Effect Of Monetary Policy On Small And Medium Scale Enterprises Development (A Case Study Of Shiraks Water)
TABLE OF CONTENT
1.1 BACKGROUND OF THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 OBJECTIVE OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 SIGNIFICANCE OF THE STUDY
1.6 HYPOTHESIS OF THE STUDY
1.7 SCOPE AND LIMITATION OF THE STUDY
1.8 HISTORICAL BACKGROUND
1.9 DEFINATION OF TERMS USED
2.0 CONCEPTUAL FRAMEWORK
2.1 OVERVIEW OF MONETARY POLICY
2.1.2 DEFINITION OF MONETARY
2.2 THEORETICAL FRAMEWORK
2.2.2 SMEs AND EFFORT TO FACILITATE FINANCING IN NIGERIA
2.3 THE CONTRIBUTION OF COMMERCIAL BANK TO THE GROWTH OF SMEs
2.4 CHALLENGES AND OPPORTUNITY FOR SMEs FUNDING
2.5 CURRENT CBN’S MONETARY POLICY
2.6 OTHER FACTOR MILITATING SMALL SCALE
2.7 HISTORICAL BACKGROUND
2.8 EMPIRICAL FRAMEWORK
3.0 RESEARCH METHODOLOGY
3.1 TYPES AND METHODS OF DATA COLLECTION
3.2 THE STUDY POPULATION
3.3 RESEARCH DESIGN
3.4 DETERMINATION OF SAMPLE SIZE
3.5 METHOD OF PROCESSING DATA
3.6 RESEARCH INSTRUMENT SPECIFICATION
4.0 DATA ANALYSIS AND PRESENTATION OF RESULT
4.2 ANALYSIS OF RESPONSE
4.3 PRESENTATION OF DATA
4.4 HYPOTHESIS TESTING
5.0 SUMMARY, CONCLUSION AND RECOMMENDATION
This paper examines the effect of monetary policy on small medium enterprises development in Nigerian economy. In doing this, the Ordinary Least Squares Method (OLS) is used to analyse data between 1981 and 20016. The result of the analysis shows that monetary policy presented by money supply exerts a positive impact on GDP growth and Balance of Payment but negative impact on rate of inflation.
The recommendations are that monetary policy should facilitate a favourable investment climate through appropriate interest rates, exchange rate and liquidity management mechanism and the money market should provide more financial instruments that satisfy the requirement of the ever-growing sophistication of operators.
Keywords: Monetary policy, economic growth, transmission mechanism and liquidity.
1.1 BACKGROUND OF THE STUDY
Small and medium enterprises according to the agreement of central Bank of Nigeria and the small and medium Industries and Equity Investment Scheme (SMIELS) is defined as any enterprises with maximum assess base less than #200, million excluding land and working capital, and with the number of staff employed not less than 10 and not more than 300. There are diverse definition of small and medium enterprises however, the dynamic role of small and medium enterprises as an engine of growth in developing country (ies) has been recognized and accepted universally.
Cook and Nixon (2001), observed that the development of small and medium enterprises (SME’ S) is seen as attempts towards the achievement of a wider economic and socio- economic objectives, including poverty alleviation as stated by kutey (2013), small and medium enterprises drives their country’s development as they create employment and contribute to the gross domestic product (GDP). In the opinion of et al (21012), there is the greater likelihood that SME’s will utilize labour. Intensive technologies thereby reducing unemployment particularly in developing countries and thus have an immediate Impact on employment generation.
Small and medium Enterprises are expected to facilitate the growth and development of human and capital resources towards general economic development and the rural sector in particular. To achieve all these expectations, SME’s depend largely on favorable monetary policy that will increase the rate of borrowing from legal institutions and lower interest rate; also taxation policy should be renewed for the maximization of profit by these enterprises.
It is disheartening to note that despite the roles of promoting growth in Nigeria, SME’s still suffer acute capital formation and are more financially constrained than large forms in sourcing for credit from formal credit institutions such as banks and capital market.
The central bank of Nigeria (2005), observed that traditional commercial banks have been experiencing aggregate credit growth to the domestic economy yet the ratio of loan supply to small scale enterprise has continued to decrease over the years. This in spite of mandatory enforcement by the CBN to the commercial banks to increase lending to SME’s. This situation has been of great concern to government this, exacerbated concerned efforts and interventions through increased budgetary allocation, credit policy, formulation and implementation of new programmers and schemes are been reviewed regularly.
