Chapter one
Introduction
1.1 background to the study
there is growing recognition of the important role small and medium enterprise
(smes) play in economic development. The smes constitute about 90% of total
business units in Nigeria and account of 60% of Nigeria’s employed labour
force (kdi, 2008). They are often described as efficient and prolific job creator,
the seeds of big business and the fuel of national economic engines. Even in
the developed industrial economies, it is the sme sector rather than the
multinationals that is the largest employer of workers (mullinex, 2000).
Nigeria statistical service revealed that nearly 93 percent of all registered
businesses in nigeria are of the smes category. The national board of small
scale industries (nbssi) define as enterprises that employ no more than 29
workers, with investment in plant and machinery (excluding land and building)
mot exceeding the equivalent of $100,000. Small enterprises in Nigeria are
said to be a characteristic feature of the production landscape and have been
noted to provide about 85% of manufacturing employment of Nigeria (steel
and Webster, 1991; aryeetey. 2001). Smes are also belived to contribute about
70% to Nigeria’s GDP and account for about 92% of business in Nigeria.
From an economic perspective, however, enterprises are not just ipplier, but
also consumers; this plays an important role if they are to position themselves
in a market with purchasing power: their demand for industrial or consumer
goods will stimulate the activity of their clients. Demand in the form of
investment plays a dual role, both from a demand-side (with regard to the
suppliers of industrial goods) and on the supply-side (through the entail for
new production arising from upgraded equipment) (berry et al,. 2002).
In order for the Nigeria sme’s to continue to fulfil the above and much more,
they need access to finance to carry out their business operation the expansion.
The seeming lack of finance for smes is not only retarding their expansion but
also the growth of the nation’s economy. Macroeconomic conditions in Nigeria
in 2000 severely constrained private sector access to credit. High levels of
government borrowing pushed interest rates up and crowded the private sector
out of the financial markets. With government treasuries paying real interest of
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16.8 percent, banks had little incentive to take they perceived as riskier private
sector debt. (USAID’s DCA Nigeria Brief 2009).
On what they perceived as riskier private sector debt. (USAID’s DCA Nigeria
Brief 2009).
In pursuit of self-reliance in a developing country particularly in Nigeria, the
central government enacted a decree called “Enterprises promotion Decree”
when there was need for small scale enterprises in the promotion of economic
development. This has since been at the fore front of development strategies.
However, many developing countries have failed to adopt these strategies
owing to their belief that it is a relatively slow process of industrialization.
Without the development of small scale enterprises in Nigeria, the nation’s
quest for industrialization will certainly remain forever at a slow pace. It is the
humble opinion of the researcher that futher development on our business
enterprises must add to the basic issue of creating linkage within the economy
to begin to yield real inputs to our economic activities. Priority attention must
therefore be given to those business enterprises for which domestic inputs
could easily produced. The objective should be to maximize the value added in
their processing and manufacturing as final strong producer incentive to small
scale enterprises are necessary not only to meet the food requirement but also
to promote growing input supplier industrial growth. The present economy
constraints may well turn out to be a blessing in disguise to our small scale
industry effort particulary for the dynamic manufacturing sector. For instance,
the market determine exchange rate through foriegh exchange market with its
resultant high cost of imported inputs may serve as impetus for industrialist to
intensity their search for loan
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