Financing Small and Medium Scale Enterprises (SMES) in

Nigeria

Dr. Nosa Omoregie and Akhilomen Judith Omon

Abstract: This study examines the problem and prospects of financing small scale business in
Nigeria. Specifically the study provides empirical evidence on the sources of finance available to
small scale enterprises and to ascertain the problems and prospect of financing small scale
enterprises. The researcher distributed 60 questionnaires to the respondents that make up the
sample size. The research questions were answered using mean rating under the modified five-
point likert scale. Result of the investigation reveals that SMEs play the following role in
community development: Generation of employment; Service provision; Improve living
standards and poverty alleviation. Consequently this study therefore recommends that:
government should re-introduce the small business credit scheme so that beneficiaries can use
them run the micro, small and medium enterprises; government, chamber of commerce and other
non-governmental organization should regularly for potential and actual small and medium
enterprise operators where they should be educated on how to plan, organize, direct and control
their businesses; micro, small and medium enterprises operating strategies; this includes such
promotional strategies as advertizing, good management customers relations at all times and
there should be re-introduction of soft loans for small and medium business by the government
and financial institution, the problems of small and medium scale business will be a thing of the
past.
Keywords: SMEs Financing; Commercial Banks Loans; Sustainable Economic Growth
1. Introduction
Small and medium sized enterprises (SMEs) are the backbone of all economies and a key
source of economic growth, job creation and innovation in both developed and emerging market
economies. Hallberg (2018); Olutunla (2017) and Williams (2018) noted that both in developing
and developed countries, small and medium scale enterprises play critical role in the process of
industrialization and economic growth by importantly contributing to employment, income
generation and catalysing development in urban and rural areas. In the light of this, different
governments in the world offer different types of loans, guarantees and other supporting
measures to facilitate these SMEs access to capital. Evidence from previous studies shows that
SMEs financing primarily depend on bank loans.
The majority of commercial bank loans offered to SMEs are often limited to periods far
too short to pay off any fairly large investment (Fayomi and Abereijo, 2017). Furthermore, banks

1
in many developing countries prefer to lend to government rather than private sector borrowers
because the risk is lesser and higher returns are expected (Levitsky, 2018). This is why the
Governor of Central Bank of Nigeria (CBN), Emefiele in his first press briefing on June 5th
2014 stated that he will reduce Nigeria Treasury bill rate to discourage banks from investing
much in government securities. However, the banking crisis in Nigeria revealed that bank
financing is not a reliable source of financing, especially during periods of systemic stress.
Moreover, the regulatory measures taken after the crisis, such as strengthened rules on capital
requirements, create additional challenges on the financing of SMEs through bank loans.
Consequently, the need for diversified funding sources for SMEs is more urgent now than ever.
Though a suitable source of long-term finance needed for venture purposes, the
contribution of the capital markets to SMEs funding is rather quite negligible in spite of the
efforts of the government and regulators to promote SMEs financing through the capital market.
Such efforts include the establishment of the first tier market and the second tier market or the
Alternative Securities Market (ASeM) where the listing and disclosure requirements are relaxed
to accommodate business units like the SMEs. A lot of issues have been raised as reasons for the
lack-lustre performance of the capital market with regard to SMEs financing. They include,
cumbersome listing requirements; reluctance on the part of the business owners to embrace
transparency in reporting and disclosure standards; unwillingness to cede a part of the business to
outsiders for fear of losing control; weak capital structure; low managerial skills and lack of
access to modern technology (FSS 2020 SMEs Sector Report, 2017). The fragile business
economic environment and the absence of the requisite infrastructure have rendered SMEs
practice costly and ineffective, thereby worsening their credit competiveness. There are limited
documented financials on their activities as well as authentic data on them (Berger, 2018).
Given the crucial role of SMEs to the Nigerian economy, since independence in the
1960s, different regimes of governments have targeted various programmes and spent huge
amount of money with the sole aim of developing this sector (SMEs), however, these have not
yielded any significant results (Mambula, 2017) as witnessed in the current condition of SMEs in
the country. Oboh (2018); Okpara (2020) and Wale-Awe (2020) note that SMEs are generally
subjected to influence and only a certain number of them manage to survive due to several
factors such as difficulty in accessing credits from banks and other financial institutions; harsh
economic conditions which results from unstable government policies; gross undercapitalization;
inadequacies resulting from the highly decayed state of infrastructural amenities, astronomically
high operating cost; lack of transparency and high rate of corruption; and lack of interest and
lasting support for the SMEs sub-sector by the government authorities.
The financial system in every economy plays a key role in the development and growth
of the economy, although the ability to play this role effectively and efficiently depends largely
on the state of development of the financial system. The traditional commercial banks are the key
players in the financial system of almost every economy, have the capability of pulling financial
resources together to meet the credit needs of SMEs. Nevertheless, there is still a huge gap
between supply capabilities and the financing needs of the SMEs. In Nigeria, the situation is
even more widespread as noted by Olutunla and Obamuyi (2018).
All the foretasted benefits of Small and Medium Scale Enterprises cannot be achieved
without the direct intervention of the government and financial institutions. Over the years a
number of policies have been formulated by the government with a view to developing Small
and Medium Scale Enterprises. The Nigerian government under the then leadership of Chief
Olusegun Obasanjo promulgated micro-finance policy and other regulatory and supervisory

