AN EVALUATION OF SOURCES OF FINANCE FOR SMALL SCALE ENTREPRENEURSHIP DEVELOPMENT IN KOGI AND BENUE STATE OF NIGERIA

ABSTRACT

This research work evaluates the sources of finance for small scale entrepreneurship development in Kogi and Benue State of Nigeria.  Entrepreneurs  in Kogi and Benue State who are duly registered by the Ministry of Commerce and Industry and recognized by Kogi State Chambers of Commerce and Industry and its Benue State Counterpart were used in the study. The specific objectives of the study are: to determine the extent to which small scale entrepreneurs utilize the sources of finance available to them; to access the extent to which stringent requirements by financial institutions affect the accessibility of funds by small scale entrepreneurs; to find out how small scale entrepreneurs suffers discrimination from financial institutions in their quest for credit facilities; to determine the effectiveness of government policy towards the financing of small scale entrepreneurship development in Nigeria. The study x-rayed various sources of finance available to entrepreneur in the course of carrying out his business activities including the review of past works on the subject. Attempts were made to test four hypotheses; viz: Small Scale Entrepreneurs  to a large extent do not effectively utilize the sources of finance available to them; Stringent requirement by financial institutions do not affect accessibility of funds for small scale entrepreneurship development; small scale entrepreneurs do not suffer discrimination from financial institutions in their quest for credit facilities; and Government policies towards small scale entrepreneurship development effort has not been effective. Both primary and secondary data were utilized for the study. In addition the researcher ensured that the descriptive research approach was employed. The researcher worked with the population of 2,149 staff of entrepreneurial firm in Kogi and Benue States. Oral interview were also conducted among the management of specialized financial institutions. A combination of Analysis of Variance (ANOVA) and non parametric test of Chi-Square were used to test the hypothesis formulated for the  study  set  at  alpha  level  of  5%.  The  findings  of  the  study  revealed  that  small  scale entrepreneurs do not effectively utilize the sources of finance available to them; that stringent requirements by financial institutions do not affect accessibility of funds for small scale entrepreneurship development effort among others. It is therefore suggested that financial institutions especially bankers be encouraged by CBN by way of minimum credit allocation to give long term credit to SSEs, this is because the short credit given SSEs will not facilitate growth.  This  is  the  surest  means  of  facilitating  growth  and  development  in  the  economy. Secondly, small scale entrepreneur association be formed where there are none, the formation of such association should facilitate easy access of SSEs to credit facilities without much ado about collateral security. The association will in a way guarantee and monitor members as per their credit obligation in order to alleviate the fear of repayment. The Federal Government should set up a credit guarantee scheme to alleviate fear of financial institutions granting long term credit facilities to SSEs because of the risks involved.

CHAPTER ONE INTRODUCTION

1.1     Background Of The Study:

Nigeria is one of the developing countries of the world today,and her speed of development is of serious concern to both the Public and Private Sector analysts. One aspect of this development that is of fundamental importance to it is in the field of entrepreneurship. This is because of the great role that entrepreneurship activities play in the economy in terms of productive activities, employment generation and overall development of the quality of life of the citizenry. However, it is very imperative to

mention that Nigeria still has a long way to go in terms of entrepreneurial development

effort.

“Entrepreneurship development  involves  the  development  of  technical arrangement  and  creation  of  conducive  environment  that  is  capable  of  moving  an economy to a level of mass manufacture of variety of goods and services involving technology  and  management  techniques,  Kasimu  (1998:2).  Entrepreneurship development tends to propel growth and quicken the achievement of structural transformation and diversification of the economy.

In view of this development, Obasanjo in 2002 set an ambitious goal. “Nigerian President wants the country to become one of the world top 20 economies during the next two decades. In order to hit the target by 2020, Nigeria will need to increasingly globalize education in two key areas: Information and Communication Technology and entrepreneurship” Oshionya (2008:30)

A typical Nigerian entrepreneur is a self made man, who might be said to have a strong will to succeed, he might engage the services of others like friends, mates and in- laws, to help in his work of production through this way, Nigerians in the olden days were   engaged   in   entrepreneurship.   Early   entrepreneurship   is   characterized   with production or manufacturing in which case the producer most often started with a small capital, mostly acquired from his own savings. Early Entrepreneurship started with trade by barter even before the advent of any form of money, Gartner(2005:15).

It is also worthy of note that the small scale entrepreneurial sector is seen as the bedrock of industrialization based on  its  expected  impact  and  potential contribution towards the diversification of our production base. However in Nigeria we observe that the small scale entrepreneurial sector is characterized by low productivity and high rate of business failure even when government has put in place many specialized schemes to provide their financial needs.

