This study was on the impact of financial institution in the growth of SMEs on Nigeria (case study of Alaba international market). The total population for the study is 200 staff of selected SMEs in Alaba international market. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made manager, secretaries, sale reps and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
1.1Background of the study
The major contribution to the economic development process of the Nigeria economy has been well documented as plausible efforts stemming from the small business sector. The creation of more direct jobs per dollar of investment has been accredited to small and medium scale business than do big firms. As the sector survives through the continuous use of indigenous technological know-how, they tend to serve as training platforms for developing and advancing self-reliance skills, they promote inter-sectorial links especially in the area of agriculture and contribute to the changing and improving competitiveness of the economy. Several economic checks and monitoring has overtime displayed a quasi-proof of its ability to bring about social-economic development of a nation, therefore its impact and improvement is of great importance to the political regimes of countries around the globe. SMEs in both developing and developed economies of the world play crucial role in economic advancement, by effectively filling employment vacuums, wealth formation, as well as speedy development in urban and rural areas.
The two common measures for determining enterprise size and strength are the level of fixed capital investment and the number of workers employed. Economies of the world use various yard-sticks to set these criteria and what is considered small in one country may be deemed medium, large or even larger in another. In fact a high rate of arbitrariness 2 exists. As such, for the purpose of the work, enterprises described as small-scale are those employing fewer than fifty (50) persons. There is no specific reference made to fixed capital investment as it is felt that the wide and divers view which exists with respect to this aspect makes it difficult to come up with an all acceptable measurements. In whichever way it is juxtapose, the employment provision effect of SMEs would seem to justify concentration on the number of gainfully employed workers in the area of size. More so, in real sense, a greater portion of small-scale rural manufacturing enterprises employ not more than five persons and maintain fixed assets under 50,000 US dollars. Finance institution provides business credits, business inventory financing and indirect financial aids for consumers. These firms raise more capital by floating bonds and other instituted obligations. They also operate in several other countries as multi-national firms. Furthermore, among these are insurance companies execute transactions on risk coverage as well as indemnifying their clients when need be. Insurance companies also give business credit in form of loan to investors.
Commodity markets, future currency, stock exchange and option exchanges are other subfunctions of most financial institutions. These functions collectively build up a nation’s economy. They also create and provide ownership for financial claims or benefit. They also maintain liquidity in the money market and control price dynamism. Furthermore, they create niches for investment and assist businesses to scout for funds. Their role are sensitively important and associates with the investment sector as they undertake series of finance-base activities, such as transacting deal on securities with investors, underwriting transactions on securities, offering services and earning brokerage as well as issuing technical-base advice. 3 Given the ground-breaking role of small businesses regarding the Nigerian economy, various administrative management of the Nigerian government since political, social and economic independence, have fixed and concentrated its view light on several programmes and expended much in order to develop the small enterprise sector, these have however not recorded much results in line with Mambula1997 as in the case of the Nigerian economy. Small Scale Enterprises are generally vulnerable to unsuitable business conditions, as a result only a significant few breaks through the hurdles to survive. Opinions has it that, such disturbing factors to small business operations includes; bottle-necks in accessing credits from financial institutions, adverse economic conditions that stems from volatile government policies, ram-shackled state of Infrastructural aids, undercapitalization, non-transparency and expressing an off-hand attitude in supporting the SMEs sector in agreement with Wale. A et al 2000.
Though several elements have posed obstacle to the growth and success of SMEs in both less developed and more developed economies, funding has been the frontier factor in line with UNCTAD, 2001,1995; SBA, 2000. When SMEs can easily access finance, the chances of developing businesses and acquiring better technologies for production activities tends to increase, therefore aiding their competitive power. However, it now poses a major bottle neck situation when it comes to scouting for expansion funds from conventional commercial banks and other financial institutions. More so, bankers today are too capital oriented and gain driven so that they focus on funding predominantly government project compared to non-governmental businessmen due to higher profit expectation, such apathy and attitude of adverse selections against SMES operators have side-lined the non-government banking clients and sky-shoot the cost borrowing for them. The picture described is replicated in Nigerian and commercial banks prefer to lend 4 only to the government, get involve with the exchange markets, and finance market dealings. Bank operators inappropriately insinuates that the banks are not free helping units, as such wouldn’t subscribe to any form of risks with Small Scale Enterprises when they can hit big profit in other diversifications. These adverse insinuations of the commercial banks have aggravated the finance hurdles facing small businesses.
Statement of the problem
Making credit facility available to small scale business as a highlighted problem apart from being caused by financing insufficiency may also be as a result of incomplete preparation stemming from the entrepreneurs of these small and medium scale businesses in their request for credit assistance. Information gaps between the bankers and the suppose borrowers could also be the case. Not only are that, servicing of small business account is relatively expensive and quite strenuous to monitor considering it small nature. The front liners in the sector of small scale industry do not portray attitude of competence in preparing reasonable justification for their project. They most times come up with unreliable account statement or a balance sheet that appears attractive but are designed using personally customized system of account preparation so as to unduly win credits. For obvious reasons of this nature, incriminating proposals are out rightly rejected by bank managers. They however can be accommodated in conditions where borrowings terms are no longer in compliance with the monetary policies and credit guidelines set by the government. The researcher has captured this fact and deems it necessary to carry out study on them
Objective of the study
The objectives of the study are;
- To know the extent to which the financial institutions has helped to finance small scale business.
- To identifying the problems confronting small scale industrialist in vying for business finance in Nigeria.
- To evaluating measures initiated to boost industrial production and its financing and how this has affected the attainment of set goals.
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
H0: there is no extent to which the financial institutions have helped to finance small scale business
H1: there is extent to which the financial institutions have helped to finance small scale business
H02: there is no problems confronting small scale industrialist in vying for business finance in Nigeria
H2: there is problems confronting small scale industrialist in vying for business finance in Nigeria
Significance of the study
The study will be very significant to students and the business organization and the policy makers. The study will be given a clear insight on the impact of financial institution in the growth of SMEs in Nigeria. The study will also serve as a reference to other researcher that will embark on the related topic
Scope and limitation of the study
The scope of the study covers the impact of financial institution in the growth of SMEs on Nigeria
The researcher encounters some constraints which limit the scope of the study namely:
The research material available to the researcher is insufficient, thereby limiting the study
The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Definition of terms
Financial institution: A financial institution (FI) is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments, and currency exchange. Virtually everyone living in a developed economy has an ongoing or at least periodic need for the services of financial institutions.
Growth of SME: SMEs are drivers of economic growth and job creation in developing countries. The results show that SMEs perceive access to finance as the most significant obstacle which hinders their growth. The key determinants among firms’ characteristics are size, age and growth rate of firms as well as the ownership of the firm.[email protected]
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