2
frame work in 2005. This paper will therefore examine the problems and prospects of financing
Small Scale Enterprise in Nigeria.

2. Literature Review

Concept of Small Scale Business

In his review of activities of small scale businesses, Ukaegbu (2014), states that, prior to
the introduction of the structural, adjustment programme in Nigeria small and medium scale
industries were virtually neglected in all the development plans of the country. However, since
the advent of democratic government in 1999, there have been significant changes in attitude to
small and medium scale industries and entrepreneurship among policy makers and managers of
Nigeria economy. This change in orientation has been attributed to an acknowledgment of the
continuous importance of the sector in terms of the number of such enterprises, job creation and
the promotion of its contribution to the Gross National Product (GNP). Oyedijo (2018) opines
that the definition of small and medium industries should reflect the level of technology within
the economy, the development needs or objectives of the economy and such other facts that are
dictated by the social and cultural value of the economy. These considerations he asserts, suggest
that there is no universally accepted definition of small and medium scale industries, the world
over. It is however important to realize that there is need for a standard definition of small and
medium scale industry within an economy. This need is paramount in the context of providing a
frame of reference for the various agencies responsible for policy formulation and
implementation in respect of small and medium scale industries.
Adidu & Olannye (2016), states that different countries have different basis of defining
small and medium scale enterprises, some on capital investment, while others define it on the
basis of management structure. There are many definitions on small and medium scale
enterprises (SMEs) as there are experts on the subject. The Nigerian industrial policy describes
SMEs as those whose total investment is between N100, 000 and N2million exclusive of land but
including working capital. There are however, some qualitative indicators that are common to
most definitions namely; Size of capital, the number of employees, the annual turnover. Adidu &
Olannye (2016), states that in summary, SMEs are those business whose capital investment does
not exceed N5million (including land and working capital) or whose turnover are not more than
N25million annually. The Small Business Administration (SBA) in the USA measures SME as
one which posses at least two of the following criteria.
 Managers are also owners
 Owners supply the capital
 Area of operation mainly local
 Small in size within the industry.
It is therefore glaring that there is a universal cord that links all the above definition and
that SMEs are generally low in terms of number of persons employed and the amount of
investment and annual turnover. Thus, a review of existing literature on the subject suggests the
following as the mostly used criteria for the definition of small and medium scale industries:
i. No of Employees
ii. Sales Volume: The size of sales volume in any business will determine where to
group it. I.e. whether to a very small, small or medium business.

3
 iii. Financial strength: This as well determines whether it is a very small, small or
medium business. The amount of fixed assets and current assets each business is
having helped to determine where to categorize them.
iv. Relative Size: The relative size of the business is determined by number of people
working in this business, that is, the number of employees helps in determining
whether it is a small, very small or medium business.
v. Initial take-off capital: This means that the amount of shares you used to start or
incorporate your business will help in large way to determine where to categorize the
business.
vi. Personal management style.
vii. Independent ownership
viii. Name of business
ix. Composition of ownership and types of industry.