Again  the  contrast  between  Nigerian  and  foreign  Entrepreneurs  during  the colonial era was very detrimental, and the competitive business strategy of the foreign Entrepreneurs was ruinous and against moral standards established by society. They did not adhere to the theory of ‘live and let live’. For instance the United African Company (UAC) that was responsible for a substantial percentage of the import and export trade of

Nigeria, had the policy of dealing directly with the producers and refused to make use of the service of Nigerian Entrepreneurs. The refusal of the expatriates to utilize the services of local business men, inhibited their expansion and acquisition of necessary skills and attitudes. Because of this, many eventually folded up. Those that folded up built up resentment against business, which become demoralizing to other prospective entrepreneurs. As a result, the flow of Entrepreneurship in the country was slowed down. But with more people being educated and the fact that Government could no longer employ most school leavers, economic programmes to encourage individual to go into private business and self reliant activities were initiated. Such economic programmes that are geared towards self reliance for individuals are programmes as Open Apprenticeship Scheme, Graduate Employment Programme. Other policies that encourage or make it easier for Entrepreneurs to acquire funds were the establishment of People’s Bank of Nigeria, Funds for Small Scale Industries (FUSSI), National Poverty Eradication Programme (NAPEP).

This new understanding and concept of building an Entrepreneurial skills and attitude in Nigeria flowed out of the realization that sustainable economic growth and development could only result from conscious and deliberate effort at establishing small scale  businesses.  This  position  is  confirmed  by  the  Nigerian Investment  Promotion Commission NIPC (2004:34) when it stated thus: “the advent of Small and Medium Enterprises (SME) in Nigeria was necessitated by the need to stimulate the establishment and growth of industries. Industrial development involves the development of technical arrangement that moves an economy from traditional method of production to a more complex system of mass manufacture of goods and services involving technology and management techniques. This technical arrangement includes entrepreneurial effort, Kasimu (1998:2).

In developing countries like Nigeria, it is a known fact that small scale Entrepreneurship development  serves  as  a  requisite  for  the  attainment  of  economic growth and development, as well as the bedrock upon which industrial development could be based. This is because a small scale Entrepreneur promotes stable industrial base and  ensure  balance  distribution  of  industrial  development  of  any  nation  –  either developed or developing. The small scale Entrepreneurs through their small scale firms

performs vital roles in economic development of any nation. The Great Britain and Japan for instance, owed their early industrial and economic expansion to their broad based small business establishments, Olla (2002:17).Some of the features of underdevelopment or developing economies are the problem of low income, low savings, inadequate investment, high population growth rate, and infrastructure deficiencies. As evident in Nigeria, the problem of limited resources and the host of socio-economic problems, which have to be tackled by most developing countries, emphasize the promotion of Small Scale Enterprises (SSE) as the engine of growth. The low elasticity of demand for primary products and the worsening of terms of trade against them, the need for developing countries to diversify their economies become expedient, the need to conserve developing  countries’  foreign  exchange  and  be  fairly  self  sufficient  compels  this countries to promote industrialization by encouraging the expansion of small scale enterprises, Kasimu (1998:3).

While the importance of the industrial sector is universally accepted, the developing countries have since the 1970’s shown greater interest in the promotion and growth of small scale Enterprises, which eventually results in Entrepreneurship development. Anyanwu (1996:23), advances three main reasons for this industrial development strategy; These include, the failure of past industrial policies, which were anchored on the establishment of large firms to generate efficient self sustaining growth, and Secondly, because of the small scale Enterprises flexibility, adaptability and regenerative tendencies to propel economic development. The third reason rests on the fact that growing and dynamic small enterprises elsewhere have grown into large ones and have contributed substantially to national development objectives.

Given the paramount role of small scale Enterprises, their survival and growth are most desired in the economy; thus the need for effective Entrepreneurship development programme. Finance is one of the main factors that influence the survival and growth of a entrepreneurial activities. Pandey (2004:12), for any business (be it small or large) to survive, it must have at its disposal all key resources. These resources are what is referred to as the “3M’s, namely: Men, Money and Materials; because of the close relationship between the  3M’s,  it  is  difficult  to  say which  one  is  the  most  important  than  the other,Nwankwo (1980:28). In view of the fact that most things in modern business world

are reduced in the final analysis to money, finance must be seen as the most important. Johnson (2006:14) defined finance as “the provision of money at the time it is wanted”. Consequently a person must ensure that there is adequate finance for entrepreneur’s operations; hence sources of finance are of great concern to the Entrepreneur and in Entrepreneurship development efforts. Capital investment and industrial development are indispensable to the economic progress of any nation. Industrial development calls for capital investment, which cannot be realized in a capital scare economies, most especially that of developing nations of the world like Nigeria, Onyido (1998:29).

