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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Industrial
and economic development is fostered not by few large scale industries
but by numerous small-scale industries which have the capacity to
provide employment and aid economic growth. Small-scale industries have
been fully recognized by governments and development experts as the
main engine of economic growth and a major factor in promoting private
sector development and partnership. The development of small-scale
industries is therefore an essential element in the growth strategy of
most economies and holds particular significance for Nigeria. Small and
medium scale enterprises (SMEs) not only contribute significantly to
improve living standards, they also bring about substantial local
capital formation and achieve high level of productivity and capacity
utilization.
From a planning stand point, SMEs are
increasingly recognized as the principal means for achieving equitable
and sustainable industrial diversification and dispersal; and in most
countries SMEs account for well over half of the total share in terms of
employment. A major gap in Nigeria’s industrial development process in
the past years has been the absence of a strong and virile small and
medium scale enterprise. The little progress recorded from the
courageous efforts of the first generation of indigenous industrialists
were almost completely wiped out by massive dislocation and traumatic
devaluation which took place under the Structural Adjustment Programme
(SAP). The policies of SAP are rooted in the neo-classical theory of
perfect competitive markets whose assumptions do not adequately inflect
constraints on SMEs in developing countries.
With the
dismantling of trade and other barriers, the world has been transformed
into a global village. Consequently, SMEs in developing countries are
struggling to survive under intense competitive environment for the
development of SMEs so that they could adequately play the role expected
of them in economic transformation such role includes; mobilization of
domestic savings for investment, appreciable contribution to gross
domestic product, increase harnessing of local raw materials, employment
generation, significant contribution to poverty reduction efforts
through sustainable livelihood and enhancement of personal income,
technological development and export diversification. This will be made
possible through a responsive industrial policy and government overall
economic development strategies that will ensure the collaboration of
all development partners and the effective coordination and utilization
of economic resources.
SMALL-SCALE ENTERPRISE DEFINED
Industry
is the collection of firms producing similar or related product. Firms
constitute industries and these firms may be regarded as enterprise.
There is no single universally accepted definition of
small-scale enterprise. Definition tends to vary from one country to
another. In the same country, definitions also vary from one time
period to another. What is small in one country may not be small in
another country. Most definitions however use size of employment, the
amount of capital investment, annual sales turn over, total assets or a
combination of both.
Different government agencies have
defined SMEs in a number of ways and these definitions by the various
government agencies are enumerated below:
i. The Federal
Ministry of Industry defines SMEs as that in which the value of total
assets including working capital but excluding cost of land does not
exceed N150,000 or where the number of paid employees does not exceed 50
people.
ii. Nigeria bank for commerce and industry (NBCI) 1985
defines small-scale enterprise as firms with assets (including working
capital but excluding cost of land) not exceeding N750,000.
iii.
Company and Allied Matters Decree (1990) defines small-scale enterprise
as one with annual turn over of not more than N1 million.
iv. Nigeria
Industrial Policy (1989) defines small scale enterprise as those with
total investment of between N100,000 and N2,000,000 excluding land but
including working capital.
In the current industrial policy of Nigeria, National Council of Industry (NCI) defines SMEs in terms of the following:
1.
Micro/cottage industry: An enterprise with a labour size of not
more than 10 workers or total cost not exceeding N1.5 million including
working capital but excluding cost of land.
2. Small-Scale
Industry: An enterprise with a labour size of between 11 to 100 workers
or total cost not exceeding N50 million including working capital but
excluding cost of land.
3. Medium Scale Industry: It is an
enterprise of a labour size of between 101 to 300 workers or total cost
above N50 million but not exceeding N200 million including working
capital but excluding cost of land.
4. Large-Scale Industry:
This is an enterprise with a labour size of 301 workers and above or
total cost exceeding N200 million including working capital but
excluding cost of land.
In view of the different definition outlined
above, it is important to note that, a firm that is regarded as a micro
industry in a technologically advanced country like USA may be regarded
as medium or large scale enterprise in a developing country like
Nigeria. This is as a result of differences in price level, technology
and economic development.
This is to say that there is no
universally acceptable definition of SMEs, hence definition in a
particular country in a particular time is determined by the level of
economic development and technological advancement.
CHARACTERISTICS OF SMALL-SCALE ENTERPRISE
The
Bolton Committee (1971) attempted to avoid the problems associated with
using a single criteria variable to define small-scale enterprises by
providing what they called “economic” definitions. According to them, a
firm is small if it has the following characteristics:
1. If it has a relatively small share of the market.
2. It is managed by its owners or part owners in a personalized way.
3. Independent in the sense that it does not form part of a large enterprise.
4. Personal commitment on the part of the owners.
CLASSIFICATION OF SMALL-SCALE ENTERPRISE
Small scale enterprise can be classified as follows:
1.
Small scale enterprise classification by industry. This
classification is based on the type of economic activities engaged in by
the small scale enterprise.
2. Classification of small-scale
enterprise by market served. Under this classification, we can identify
three types of markets viz:
a. Satellite
b. Specialist
c. Marketeers
3. Classification of small scale enterprise by ownership.
1.2 STATEMENT OF THE PROBLEM
There
are plethoras of problems facing small and medium scale enterprises but
the major one is financial constraint. This is caused by the limited
sources of funds used in financing small and medium scale enterprises.
In order to support small and medium scale enterprise, commercial banks
come up with a strategic approach in extending short term and medium
term loan to long term financing to small and medium scale enterprise
which attracted high interest rates. This measure still constitutes
more constraint to SMEs promoters. Other problem is inadequate service
facilities.
This study will be looking into the following:
i.
Activities of major financial institutions to find out their level of
commitment to small scale enterprise and determine why there is gap in
their credit delivery system to SMEs.
ii. Whether the guideline
on interest rate and credit facilities to small-scale enterprise do not
contradict with the objectives of the scheme.
1.3 OBJECTIVE OF THE STUDY
The interest of this study is to show:
1. The contribution of commercial banks in Nigeria to the development of small-scale industries.
2. The progress and difficulties encountered by these banks in carrying out these duties to small-scale industries.
3. The success and failure of small scale industries.
4. The contribution of small-scale industry to economic development.
5. The sources of long term loans to small-scale industries.
6. Provision of basic service facilities to small-scale industries.
1.4 SCOPE OF THE STUDY
The
study will limit itself to the contribution of small-scale industries
to economic development, Also the contribution of commercial banks
through the granting of loans to small-scale industries, including
government policies and incentives for small-scale industries.
1.5 IMPORTANCE / SIGNIFICANCE OF THE STUDY
The
study will provide entrepreneurs of small-scale businesses, bankers and
government officials with a clear view of the problems facing
small-scale industries and understand how to tackle these problems and
ways of bringing about development of small-scale industries. The study
will also spear out the role commercial banks have played towards the
development of small-scale industries.
1.6 LIMITATION / STUDY CONSTRAINT
Samples
will be used to represent the whole population and because some
companies do not easily give out some vital information which they
consider as confidential, hence there is bound to be some bias which
will reflect in the analysis of data.
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