CHAPTER ONE

INTORDUCTION

1.1  BACKGROUND OF THE STUDY

The small and medium scale enterprises (SMEs) have been generally acknowledged as the bedrock of the industrial development of any country. Apart from the numerous goods and services, they provide a veritable means of large scale employment as they are usually labour intensive. (Yerima et al 2007). In developing countries, Nigeria have since the 1970‟s shown increased interest in the financing and promoting small and medium scale enterprises from three main reasons. According to Owuallah, (19999:9), these reasons are:

i.            Transformation of traditional or indigenous industry

ii.          Increase in job creation.

iii.        Redistribution of wealth and income

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They also provide training grounds, for entrepreneur even as they generally rely on more on the use of local materials. Osaba, (1987:105) says that, the distribution of goods has continued to be the only viable and reliable option for development, growth and survival of any economy. The work explore the role and contribution, constraints and prospects of the small as it contributes to the growth and development of the Nigeria economy, and the government efforts, internal and external support.

(SMES) have been full recognized by government and development experts as the main engine of economic growth and major factor in promoting private sector development and partnership (Adeusiyi, 1997:95).

Ajakaiye (2003) state that the central bank of Nigeria (CBN) has initiated a project for baseline economic studies to develop in integrated information

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system for SMEs to foster better implementation of small and medium industries equity investment scheme (SMES).

Federal government has facilitate SMEs by established National Association of Small and Medium Industries (NASSI), Central for management development (CMD), Fund for Small Scales Industries (FUSSI). This is because of her concern for the survival of the SMEs.

SMEs in Nigeria can be categorized into urban and rural enterprise. The former can be sub-divided into organized and unorganized enterprise. The organized ones tends to have paid employee with a registered office whereas the unorganized category mainly made up of artisan who work in open space temporary wooden structures, or at home and employ little or in some no salaries workers (Lied Holm and Mead, 1987, World bank, 1992).

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The owner of SMEs are people of average means with specialized or no specialized skill, therefore, because of financial constraints, location of market, managerial skills, lack of information etc they are unable to meet their target objective. As a result, efficiency and productivity are low, due to hard condition which Nigerian are facing, SMEs has failed. As a result we cannot relaxed about the situation.

This research will therefore find out the difficulties of SMEs in Enugu state.

1.2  STATEMENT OF THE PROBLEM

Promoter of small and medium enterprises are people with ideas, dreams and imaginations but majority of the entrepreneurs lack the needed financial means to translate their dreams and aspirations into concrete that will earn them the desire wealth.

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In spite of the roles play by SMEs in the Nigeria economy, the sub-sector has continued to suffer from the other numerous of problems. The main of this research is therefore to articulate the challenges posed to the development of a dynamic SMEs. Sub-sector arising from some lingering constraints. Such problems include:

Inability of SMEs to understand, appreciate and utilize information for project selection opportunity.

Lack of access to finance due to delay in granting approval and or non-availability of information/material to enable bank process request immediately, lack of collateral security, high cost of production and over heads due to spiral inflation and non-availability of infrastructures. Poor location and currently due to fail bank problems we are experiencing in the recent time and inefficiency in the administration of incentives which discourage rather than promotes SMEs growth.

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Social and environmental, problems due to high rate of business failure as the result of poor resources and infrastructure base a state of economy, attitudinal disposition of Nigeria towards made-in-Nigeria goods, low educational background and lack of management and entrepreneur skill. It is against this backdrop that the researcher intends to search out solutions to the above problems of SMEs.

1.3  OBJECTIVES OF THE STUDY:

This study has earlier identified some of the problems facing the Small and Medium Scale Enterprises in Enugu state. It is in the light of these problems that the following objectives would be set to help the study to achieve its major aim of financing and promoting small and medium scale enterprises in Enugu state. There are as follows:-

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1.          To identify the major problems militating against effective management of SMEs in Enugu state.

2.          To identify the problems encountered by the small and medium scale enterprises in obtaining loans from the banks.

3.          To find out whether SMEs have helped to solve the problem of unemployment.

4.          To establish the relationship that exists between the performance of SMEs and economic development in Nigeria.

5.          To establish the relationship that exists between commercial banks loan and the performance of SMEs in Enugu state.

6.          To identify the problems encountered by the banks in the process of administering loans to SMEs.

7.          To investigate the real effect of financing and promoting SMEs, on their performance.

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8.          To evaluate various measures introduced to boast industries production and its‟ financing and how this affected the realization of the set goals.

9.          To offer suggestions and recommendation that could help for this success and advancement of small and medium scale enterprises in Enugu state.

1.4  RESEARCH QUESTIONS

It is clear that SMEs living within Enugu state encountered various problems in their bid to make profit or to succeed as thriving business owners despite their numerous contributions towards socio-economic development of the state.

In order to realize the main aim of this study therefore answers to the following questions were sought:

Ø Is lack of adequate capital a restraint to small and medium enterprises?

Ø What are the various problem militating against effective management of SMEs in

Enugu state.

Ø What are the various problems encountered by SMEs in an effort to obtaining loan from

commercial banks.

Ø What are the problems encountered by banks in the process of administering loan to

SMEs.

Ø To what extent does the government encourage SMEs?

1.5  RESEARCH HYPOTHESES

The researcher for this study has chosen this hypothesis:

H0: Small and Medium scale enterprises are not veritable tool for economic growth and development and has no impact on the economy.

Hi: Small and medium scale enterprises are veritable tool for economic growth and development and has an impact on the economic.

1.6  SIGNIFICANCE OF THE STUDY

This researcher would be invaluable benefit to both the financial institution and small and medium sale industries in Nigeria, as well as the counties policy makers who have desire to place Nigerian on a sound economic and industrial footing. When this research is concluded, it would have contributed to the study of knowledge already pilling on the issue of constraints on growth of SMEs, which cannot over look an aspiring nation like Nigeria.

Finally, since it is the aspiration of our national policy on education to train our youths to be self reliant or self employed after school, this study will therefore stimulates their zeal to involve in the establishment of SMEs.

1.7  SCOPE OF THE STUDY

This scope of this study in terms of its contents is restricted to the concept of constraints on growth, financing and promoting SMEs in terms of achieving its organizational goal and objective. The study is limited to five selected small and medium scale enterprises in Enugu state. The researcher restricted the study to

Enugu state because of limited finance and time, constraint and therefore, service as a sample representative of the entire state and indeed Nigeria as a whole. The convenience of data collection is another

reason behind the researcher‟s choice of the study.

1.8  DEFINITIONS OF TERMS

This section defines related concept used in this research.