SMALL SCALE INDUSTRIES IN NIGERIA: THE FINANCING QUESTION
INTRODUCTION
BACKGROUND TO THE STUDY
For both developing and developed countries small-scale firms play important roles in the process of industrialization and economic growth. Apart from increasing per capital income and output, small scale industry create employment opportunities, enhance regional economic balance, and promote effective resource utilization. However the seminal role played by small scale industries not withstanding its development in every where constrained by inadequate funding and poor management. The unfavourable macro economic environment has also been identified as one of the major constraints which most times encourage financial institutions to be risk-averse in funding small-scale industries. The reluctance on the part financial institution to fund small-scale industries can be explained by the insufficient capital base of banks and information that often exists between small-scale enterprises and lending institutions.
However, it is fundamental that the bedrock of any business organization, and sources of financial available to them. In this research study, we are going to deviate from the general aspect of small-scale industries and the problems and prospects of financing small-scale industries in Nigeria or they have been recognized as the veritable engine to economic growth and development. Umar (1997:15) in his own words, stated that “In Nigeria, as in many other developing countries financing and encouraging the establishment of small-scale enterprises have been crucially recognized as a viable approach for stimulating employment development, particularly, in a situation of rapid growing labour force and inadequate economic growth.
However, for small-scale industries to effectively contribute to the economic growth and development of any country, it should be well financed well financed or funded for their business operators and expansions. In Nigeria, the government has established institutions to provide financial and non financial sources to small-scale industries. Among the institutions established by the federal government to provide loans to small-scale industries are the National Directorate of Employment (NDE), the People’s Banks of Nigeria (PBN), the National Economic Reconstruction Fund (NERFUND), and Nigeria Development Bank (NIBK).
Despite al these efforts of government at promoting small-scale enterprises in Nigeria, they (SSE) are still faced with problems of inadequate financing or funding poor management, limited markets etc. It is very known fact in business circle or environment that small-scale business enterprises fund (S). It is difficult to sources due to the irritability to meet up the collateral requirements to enable them secure financial services from finical institutions (Banks). Also, the cost of handling small-scale loans and risk of default, are factors militating against the granting of banks loans/facilitated to small borrowers.
Generally, any business enterprise, whether small or large, requires or needs fund to operate and these funds are obtained from diverse or different sources. The sources of fund/finance available to small-scale enterprises in (Nig) includes personal savings, loans from friend and relatives, commercial and Merchant banks, and government assisted/specialized credit schemes/funds, such as national economic reconstruction Fund (NERFUND), world bank loan scheme, etc. It can be widely stated that small-scale enterprises sources of finance are limited compared to the large-scale enterprises. Due to their (small-scale enterprises) ignorance or inability to meet the requirement of financing institutions responsible for lending of fund, and partly due to small-scale enterprises or refusal to pay back loans or funds lended to them at the appropriate time. In most cases small-scale enterprises inability to pay back loans borrowed as a result of improper financial management. Finance, as it is widely stated is “the key factor or bed rock of business enterprise (s) and in one way or the other becomes the key problem due to mismanagement of the available fund. Some of these small-scale industries do not even know the means or procedures to be adopted to obtain funds needed for their operations because of ignorance and illiteracy.