In realization of the need to find better ways of making institutional finance available to small scale Entrepreneur, reasonable attention seemed to have been paid by the government at both federal and state levels. To this end, there have been proliferation of special financing programmes in recent years for small scale entrepreneur, in spite of this; the sector seems to be generally unable to muster sufficient financial resources to aid its operation.

From the  foregoing, it  is crystal clear that the sources and or availability of finance are of great importance to small scale Entrepreneurship development in Nigeria. This is because; the extent to which Small Scale Entrepreneurs (SSE’s) can mobilize resources  for  their  operation  depends  on  the  sources of  finance  available  to  them. Therefore an investigation into the sources of finance for Small Scale Entrepreneurship Developments (SSED’s) in Nigeria is of great interest.

This research work will attempt to evaluate the sources of finance available to small scale entrepreneurs in Nigeria, in view of both the general and specific government development strategy channeled to the subsector.

1.2     Statement Of Research Problem

Entrepreneurship has increasingly been held out as an alternative to traditional economic  development  strategies  and  polices.  Advocates for  entrepreneurship based policies suggest that entrepreneurial development generates greater return to the public than other alternative strategies, such as industrial recruitment or retention and expansion because the capital requirement and formation is very low thereby providing a source of livelihood to many of our populace.

The facts that small scale enterprises are seen by many developing nations of the world, as a spring board for industrialization is not a subject of debate. In Nigeria, similar importance  is  greatly accorded to  small scale  enterprises. However, the  growth and development of small scale Enterprises call for concern. Many problems could be responsible for this ugly scenario. In this regard we assumed that financing is one of the major problems confronting small scale enterprises and entrepreneurial development in Nigeria.

In spite of the growing awareness of the role of small scale industries in the industrialization process  for  some  reasons, the  sector  is  generally unable  to  muster sufficient resources to aid its operation even when government has put in place many specialized scheme to provide their financial need.

It is therefore imperative to assume that there is a question mark on the effectiveness of the sources of finance available to the small scale entrepreneurs in Nigeria, even though finance is an indispensable factor in the small scale entrepreneurial development efforts.

It is also worthy of note that the small scale entrepreneurial sector is seen as the bedrock of industrialization, based on its expected impact  and potential contribution towards the diversification of our production base. It is on this premise that we are carrying out this investigation.

•         Objectives Of The Study

The main objective of this study is to evaluate the sources of finance for entrepreneurship development in Kogi and Benue state of Nigeria. The specific objectives are:

•     To determine whether small scale entrepreneurs wholesomely utilizes her sources of finance.

•     To  assess  the  impact  of  stringent  requirement  by  financial  institution  on  the accessibility of funds by the small scale entrepreneurs.

•     To  ascertain  how  small  scale  entrepreneurs suffer  discrimination  from  financial institutions in their quest for credit facility.

•     To   determine   if   government   policy   towards   the   financing   of   small   scale entrepreneurship development in Nigeria is effective.

1.4     Research Questions

Based on the problems stated and the objectives outlined, the following research questions will be addressed.

•        Do small scale entrepreneurs in Nigeria utilize the sources of finance available to them?

•        How  has  stringent  requirement  affected  accessibility  of  funds  for  small  scale entrepreneurship development efforts in Nigeria?

•        Do the discriminatory tendencies of financial institutions affect  accessibility of funds for small scale entrepreneurs in Nigeria?

•        Is   government   policy   towards   financing   of   small   scale   entrepreneurship development in Nigeria effective?

1.5     Research Hypotheses

The following null hypotheses are formulated to guide this study.

i.   Small  Scale  Entrepreneurs  do  not  effectively  utilize  the  sources  of  finance available to them.

ii.  Stringent requirements by financial institutions do not affect accessibility of funds by small scale entrepreneurs in Nigeria.

iii.       discriminatory tendencies of financial institutions do not affect accessibility of funds by small scale entrepreneurs in Nigeria. .

iv.       Government  policy  towards  the  financing  of  small  scale  entrepreneurship development in Nigeria is not effective.

1.6     Significance Of The Study

This study intends to examine the existing institutional arrangements for financing Small Scale Entrepreneurship development efforts in Nigeria. it will identify constraints associated with such schemes and put forward suggestions as to how to alleviate these constraints, thereby making institutional financing more readily available to the Small Scale Entrepreneur.