Critical Elements of Nigeria’s Small Scale Business

In Nigeria, the national policy on micro, small and medium enterprises defines SMEs
along the lines of international criteria. The policy mainly uses the employment base and asset
size to categorize firms into micro, small and medium. Accordingly, for small-scale enterprises,
the employment base should be between 10 and 49 with an asset base of over N5 million but less
than N50 million. Medium scale enterprises are those that employ between 50 and 199 workers,
with an asset base of over N50 million but less than N500 million. Importantly, the assets
admitted for these classifications exclude land and buildings. Also, in case of conflict of
classification between employment and asset size, the policy gives pre-eminence to the number
of employees over asset size.
Overwhelming government support has characterized SMEs in Nigeria, sometimes even
playing a dominant role both as the sole owner of the development finance institutions and the
major provider of the finance. Since the attainment of political Independence in 1960, a major
preoccupation of Nigerian Government has always been on how to support and promote Small
and Medium Scale Enterprises to make them robust enough to be able to provide employment
and contribute to economic growth. It is in the quest for this development that successive
Nigerian Governments have consistently tried to devise ways of supporting the SMEs. The first
post independence attempt by the Government to directly provide for SMEs, in its quest to help
accelerate the pace of development in the country, was in 1962 with the establishment of the
Nigerian Industrial Development Bank (NIDB).

Theoretical Framework
This research study is anchored on active learning model of Erickson and Pakes (1995)
which states that an organization explores its economic environment actively and invests to
enhance its growth under competitive pressure from both within and outside the firm. However,
this theory states that owners small and medium scale enterprises could raise their productivity
through formal education and training that upsurges their endowments while government may
support their activities through the creation of the enabling environment. This implies that SMEs
in Nigeria have prospects of experiencing growth and they also contribute to employment
generation only when appropriate investments are made into them by all the stakeholders. This
could be achieved by government intervention through the provision of social infrastructures,

4
capacity building of SME operators, financial assistance and favorable taxation policies (Agwu
& Emeti, 2014).

SME Financing as a Development Strategy

Governments in both industrialised and developing countries provide a wide variety of
programs to assist SMEs. Despite the success of these SME strategies in a few countries (e.g.,
Taiwan, Italy, Ireland), the majority of the developing countries have found that the impact of
their SME development programs on has been less than satisfactory. Stiglitz (1993) noted that
the role of the government in financial market development is one of the long-standing and
unresolved debates engaged by economists around the world. Nevertheless, until recently a very
few have discussed the role of the government in small and medium scale enterprises (SMEs)
development and issues relating to financial services for the smaller companies. The factors
determining the rationale for intervention mainly include level of macroeconomic stability; stage
of development of the banking system; level of basic infrastructure facilities, stage of
development of the Micro Finance Industry; size of the potential SMEs, conflict situation such as
wars and natural disasters; geographical diversity of the country; and population density
(Ojiakor, 2007). This section attempts to discuss the role of the government and the need for
their intervention in the development of sustainable financial services to reach the majority of the
poor and their micro and small enterprises. Different schools of thought on the role of the
government that is either Laissez-faire school, or Interventionist school, or Moderate
interventionist school recognize different levels of government interventions on the development
of SMEs. Nevertheless, the most appropriate role for the government varies depending on a
variety of country-specific conditions and on the levels of financial development.
The inadequacy of rural infrastructure hinders access to markets and technology. The
road network is in disrepair, while the provision of power, water, and communications is
inadequate, even in the urban areas, and absent in the rural areas in the country. All these factors
tend to increase the costs of doing business or result in low-quality, uncompetitive products and
by extension hinder SME development in Nigeria. The absence of an enabling regulatory
framework and legislation for MFIs by the government has hindered financial intervention for
SMEs.

Government intervention in SME financing

In an attempt to improve the operational performance of the SMEs and aid their
development, the government, post-independence, established various schemes such as Industrial
Development Centers (IDCs) in 1962, Small Scale Industries Credit Scheme (SSICS) in 1971,
Small Scale Industries Fund (SSIF). The government issued policy initiatives aimed at
addressing the peculiar needs of the SMEs through existing commercial banks. Such among
others include:
a. The Rural Banking Scheme (1977);
b. National Economic Reconstruction Fund (NERFUND) was established in the mid-1980s
to assist SMEs to adjust to the Structural Adjustment Programme. The Fund provided a
long term loan support (5-10 years) to SMEs at concessionary interest rates;
c. Established the community banking scheme in 1991 with the objective of rural
development and providing start-up facilities for smallholders;
d. Establishment of Bank of Industry (BOI) with the principal objective of providing credit
to the industrial sector including SMEs at an interest rate of 10 percent;

5
 e. The Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) were
also established with the objective of financing the rural sector with particular interest in
the SME subsector;
f. The Community Banking Scheme (1992) which gave mandates to commercial banks to
provide finance to the SMEs.
These initiatives failed mainly because of political instability, lack of fiscal discipline,
inconsistent macroeconomic policies, by the government who established them. Despite the
failures of most of the initiatives mentioned above, the need to put in place a policy framework
that will help promote the development of a robust SME sector remains ever-present. These
issues necessitated the formulation of new policies and attitudes towards the growth and
development of SMEs in Nigeria. The schemes include:

