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Chapter one

1.0 Background of the Study

1.1 Introduction

Small-scale businesses are critical to the industrialization and economic growth processes in both emerging and developed countries. Aside from boosting per capita income and output, small-scale industry generates job possibilities, improves regional economic balance, and promotes efficient resource utilisation.

However, despite their importance, small-scale industries are hampered by insufficient finance and bad management. The adverse macroeconomic climate has also been cited as one of the primary restraints that often drive financial institutions to be risk-averse when funding small-scale businesses.

The unwillingness of financial institutions to support small-scale companies can be attributed to banks’ weak capital base and the lack of information that frequently exists between small-scale enterprises and lenders.

However, it is critical that the foundation of any corporate organisation and the financial resources accessible to them. In this research study, we will divert from the general aspect of small-scale businesses and discuss the challenges and opportunities for financing small-scale companies in Nigeria, where they have been recognised as a true engine of economic growth and development.

Umar (1997:15) stated in his own words that “In Nigeria, as in many other developing countries, financing and encouraging the establishment of small-scale enterprises have been crucially recognised as a viable approach for stimulating employment development, particularly in a situation of rapidly growing labour force and inadequate economic growth.

However, in order for small-scale industries to properly contribute to a country’s economic growth and development, they must be well supported or sponsored for its business operators and expansion. In Nigeria, the government has formed institutions to give financial and non-financial assistance to small-scale companies.

The federal government established several institutions to give loans to small-scale enterprises, including the National Directorate of Employment (NDE), the People’s Banks of Nigeria (PBN), the National Economic Reconstruction Fund (NERFUND), and the Nigeria Development Bank (NIBK).

Despite all of the government’s attempts to promote small-scale businesses in Nigeria, they (SSE) continue to confront challenges such as inadequate capital or funding, bad management, limited markets, and so on. It is well recognised in the business community or environment that small-scale businesses are funded (S).

It is difficult for sources to meet the collateral criteria necessary to get financial services from financial organisations (banks). Also, the expense of administering small-scale loans, as well as the risk of default, work against banks issuing or facilitating loans to small borrowers.

In general, any commercial enterprise, large or little, requires finances to run, and these funds are obtained from a variety of sources. Personal savings, loans from friends and relatives, commercial and merchant banks, and government-assisted/specialized credit schemes/funds, such as the national economic reconstruction Fund (NERFUND), the World Bank loan scheme, and so on, are all sources of funding/finance available to small-scale enterprises in Nigeria.

Small-scale firms have fewer financing options than large-scale enterprises, as is well acknowledged. Due to their (small-scale firms’) inexperience or inability to meet the requirements of financing organisations responsible for providing funds, as well as small-scale enterprises’ refusal to repay loans or funds lent to them on time.

In most situations, small businesses are unable to repay debts acquired due to poor financial management. Finance, as frequently said, is “the key factor or bedrock of business enterprise (s) and, in one way or another, becomes the key problem due to mismanagement of the available funds.”

Because of ignorance and illiteracy, several of these small-scale enterprises do not even know what methods or procedures to utilise to obtain the capital they require to operate.

The researcher conducted this study to investigate “how the available sources or means of financing small-scale industries in Nigeria have performed, as well as the problems associated with the financing of small-scale enterprises, and how the problems can be redressed or solved.”

1.2 Aims/Objectives of the Study

The purpose of this study is to investigate the influence of commercial bank funding on small-scale companies in Nigeria. While particular objectives include:

v Identify and investigate the numerous small-scale industries in Nigeria.

v Identify and analyse the barriers to financing small-scale companies in Nigeria.

v To investigate or gain access to the effectiveness and efficiency with which the small-scale industry manages its available cash.

v To provide suggestions based on the findings.


1. How important is the finance of small-scale industries to Nigeria?

2. What are the consequences of challenges impeding the financing of small-scale companies in Nigeria?

1.4 Research Hypotheses

Ho: There are no issues impeding the financing of small-scale enterprises in Nigeria’s economy.