The study will be beneficial to the small scale  industrialists, the agencies of government responsible for the affairs of Small Scale Enterprises, the Institutions that

provide finance to Small Scale Enterprises and also researchers in this field. The significance of the study to these different groups can be highlighted as follows:

The  Small Scale  Industrialist  will benefit  tremendously from the  research as suggestions put forward will facilitate easy access to institutional credits as well as the appropriateness of such credits to them.

The government will find this study useful in her effort to industrialize the nation and put forward machineries of developing entrepreneurial activities in Nigeria. The Federal Ministry of Industry and her agencies like the Nigeria Investment Promotion Commission (NIPC) e.t.c. will find this research useful in terms of input  into their policies towards the financial survival of Small Scale Enterprises and the overall effort of developing entrepreneurial culture in Nigeria.

The various institutions that are involved in providing credit facilities to Small Scale Entrepreneurs, will find the study important on the premise that the study will proffer ways that will help to foster smooth financial relationship between the institutions and Small Scale Entrepreneurs.

Also, lecturers and students of management and other related courses will benefit from this research work. This is because, the study will help to narrow the gap between theory and practice in their search for knowledge about business financing in the perspective of Small Scale Enterprises.

1.7     The Scope Of The Study

This  study examined  entrepreneurial development  efforts  in  Nigeria  between

2003 to 2008. This examination focused on sources of finance and overall efforts towards entrepreneurship development in the country.

1.8     Limitation Of The Study

In the process of conducting the research, the researcher was impeded by some constraints such as:

Finance: This is a major constraint as searching for some vital information from some entrepreneurial firms and financial institution require a lot of money. The researcher has not got enough money to carry out an in-depth study.

Time Constraint: one of the reasons for restricting the area of this study to Kogi and Benue states of Nigeria is time; some of the places where data and relevant information could be found were not visited.

Attitude Of The Respondents: Some respondents feel indisposed to provide vital information concerning their entrepreneurial firm as a result of prejudices opinion conceived about the study.

REFERENCES

Anyanwu, G.M. (1996): Efficient Administration of Credit for Small Scale

Industrial Development Bullion, 20(10) July/September.

Johnson, R.W. (2006): Financial Management, (3rd  Edition), London. Business Publication Inc.

Kasimu, S.Y. (1998) “The Challenges in Industrialization in Nigeria in the next millennium”, NIDB Newsletter, Vol. 16 Nos. 1 & 2 June 1998; A publication of NIDB Ltd.

Nwnakwo,  G.O.  (1980):  The  Nigerian  Financial  System,  African  Feb

Publishers Ltd.

Olla, P.A. (2002): “Lending Guides for Small Scale Business”, A Seminar

Paper presented at the Nigerian institute of Bankers, Lagos.

Onyido,   B.C.   (1998):  “Institutional  Framework   for   Financial  Sector

Development” Bullion 22(3), July/September.

Oshionya,  B.S.  (2008):  “A  millennium  Goal  and  Strategic  Planning”,

Corporate Management Journal, Bauchi. Sa’adit Publication Ltd.

Pandey, I.M. (2004): Financial Management, (7th Edition). New Delhi

Vikans Publishing House PVT Ltd.

GLOSSARY

GDP:              Gross Domestic Product

SSEA:            Small Scale Entrepreneurship Activities

DFI:               Development Finance Institution NIDB:             Nigeria Industrial Development Board ENDC:           Eastern Nigeria Development Commission WNDC:          Northern Nigeria Development Commission NACB:           Nigeria Agric Co-operative Bank

NBCI:            Nigeria Bank for Commerce and Industry FMB Nig.:     Federal Mortgage Bank of Nigeria NE&IM:        Nigeria Export & Import Market

FEAP:            Family Economic Advancement Programme

BOI:               Bank of Industry

NAPEP:         National poverty Eradication Programme NIPC:            Nigeria Investment Promotion Commission SME:             Small and Medium Scale Enterprises

SSE:               Small Scale Enterprises

SSED:            Small Scale Entrepreneurship Development

RBP:              Rural Banking Programme

CBN:              Central bank of Nigeria

CBIC:            Community Bank Implementation Committee

NBCB:           National Board on Community Banks

SHG:              Self Help Groups

ROSCA:        Rotating Savings and Credit Associations

NACRDB:     Nigeria Agricultural Co-operative and Rural Development Bank

PBN:              Peoples’ Bank of Nigeria ADB:              African Development Bank EIB:               European Investment Bank

ECOWAS:    Economic Community of West African StatesIFAD:            International fund for Agricultural Development

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