1.2 STATEMENT OF PROBLEM
Although SME’s are seen as a catalyst for economic development, their growth and development is slowed down by a number of challenges which can be grouped into financial and non- financial constraints (shokan 1995).
The financial constraints include those factors that prevent SME’s from accessing funds easily from financial and non- financial institutions. The CBN has continuously been reviewing monetary policy instrument such as cash reserve Ratio (CRR) and liquidity Ratio (LR) to ensure availability of credit by the banks.
It is disheartening to note that upon all the special interventions by the CBN (which is the centre of monetary policy formulation) to induce credit supply by banks to SME’s, reverse seems the case.
1.3 PURPOSE OF STUDY.
This research work is carried out to examine the reluctance of financial institutions in providing credit supply to SME’s.
- To analyze the effect of monetary policy on SME’s development in Nigeria.
- To determine the influence of monetary policy variables on credit supply to SME’s.
- To critically analyze these policies ascertain their worthiness.
- To identify other factors militating against the development of small and medium enterprises in Nigeria.
1.4 RESEARCH QUESTIONS
- What are the effects of monetary policy on SME’s development?
- What are the influences of monetary policy variable on credit supply to SME’s?
- Are these policies worthy enough to aid development in SME’s?
- Are there other factors hindering SME’s development in Nigeria?
1.5 RESEARCH HYPOTHESIS
H0: Monetary policy has no effect on SME’s development.
H1: Monetary policy has effect on SME’s development.
H0: Monetary policy has no effect on credit supply to SME’s.
H1: Monetary policy has effect on credit supply to SME’s.
H0: Monetary policy does not provide enough development to SME’s.
H1: Monetary policies provide enough development to SME’s.
H0: There are no other factors hindering SME’s Development.
H1: There are other factors hindering SME’s Development.
1.6 SIGNIFICANCE OF THE STUDY
This research work would help in the study of formulation and implementation of favourable monetary policy that would aid the development of small and medium scale enterprises. The outcome of this research work would help government formulate rite polices in a manner that would help SME’s survive competition.
1.7 LIMITATIONS OF THE STUDY
For this study, relevant information will be collected from the case study: SHIRAKS WATER, which is a small and medium enterprises operating within lusada/ igbesa, ado.odo local government igbesa. Also. References were made to other books that have been published on this study, journals/articles that been prepared by previous scholars. Online information from goggle, Wikipedia etc.were also utilized. However, this research work is basically studying the effect of monetary policy on SME’s development in Nigeria and therefore should not be generalized. the time frame for the completion of this project is limited, hence, the imitation of this study to the geographical area but it can be use as a guide to broaden other researches on this topic.
1.8 DEFINITION OF TERMS
- Monetary policy: refers to a combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the expected level of economic activity (okwu et al. 2011)
- Small and medium enterprises: according to shokan 1995, what constitutes SME’s varies from country to country, region to region and from agency to agency however, the central bank of Nigeria in its monetary polices circular No. 22 of 1988 viewed small scale industry as those enterprises I which have annual turnover not exceeding 500,000naira.
- Micro enterprise: Micro- enterprise is the informally organized business activity undertaken by entrepreneurs; excluding crop production by convention, employing less than ten people and having assets less than N5 million excluding land and building.
- Small enterprise: Small enterprise is any enterprise that employs between ten (10) to forty-nine (49) people and has asset worth (excluding land and building) between N5 million and N50 million.
- Medium enterprise: Medium enterprise is any enterprise that employs between fifty (50) and one hundred and ninety–nine (199) people and has assets worth (excluding land and building) between N50 million and N500 million (SMEDAN, 2007).
- Microfinance Banks: Microfinance Banks are licensed financial institutions meant to serve the un-served, but economically active clients in the rural and peri-urban areas by providing diversified, affordable and dependable financial services to the active poor, in a timely and competitive manner, which would enable them to undertake and develop long-term, sustainable entrepreneurial activities and mobilize savings for intermediation (CBN, 2005).
- Microcredit: Microcredit is commonly defined in terms of loan amount as a percentage of average per capita income (USAID, 2005). In the context of Nigeria, with a GDP per capita of N42,000 (about $300) in 2003, loans up to N50,000 (around $350) will be regarded as micro loans. GDP per capital (PPP U$) in 2007 was U$1,969 (UNDP – HD Report, 2009).
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