Prospect of Funding For Small Scale Enterprises in Nigeria

According to Okereocha (2014), the future of small and medium scale enterprises sector
looks promising. Of late, local and foreign financial institutions, government agencies state
governments and well meaning individuals have been focusing attention on the sector. The
World Bank has in a bid to help close the funding gap for small and medium scale enterprises,
approved $500m (N21.7b) lifeline for the sector in Nigeria. This is coming on the heels of
similar intervention by the central bank of Nigeria, which has launched N220b small and
medium scale enterprises (SMEs) fund. If these enterprises could take advantage of these efforts
and also key into several capacity building programmes of some states, then, the sector will no
doubt fulfill its role of creating jobs and ensuring inclusive economic growth and development.
While the Central Bank of Nigeria and the World Bank are showing the way in the area of access
to finance, some state governments and public agencies have concluded partnership arrangement
that promises to put the sector on the path of sustainable growth. Already, the Small and Medium
Enterprises Development Agency of Nigeria (SMEDAN) in conjunction with United Nations
Development Programme (UNDP) have conclude plan to train women entrepreneurs with the
hope of leveraging the CBN N220b SMEs fund. Bank of Industry and some state governments
have also stepped up the tempo of their support programmes for small scale enterprises. For
instance, the bank in partnership with Kaduna state government recently signed an MOU to
provide N1b matching fund for small scale enterprises in the state. This has further fuelled the
hope of a revitalized small and medium scale sector capable of generating employment and
creating wealth thereby reducing the high rate of unemployment and crime in the state.

Government’s Contributions towards Financing of Small and Medium Scale Enterprises in

Nigeria
Over the years, the federal government has discovered SMEs as the cradle for
industrialization and a prerequisite for rapid economic growth and self reliance. As a result, the
government enunciated a number of policies and programmes/incentive that would create a
conducive environment for the development and promotion SMEs.
The government for instance, enunciated a number of financial policies through national
development plans and budgets as well as through its agencies to fund and provide necessary
extension service to SMEs. The purpose of the government financial policy thrust is to ensure
adequate financing of SMEs through loans or equity participation and to provide fiscal incentives
designed to aid their growth and rapid development. Among these policies/programmes is the

6
small industries credit committee (SCC) set up to administer to the country between 1975 and
1980, the establishment of the Nigerian bank for commerce and industry (NBCI) in 1973 to
provide financial services to small scale businesses, the establishment of national directorate of
employment (NDE) in 1986 to promote the development of small scale enterprises. Other
agencies which includes the Directorate of Food, Road, and Rural Infrastructure (DFRRI), Better
Life for Rural Dwellers, Peoples Banks, Community Banks, New Micro Finance Banks (MFB),
Working for Yourself Programme, the Centre for Management Development was established to
enhance the growth and development of SMEs.
However, the performance of the small scale industries credit scheme (SCC) was
unfortunately rather poor in the sense that many unviable projects were funded (Ikherehon,
2002). Nevertheless, the Nigerian bank for commerce and industry (NBCI) loans and equity
investment in small business continued to be of immense help in the development of SMEs in the
country (Anyanwu, 2001). The activities of the national directorate of employment resulted to
the creation of over 148,000 new jobs which were directly created through the founding and
setting up of small scale enterprises (Philips, 2001). In addition, the National economy recovery
fund (VERFUND) was established to promote SMEs by providing medium to long term loans (5
10years) to those in Agro-Allied industries, industrial support services mining, quarrying,
equipment leasing and other ancillary projects. The federal government provided N190 million
while CBN contributed N100 million. African development bank contributed the remaining
counterpart fund (Izedomi, 2011). In addition, the formation of small and medium scale
industries apex unit within the Central Bank to assist in the disbursement of World Bank $270
million loan to small scale entrepreneurs and the latest official concern by the federal
governments towards encouraging the creation of small scale industries has been encouraging.
Therefore, attempt to console the effects of poverty and unemployment in the country, further led
to the establishment of Poverty Alleviation Program (PAP), Youth Empowerment Scheme
(YES), National Economic Empowerment and Development Strategy (NEEDS) at federal level,
State Economic Empowerment and Development Strategy (SEEDS) at state level and Local
Economic Empowerment and Development Strategy (LEEDS) at local government level.

