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Chapter one

1.0 Introduction

The importance of small and medium-sized enterprises (SME’s) to economic development in any country, whether developing or developed, cannot be overstated; they are regarded as one of the driving forces in economic growth. They promote private ownership and entrepreneurial aptitude; any country that ignores this sector does so at its own peril.


Everyone agrees that small and medium-sized enterprises (SMEs) are the entry point into the economy’s industrialization engineering process. This is because SMEs play a crucial role in the development of the economy, providing a ready source of employment opportunities and contributing to national technical growth.

It also provides a good source of raw materials for huge industrial establishments, which subsequently evolve into large companies, so oiling the wheel of industrial development.

According to Carpenter Clive,, the 1992 review by the National Council on Industrials defines small and medium-sized enterprises (SMEs) as enterprises with a total cost (including working capital but excluding land cost) of more than 31 million but less than 3150 million, and a labour size of 11 to 100 employees.

He went on to clarify that there are possibly different definitions for SMEs, but what is obvious is that SME are often small, owner-managed, or family-run businesses offering basic goods and services.

Small and medium-sized enterprises (SMEs) confront some challenges due to a lack of an enabling environment for development and growth in order to make optimal economic contributions.

The issues range from bad management of SMEs to an information vacuum and, most importantly, insufficient finance, despite the fact that many attempts have been made to aid SMEs, such as policies, incentives, projects, and lending schemes.

To support small and medium-sized enterprises. For example, the Federal Government established Industrial Development Centres in all states of the Federation to provide free managerial and technical consulting/extension services to SMEs.

However, these centres were not used effectively by SMEs operations. In the area of finance, services of programmes to ensure the provision of soft loans were put in place through Nigeria Industrial Bank (NIDB), Nigeria Bank for Commerce and Industries (NBCI), National Economic Reconstruction Fund (NERFUND)

National Directorate of Employment (NDE), and Property Alleviation Programmes like Family Economic Advancement Programmes (FEAP), and latterly,

Despite the government’s efforts, legislation, incentives, initiatives, and lending schemes have failed to sufficiently address the basic issues that have limited SMEs’ access to formal or institutional credit.

Thus, the low credit rating of this type of firm is mostly due to its insufficient capital base, high mortality rate, and lack of managerial capabilities. Thus, for the SMEs to perform the desired job

a catalyst for rapid industrial development. There is a need for more inventive strategies to boost SMEs’ access to development finance, which would address their incapacity to offer collateral for loans from traditional credit institutions.

In light of the aforementioned, this research study is concerned with the unique challenges that SMEs encounter. In order to fund their operations and highlight the sources available to them, as well as the areas and ways in which a credit/loan plan for SMEs might progressively help to their development and expansion.

1.2 Statement of Research Problem

The issues faced by small and medium-sized enterprises include manufacturing, marketing, personnel, and even day-to-day management, all of which are tied to financial underpinnings; hence, finance is key.

However, it has been observed that the financial problems of small businesses stem from a variety of sources, including undercapitalization, based behaviour of financial institutions, management incompetence and financial indiscipline, capital market inadequacies, political and economic instability, which has resulted in policy distortions and inconsistencies, all of which have combined to disadvantage SMEs over time.

The most daunting financial challenge faced by SMEs is raising beginning money for their selected company initiatives. Despite the government’s efforts to make specific financing sources available to SME owners, it appears that they lack adequate information about them.

As a result, they rely on personal funds as well as support from family and friends. This inclination inherently limits their ability to generate income. As a result, SMEs must compete with larger companies for available finances, such as equity, term loans, supplier credit, or leasing facilities. Having to bargain on the same terms and conditions as larger organisations presents a challenge for them.

As a result, this research study is required to conduct a thorough investigation into their financial management and technological support in order to secure their development, growth, and economic contribution.

1.3 Objective of the Study

The problem statement that has hampered SMEs’ improvement (as described above). This research aims to achieve the following goals.

1. To emphasise the many financing options available to the operations of SMEs in Nigeria.

2. Review the primary issues limiting SMEs’ access to development finance.

3. Examine existing government policies, incentives, projects, and lending schemes for the benefit of SMEs.

4. To investigate the benefits of an existing loan plan made available by donations from SME project beneficiaries to the economy.


In a developing economy like Nigeria, small businesses must survive. As a result, measures must be designed to help them flourish and survive. This research study attempts to address the following questions.

1. Have government policies and activities tailored to SMEs aided in their promotion and development?

2. How knowledgeable are small and medium-sized business owners of the numerous government agencies, policies, initiatives, and incentives that are relevant to them?

3. How is the growth and development of small and medium-sized businesses in Nigeria?

1.5 Significance of the Study

Regardless of the challenges that SMEs encounter, it also promotes industrialization and national economic development. The relevance of this research work is as follows:

1. Contributing to the knowledge and understanding of the financial difficulties encountered by SMEs in Nigeria as a foundation for solution.

2. shedding greater light on the significance of SMEs as they play their expected function in facilitating industrial development finance for SMEs.

3. Establishment of necessary current financial agencies charged with aiding SMEs in Nigeria.

4. Providing a handy guidance for prospective entrepreneurs who want to own a small or medium-sized firm but require funding.

1.6 Limitations of the Study

The challenges encountered by the small and medium-sized enterprise sub-sector in Nigeria during the course of this research study are listed below.

1. Difficulty for SME operators to access funds.

2. The lack of government policy for small and medium-sized firms

3. Some of the limitations faced by SMEs include a lack of access to information about new initiatives that could benefit operators, as well as a lack of appropriate record keeping of SMEs’ activities.

1.7 Scope of the Study

The study focuses on the issues and prospects of funding small and medium-sized sub-sectors of the Nigerian economy, as well as the path forward for the survival of firms as a driver of growth in the Nigerian economy.

1.8 Definition of Term

BANK: An institution that stores cash and other valuables for security purposes as well as lends money.

Bank of Industry.

C.B.N: Central Bank of Nigeria.

ENTERPRISE: A business operation that involves numerous efforts.

GOVERNMENT: a body of people and institutions that creates and enforces laws for a certain state or society.

NACCIMA: The National Association of Chambers of Commerce, Industry, Mines, and Agriculture.

NASME: National Association of Small and Medium-Sized Enterprises.

NBCI: Nigerian Bank for Commerce and Industry.

NERFUND: The National Economic Reconstruction Fund.

NIDB: Nigerian Industrial Bank.

NCI: National Council of Industry.

POLICY: A overall plan of activity.

SCHEME: A plan for work or action.

SME: Small and Medium-sized Enterprises.

SAP: Structural Adjustment Programme.

SME OPERATOR: A person who runs a small to medium-sized business.

RRF: Refinance and Rediscounting Facility.

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