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Small and medium scale enterprises (SMEs) are largely viewed as the engine wire of any nation’s economic growth and they are regarded as justifiable means that propel development globally. SMEs are labour intensive; as much as they are capital saving business ventures. They are capable of making people self-reliant and generating billions of new jobs globally (Abeh, 2017a, b; Kadiri, 2012). They are also observed as the key drivers to economic growth and poverty reduction (Agwu & Emeti, 2014). SMEs are significant parts that links, strengthen and enhances the development of the countries. Their performance and growth in manufacturing, agriculture, services, etc., has been considered as the drivers and has contributed to the Nigeria economy. Sustainable growth and the increase in SMEs performance create competitiveness that opens numerous doors for employment opportunities, tangible and intangible assets (investment) in the environment (Eniola & Ektebang, 2014). Historically, Nigeria’s independence in 1960 marked a turning point in the growth and development of SMEs, which has created much of the emphasis on SMEs as panacea in the reduction of poverty and joblessness or unemployment in Nigeria as a whole. In every economies small and medium scale enterprises has been seen has a pivotal instrument of economic growth and development either in developed or developing economies. Several studies have confirmed this. (Ogujiuba; et. al 2004, Onugu; 2005, Ihua; 2009) Data from the federal office of statistics in Nigeria affirmed this importance when it reveal that about 97percent of the entire enterprises in the country are SMEs and they employed an average of 50% of the working population as well as contributing to50 percent of the country industrial output. As Ariyo (2009) and Ihua (2009) averred, SMEs in Nigeria are not only catalyst of economic growth and development, but are also the bedrock of the nation. Although small business activities had existed since the period of independence in Nigeria, however, conscious effort on small and medium scale enterprise as instrument of economic and national development started in 1970-1979 when Nigeria adopted the policy of indigenization through its national development plan program. In a seminar titled “Carer Crisis and Financial Distress- The Way Out”, the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his paper the following as the main problems of SMEs, which are however not insurmountable: low level of entrepreneurial skills, poor management practices, constrained access to money and capital markets, low equity participation from the promoters because of insufficient personal savings due to their level of poverty and low return on investment, inadequate equity capital, poor infrastructural facilities, high rate of enterprise mortality, shortages of skilled manpower, multiplicity of regulatory agencies and overbearing operating environment, societal and attitudinal problems, integrity and transparency problems, restricted market access, lack of skills in international trade; bureaucracy, lack of access to information given that it is costly, time consuming and complicated at times. The problems and challenges that SMEs contend with are enormous no doubt but it is curious to know that some SMEs are able to overcome them. This gives hope and should provide a basis for optimism that there is a way out. There must be some survival strategies, which are not known to many SME promoters. This research is also intended to explore and unravel some of the key business survival strategies, which have worked for a few thriving SMEs. The benefits of this could be tremendous in that other SMEs facing threats of extermination as well as new and proposed new ones could also borrow a leaf from them. Many other countries have been able to energize and transform their SME sub-sector to such a vibrant one that they have been able to reduce to the barest minimum their unemployment and poverty level because of the immense contribution of the sub-sector to their economic growth and development. It is expected that the outcome of this research will go a long way in ensuring a turnaround of Nigeria’s SME sub-sector. The 31% of SME contribution to industrial growth is rather disturbing given the high degree of unemployment rate in Nigeria as well as the poverty level in the country as measured by the following indices and figures on Nigeria’s Human Development Indicators: Illiteracy Rate, Infant Mortality Rate, Life expectancy at Birth and GDP Growth Rate as compared with other countries as exhibited in Tables I to VIII from Development Data Group, World Bank. It is expected that these developmental indices will increase with improvement in Nigeria’s SME sub-sector’s performance, as has been the case with economies whose SMEs have developed and grown steadily over the years. iii) Contribution to Industrial Production in particular and GDP in general: in spite of the fact that there is hardly any well-documented, reliable and current data, it is rather obvious that the contributions of SMEs to the Nigerian Industrial output in particular and the Gross Domestic Product in general are less than satisfactory. Evidence for this poor performance is buttressed by the fact that most manufacturing enterprises in Nigeria had operated well below capacity in the last two decades. At times the capacity utilization has been as low as thirty percent (30%). Only the multinational businesses had thrived with many SMEs folding up and thus aggravating the unemployment situation in the country and its attendant high crime rate. The government in The Nigerian Vision 2010 initiatives had envisioned an environment in which small and medium scale enterprises would contribute about 34% (gross value of manufacturing to GDP ratio) to the national product and generate 60-70% employment with sustainable yearly growth, and a low mortality rate for businesses. The envisioned future for SMEs in Nigeria is that of “a strong and virile small and medium scale enterprise that enjoys strong institutional support, contributing significantly to the Gross National Product (GNP).


Small and Medium Enterprises (SMEs) in Nigeria have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria. The constraints to full industrial capacity utilization have been enumerated to include limited access to financing, high costs of funds and equipment, infrastructural inadequacies, unpredictable and inconsistent government policies, low purchasing power of consumers, low quality of manufactured goods, multiple taxes and levies on manufacturing inputs and manufactured goods, inefficiencies of customs and ports administration, dumping of cheap finished products on the Nigerian market, inadequate legal framework and non-patronage of locally produced goods by government and its agencies Some of the key Millennium Declaration Goals like halving the proportion of people living in extreme poverty, suffering from hunger, without access to safe water, reducing maternal and infant mortality by three-quarts and two thirds respectively and enrolment of all children in primary school by 2015 may indeed be a mirage unless there is a turnaround of our SMEs’ fortunes sooner than later. The time is now to do something surgical to the situation of our SMEs given the aggravating level of poverty in Nigeria and the need to meet up with the Millennium Declaration Goals. It is worrisome that despite the incentives, favorable policies and regulations and preferential support by government aimed at improving small and medium scale enterprises, SMEs, has performed below expectation in Nigeria. While the challenges associated to small and medium scale enterprises and their failure has been widely acclaimed. Some of these include lack of planning, inimical government regulations, poor marketing strategies, lack of technical know-how, and lack of capital. Yet some of the challenges of the SMEs are induced by the operating environment (government policy, globalization effects, financial institutions etc) others are functions of the nature and character of SMEs themselves.


The main objective of this study is to investigate the problems of financing small and medium scale enterprises in Nigeria, specifically the study intends to:

1.     Investigate the general challenges faced by SMEs in Nigeria

2.     Find out the economic impact of SMEs in Nigeria

3.     Find out the effect SMEs financial problem on the economic growth of Nigeria

4.     Discover solutions to the problems of financing SMEs in Nigeria.


The following research questions was formulated to guide this research arrive at a valid conclusion:

1.     What are the general challenges faced by SMEs in Nigeria?

2.     What is the economic impact of SMEs in Nigeria?

3.     Does the financial problem of SMEs has any effect on the economic growth of Nigeria?

4.     What solutions can be proffered to the problem



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