Empirical Review
Mba and Emeti (2014) examined Issues, Challenges and Prospects of Small and Medium
Scale Enterprises (SMEs) in Port-Harcourt City, Nigeria. The study was informed by the high
rate of unemployment in the society and the poor performance of SMEs in employment
generation. Specifically the study investigated the extent to which poor financing, inadequate
social infrastructures, lack of managerial skills and multiple taxation constitute major challenges
in the performance of SMEs between October 2012 and November 2013, it assumes that
government intervention through the provision of financial assistance, social infrastructures and
favourable taxation policies will reverse the trend. The paper adopted a descriptive research
design using 120 randomly selected registered operators of SMEs in Port-Harcourt City. Data
collected were analyzed using descriptive statistics while formulated hypotheses were tested
using z-test. Results from the data analysis indicated that poor financing, inadequate social
infrastructures, lack of managerial skills and multiple taxation were major challenges confronting
SMEs in Port-Harcourt City. In order to ameliorate the situation, the study recommends the
following: provision of soft loans to SMEs operators, government guaranteeing of long-term
loans to SMEs operators, establishment of SMEs funding agency, public/private sector

7
partnership in infrastructural provision, capacity building for SMEs operators and provision of
tax incentives for SMEs operators.
Gulani and Usman, (2012), evaluated the challenges Small and Medium Scale
Enterprises (SMEs) face in financing new or existing businesses in Gombe State. Adopting
purposive and simple random sampling techniques, information were elicited from a sample of
Sixty five (65) respondents which was analyzed using chi-square method. The result of the
analysis revealed that: There is no significant difference in the difficulties SMEs face when
accessing finance from various sources, there is a significant difference in the level of awareness
of MFIs by SMEs. The research however, recommends that government policy of initiating
various intervention funds for entrepreneurial development should be encouraged; SMEs in the
state should be sensitized on the activities of Micro Finance Institutions (MFIs).
Akingunola (2011) assesses specific financing options available to SMEs in Nigeria and
contribution with economic growth via investment level. The Spearman’s Rho correlation test
was employed to determine the relationship between SMEs financing and investment level. The
analysis reported a significant Rho value of 0.643 at 10%. This indicated that there is significant
positive relationship between SMEs financing and economic growth in Nigeria via investmen

3. Methodology

Research Design
The research design used for this study is the survey research design. It was used because
its usage ensures the non-manipulation of the variables of study. It is basically descriptive and
consists of a set of gathered data or information analyzed, summarized and interpreted along
certain lines of thought for the pursuit of the specific objectives of the research work.

Area of Study
The study will carried out in Ekpoma Area, Edo State. The area was purposively selected
because of its potentials in terms of SMEs development. The area is home to Ambrose Alli
University and Irrua Specialist Teaching Hospital. The present of these institutions has attracted
the establishment of Numerous SMEs in the Area.

Population of the Study and Sample Size

The population of the study is made up of all the small scale business owners scattered all
over Ekpoma Area, Edo state. The researchers randomly selected twenty (20) Small business
owners from the four (4) clusters in Ekpoma Area. Thus, making a total of sixty (80) Small
business owners which would form the sample size of the study.

Sources of Data
The main method of data collection for this work is the primary source. The method of
structured questionnaire was used to obtained relevant information and other details relating to
financing small scale business from the selected SMEs in Ekpoma.
Secondary source of data will also be used for this study. Secondary data compliment the
primary data; secondary data includes textbook, circular seminar papers, and journals, manuals,
and past projects of students in the department. The advantage of secondary data include the fact
that they cover a greater scope and range, also are quicker to obtain they originality clarity and
may be exactly in form needed.

8
Instrument of data collection
The major data collection instrument will be the questionnaire. A structured rating scale
was prepared by the researcher for the study. The scale comprised of twenty items which were
grouped into three sections bordering on subjects’ bio-data, and the issues relating to financing
small scale business. The instrument was fashion along the likert rating scale. Strongly agreed
(SA), Agreed (A), Undecided (UD), Disagreed (D) and Strongly Disagreed (SD).

Validity of the instrument

The instrument will be validated using content validity by my Supervisor and two Senior
Lecturers in the Department of Accounting, Ambrose Alli University. The suggestions made
enriched the content of the instrument.
Reliability of the instrument
The reliability of the instrument will be established using the test-retest method. The
instrument will administered to some staff of the small business owners After an interval of two
weeks, the same exercise will be repeated with the same items and respondents. The scores from
the first and second administrations would be computed, using Pearson Product Moment
Correlation Coefficient (r).

