ABSTRACT
In view of the important of SMEs, government has been playing an appreciation role in promoting their survival and growth, various policies towards this has enunciated plan and the ongoing three year rolling plan, priority was accorded industrialization with emphasis on SMEs.
Thus, it has been stated that the panacea for solving the problem of stunted economic growth of developing countries often reside in the adequate funding and development of the small and Medium Scale enterprise (SMEs). Indeed the establishment of that industrial and economic development of such India, Malaysia, Pakistan and Indonesia to name just a few.
Analyst have therefore continued to posit that Nigeria will continue to remain in a state of underdevelopment unless concerted efforts are made to achieve growth in the SMEs because the lack of development in this sector has continued to keep the Nigerian economy in the woods. One of the major impediments to the growth and development of this sub-sector is lack of adequate finding.
The promotion of small and medium enterprises is cornerstone of economic policy for a large number of industrialization countries. Public support for small and medium enterprises appears to be based on the widely held perception that small business sector is an incubator of economic growth, a place where innovation takes place and new ideas become economically viable business enterprises (Craig, Jackson and Thompson, 2005).
In line with this, the role of small and medium scale enterprises in fosters economic development has been well articulate in different form of government policies. The specific attention on them is based on their expected impact and potential contribution as well as accelerative effort in achieving macro objectives pertaining to full employment of local technology. They also serve as catalyst for increase national productivity and a veritable launching pad into the world export market.
Giving an insight into the small and medium scale enterprises phenomenon, the Nigerian economy does not seem to have been able to reap the advantages obtainable from the SMEs in the past. In the same vein, these industries complain about neglect or lack of government interest in their quest for rapid growth and development. The existing lukewarm relationship is not in the best interest of the economy.
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It is for these reasons that the Nigerian government started to show interest in the affairs of SMEs in the 1970s to the present. Some of the positive actions taken by the government Include providing funds for some research into these industries, creating small scale industries division or departments, as well as small scale credit schemes in various states and at the federal level and giving the subject a pride of place in national development plans to the 1970s and 1980s particularly 1981 - 1985 plan.
Hence, in view of the growing public interest and governments realization of the many advantages of SMEs, the government has made some policies and distinct pronouncement with regards to the operation and promoting the sector (both economically and monetary). The monetary measures include the establishment of financial institutions to provided finance to the sector. Banks were also required to provide a specified proportion of their available credit to indigenous borrowers with particular emphasis to SMEs. In addition, various financial intermediaries were established: by monetary authorities to provide incentives to these growing industries and business with the specific purpose of aiding them financing managing business problems.
In line with the above statements, it is obvious that the study of this nature cannot be overemphasized because of the new look of the Nigerian banks and other financial institutions in providing the needed funds to small and medium scale enterprises.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
In most of the developing countries, the corporate world is usually characterized by low investment rate occasioned by inadequate of instable funds and poor economic condition. Many of such nations therefore feel the need to revitalize their economies by embarking on economics reform programs expected to boost the level of activity in the economy Olaleye, (2002).
The promotion of small and medium enterprises is cornerstone of economic policy for a large number of industrialization countries. Public support for small and medium enterprises appears to be based on the widely held perception that small business sector is an incubator of economic growth, a place where innovation takes place and new ideas become economically viable business enterprises Craig, Jackson and Thompson, (2005).
In line with this, the role of small and medium scale enterprises in fosters economic development has been well articulate in different form of government policies. The specific attention on them is based on their expected impact and potential contribution as well as accelerative effort in achieving macro objectives pertaining to full employment of local technology. They also serve as catalyst for increase national productivity and a veritable launching pad into the world export market.
Giving an insight into the small and medium scale enterprises phenomenon, the Nigerian economy does not seem to have been able to reap the advantages obtainable from the SMEs in the past. In the same vein, these industries complain about neglect or lack of government interest in their quest for rapid growth and development. The existing lukewarm relationship is not in the best interest of the economy.
It is for these reasons that the Nigerian government started to show interest in the affairs of SMEs in the 1970s to the present. Some of the positive actions taken by the government Include providing funds for some research into these industries, creating small scale industries division or departments, as well as small scale credit schemes in various states and at the federal level and giving the subject a pride of place in national development plans to the 1970s and 1980s particularly 1981-1985 plan.
Hence; in view of the growing public interest and governments realization of the many advantages of SMEs, the government has made some policies and distinct pronouncement with regards to the operation and promoting the sector (both economically and monetary). The monetary measures include the establishment of financial institutions to provided finance to the sector. Banks were also required to provide a specified proportion of their available credit to indigenous borrowers with particular emphasis to SMEs. In addition, various financial intermediaries were established by monetary authorities to provide incentives to these growing industries and business with the specific purpose of aiding them financing managing business problems.
In line with the above statements, it is obvious that the study of this nature cannot be overemphasized because of the new look of the Nigerian banks and other financial institutions in providing the needed funds to small and medium scale enterprises.
1.2 STATEMENT OF THE PROBLEM
It is a common knowledge that the small and medium scale enterprises have the potential of lifting the economy out of the doldrums in which it is presently languishing Ajonbadi, (2002). The opportunities are simply, enormous. However, the cry has been the lack of investible funds. Thus is moreso, when allegations have been raised against the Nigerian government and the Nigerian banks in particular, that business policies have been largely made to favour the large scale to the detriments of the SMEs sub-sector. Hence, SMEs does not have better access to funds.
SMEs are mostly likely to suffer severe problems of asymmetric, information because of their size and background and the lack of formal credit rating measures for firms. Many economists, 'mostly notably Slightz and Weiss (1981). Contend that private lending institutions may indeed fail to allocate loans efficiently because of fundamental information problems in the market for SMEs business loans. Slightz and Weiss (1981) argue that banks consider both the interest rate they receive on the loan and the riskness of the loan when deciding to make a loan. Thus, the inability to merge these two factors together hinders SMEs in accessing the needed funds.
Also, it has been observed that one of the reasons for the slow growth of SMEs in Nigeria is their limited access to long and medium term credit facilities for the acquisition of fixed assets and necessary expansion. The scarcity 'of funds for this purpose is mainly due to the short term nature of banks deposits which are the major sources of finance to the economy. Evidently in trying to reduce the risk inherent on the mismatch of the term of their deposits and loans, banks have been overtly cautions in selecting projects to be granted medium long term finance, while at the same time charging relatively high interest rates. Therefore, the study focuses on the problem of financing as it relate to small and medium enterprises.
1.3 OBJECTIVES OF THE STUDY
The main objective of the study is to examine the effect of financing on the performance of small and medium scale enterprises in Lagos State. Thus, in order to achieve the above objective, the following specific objectives services as our guide:
· To examine whether small and medium scale enterprises have better access to funds due to bank consolidation.
· To examine whether government policies and reform programmes have impact on SMEs performance.
· To examine whether adequate financing of SMEs by financial institution will enhance the growth of the sector.
· To examine whether the interest rate charge by banks and other financial intermediaries on loan affects SMEs performance.
· To enumerates possible recommendations and solutions that may prove useful in better financing of SMEs.
1.4 RESEARCH QUESTIONS
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