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FINANCIAL PROBLEMS AND SURVIVAL STRATEGIES OF SMALL SCALE ENTERPRISES
ABSTRACT
The study was carried out to examine the financial Problems
and Survival Strategies of Small Scale enterprise in Aguata Local Government Area of Anambra State. The
purpose of the study is to find out the financial problems and survival
strategies of small and medium scale enterprises. Four research questions and
four null hypotheses were raised. The sample size was 140. Questionnaire was
used to collect the data. Frequency tables, percentages, and z-test were used
to analyse the four hypotheses. The result revealed that small and medium scale
industry face a lot of financial problems and these problems is mainly as a
result difficulty in raising capital. These problems have hampered its
survival. In view of these findings the researcher made some recommendations to
these problems.
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Since Nigeria attained independence in
1960, considerable efforts have been directed towards the nation’s industrial development.
The initial efforts were government-led through the vehicle of large industry,
but lately emphasis has shifted to Small Scale Industries (SSIs) following
the success of SSIs in the economic growth of Asian countries (Ojo, 2003).
Thus, the recent industrial development drive in Nigeria has focused on
sustainable development through small business development. Prior to this time, particularly
judging from the objective of the past National 4-Year Development Plans,
1962-68 and 1981-85, emphasis had been on government-led industrialization,
hinged on import-substitution.
Since 1986, government had played down
its role as the major driving force of the economy by a
process of commercialization and privatization (Beyene, 1999). Emphasis, therefore,
shifted from large-scale industries mainly to small scale industries, which
have the potentials for developing domestic linkages for rapid and sustainable
industrial development. Attention was focused on the organized private sector
to spearhead subsequent industrialization programmes. Incentives given to
encourage increased participation in these sectors were directed at solving
and/or alleviating the problems encountered by industrialists in the country,
thereby giving them greater leeway towards increasing their contribution to the
national economy.
Interest in the role of Small Scale
enterprises in the development process continues to be in the forefront of
policy debates in developing countries. The advantages claimed for Small Scale
enterprises (SSEs) are various, including: the encouragement of
entrepreneurship, the greater likelihood that SSEs will utilise labour
intensive technologies and thus have an immediate impact on employment
generation (Ayozie&Latinwo, 2010); they can usually be established rapidly
and put into operation to produce quick returns; SSIs development can encourage
the process of both inter- and intra-regional decentralization (Ogujiuba et
al., 2004); and, may become a countervailing force against the economic power
of larger enterprises (Salami, 2003). More generally the development of SSIs is
seen as accelerating the achievement of wider economic and socio-economic
objectives, including poverty alleviation (Safiriyu and Njogo, 2012; Ayozie and
Latinwo, 2010; Udechukwu, 2003).
The role of finance has been viewed
as a critical element for the development of Small Scale enterprise Previous
studies have highlighted the limited access to financial resources available to
smaller enterprises compared to larger organisations and the consequences for
their growth and development (Hossain, 1998; Wattanapruttipaisan, 2003; Berger
and Udell, 2004; Ogujiuba et al., 2004; etc). According to Valverde et al
(2005) bank credit play a crucial role in providing external financing to Small
Scale Industry (SSIs). But in Nigerian context, this crucial source of finance
for Small Scale Industry is apparently non-functional (Kadiri, 2012). This is
evident in the ratio of loans to Small Scale Industry to Commercial banks’
total credit, which shows that a meager 0.16% of commercial banks’ total credit
was granted to Small Scale Enterprises in the last quarter of 2011 (CBN, 2011).
More worrisome is the fact that this ratio has been falling over the years and
continued unabated in the post-consolidation era (Iorpev, 2012).
Typically, smaller enterprises face
higher transactions costs than larger enterprises in obtaining credit
(Olorunshola, 2003). Poor management and accounting practices have hampered the
ability of smaller enterprises to raise finance. Information asymmetries
associated with lending to small-scale borrowers have restricted the flow of
finance to smaller enterprises. In spite of these claims however, some studies
show a large number of small enterprises fail because of non-financial reasons.
The panacea for solving problems of
economic growth in developing countries often reside in the development of
small scale industries. The establishment of those industries has been the
centrepiece of industrial development of many countries such as India,
Malaysia, Pakistan and Indonesia, to mention a few. It is expected that the
gains to be derived from the establishment of small-scale industries will be
translated into the generation of employment at a low investment cost. These
industries will also be able to harness raw materials locally and serve as raw
inputs to the large-scale industries. Therefore, this study seeks to
investigate the financial problems and survival strategies of small scale
industries.