Method of Data Presentation and Analysis

Data collected will be presented in frequency table, and analyzed using percentages. The
analysis is carried out through the conversion of the raw scores into percentages for easy
interpretation.
The percentage of response is calculated as
α 100
×
β 1
Where:
α = Each Score
β = Total Score
The hypotheses would be tested, using inferential statistical analysis - the simple
regression analysis. The formula for regression analysis is stated below:
The regression equation is Y = a + bX
Where:
Y= dependent variable
X= Independent variable
a and b are constants of the regression line.
The simple regression analysis was aided by Statistical Packages for Social Sciences
(SPSS). The test was carried out at 5% level of significance.

4. Presentation and Analysis of Data

The raw data were analyzed critically to derive useful information for making inferences
or decision. The researcher distributed sixty (60) questionnaires to UDA Microfinance Bank and
SMEs owners in Ekpoma Area of Edo State. The responses received from the respondents
through the questionnaire were presented and analyzed as follows

9
SECTION A: Presentation of Personal Data
Table 1 Respondents Background Details

VARIABLES OPTIONS RESPONSES PERCENTAGE

Sex Male 41 68%
Female 19 32%
Total 60 100%

Age 25-30 years 26 43%

30-35 years 27 45%
35- above 7 12%
Total 60 100%

Single 32 53%
Marital Status Married 24 40%
Divorced 4 7%
Total 60 100%
SSCE/GCE 36 60%
OND/NCE 11 18%
Education qualification B.Sc/BA/HND 10 17%
MSC/Ph.D 3 5%
Total 60 100%
5yrs 26 43%
5-10 yrs 23 38%
Number of years in Business 10-15yrs 8 13%
16-above 3 5%
Total 60 100%
Source: Researcher’s Fieldwork, 2022
The above table shows the background details of respondents. The result shows that 68%
of respondents are male while 32% are females. On the age of respondents 43% are between 25-
30years, 45% are between 30-35years while 12% are 35years above. On marital status of
respondents, 53% are single, 40% are married while 7% are divorced. On Education qualification
of respondents, 60% has SSCE/GCE 18% has OND/NCE, 17% has B.Sc/BA/HND, while 5%
has MSC/Ph.D. On Number of years in Business, 43% has between 0-5years experience, 38%
has 5-10years experience, 13% has 10-15years experience while 5% has 16years and above
experience.
The data collected from the research questions were presented in frequency tables and
analyzed using percentages. The percentages are in bracket.
Table .2: Distribution according to the reasons for going into SMEs from the respondents

S/ REASONS SA A UD D SD Total
N

10
 1. To generate 35(58%) 20(33%) 2(3%) 3(5%) 0(0%) 60(100%)
income and jobs
for your
community

2. You enjoy 13(27%) 27(45%) 7(%) 10(17%) 3(5%) 60(100%)

working for
yourself and
leading other
people

3. You have an 31(52%) 23(38%) 2(3%) 4(7%) 0(0%) 60(100%)

idea for a
business

4. You want to 15(25%) 38(63%) 3(5%) 3(5%) 1(2%) 60(100%)

have control
over your own
work
environment

5. To achieve your 28(47%) 25(42%) 2(3%) 3(5%) 2(3%) 60(100%)

full potential.
You cannot do
while working
for someone
else.

Source: Researcher’s Fieldwork, 2022

Table 4.2 revealed the reasons for going into business by the respondents. Majority of
respondents agreed that they go into business to make an income; gain control over their career;
want to have control over your own work environment; To generate an income and jobs for your
community; To achieve your full potential you cannot do while working for someone else.
However there were few responses that disagreed but not significant
Table 3: Distribution according to the Prospects of SMEs

S/ ROLES SA A UD D SD Total
N
1. Generation of 18(30%) 22(37%) 10(17%) 7(12%) 3(5%) 60(100%)
employment

2. Contribution to 14(23%) 28(47%) 9(15%) 7(12%) 2(3%) 60(100%)

industrial
dynamics

11
 3. Bring about 23(38%) 19(32%) 8(13%) 7(12%) 3(5%) 60(100%)
substantial local
capital
formation and
achieve high
level of
productivity and
capability.