Hi: There are issues affecting the financing of small-scale enterprises in Nigeria.

1.5 Research Methodology

In evaluating the funding needs of small businesses in Nigeria. The researcher aims to use a questionnaire, informal discussion, and information gathered through observation.

This study will employ primary data sources.

The procedure for processing data, that is, testing the hypothesis, shall be the usage of chi-square, which is defined as follows:

X2 equals (Oi-Ei)2.


Where, X2 = Chi-square.

Oi = observed frequency.

Ei = expected frequency.

1.6 Sources of Data

The researcher wants to use primary data in the course of conducting this research. The questionnaire will simply be created such that the responders will quickly grasp the questions. Oral interviews and informal discussions will also be conducted to gather additional information relevant to the research topic.

1.7 Significance of the Study

Small-scale industries, as the foundation of economic growth and development, play a critical role in accomplishing any economy’s goals for fast industrialization. This study is aimed to demonstrate how small-scale enterprises contribute to economic growth and development when properly supported and managed.

The conclusions of this research study can assist small-scale enterprises in Nigeria in finding solutions to their financial challenges and managing the funds available to them, resulting in effective and efficient performance.

1.8 Definition of Terms

Small and Medium Scale Enterprises (SMEs): These businesses are typically run by small business owners or family members, and because their products and services are basic, they lack the organisational and management systems that distinguish large-scale enterprises.

Finance is the management of money (i.e., the flow of money through an organisation and the claims on it).

Objectives: – These specify what is to be performed and when the results are to be obtained.

Resources are the inputs or elements used in the management processes.

Policy: This is a set of rules and principles that govern the corporate strategy.

A firm is an entity or body that engages in finance-related activities.

Financial Managers:- This is a key manager in charge of the organization’s day-to-day financial services and record keeping.

Trade policy is a government regulatory statement aiming at controlling trade ties between countries in order to achieve specified microeconomic objectives.

Productivity is defined as the measure of how well resources are brought together in an organisation and used to achieve a set of results. Productivity is achieving the best level of performance with the least amount of resources spent.

An employee: In this study, an employee is defined as any worker in the organisation being studied.

Motivation is a broad phrase that encompasses all desires, urges, needs, wishes, and similar factors. In other words, motivation refers to the drive and effort required to satisfy a want objective. Motivation suggests a drive towards an outcome satisfaction.

Resources: It refers to the collective methods of supplying and satisfying demands and wants in an organisation, such as man, material, machine, and money (SMS).

Administrative: It refers to the organisation and direction of people and resources in order to achieve a given goal.

Liberation refers to the importance of giving or receiving freely, as well as the trait of being open-minded and free of prejudice.

Trade is the process of purchasing and selling designated industrial areas rented to manufacturers in exchange for barter.

Policy: A written statement outlining the terms of an insurance arrangement. It can also refer to the plan of action, statement of purposes and principles, especially one proclaimed by a government, political party, or business enterprise.

Given the foregoing grounds, as well as the prospective research experiences that the researcher in this study will get, this research endeavour is appropriately justified.

Satisfaction: Refers to the contentment felt when a desire is fulfilled. From a management standpoint, this suggests that a person may have a high-level position or the opposite may be true.

Coordination is the process by which a group’s efforts are synchronised to achieve the intended goal.

Direction: is the process of ensuring that employees complete the tasks assigned to them.

Management is the process of harnessing and motivating resources to fulfil an organization’s goals.

Human: Employees or workers in an organisation.

1.9 Organisation of Study

Chapter One will cover the study’s introduction, aims, problem statement, importance, methods, and limits.

Chapter Two will include a literature evaluation of the work done on this study by other researchers.

Chapter Three: This chapter will describe the approach and process of data collection.

Chapter Four: This chapter contains the analysis and presentation of the data collected.

Chapter Five: This chapter covers the study’s conclusions and summary, as well as recommendations for policy actions.

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