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The Problems and Prospects of Small Scale Industries in Nigeria Economy

This chapter examines relent literature and theory on the problems of financing small scale industries in Nigeria economy. Infact much work has been done on related dreams of this research work. Small-scale industries development has assumed a lending role in the rapid industrialization and development of different countries of the world. As a result of this lending role and importance of small scale industries in the industrialization of the nation a lot has been said doubt this sector.

According to Mr. Eze in a paper he presented at the seminar on the development of small-scale industries in Anambra state  “ the issue of small scale industries has been over flogged by development banks academicians, government officials and small industrialist themselves. This question have a common understanding of an issue in which the particles have some interest some interest, he further stressed.

It is generally believed that small scale industries are major tool to people self reliance, industrialization creation of job opportunities and diversification of the productive base on the economy.

The former president Gen. Babangida has this to say on the establishment of the national economic reconstruction fund. (NERF). The establishment of the NERE was not another cake sharing exercise but was designed to aid in the cake baking process, hence fund disbursement work be based on competitive efficiency and continuity of the fund scheme (NERE)

It was also among the highlights of the new national policy on small-scale industries under Degree 2 of 1989. this fund was designed to correct any inadequacies over the past years which have stifled financing small scale and medium scale industries.

In the words of Mr. Ogundip, the basic presumption underling the desirability of nurturing the sector, are the perceive multiplier effect which small-scale industries have on the performance of the economy and economic growth in general. He further stressed that “ an element of unfenced is needed in supporting the sector today because of the dramatic impact of the second tier foreign exchange market (SFEM) and other components of structural adjustment programme (SAP) which understand complicate the production of components of industry in general.

Oresotu (1999) stressed the problems faced by small scale enterprises, their characteristics, advantages and suggestion with regard to the technique which could be adopted in a further bid to promote the development of small scale industrial enterprises and followed it up with recommendations and conclusion. He stressed the role of small-scale industries in promoting the growth and stability of manufacturing activities in Nigeria, which was well identified in the National development plans. Also, along with other proposes such as the creation of the industrials development lenders and the financing of small scale industrial credit scheme in the third development plan, it was proposed that a study of effective methods of encouraging small scale industries should be conducted during the development the plan period.

In both the third and fourth plan documents, it was recognized that the Nigeria Bank for commerce and industry and the states development finance institution could be used as channels for disbursement of funds to small scale industrialist.

Hence, between 1981 and 1983, Nigerian bank for commerce and industries. The federal ministry of industries. The fund comprised of a sense of loans to be lent to small-scale enterprises in designated industries. The main lesson that could be deduced from Oresotu’s paper is that the issues involved in the development of needs, concrete actions have to be taken to ensure that small scale industries do not only develop, but those developed should be helped to thrive one effectively through financing them.

Omorodin (2000) in his paper mentioned that the role of small-scale industries in the industrial development of any nation include such factors as employment generation, poverty eradication, improved income distribution and fulfillment of basic needs. He also noted that small and medium scale companies dominate the industrial sector in most countries in terms of the number of establishment and manpower employed. He further stressed that most small enterprises have a chronic shortage of capital. This may be partly due to the entrepreneurs inability to attract or have access to sufficient capital and credit for his company balance between fixed and working capital. It can also result from poor inventory control, high wastage, and low levels of efficiency in production and in correct pricing methods etc.

Actually from this write up, it could be seen that shortage of finance may prevent an enterprise from operating efficiently and imposes additional costs when short term credit has to be raised the lower business credit ability, limited security and high risk of failure of small scale industries make it difficult. However, to raise capital from the usual sources and often force them to secure loans at higher interest rates from other lenders.

In recent years, both the federal and state governments have been placing much emphasis on the development of small-scale industries due to the vital role the sector is expected to play in the economy. It is in the pursuance of the development policy that the federal government of Nigeria has se up a number of organizations and specialist institutions in the country to help alleviate industrial sectors of the economy. They include the Nigeria bank for commerce and industry (NBCI) the Nigeria and industry Agricultural and cooperative banks (NACB) others include institutions such as fund for small-scale industries (FUSSI). The state small-scale industries scheme (SSICS)

Moreover, the federal government budget of 1990 says thus “similarly, for purpose of sustained promotion of small scale industries, it has been decided that the existing minimum of 16% of commercial banks total credit outstanding allocated to small scale enterprises excluding activities in general commerce, be raised to 20% as from 1st January 1990” this aimed at making more fund available to small scale industries the problems which finance posses for their sector.

Dr. Onwulah in his own words has this to say about the problems of financing small-scale industries. If your business is already filmily established your capital problem may be how to finance its growth, expansion and working needs. It is not only at the initial stage of the business that the industrialist encounters problems of financing.

In a paper written by Akamworhor (1996) the asserted that the procedure that the credit institutions adopt for the granting of loan is so cumbersome that many small-scale enterprise for which the squire is designed find it difficult to obtain the loans. He also noted that commercial banks endeavor to invest in projects which are economically desirable technically feasible a commercially visible. As the small-scale enterprises could not meet the minimum lending criteria of the banks, the government intervention because necessary in 1989 when it directed the commercial banks to allocate a minimum of 10% of their total loans and advances to small scale enterprise. This was further raised to 16% in 1991. he said that “ there are no fancied institution with specific responsibility for providing equity capital to the small scale enterprise but in the course of examining the existing ways of financing small scale enterprises in Nigeria, it crystallized that their funds market now serves as an alternative source of financing the small scale enterprises only if they meet the listing requirements of the stock market.

In the words of the managing director of the Alpha paper mill Ltd, Ogidi, Chief A.C Ekepechi in an oral interview he says fiancé is very vital indispensable and unavailable factor for the establishment of small-scale industry in this country. He went further for the establishment of small-scale industry in this for the established of a small-scale industry in Nigeria; the first thing to consider is the availability and source of fund. The statement of the director is true; no business can start without the availability of fund for the managing of the business. Infact finance is sin aqua non-in the establishment of small-scale industries in Nigeria and many places in the world.

Having examined the views of various authors relating to the topic, it is evidently clear that these people have done a marvelous  and commendable work in this area of study.

Most of the writers attributed the financial problem of small-scale industries in the country to strict conditions of securing bank loan, others have different vies on the causes of the problems. But despite the work so far done by these emanate scholars, the problem of financial small scale industries in the country are still enormous. It is the aim of the writer to study Alpha paper mill Ltd, Ogidi. The primary is of this work is to improve on the work so far done by others, to explore these issues in detail in order to find out why insipte of the work so far done by both government and other bodies on the financing small scale industries, there are still problems which hinder the growth and development of this sector.

It is hoped that at the end of this work more solutions to these problems will be proffered.


This chapter also deals with the analysis of the responses to questions on the problems being faced by the company, Alpha paper mill Ltd. All the information’s obtained cause from the books of the company examined and supplemented by interviews with chief executive.

From the study conducted, it was discovered that when the company was established in 1978, prices of resources inputs were relatively cheap. They hadint any problems of finance then, but the inflectional rate in the country which was triggered off by the oil glut of early 1980 have made the cost of resources impute to be so costly.


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