4. principal means 14(23%) 27(45%) 9(15%) 7(12%) 3(5%) 60(100%)

of achieving
equitable and
sustainable
industrial
diversification
and dispersal

5. poverty 14(23%) 33(55%) 3(5%) 6(10%) 4(7%) 60(100%)

alleviation

Source: Researcher’s Fieldwork, 2022

Table 4.3 revealed the Prospects of SMEs by the respondents. Respondents agreed that SMEs
contribute in the Generation of employment, Service provision, Improve living standards,
poverty alleviation, food security, rapid industrialization and reversing rural urban migration, and
equitable and sustainable industrial diversification and dispersal. However there were few
responses that disagreed the statements but not significant.
Table 4: Distribution According to Problems of establishing small and medium enterprise.
S/ PROBLEMS SA A UD D SD Total
N
1. Lack of short, 13(22%) 35(58%) 4(7%) 5(8%) 3(5%) 60(100%)
medium and
long term
capital,

2. Finance houses 20(33%) 34(57%) 3(5%) 3(5%) 0(0%) 60(100%)

strict conditions
access to
financial
resources and
credit facilities

3. Scarcity and 17(28%) 22(37%) 10(17%) 8(13%) 3(5%) 60(100%)

cost of
accommodation

12
 4. Lack of Basic 13(22%) 23(38%) 13(22%) 8(13%) 3(5%) 60(100%)
social
Infrastructure

5. Lack of 23(38%) 22(37%) 8(13%) 6(10%) 1(2%) 60(100%)

managerial
skills of the
risks facing
their business.

Source: Researcher’s Fieldwork, 2022

Table 4.4 revealed the problems of establishing small and medium scale enterprises.
Respondents agreed that the major problems of SMEs Establishment and growth are lack of
capital, strict conditions by finance houses in accessing credit facilities, Lack of basic social
infrastructure, lack of managerial skills. However there were few responses that disagreed with
the opinion but not significant.
Test of Hypotheses
The earlier stated hypothesis would be tested here to make decisions using Chi-Square.
Hypothesis I
HO: Poor financing does not constitute a major challenge in the performance of SMEs in
Nigeria.
Hi: Poor financing constitute a major challenge in the performance of SMEs in Nigeria.
Responses to question 1 in table 4.4 of the presented data was used to test this hypothesis
Table 5 Calculation of X2

Optio O E O-E (O-E)2 (O-E)2

n
E

SA 13 12 1 1 0.08

A 35 12 23 529 44.08

UD 4 12 -8 64 5.33

D 5 12 -7 49 4.08

SD 3 12 -9 81 6.75

Total 60 60 0 X2 60.32

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We compare this calculated value of X2 = 60.32 with the table value for a degree of freedom, at
0.05 level of significance. Degree of freedom K -1 = 5-1 = 4
Thus X2 0.05, 4 = 9.488
Decision: Since the calculated value of X2 is greater than table value of X2 the HO is rejected, and
Hi is accepted. Thus this shows that Poor financing constitute a major challenge in the
performance of SMEs in Nigeria
Hypothesis II
HO: Inadequate social infrastructures do not constitute a major challenge in the performance
of SMEs in Nigeria
Hi: Inadequate social infrastructures constitute a major challenge in the performance of
SMEs in Nigeria
Responses to question 4 in table 4.4 of the presented data was used to test this hypothesis
Table 6 Calculation of X2
Optio O E O-E (O-E)2 (O-E)2
n
E

SA 13 12 1 1 0.08

A 23 12 11 121 10.08

UD 13 12 1 1 0.08

D 8 12 -4 16 1.33

SD 3 12 -9 81 6.75

Total 60 60 0 X2 18.32

We compare this calculated value of X2 = 18.32 with the table value for a degree of freedom, at
0.05 level of significance. Degree of freedom K -1 = 5-1 = 4
Thus X2 0.05, 4 = 9.488
Decision: Since the calculated value of X2 is greater than table value of X2 the HO is rejected, and
Hi is accepted. Thus this shows that inadequate social infrastructures constitute a major challenge
in the performance of SMEs in Nigeria.
Hypothesis III
HO: Lack of managerial skills does not constitute a major challenge in the performance of
SMEs in Nigeria.
Hi: Lack of managerial skills constitutes a major challenge in the performance of SMEs in
Nigeria.
Responses to question 2 in table 4.4 of the presented data was used to test this hypothesis

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Table 7 Calculation of X2
Optio O E O-E (O-E)2 (O-E)2
n
E