1.2 Statement of The Problem
The key problem facing most small scale
enterprises is lack of finance whether for the establishment of new industries
or to carry out expansion plans. The inability to attract financial credit or
resources has hindered or stifled the growth of small scale enterprise. The
reasons for the lack of fund include the followings:
·
High rate of inflation that led to the vast depreciation of
Naira exchange rate, thus making it difficult for most Small Scale enterprise to obtain required inputs for
expansion.
·
Low level of savings in the economy, which leads to low
capital formation.
·
High rate of interest charged on loans, which scares off
potential Small Scale enterprise.
·
The unwillingness of retail banks to grant credit to Small
Scale enterprise because of the low
creditworthiness of these enterprises has also hampered their growth over the
years.
Bothered by the persistent decline in the
performance of the industrial sector and with the realization of the fact that
the small and medium scale enterprises
hold the key to the revival of the manufacturing sector and the economy,
the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in
2000 to agree that each bank should set aside 10 percent of its annual pre-tax
profit for equity investment in small and medium scale enterprises. To ensure
the effectiveness of the programme, banks were expected to identify, guide and
nurture enterprises to be financed by the scheme. The activities targeted under
the scheme included agro-allied, information technology, telecommunications,
manufacturing, educational establishments, services, tourism and leisure, solid
minerals and construction. The scheme was formally launched in August 2001. As
at end-December 2009, the cumulative sum set aside by banks was N42.2 billion.
The sum of N28.2 billion or 67.1 per cent of the sum set aside had been
invested (CBN, 2009). But the fact still remains that with these provisions made
are in most cases not accessible to the Small Scale Industries.
The main thrust of this study is to evaluate the financial problems and
survival strategies of Small Scale enterprise in Aguata Local Government Area
of Anambra State.
1.3
Purpose of the Study/Objective Of The Study
The purpose of this study is the
financial problems and survival strategies of small scale enterprises and
specifically, the study seeks to
i.
To ascertain if the financing options available to the SSE
are practically obtainable to support the capital required for their operation.
ii.
To examine the extent to which Small Scale enterprise
contribute to economic development.
iii.
To identify the problems they encounter in sourcing out
funds.
iv.
Identify survival strategies needed by Small scale
industries.
1.4
Research Questions
This
study was guided by the following research questions:
1. What are the various
sources of funds available to the small
enterprise ?
2. To what extent do small
scale enterprise contribute to towards economic development of a nation?
3. What are the problems
encountered by the small scale enterprise in sourcing for funds?
4. What are the survival
strategies to be adopted by the small scale enterprise?
1.5
Statement Of The Research Hypothesis
The following null hypothesis was
given for this study
i.Ho:There is no significant relationship between the source of fund
available to small scale enterprises and the funds available to them.
Hi: There no is significant relationship between the source of fund available
to small scale enterprises and the funds available to them.
ii.Ho: There is no significant relationship between the development of
small and medium scale industries and the economic development of that nation.
Hi: There is significant relationship
between the development of small and medium scale industries and the economic
development of that nation.
iii.Ho:There
is no significant relationship between the problems encountered by the small
scale enterprises in their source of funds.
Hi
:There is significant relationship between the problems encountered by the
small scale enterprises in their source of funds
iv.Ho:There
is no significant relationship between the survival strategies adopted by the
small and medium scale industries and the survival of small and medium scale
enterprise.
Hi.
There is no significant relationship between the survival strategies adopted by
the small and medium scale industries and the survival of small and medium
scale enterprise.
1.6
Scope Of The Study
This research covers the area of financing and survival
strategies of small-scale enterprises in Nigeria, paying special attention to
Aguata Local government Area of Anambra State.
1.7
Significance of the Study
Small-Scale Enterprises in Africa rely largely on own savings, not only
to grow but also to innovate, firms often need real services support and formal
finance assistance. This study will be of benefit to the operators of the Small
and Medium Enterprise, the government, and the general public on the possible
financing options and survival strategies available to the Small and Medium
Scale enterprise and give the possible means of accessing them
1.8 Limitation of the Study.
Some factors may limit the level of accuracy and reliability of this study. Such factors include.
i. Difficulty in obtaining data.
ii. Low response rate from involved parties.
In the absence of the above mentioned limitations, all other errors and omissions are entirely those of the researcher
Some factors may limit the level of accuracy and reliability of this study. Such factors include.
i. Difficulty in obtaining data.
ii. Low response rate from involved parties.
In the absence of the above mentioned limitations, all other errors and omissions are entirely those of the researcher
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