ABSTRACT
Small and Medium Enterprises (SMEs) are regarded by many as the backbone of every country’s economy. Most of the large corporations of today were developed from SMEs. Small and Medium Enterprises do not only serve as the backbone of a county’s economy but also support the larger corporations in a form of sub-contractors, suppliers of manufacturing materials or customers. SMEs in Nigeria have a lot of difficulties when accessing loan from financial institutions and financial institutions too have issues granting loan to SMEs. The major objective of this study is to find out the numerous factors that affect availability of loan and challenges faced by SMEs in accessing available loan from financial institutions. For the purpose of this study, descriptive survey design was adopted with the use of questionnaires as data collection tool. Data collected was analyzed through Person’s Moment Correlation Coefficient with the aid of statistical package for social sciences (SPSS) version 22.0. Study showed that small and medium enterprises do face a lot of challenges when accessing funds from the formal financial institutions in Nigeria. It is also revealed that financial institutions consider the SME sector as a risky industry thereby offering them credit facilities at a high interest rate as compared to the larger corporations. Finally the study recommended SMEs should ensure that the enterprise is registered and that all registrations and licenses are renewed periodically. They should incorporate good financial management practices such as preparation and usage of financial information in their operations. SMEs should participate actively in trade fairs and industry events for both showcasing their products or services and for enhancing their financial awareness.
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Small and medium-sized enterprises (SMEs) come from different industries or groups of businesses. They operate as much as possible in the service, agricultural / agro-industry, trade, and manufacturing sector. They include a wide range of firms with a variety of capabilities, such as small machine shops, handy / handcraft firms, and computer technology firms. Some of these companies are extremely innovative, creative, with a vision of future development and extension, while others seem to be satisfied with their size and are only working to maintain both revenue and size of the industry. Usually the classification as a SME is determined by the amount of staff and the value of a company's assets. The size classification differs within the country and across countries, depending on the size of the economy and its endowments Edit Lukacs (2005). Small and medium-sized enterprises (SMEs) as defined by the National Industrial Council refer only to enterprises with a total price excluding assets not exceeding two hundred million naira (N200,000,000.00). A big amount of small loans are required to serve the poor, but lenders prefer to manage big loans in tiny amounts in order to minimize administration expenses. They are also looking for clear title collateral-which many low-income households do not have (Vetrivell and Kumarmangalam, 2010) Finance in general and credit in particular are particularly important to SMEs as they can not finance themselves through retained revenue or equity financing. Despite the fact that financing is a major factor in the growth of tiny and medium-sized businesses (SMEs), a number of studies and public inquiries have shown that SMEs are facing problems with access to bank financing due to a market failure in credit markets (Pandula, 2011) In 2001, the SMEIS (Small and Medium Enterprises Equity Investment Scheme) was introduced in Nigeria. This is because Nigeria's formal financial system serves only 35% of the active residents of the country. 65% of the population is excluded and therefore served by NGOs (Micro Finance Institutions), money lenders, friends, relationships and loan unions. Following comprehensive consultation with stakeholders, the Central Bank of Nigeria established the microfinance policy in December 2005 to ensure the provision of financial services traditionally not supplied to the decreased economic segments by
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conventional financial institutions. This is distinguished by small credit size, absence of asset-based collateral and operational simplicity from other economic goods (Olalekan 2009). In the Kenyan economy, small and micro-enterprises (SMEs) play an important role. The Economic Survey (2006) claims that Bowen, Morara and Mureithi (2009) led over 50 percent of the new jobs produced in 2005.