SA 20 12 8 64 5.33

A 34 12 22 484 40.33

UD 3 12 -9 81 6.75

D 3 12 -9 81 6.75

SD 0 12 -12 144 12.00

Total 60 60 0 X2 71.16

We compare this calculated value of X 2 = 71.16 with the table value for a degree of freedom, and
at 0.05 level of significance. Degree of freedom K -1 = 5-1 = 4
Thus X2 0.05, 4 = 9.488
Decision: Since the calculated value of X2 is greater than table value of X2 the HO is rejected, and
Hi is accepted. Thus this shows that Lack of managerial skills constitutes a major challenge in
the performance of SMEs in Nigeria.
.
Hypothesis IV
HO: Finance houses strict conditions have not affected the development SMEs in Nigeria.
Hi: Finance houses strict conditions have affected the development SMEs in Nigeria.
.Responses to question 3 in table 4.4 of the presented data was used to test this hypothesis
Table 4.7 Calculation of X2
Optio O E O-E (O-E)2 (O-E)2
n
E

SA 23 12 11 121 10.08

A 22 12 10 100 8.33

UD 8 12 -4 16 1.33

D 6 12 -6 36 3.00

SD 1 12 -11 121 10.08

Total 60 60 0 X2 32.82

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We compare this calculated value of X 2 = 32.82 with the table value for a degree of freedom, and
at 0.05 level of significance. Degree of freedom K -1 = 5-1 = 4
Thus X2 0.05, 4 = 9.488
Decision: Since the calculated value of X2 is greater than table value of X2 the HO is rejected, and
Hi is accepted. Thus this shows that Finance houses strict conditions have affected the
development SMEs in Nigeria.

5. Findings, Conclusion and Recommendation

Findings
The following findings were made in the course of analyzing the data.

 The major reasons for going into SMEs from the respondents include: to make more
money; earn income; to gain control over your career and to generate an income and
jobs for your community.
 There has been a phenomenal growth in the number of small and medium ventures
for past few years. This is attributed to profitability of the venture, quest for self-
employment, easy to management and high patronage.
 The problem of establishing small and medium ventures operating equipment poor
business environment, the scarcity of accommodation on the other hand, the inherent
problem in managing small and medium business ideas, lack of efficient preservation
system and poor environmental sanitation.
 The increasing demand for creates a large market for SMES and this added to
improving business environment and government commitment to promoting small
and medium business enterprises provided bright future prospects for small and
medium enterprise.
 Main Sources of financing SMEs from the respondents includes Promoters funds,
Family and Friends, and Business trade credit
 The Prospects of SMEs include: generation of employment; Service provision;
Improve living standards and poverty alleviation.
 Factors militating against SMEs in community development Lack of Basic
Infrastructure, inadequate access to financial resources and credit facilities, and
insufficient collateral.

Conclusion
SMEs have been discovered to be a key driver for a country’s economic growth
(Schmiemann, 2009) hence SMEs cannot be overlooked in the economic development of any
country. SMEs are recognized as the main source of economic growth and a major factor in
promoting private sector development and partnership, in developed and developing countries.
SMEs help to create employment and are often seen as very important for the growth and
innovation of dynamic economies. Based on the research findings it is concluded that the

16
phenomenal growth of small and medium enterprise is mainly due to the people’s quest to be self
employed and not because it is easy to establish or manage; operators face strong competition
and so each tries to satisfy his customers so as to maintain his market share; small and medium
enterprise, is a viable and profitable venture. Therefore there are bright future prospects for small
and medium enterprise in Nigeria.
Recommendation
The following recommendations are made in the belief that they will promote and
stabilize and small and medium enterprise of implemented.
1) To overcome the problem of financial constraints the government should re-introduce the
small business credit scheme so that beneficiaries can use them to run the small and
medium enterprise. Beside seeks for other sources of funds such as trends, relatives and
co-operatives societies.
2) To solve the problem of lack of managerial skills and lack of business ideas the
government, chamber of commerce and other non-governmental organization should
regularly organization should regularly organize seminars for potential and actual small
and medium enterprise operators where they should be educated on how to plan, organize
direct and control their businesses.
3) They operators should device effective marketing strategies. This includes such
promotional strategies as advertising, good management customers relations at all times.
4) The business internal and external environment should be kept decent. Decency is one
secret of survival for such ventures. The accommodation should be furnished very well
and standard ventilation provided.
5) The quality and quantity of their products should be high at all times. This will attract
more customers. Besides, operators should exploits ways of producing at low costs and
selling act relatively low price. This will make demand to be high always.
6) Government, chamber of commerce and other non-governmental organization should
regularly organize seminars for potential and actual small and medium enterprise
operators where they should be educated on how to plan, organize, direct and control
their businesses.

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