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Problems And Prospects Of Small And Medium Enterprises In Nigeria. A Case Study Of Enugu East Senatorial Zone.


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Table of Contents


1.1     Background of Study

1.2     Statement of the problem

1.3     Objective of the Study

1.4     Hypothesis


2.0     Literature Review

2.1     Conceptual Framework

2.2     Theoretical Literature

2.2.1  Types of Small and Medium Enterprise

2.2.2  Roles of Small and Medium Enterprise in Enugu State

Metropolis in Job Creation and Poverty Eradication

2.2.3  Importance of Small and Medium Enterprise in Nigeria

2.2.4  Problems of Small and Medium Enterprise Enugu East


2.2.5  Prospect of Small and Medium Enterprise Enugu East

Senatorial Zone

  • Challenges in Facing Small and Medium Enterprise in

Enugu East Senatorial Zone

  • Small and Medium Enterprise Credit Scheme: Case Study

Of Enugu East Senatorial Zone

2.3     Empirical Framework

2.3.1  Ways of Encouraging Small and Medium Enterprise to

Enhance National Development in Enugu East Senatorial


  • Government Refund on Small and Medium Scale and

Means of Administration

2.3.3  Limitation of the Study


Research Methodology

3.1     Research Design

3.2     Area of Study

3.3     Source of Data

3.4     Sample Size Determination and Sampling Techniques

3.5     Instrument

3.6     Data Collection Procedure

3.7     Method of Data Analysis


Data Presentation of Analysis

4.1     Analysis and Interpretation of Data

4.2     Test Hypothesis


Summary, Recommendation and Conclusion

5.1     Summary of Findings

5.2     Conclusion

5.3     Recommendation





The main purpose of this study is to identify the problems and prospects of small and medium enterprise in Enugu East  Senatorial Zone. To do this, data were collected from both primary and secondary sources. The main instrument of data collection was the questionnaire.

The data were presented in tables as frequency, distribution in the data analysis, the techniques of percentages frequencies were used. The hypothesis were tested with z-test technique at 5% significance level.

Having analysed the data the following were the major findings;

Most of the operators of small and medium enterprise in Enugu East Senatorial Zone make an average daily turnover of N15,000 and profit of about N15,000  daily.

There has been a phenomenal growth in the dimensions and nature of small and medium enterprise in Enugu East Senatorial Zone. The growth is mainly on account of people’s desire to be self employed.

The problems of establishing and managing small and medium enterprise include lack of capital, lack of managerial skills, lack of business ideas, high cost of operational facilities, scarcity of accommodation, lack of efficient preservation, system and poor environmental and sanitation.




In recent years, particularly since the adoption of the economic reform programme in Nigeria in 1986, there has been a decisive switch of emphasis from the grandiose, capital intensive, large scale industrial project based on the philosphy of import substitution to small scale industries with immense potentials for developing domestic linkages for rapid, sustainable industrial development. Apart from their potential for ensuring a self reliant industrialization, in terms of ability to rely largely on local raw materials, small scale enterprises are also in a better position to boost employ raw materials, small and medium enterprise, are also in a better position to boost employment, guarantee a more even distribution of industrial development in the country, including the rural areas, and facilitate the growth of non-oil exports.

In Nigeria, the definition of small and medium enterprises also varies from time to time and according to institutions, for instance, the Central Bank of Nigeria’s (CBN) monetary policy circular No:27 of 1988 define small scale enterprises (excluding general commerce) as enterprises in which total investment (including land and working capital) did not exceed #500,000 and or the annual turn-over did not exceed #5.0 million.

Medium enterprise (excluding general commerce) as enterprises in which total investment and not exceed #1,000,0000 (1 million) and the annual turnover did not exceed #1.2 million. Small scale enterprises is one of the modern strategies underdevelop countries are employing to break into the “league” of developed countries. Fasua (2006:85) categorized business that fall under small scale as follows firewood supply, plantain production, restaurant services, small scale poultry raising, operating a nursery for children, home laundry services and host of others. Business grouped under medium scale according to fasusa are ; soap production, hair/body cream production, chemical production, commercial poultry, profession appractes (law, accountancy, education) food and beverage production among others.

Consequently, both the federal and state governments and recently, local governments, have stepped up efforts to promote the development of small scale enterprises through increased incentive scheme, including enhanced budgetary allocations for technical, assistance programmes. New lending schemes and credits institutions for technical assistance programme New lending schemes and credit institutions such as the National Economic Reconstruction found (NERFOUND), World Bank-assisted small-scale enterprises loan scheme (SMES), Nigeria Export and Import Bank (NEXIM), the people’s Bank of Nigeria (PBN) and the Community Bank have also emerged at both the national and local levels to boost the flow of development finance of small scale enterprises which have so far depended largely on personal funds and credit. From informal sources for both their investments and working capital.

Unfortunately, all these formal credit scheme have not been able to adequately redress the fundamental problems which have constrained small scale enterprises access to credit. The low credit rating of this class  of enterprises, is attributable largely to their weak capital, base, high mortality rate, low productivity and shortage of managerial skills. Indeed, the problem of weak capital base, high mortality rate, low productivity and shortage of managerial skills. Indeed, the problems, of weak capital base, and poor access to finance appear to have developed into some vicious circle, leading to slow growth, stagnation and even rapid demise of the small scale enterprises. The impact of all existing credit scheme interms of providing funds for meaningful and sustained development among the small scale enterprise, had medium enterprise to serve the expected  role of catalyst for rapid industrial development, there is need for a more innovative strategy for improved access to development finance for the small and medium enterprise that would address their inability to provide collateral securities for loans formal credit institutions.

  • Statement of the problem

Small and medium enterprise are mostly in managed by owners  and relations. The financing in most cases in normally provided by the owners. The owners fail to realize the importance of external source of capital in order affect expansion in the business. In most cases, the by the owner, members of the family and friends in most cases.

In another development, small and medium enterprise experiences difficulties in raising equity capital from the finance houses or individuals. Even when the finance house agrees to provide  equity  capital, the conditions are always dreadful.  All the result to inadequate capital available to the sector and thus lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor financing and other problems associated with it (Chukwuemeka, 2006). The problems that emanated from poor financing include:

  1. Lack of competent management which is the consequence of inability of owners to employ the services  of experts.
  2. Use of obsolete equipment and methods of production because of owner’s inability to access new technology.
  3. Excessive competition which resulted from sales which is a consequence of poor finance to cope with increased competition in the industry.

Inspite of the different measures since 1960 to increase industrialization, small medium enterprises are still facing hard conditions. This is as a result of some constraining factors.

  • The high cost of available raw materials affects the prices of good food. This only has adverse affect on the turnover of the enterprise but also on the profitability.
  • To what extent has the finance house strict conditions affected the development of small scale.
  • Does poor financing actually affect small and medium business operation.

Objectives of the study

The specific objectives of the study are:-

  • To determine factors influencing small and medium enterprise in Nigeria
  • To determine the extent finance house strict conditions have affected the development of small and medium enterprise in Nigeria
  • To assess the extent poor financing has affected small and medium business operation in Nigeria.


The following hypothesis are formulated to provide the lead for this study:

H1:    The phenomenal growth in the number of small and medium enterprise is not due to guest for self employment.

H2:    The profitability of the business has not encouraged people

involved in the business.

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