Wide attention and support given SMEs is not far-fetched from the obvious reasons that they are job and wealth creators. Small and Medium Enterprises (SMEs’) occupy a very vital position in the economy’s various sub-sectors and thus have several significant roles. SMEs’ have been referred to as the “Engine of Growth” and “Catalysts for Socio- Economic Transformation of the country. SMEs’ represents a veritable vehicle for the achievement of National Economic objectives: Employment generation, value added, rural development acceleration, stimulation of entrepreneurship, vital links between agriculture and industries, supply parts and components to large scale industries (LSI), contribute to domestic capital formation (Anyanwu,2001).
(Salam,2012), the Deputy Director Development, Finance Department of CBN in his workshop paper “Stakeholders responsibility in SMIEIS” opined that despite the incentives, policies, programmes and support aimed at revamping SMEs’, they have performed rather below expectations in Nigeria. Different opinion abounds as to why SMEs have not been able to perform; Some said it was lack of access to credit facilities, others think otherwise arguing that inappropriate management skills, difficulty in accessing global market, lack of entrepreneurial skills, poor infrastructures, insecurity challenges etc are largely responsible.
However, one observes that the bane of SMEs’ in Nigeria is lack of long term finances bearing in mind that most Nigerian Financial Market have much of short term funds which may not allow SME to grow and become really successful.
Onugu,(2005) opined that there are challenges and problems which frustrate SMEs’ in Nigeria. These problems either make them to die within their first two years of existence or perform below standard even after surviving in their early years. Some of the key ones are inadequate infrastructural facilities (road, water, electricity) insecurity of lives and property, inconsistent regulations, fiscal and industrial policies, limited access to market, multiple taxes and levies, data inadequacies, fragile capital base, and harsh operating environments. The problems and challenges of SMEs’ in Nigeria are also induced by the operating environment (Government Policies, Globalization effects, financial institutions, attitude to work, other challenges are driven by inherent characteristics of SMEs’ themselves.
In spite of the above challenges, government can still provide good infrastructure, enabling environment, legal framework and other incentives that would aid SMEs’ to operate more efficiently in Nigeria just like other developed countries. This will help SMEs’ to be in the fore-front of economic growth and development in Nigeria.
1.2 Statement of Problem
SMEs in Nigeria can never be severed from the challenges and key variables that characterize the nation as a developing one. We know that the nation has been faced with several challenges like economic and political instability, corruption, insecurity, high rate of poverty, poor infrastructures. SME by extension as a sub-sector of the economy must definitely get a fair share of these problems. In addition, to the general challenges (Cole, 2008; Udell,2003;Blum&Laurie,1995; Burch & Claudia,2004; Birly,1996; Bates,2007) who studied the problems and challenges facing SMEs, found out that one of the greatest problem facing SMEs was access to credits. Also, (Watson& Kunt, 2002; Vos,Yeh,Carter
& Tagg, 2007; Beck & Kunt,2008; Chittenden & Hall, 1996) in their studies examined the extent to which limited access to finance has affected the performance and growth of SMEs. They observed that funding pose serious impediment to growth of SMEs. In the same vein, (Abereyo & Fayomi,2005; Dagogo & Ollor,2012; Gbandi & Amissah,2012; Anyawu,2010) have studied the appraisal of some sources of finances available for SMEs, and observed that most sources of finance attracts huge costs of capital with the exception of retained earnings that are cost free though may be too meager for the effective growth of SMEs.
Furthermore, financial institutions are demanding unattainable conditions and terms (high interest rate) for the granting of loan. They are claiming that SMEs are not presenting bankable project (good project proposal), inadequate collaterals, lack of trained personnel’s, lack good accounting system that would give rise to audited annual accounts, coupled with high enterprise mortality. Thus, it would appear that greatest problem facing SMEs could be lack of accessibility of credit facilities.
Still worrisome is the position of Federal Government in the implementation of SMEs policies. How far the apex bank has gone in the enforcement and control of the laws that guide SMEs even after the emphasis on budgetary allocation? How have she ensured that the 10% profit before tax set aside by the commercial banks is made available to SMEs? It would appear that the commercial banks even prefer to pay a penalty of 20% to CBN instead of choosing the option of granting loans to SMEs.
But, despite the general vigorous marketing of these facilities by the financial institutions, SMEs have little or no access to them. The big question then is “why is it that SMEs are not able to access these credit facilities from the financial institutions’’?
