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Chapter one


1.1 Background of the Study

Interest in the role of small and medium-sized firms (SMEs) in development remains at the forefront of policy debates in developing nations. The benefits claimed for SMEs vary, including the encouragement of entrepreneurship;

the increased likelihood that SMEs will use labor-intensive technologies, resulting in an immediate impact on job creation; and the ability to be established quickly and put into operation to produce quick returns.

SME development can promote both inter- and intra-regional decentralisation, and it is possible that they will become a countervailing force to larger firms’ economic dominance.

More broadly, the development of SMEs is viewed as hastening the fulfilment of larger economic and socioeconomic goals, such as poverty alleviation.

According to Staley and Morse (2001), a ‘developmental approach’ to SME promotion aims to create “economically viable enterprises that can stand on their own feet without perpetual subsidy and can make a positive contribution to the growth of real income and thus to better living levels.”

This method highlights the value of efficiency in new SMEs. Small producers must be encouraged to embrace new methods and expand into new lines of production, and in the long run, when possible, they should be encouraged to become medium- or even large-scale producers.

More recently, worries about the growth and efficiency of small businesses have gained prominence. Piore and Sabel (2009) use the example of Northern Italy to suggest that small businesses are more efficient because they have embraced a flexible specialisation strategy.

Similarly, there is considerable interest in whether this paradigm has been or can be repeated in poor countries (Schmitz, 1998; Pederson, 2002; Schmitz and Musyck, 2003; Schmitz, 2008).

The is regarded as a vital component for the growth of small and medium-sized businesses. Previous research has emphasised smaller firms’ limited access to financial resources when compared to larger organisations, as well as the ramifications for their growth and development (Levy, 2003).

Smaller businesses typically incur higher transaction expenses when getting financing than larger businesses. Insufficient funding has been a major issue for SMEs (Peel and Wilson, 2006). Poor management and accounting practices have limited small businesses’ ability to raise capital.

Information asymmetries linked with financing to small-scale borrowers have hampered the flow of capital to smaller businesses. Despite these claims, several studies demonstrate that a significant number of small businesses fail for non-financial reasons (Liedholm, McPherson, and Chuta, 2004).

The creation of small-scale industries is frequently the solution to economic growth challenges in developing countries. The construction of these sectors has been the cornerstone of industrial development in many nations, including India, Malaysia, Pakistan, Indonesia, and Nigeria, to name a few.

It is envisaged that the benefits of establishing small-scale industries will result in the creation of jobs at a cheap investment cost. These industries will also be able to source raw materials locally and supply them to larger-scale industries.

1.2 Statement of Research Problem

Any economy’s production growth is dependent on capital accumulation, which requires investment as well as an equal quantity of saving. Two of the most critical concerns in developing countries are how to promote investment and increase savings to fund investment.

The principal topic of this research effort stems from the fact that small-scale business owners lack sufficient financing to continue operations due to the poor saving culture of the people in this region of the world.

Furthermore, the Central Bank mandated that 20% of banks’ credit be issued as loans to Small Scale Enterprises, but this was not followed because the majority of loans granted to Small Scale holders were not repaid

and so the banks did not consider them creditworthy. In light of these, this study will assess the financial incentives offered to small-scale firms.


The primary goal of this study is to identify and then analyse the financial incentives offered to small and medium-sized businesses. Other objectives include:

I. Contribution to the expansion of the Nigerian company.

II. The financial market’s role in financing small and medium-sized firms in Nigeria.

III. Economic Potential of Small and Medium Enterprises in Nigeria

IV. Strategies to enhance the development, growth, and survival of small-scale businesses

1.4 Statement of Research Questions.

1. Do SMEs identify financial incentives?

2. Do financial institutes improve SMEs activities?

3.Is there any economic potential for SMEs in Nigerian enterprise?

4.Can the tactics implemented promote the growth and survival of SMEs?

5.What role does the financial market play in improving SMEs in Nigeria?

1.5 Statement of Research Hypothesis

Hello: There is no association between Small and Medium Enterprises and Economic Growth in Nigeria.

Ho: There is a considerable association between Small and Medium Enterprises and Economic Growth in Nigeria.

Hello: The function played by the financial market does not boost SMEs’ activities in Nigeria.

Ho: The importance of financial markets in improving SMEs’ activity in Nigeria.

1.6 Significance of the Study

The significance of this study can be seen in terms of the overall importance of the industrial sector to the economy, which can then be examined in terms of government policies designed to promote industrial development and lay a solid foundation for long-term growth in the industrial sector.

Above all, it is considered that small and medium-sized firms would drive the idea of economic independence long after political independence, thus small and medium-sized enterprises must be evaluated and promoted.

This research will add to the existing literature on SMEs by offering a complete examination of the funding solutions accessible to small and medium-sized businesses in Nigeria with the goal of enhancing their operations and effectiveness.

1.7 Scope and Limitations of the Study

The investigation will be limited to the SSEs as described. Furthermore, the study would limit the number of SSEs to be studied to 50.

1.8 Plan of Study

The study will be organised into five major chapters. The first chapter will provide a broad introduction to the study, including an introduction, a statement of difficulties, study objectives, and a study statement.

The second chapter focuses on the literature review, which includes a general summary of viewpoints from former researchers and scholars on the study’s primary variables.

The third chapter will explore the study’s structural makeup and the sources of capital for small-scale firms. Chapter four will focus on data presentation and analysis. The final but not least important chapter will contain a summary, conclusion, and suggestions.

1.9 Definition of Term

Small-Scale Industry: An industry that employs 11-100 people or has a total cost of no more than N50 million, including working capital but excluding land costs.

Medium Scale Industry: An industry that employs 101-300 people and has a total cost of more than N50 million but less than N200 million, including working capital but excluding land costs.

Large Scale: An industry that employs more than 300 people or has a total cost of more than N200 million, including working capital but excluding land costs.

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