1.2 STATEMENT OF PROBLEM
SMEs are crucial for economic growth and development in every country, including African countries. Studies indicate that SMEs contribute 60% of total official jobs in both developed economies and developing nations in the production industry Ayyagari, M.,T.,Beck and A.,Demirguc-Kunt (2007). They encourage entrepreneurship, generate and generate job opportunities, and reduce poverty (Kayanula and Quartey 2000, Mead and Liedholm 1998, Fischer 1995). However, they are not prepared to function at their optimal pace due to the challenge they face, which is the lack of adequate funding and limited access to credit facilities such as loan. Financing is an important factor in the growth of small and medium- sized enterprises, a number of studies and public inquiries have observed that small and medium-sized enterprises are facing problems with access to bank finance due to market failure in credit markets (Pandula 2011). Financial institutions must take credit risks with small and medium-sized enterprises even though credit risks are one of the primary causes of bank failure to provide credit services. This is primarily due, among other things, to credit data from the unfinished borrower. The credit reference office gathers information on how borrowers use the loan. Loan providers then use this information to decide whether or not to grant credit to borrowers. This minimizes their credit risk and gives confidence in the loan expansion of Kadiri (2012). One of the incentives suggested to boost their growth and understand their potential financial contribution is to improve the accessibility of credit services to small and medium-sized enterprises. Despite this emphasis, the impact of present institutional problems, especially the terms and conditions of the loan, on access to credit facilities has not been discussed. In addition, there is no empirical research indicating the potential role of improved credit policies in mitigating credit access problems by both official and informal credit institutions.
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While informal credit institutions in some countries have been relatively efficient in meeting small business loan demands, their limited funds restrict the extent to which they can effectively and sustainably fulfill these entrepreneurs ' loan demands. This is because as micro-enterprises grow in size, it becomes increasingly difficult to satisfy the characteristics of the loans they require for sources of casual loan, yet they remain too small for formal lenders. A important challenge for many developing economies around the globe is the limited availability and accessibility of loan facilities to SMEs. Access to credit institutions is seen as one factor that is needed to help small and medium-sized businesses survive, decrease the effects of poverty, and promote economic development. According to Ayeh (2001), while in the informal sector there are many money lenders that are readily available to offer credit to small and medium-sized enterprises, the incidence of high interest rates on loan facilities discourages people in these areas from investing these funds in better income-generating businesses. This is the fundamental framework that informed the motive behind this research.
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1.3 OBJECTIVES OF THE STUDY
The overall purpose of this research is to identify the multiple factors affecting the accessibility of loans and the difficulties that SMEs face in accessing accessible loans from financial institutions. This overall goal is broken down into the following particular goals: i. To investigate the challenges associated with accessing loan by SMEs ii. To identify and analyse processes involved in accessing loan by SMEs iii. To identify factors affecting accessibility of loan by SMEs iv. To examine the credit facilities financial institutions have for SMEs
1.4 RESEARCH QUESTIONS
i. What are the challenges associated with accessing loan by SMEs? ii. What are the processes involved in accessing loan by SMEs from financial institutions? iii. What relationship exists between accessibility of loan and survival of SMEs? iv. What are the credit facilities available for SMEs from financial institutions?
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1.5 RESEARCH HYPOTHESES
The following are the null hypotheses for this study: a. H0. There is no relationship between challenges associated and survival of SMEs. b. H0. There is no relationship between bank processes and survival of SMEs. c. H0. There is no relationship between accessibility of loan and survival of SMEs. d. H0. There is no relationship between availability of loan and survival of SMEs.
1.6 SCOPE OF THE STUDY
This research focuses on the local government area of Small and Medium Enterprises in Ikeja. It deals with the company environment stakeholders such as normal entrepreneurs and women and organizations who are unable to access credit infrastructure for their company activities and expansions as well as the financial institution around the environment.
1.7 SIGNIFICANCE OF THE STUDY
This research has consequences for policy, academics and practice. The results are expected to be of excellent importance to several organizations of individuals made up of potential scientists, the government, small and medium enterprises.
1.7.1 Government agencies
This research will help the public to highlight the provision of direct economic help to state financial institutions, including the Nigerian Agricultural Cooperative and Rural Development Bank, the Federal Mortgage Bank of Nigeria, the 1964 Nigerian Industrial Development Bank, the 1973 Nigerian Trade and Industry Bank, the 1986 Peoples Bank, the National Fund. There was usually little or no prior access to it.
1.7.2 Future researcher
This will help in acquiring secondary data for future researcher and may help in reviewing references in literature. It will also serve as a centre piece idea for other learners willing to conduct research on a similar topic.
