FINANCIAL PROBLEMS AND SURVIVAL STRATEGIES OF SMALL SCALE ENTERPRISE. CASE STUDY OF AGUATA LOCAL GOVERNMENT AREA OF ANAMBRA STATE
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FINANCIAL PROBLEMS AND
SURVIVAL STRATEGIES OF SMALL SCALE ENTERPRISE. CASE STUDY OF AGUATA LOCAL
GOVERNMENT AREA OF ANAMBRA STATE
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Since Nigeria
attained independence in 1960, considerable efforts have been directed towards
the nation’s industrial development. The initial efforts were government-led
through the vehicle of large industry, but lately emphasis has shifted to Small
Scale Industries (SSIs) following the success of SSIs in the economic growth of
Asian countries (Ojo, 2003). Thus, the recent industrial development drive in
Nigeria has focused on sustainable development through small business
development. Prior to this time, particularly judging from the objective of the
past National 4-Year Development Plans, 1962-68 and 1981-85, emphasis had been
on government-led industrialization, hinged on import-substitution.
Since 1986,
government had played down its role as the major driving force of the economy
by a process of commercialization and privatization (Beyene, 1999). Emphasis,
therefore, shifted from large-scale industries mainly to small scale
industries, which have the potentials for developing domestic linkages for
rapid and sustainable industrial development. Attention was focused on the organized
private sector to spearhead subsequent industrialization programmes. Incentives
given to encourage increased participation in these sectors were directed at
solving and/or alleviating the problems encountered by industrialists in the
country, thereby giving them greater leeway towards increasing their
contribution to the national economy.
Interest in the role of Small Scale enterprises in the
development process continues to be in the forefront of policy debates in
developing countries. The advantages claimed for Small Scale enterprises (SSEs)
are various, including: the encouragement of entrepreneurship, the greater
likelihood that SSEs will utilise labour intensive technologies and thus have
an immediate impact on employment generation (Ayozie&Latinwo, 2010); they
can usually be established rapidly and put into operation to produce quick
returns; SSIs development can encourage the process of both inter- and
intra-regional decentralization (Ogujiuba et al., 2004); and, may become a
countervailing force against the economic power of larger enterprises (Salami,
2003). More generally the development of SSIs is seen as accelerating the
achievement of wider economic and socio-economic objectives, including poverty
alleviation (Safiriyu and Njogo, 2012; Ayozie and Latinwo, 2010; Udechukwu,
2003).
The role of finance has been viewed as a critical element for
the development of Small Scale enterprise Previous studies have highlighted the
limited access to financial resources available to smaller enterprises compared
to larger organisations and the consequences for their growth and development
(Hossain, 1998; Wattanapruttipaisan, 2003; Berger and Udell, 2004; Ogujiuba et
al., 2004; etc). According to Valverde et al (2005) bank credit play a crucial
role in providing external financing to Small Scale Industry (SSIs). But in
Nigerian context, this crucial source of finance for Small Scale Industry is
apparently non-functional (Kadiri, 2012). This is evident in the ratio of loans
to Small Scale Industry to Commercial banks’ total credit, which shows that a
meager 0.16% of commercial banks’ total credit was granted to Small Scale
Enterprises in the last quarter of 2011 (CBN, 2011). More worrisome is the fact
that this ratio has been falling over the years and continued unabated in the
post-consolidation era (Iorpev, 2012).
Typically, smaller enterprises face higher transactions costs
than larger enterprises in obtaining credit (Olorunshola, 2003). Poor
management and accounting practices have hampered the ability of smaller
enterprises to raise finance. Information asymmetries associated with lending
to small-scale borrowers have restricted the flow of finance to smaller
enterprises. In spite of these claims however, some studies show a large number
of small enterprises fail because of non-financial reasons.
The panacea
for solving problems of economic growth in developing countries often reside in
the development of small scale industries. The establishment of those
industries has been the centrepiece of industrial development of many countries
such as India, Malaysia, Pakistan and Indonesia, to mention a few. It is
expected that the gains to be derived from the establishment of small-scale
industries will be translated into the generation of employment at a low
investment cost. These industries will also be able to harness raw materials
locally and serve as raw inputs to the large-scale industries. Therefore, this
study seeks to investigate the financial problems and survival strategies of
small scale industries.