1.3 Objectives of the Study
The main objective of this study is to determine the degree of accessibility of credit facilities from financial institution by Small and Medium Scale Enterprises: Evidence from Nigeria.
While the specific objectives of the study are as follows- To:
i. examine the extent to which government policies favour SMEs in Nigeria.
ii. ascertain whether access to credit facilities represents the greatest problem facing SMEs.
iii. determine whether tax incentives affect the accessibility of credit facilities by SMEs.
iv. determine whether having collaterals have effect on the accessibility of credit facilities by SMEs.
v. ascertain the extent to which SMEs are funded by international agencies: – World Bank, IFC.
1.4 Research Questions
In the course of this research study the following research questions were raised:-
(i) How far has government policies favoured SMEs in Nigeria?
(ii) To what extent is access to credit facilities the greatest problem facing SMEs?
(iii) Has tax incentives affect the accessibility of credit facilities by SMEs?
(iv) To what extent does having collaterals affected credit facilities accessible by SMEs?
(v) What is the extent to which SMEs are funded by international agencies?
1.5 Hypotheses of the Study
After a critical evaluation of the objectives the following hypotheses were developed.
i. Government policies do not significantly favour SMEs in Nigeria.
ii. Access to credit facilities is not the greatest problem facing SMEs.
iii. Tax incentives do not have a significant effect on accessibility of credit by SMEs.
iv. Having collaterals does not significantly affect accessibility of credit by SMEs.
1.6 Scope of the Study
The researcher used all the registered enterprises under the umbrella of Small and medium Enterprises Development Agency (SMEDAN). However, for a realistic study to be made, only the three states of the south-east were chosen, Anambra, Ebonyi and Enugu. The three states were chosen because of proximity advantage. The population was the senior accounting officers (managing directors) in the enterprises operating under Manufacturing
Association of Nigeria (MAN) in the three states as at 31st march, 2012. Manufacturing enterprises was chosen because they have wider need for finance, optimum capacity utilization and good records that can allow studies to be carried out on them.
1.7 Significance of the Study
To SME Operators:
Operators in the SME Sub-sector would have more insight into the various sources of credit and tap them to achieve better result. They would be aware that government through her agencies SMEDAN, BOI, NACRDB can protect them.
To Government
In addition to moderating the affairs of financial institutions, government would see the need to provide enabling environment for SME to thrive so as to actually become the driver of our economic growth and development.
To Public and Economy
The public will know that SME Sub-sector is a vibrant one which they can gainfully venture into and thus make the economy of the nation most viable and enviable to foreign investors.
1.8 Limitations of the Study
Certain limitations were encountered in the course of this study viz:-
i. Limited sample size:
The researcher found it difficult to increase sample size so as to have a good representation of the entire population but we ensured that this did not affect our study.
ii Respondents Resistance:
Most people are not willing to respond to oral questions as well as questionnaires. This is because they feel that instant gain or benefits are not attached.
iii Coverage:
In studies of this nature, coverage is usually a peculiar constraint. This would limit the area of coverage but we ensured that they did not frustrate our efforts.
1.9 Explanation of Acronyms.
SMEs – This means Small and Medium Scale Enterprises.
CBN – Central Bank of Nigeria which is the Apex bank for regulation of the financial institutions affairs.
BOI – Bank of Industry
NBS – National Bureau of Statistics
NBCI – Nigerian Bank for Commerce and Industry.
NIDB – Nigerian Industrial Development Bank
NACRDB – Nigerian Agricultural, Cooperative and Rural Development Bank.
SMIEIS – Small and Medium Industries Equity Investments Schemes.
SMEDAN – Small and Medium Enterprises Development Agency.
Lending Infrastructures – The information environment, legal and judicial setting, tax incentives etch. Rules and laws set by government.
This material content is developed to serve as a GUIDE for students to conduct academic research
ACCESSIBILITY OF CREDIT FACILITY FROM FINANCIAL INSTITUTIONS BY SMALL AND MEDIUM SCALE ENTERPRISES: EVIDENCE FROM NIGERIA
Project 4Topics Support Team Are Always (24/7) Online To Help You With Your Project
Chat Us on WhatsApp » 09132600555
DO YOU NEED CLARIFICATION? CALL OUR HELP DESK:
09132600555 (Country Code: +234)
YOU CAN REACH OUR SUPPORT TEAM VIA MAIL: [email protected]
09132600555 (Country Code: +234)