The Role of Small and Medium Industries Equity Investment Scheme (SMIEIS) in financing Small-Scale Enterprises in Nigeria BACKGROUND TO THE STUDY 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 are various, including: the encouragement of entrepreneurship; the greater likelihood that Small-Scale Enterprises will utilise labour intensive technologies and thus have an immediate impact on employment generation; they can usually be established rapidly and put into operation to produce quick returns; Small-Scale Enterprises development can encourage the process of both inter- and intra-regional decentralisation; and, they may well become a countervailing force against the economic power of larger enterprises.More generally the development of Small-Scale Enterprises is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation. The role of finance has been viewed as a critical element for the development of small-scale industries. 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 (Udechukwu, 2003).
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 centerpiece 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.
STATEMENT OF 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 and medium scale enterprises 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 and medium scale entrepreneurs.The unwillingness of retail banks to grant credit to small and medium scale enterprises 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 industries 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 are expected to identify, guide and nurture enterprises to be financed by the scheme. The activities targeted under the scheme include 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 2001 World Bank survey on Nigeria showed that although 85 percent of firms had relationships with the Small and Medium Industries Equity Investment Scheme (SMIEIS), not all of them had access to credit. The main thrust of this study is to evaluate the effectiveness of the Small and Medium Industries Equity Investment Scheme (SMIEIS) as regard the extent to which it has been able to solve the financial problem of small-scale enterprises in Nigeria OBJECTIVES OF STUDY The main objective of this study is to assess the role of Small and Medium Industries Equity Investment Scheme (SMIEIS) in financing small-scale enterprises in Nigeria.
In so doing, the researcher intends giving an in-depth information and analysis on the operations and activities of Small and Medium Industries Equity Investment Scheme (SMIEIS) since inception. In view of the above, the researcher intends to find out the following: (i) To evaluate the performance of the Small and Medium Industries Equity Investment Scheme (SMIEIS) in terms of the number and amount of loans granted to Small-Scale Enterprises under the scheme; (ii) To examine the mode of operations of the scheme in terms of its lending policies, guiding principles etc. iii) To identify the major constraints hindering the operations of the scheme; (iv) To make suggestions as to how the performance of the Small and Medium Industries Equity Investment Scheme (SMIEIS) could be improved. RESEARCH QUESTIONS This research work shall be guided by the following research questions: (i) How effective has the Small and Medium Industries Equity Investment Scheme (SMIEIS) in solving the financial problem of Small-Scale Enterprises in Nigeria? (ii) What is the mode of operations adopted under the scheme? iii) What are the major constraints hindering the activities of the small and medium Industries Equity Investment Scheme (SMIEIS) in Nigeria? (iv) How can the performance of the Small and Medium Industries Equity Investment Scheme (SMIEIS) be improved in the light of encouraging small business growth? STATEMENT OF HYPOTHESIS The hypothesis to be tested in the course of the study is stated below: H0 – That Small and Medium Industries Equity Investment Scheme (SMIEIS) has not been effective in financing small-scale enterprises and business growth in Nigeria.H1 – That Small and Medium Industries Equity Investment Scheme (SMIEIS) has been effective in financing small-scale enterprises and business growth in Nigeria. RESEARCH METHODOLOGY This study shall adopt both qualitative and quantitative research design. Primary and secondary data would used in this study.
The data would be collected through a well structured questionnaire. The questionnaires would be self-administered. The researcher will have to fill the questionnaire in the case where the respondent is an illiterate.The questionnaire will be divided into two sections; the first section will gather the personal data of the respondents while the second section will be devoted to the questions that relate to the subject matter.
The secondary data to be used in this study will be collected from the CBN’s Statistical Bulletin and Statement of Accounts and Annual Reports and the reports of the Apex bank on Small and Medium Industries Equity Investment Scheme (SMIEIS). The responses to the questionnaire shall be analysed using frequency tables, charts, and simple percentage method.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, failing which under-investment in long term capabilities (training and R ; D) may result, (Oyelaran-Oyeyinka, 2003). It was in the bid to solve the problems confronting small and medium scale enterprenuers that the Small and Medium Industries Equity Investment Scheme (SMIEIS) was established.Years after its establishment, it is necessary to evaluate the performance of the scheme in the light of its purpose. This study would be beneficial to small scale operators, students, bankers, financial institutions etc who desire to know more about the activities and operations of the Small and Medium Industries Equity Investment Scheme (SMIEIS).
SCOPE OF THE STUDY This research covers the area of financing small-scale enterprises in Nigeria, paying special attention to the role of the Small and MediumIndustries Equity Investment Scheme (SMIEIS). The research intends to examine and analysis investment made in small and medium scale industries under SMIEIS since its inception in 2001 to 2009. The analysis shall focus on the amount of investment that had been made under the scheme and the number of projects that had been executed etc. PLAN OF THE STUDY In Chapter one, which is the introductory part; the background of the study, the statement of the research problem, the objectives of the study and the methodology to be adopted shall be discussed.Chapter two will deal with the literature review. The research methodology shall be examined in chapter three. Data presentation, analysis and interpretation will be covered in chapter four while the concluding part of the research work will be chapter five where in a nutshell the summary, the conclusion and the recommendations would be discussed.
REFERENCES Olorunshola, J. A. (2003) Problems and Prospects of Small and Medium-Scale Industries in Nigeria.Being A Paper at CBN Seminar on Small and Medium Industries Equity Investments. Lagos: August, No. 4, pp. 34-49 Oyelaran, O.
(2003) “Financing and Development of Small-sale industries in Nigeria”. Central Bank of Nigeria, Economic and Financial Review, Vol. 24. No. 4, December Udechukwu, F. (2003) Survey of Small And Medium Scale Industries and their potentials in Nigeria. Being A Paper at CBN Seminar on Small and Medium Industries Equity Investments.
Lagos: August, No. 4, pp. 6 -18.