1.2 Statement of The
Problem
The key problem
facing most small scale enterprises is lack of finance whether for the
establishment of new industries or to carry out expansion plans. The inability
to attract financial credit or resources has hindered or stifled the growth of
small scale enterprise. The reasons for the lack of fund include the
followings:
· High rate of
inflation that led to the vast depreciation of Naira exchange rate, thus making
it difficult for most Small Scale enterprise
to obtain required inputs for expansion.
· Low level of
savings in the economy, which leads to low capital formation.
· High rate of
interest charged on loans, which scares off potential Small Scale enterprise.
· The
unwillingness of retail banks to grant credit to Small Scale enterprise because of the low creditworthiness of these
enterprises has also hampered their growth over the years.
Bothered by the
persistent decline in the performance of the industrial sector and with the
realization of the fact that the small and medium scale enterprises hold the key to the revival of the
manufacturing sector and the economy, the Central Bank of Nigeria successfully
persuaded the Bankers’ Committee in 2000 to agree that each bank should set
aside 10 percent of its annual pre-tax profit for equity investment in small
and medium scale enterprises. To ensure the effectiveness of the programme,
banks were expected to identify, guide and nurture enterprises to be financed
by the scheme. The activities targeted under the scheme included agro-allied,
information technology, telecommunications, manufacturing, educational
establishments, services, tourism and leisure, solid minerals and construction.
The scheme was formally launched in August 2001. As at end-December 2009, the
cumulative sum set aside by banks was N42.2 billion. The sum of N28.2 billion
or 67.1 per cent of the sum set aside had been invested (CBN, 2009). But the
fact still remains that with these provisions made are in most cases not
accessible to the Small Scale Industries.
The main thrust of
this study is to evaluate the financial problems and survival strategies of
Small Scale enterprise in Aguata Local Government Area of Anambra State.
1.3 Purpose of the Study/Objective Of The Study
The purpose of this study is the financial problems and
survival strategies of small scale enterprises and specifically, the study
seeks to
i.
To ascertain if the financing options available to the SSE are
practically obtainable to support the capital required for their operation.
ii. To
examine the extent to which Small Scale enterprise contribute to economic
development.
iii. To
identify the problems they encounter in sourcing out funds.
iv.
Identify survival strategies needed by Small scale industries.
1.4 Research Questions
This study was guided by the following research questions:
1. What are the
various sources of funds available to the small
enterprise ?
2. To what extent
do small scale enterprise contribute to towards economic development of a
nation?
3. What are the
problems encountered by the small scale enterprise in sourcing for funds?
4. What are the
survival strategies to be adopted by the small scale enterprise?
1.5 Statement Of The Research Hypothesis
The following null hypothesis was given for this study
i.Ho:There is no significant relationship between the source
of fund available to small scale enterprises and the funds available to them.
Hi: There no is significant relationship between the source
of fund available to small scale enterprises and the funds available to them.
ii.Ho: There is no significant relationship between the
development of small and medium scale industries and the economic development
of that nation.
Hi: There is
significant relationship between the development of small and medium scale
industries and the economic development of that nation.
iii.Ho:There is no significant relationship between the
problems encountered by the small scale enterprises in their source of funds.
Hi :There is significant relationship between the problems
encountered by the small scale enterprises in their source of funds
iv.Ho:There is no significant relationship between the
survival strategies adopted by the small and medium scale industries and the
survival of small and medium scale enterprise.
Hi. There is no significant relationship between the survival
strategies adopted by the small and medium scale industries and the survival of
small and medium scale enterprise.
1.6 Scope Of The Study
This research
covers the area of financing and survival strategies of small-scale enterprises
in Nigeria, paying special attention to Aguata Local government Area of Anambra
State.
1.7 Significance of the Study
Small-Scale
Enterprises in Africa rely largely on own savings, not only to grow but also to
innovate, firms often need real services support and formal finance assistance.
This study will be of benefit to the operators of the Small and Medium
Enterprise, the government, and the general public on the possible financing
options and survival strategies available to the Small and Medium Scale
enterprise and give the possible means of accessing them
1.8 Limitation of the Study.
Some factors may limit the level of accuracy and reliability
of this study. Such factors include.
i. Difficulty in obtaining data.
ii. Low response rate from involved parties.
In the absence of the above mentioned limitations, all other
errors and omissions are entirely those of the researcher
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