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1.7.3 Small and medium enterprises
Through the availability and accessibility of loans, this research will provide important data on the survival of small and medium enterprises. The information obtained will
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provide small and medium enterprises with information on how easily to access loans and the procedures they need to set up in order to access loans.
1.8 LIMITATIONS OF THE STUDY
• In order to obtain a list of registered SMEs, researcher visited SMEDAN and went to the National Office of the Nigerian Association of Small and Medium Enterprises (NASME), from there researcher was asked to go to the Lagos chapter of NASME, where the researcher was later informed that information could not be given on the grounds of confidentiality and against the policy of the association. • The respondents were reluctant to provide in-depth information or may lack sincerity owing to fear. • The respondents also did not want to disclose the right information due to confidentiality. • Respondents did not have adequate time to complete the questionnaires due to the busy schedule since they were supplied during working hours.
1.9 OPERATIONAL DEFINITION OF TERMS
Different bodies, organisations and institutions, depending on their purpose, objectives and use, have varying definitions of SMEs. For this study, the following definitions have been adopted: 1.9.1 Loan: Loan is an amount of cash borrowed, often from a financial institution, and has to be repaid, usually with an additional sum of cash in the form of borrowing interest. Loan is the fund obtained from the financial institution by tiny and medium-sized businesses to help or help their survival and continuity of company. Loans to SMEs are loans to enterprises that are only extended to medium-sized enterprises. These loans are tailored to satisfy tiny and medium-sized enterprises ' requirements and needs.
1.9.2 Small and medium-sized enterprises (SMEs): SMEs are non-subsidiary, self-
employed enterprises / organizations with fewer employees. This quantity varies from one nation to another. The National Micro and Medium Enterprise Policy (MSMEs) obviously
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separate between employment-and asset-based enterprises. SMEs are organizations best distinguished by assets, scope and cost of their projects, annual turnover, financial strength and number of employees. Creswell in 2003). 1.9.3 Collateral: In perspective of the existence of a reliable threat, as stated by Aghion and Bolton (1992), collateral can be seen as a instrument that ensures great behavior on the part of borrowers. When applying for a loan that can be recovered in case of default, security is given. 1.9.4 Financing: used when acquiring inner assets by the business. It is a transaction that provides a business or a business with funds. Building or buying property is borrowing cash. It is the money used by SMEs to promote their businesses. (Joppe, 2000 year).
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1.9.5 SMEDAN: the Small and Medium Enterprises Development Agency of Nigeria
(SMEDAN) was established in 2003 to support the efficient and sustainable promotion and development of the micro, tiny and medium-sized enterprises (MSMEs) sector. The overall objective was to decrease poverty through wealth and job creation in order to encourage socio-economic transformation. For a strategic plan that will promote financial transformation in Nigeria, this requires precise and reliable information. To promote this goal, this national survey was performed by the Nigerian Small and Medium Enterprise Development Agency (SMEDAN) and the National Bureau of Statistics (NBS). The Micro, Small and Medium Enterprise is seen in both developed and developing counties as the engine of socio-economic transformation, with the overall objective of reducing poverty through wealth and job creation and encouraging national economic development. SMEDAN seeks to fill the gap between death and the absence of a credible and reliable database, one of the main constraints in the development of this sub-sector.
1.9.6 NASME: The Nigerian Small and Medium Enterprises Association (NASME) was
recorded in 1996 as a Business Membership Organization (BMO) to coordinate and promote the growth and development of the MSME sector in the Nigerian economy. NASME is a member of the World Association of Small and Medium Enterprises (WASME) of the United Nations.
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NASME Lagos is the Lagos State Chapter of the Association that provides a communication platform and a concerted view to issues of strategic importance to the development of MSMEs in the state. NASME's vision is to be the voice of Nigerian entrepreneurs advocating a favourable business climate while working with MSME promoters to ensure the creation of technically viable big pool of MSMEs. The task is to encourage MSME empowerment in Nigeria as a means to achieve sustainable work generation, economic growth and development in the country. (www.nasmelagoschapter.com).
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