FINANCING SMALL AND MEDIUM ENTERPRISES FOR ECONOMIC GROWTH

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CHAPTER ONE

INTRODUCTION

  1. Background to the Study 

Small and Medium Scale Enterprises (SMEs) are the backbone of every economy and are key source of economic growth, dynamism and flexibility in advanced industrialized countries, as well as in emerging and developing economies. SMEs constitute the dominant form of business organization, accounting for over 95% and up to 99% of enterprises depending on the country (Osagie 2004:25). They are responsible for between 60-70% net job creations in less-developed or developing countries.

While not every small business turns into a multinational, they all face the same issue in their early days – finding the money to enable them to start and build up the business. It is harder for them to borrow money from banks or finding private investors than for larger firms. Microfinance institutions are semi-formal organization and a subset of flexible structure and systems which provide a wide range of financial and saving needs of small scale enterprises in developing countries where top-town formal financial institutions have failed to address the credit need of the real sector of the economy.

Hence, the intention of this research is to undertake a survey of financing options for small and medium scale enterprises in Oyo State.

  1. Objectives Of The Study

The main objective of this study is to examine the financing of small and medium scale enterprises for economic growth. The specific objectives of the study are:

a. To determine whether SMEs stimulates economic growth

b. To investigate the extent to which financing of SMEs affects economic growth in Oyo State.

c. To investigate whether microfinance loans to SMEs actually leads to high effectiveness.

d. To find out whether SMEs are able to access capital loans from micro institutions.

  1. Statement Of The Problem

Small and Medium Scale Enterprises (SMEs) in Nigeria have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria.

This situation has been of great concern to practitioners and the organized private sector groups as well as non-governmental organizations. Therefore, this study seeks to examine the financing of small and medium scale enterprises for economic growth.

  1. Scope Of The Study

The scope of the research is limited to Oyo State metropolis. This is to enhance accurate and reliable data in order to achieve the objective of the study. Forty Small scale businesses would be contacted in Eruwa, Oyo State metropolis.

  1. Significance Of Study

The significance of the research work is to add to the general body of knowledge. The research would serve as a reference literature for students of management especially students of business administration and banking and finance.

However the research will also serve as a guide to the government in order to access how SMEs promotes economic growth. It will also serve as a guide to SMEs operators on how they could access different sources of loans to finance their activities.

The research will also serves as a guide to banks and other financial institutions of the various types of loans that could be given to SMEs practitioners.

  1. Statement Of Hypothesis 

Ho: There is no significant relationship between Small and Medium Scale Enterprises and economic growth.

H1: There is a significant relationship between Small and Medium Scale Enterprises and economic growth.

Ho: There is no significant relationship between Financing of Small and Medium Enterprises and economic growth in Oyo State.

H2: There is a significant relationship between Financing of Small and Medium Enterprises and economic growth in Oyo State.

Ho: There is no significant relationship between Microfinance loans to small and medium scale enterprises and effective performance.

H3: There is no significant relationship between Microfinance loans to small and medium scale enterprises and effective performance.

  1. Research Question

For the purpose of this research work, the research questions are:

a. What extent does financing of SMEs affect economic growth of Oyo State?

b. Does small and medium scale enterprises stimulate economic growth?

c. Does microfinance loan to small and medium scale enterprises actually leads to high effectiveness.

d. Does SMEs access capital loans from microfinance institutions?

  1. Definition of Key Terms

1. Small Scale Enterprises: an enterprise with total capital employed of over ₦1.50m but not more than ₦50m, including working capital but excluding cost of land and or labour size of 11-100 workers.

2. Business: this is the sum total of activities involved in the production and marketing of goods and services for the purpose of satisfying the need of the people and for making profit.

3. Entrepreneur: An individual who search and discover economic opportunities, marshaling the resources necessary for the development of the opportunities, evaluate alternatives available in the environment and allocate resources to most profitable ones.

4. Management: The process of planning, organizing, directing, and controlling organizational resources in order to achieve set organizational goals. It is also the process of getting things done through the efforts of the others.

5. Profit: the excess of income or revenue over cost or expenditure, it is the amount which proceeds from investment.

6. Finance: the process of sourcing, allocating, and management of financial resources in order to achieve the primary goals of an organization

7. Market: a particular group of people that have wants and needs that may be partially satisfied through marketing

8. Depressed economy: this is an economy where mostly economy and social activities are made to be less active or sad without enthusiasm.

9. Economy: it is the relationship between production, trade and the supply of money in a country or region.

10. Development: it is the quantitative change in an environment SMEs: small and medium scale enterprise.

1.9HISTORICAL BACKGROUND OF EXCEL MICROFINANCE BANK, ERUWA

Eruwa Community Bank Nigeria Limited was incorporated on the 23rd of April, 1992. A provisional license to provide community banking services was given on the 23rd of February, 1992 and CBN issued the Community Banking license to the bank in the 24th January, 2002.

The Bank opened the doors for business on the 18th of March, 1993 at its Registered Office, Hospital Road, Sango Eruwa. The bank converted to Microfinance Bank on the 23rd October, 2007 as Excel Microfinance Bank Limited. The bank migrated to a state licensed Microfinance Bank on the 15th April, 2013.

The bank was incorporated and commenced business with authorized Share Capital of N250,000 divided into N250,000 Ordinary Shares of N1.00 each. The bank’s Authorized share Capital has however been increased to N150 million out of which N70 Million had been fully paid.

The services and products include:

1. General Domestic Banking

2. Term Deposits

3. Target Savings Scheme

4. Overdraft and Loans Facilities

5. LPO/Contract Financing

6. Micro Credit Scheme

7. Consumer Credit Scheme for Salary Earners

8. Asset Acquisition Scheme (AAS)

9. Hire Purchase/Leasing

10. Financial Empowerment for Women (FEW)

11. Local Money Transfer Services

12. Save As You Earn

13. Student Deposit Account (SDA)

14. Rural Financing

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