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This study tries to look at the accessibility of credit facility from financial institutions by small and
Medium Scale Enterprises: Evidence from Nigeria. Small and Medium Scale Enterprises have been
faced with poor funding when developing nations like ours are considered. This however distorts
the outstanding function of SMEs as the engine and pivot for the economic growth and national
development. No wonder Nigeria has continued to experience high level of emergence of new
enterprises that would only exist for two to three years and fizzle out. This study has a broad
objective of determining the degree of accessibility of credit facility by SMEs from the financial
institution in Nigeria with such variables like government policies, collaterals, tax incentives etc.
The study adopted the analytical survey method to gather information on the variables. The
population was made up of all the financial controllers in the 360 manufacturing enterprises in the
three states under study. We in turn used judgmental sampling technique to select the financial
controllers in these manufacturing enterprises. Data were collected by means of questionnaires
with response option graduated into a five- likert scale designed to capture information on the
variables that affect SMEs. The linear regression analysis was used to test hypotheses one, three
and four. One sampled t-test was used to test hypothesis two while a multiple regression analysis
was used to test the multiple effects of three independent variables on credit accessibility. The result
obtained using the test statistics shows a positive relationship between government policies, access
to credit as the greatest problems facing SMEs, tax incentives, availability of collaterals as regards
the accessibility of credit facility by SMEs. The research questions proved that international
financial assistance abounds for SMEs. The study also showed that the level of the operation of
SMEs has not improved when compared with other developed nations. SMEs in Nigeria are faced
with numerous challenges and such has affected their performances. We therefore recommend that
attention and support be given to the sub- sector so as to enhance their performance as the engine
of growth and catalyst for socio- economic transformation in Nigeria. The study has provided
opportunities for further research into other factors that could affect SMEs credit accessibility, in
order to ascertain if such factors actually affect them in equal measures or not.

1.1 Background of the Study
A business whether small or big, simple or complex, private or public is created to either
provide competitive prices make profit, provide social services or add value (Ayozie
,1999). Business in Nigeria has been classified as small, medium and large. However,
(SMEs) Small and Medium Enterprises does not have a one way definition rather, its
definition is best understood from its characteristic features; level of project costs,
turnover, number of employees, ownership composition and capital outlay
The Federal and State Ministries of Industry and Commerce have adopted the criteria of
value of fixed capital to determine what Small and medium scale enterprises (SMEs)
definition would be. The National Council of Industries defined SMEs as those businesses
whose capital base excluding land is not more than N2m only and employee ranges from
10 to 300 persons (Akimade,1991). However, this value rose from N60, 000 in 1972,
N159, 000 in 1975, N250, 000 in 1986 before rising to N2m in 1991. On the other hand,
small and Medium Scale Industries development Act 2003 specified that SME employee
rages from 10-199, Assets excluding land and building fall between (5 and 499) million
Naira only.
Small and Medium Scale Enterprises in Nigeria constitutes a greater percentage (75%) of
all the registered companies in Nigeria. They have been in existence for quite a long time
as majority of SMEs’ grew from Cottage Industries. The operations of SMEs’ are found in
all the areas of human endeavours: Manufacturing, Production, information, Services,
Agriculture, Hotel and Restaurants, Financial Intermediation, Real Estate, Education,
Building and Constructions, Mining and Quarrying.
For SMEs’ to operate in these sub-sectors of the economy, they are not left without
controls. Federal government through the apex bank (CBN) monitors the activities of
SMEs to ensure that they work in line with the set standards in other countries. The
government set several agencies like small and medium scale industries equity investment
schemes (SMIEIS),small and medium enterprise development agency(SMEDAN),Nigerian
agricultural cooperative and rural development bank,(NACRDB),Bank of industry(BOI),
Nigerian bank for commerce and industry(NBCI),Nigerian industrial development
bank(NIDB). They are set to moderate, monitor, finance and control SMEs’ to ensure that
they are resurrected to be the major driver of our economic development and growth
(Onugu, 2005).
On the other hand, the Federal government liaises with international agencies and
organizations World Bank, International Finance Corporation (IFC), United Kingdom
Department for International Development (DFID), United Nations Industrial
Development Organizations (UNIDO), and Europeans Investment bank (EIB) .The essence
is not only to invest heavily on SMEs but to make them work vibrantly.
Wide attention and support given SMEs is not far-fetched from the obvious reasons that
they are job and wealth creators. Small and Medium Enterprises (SMEs’) occupy a very
vital position in the economy’s various sub-sectors and thus have several significant roles.
SMEs’ have been referred to as the “Engine of Growth” and “Catalysts for Socio-
Economic Transformation of the country. SMEs’ represents a veritable vehicle for the
achievement of National Economic objectives: Employment generation, value added, rural
development acceleration, stimulation of entrepreneurship, vital links between agriculture
and industries, supply parts and components to large scale industries (LSI), contribute to
domestic capital formation (Anyanwu,2001).
(Salam,2012), the Deputy Director Development, Finance Department of CBN in his
workshop paper “Stakeholders responsibility in SMIEIS” opined that despite the
incentives, policies, programmes and support aimed at revamping SMEs’, they have
performed rather below expectations in Nigeria. Different opinion abounds as to why
SMEs have not been able to perform; Some said it was lack of access to credit facilities,
others think otherwise arguing that inappropriate management skills, difficulty in accessing
global market, lack of entrepreneurial skills, poor infrastructures, insecurity challenges etc
are largely responsible.
However, one observes that the bane of SMEs’ in Nigeria is lack of long term finances
bearing in mind that most Nigerian Financial Market have much of short term funds which
may not allow SME to grow and become really successful.
Onugu,(2005) opined that there are challenges and problems which frustrate SMEs’ in
Nigeria. These problems either make them to die within their first two years of existence or
perform below standard even after surviving in their early years. Some of the key ones are
inadequate infrastructural facilities (road, water, electricity) insecurity of lives and
property, inconsistent regulations, fiscal and industrial policies, limited access to market,
multiple taxes and levies, data inadequacies, fragile capital base, and harsh operating
environments. The problems and challenges of SMEs’ in Nigeria are also induced by the
operating environment (Government Policies, Globalization effects, financial institutions,
attitude to work, other challenges are driven by inherent characteristics of SMEs’
In spite of the above challenges, government can still provide good infrastructure, enabling
environment, legal framework and other incentives that would aid SMEs’ to operate more
efficiently in Nigeria just like other developed countries. This will help SMEs’ to be in the
fore-front of economic growth and development in Nigeria.
1.2 Statement of Problem
SMEs in Nigeria can never be severed from the challenges and key variables that
characterize the nation as a developing one. We know that the nation has been faced with
several challenges like economic and political instability, corruption, insecurity, high rate
of poverty, poor infrastructures. SME by extension as a sub-sector of the economy must
definitely get a fair share of these problems. In addition, to the general challenges (Cole,
2008; Udell,2003;Blum&Laurie,1995; Burch & Claudia,2004; Birly,1996; Bates,2007)
who studied the problems and challenges facing SMEs, found out that one of the greatest
problem facing SMEs was access to credits. Also, (Watson& Kunt, 2002; Vos,Yeh,Carter
& Tagg, 2007; Beck & Kunt,2008; Chittenden & Hall, 1996) in their studies examined the
extent to which limited access to finance has affected the performance and growth of
SMEs. They observed that funding pose serious impediment to growth of SMEs. In the
same vein, (Abereyo & Fayomi,2005; Dagogo & Ollor,2012; Gbandi & Amissah,2012;
Anyawu,2010) have studied the appraisal of some sources of finances available for SMEs,
and observed that most sources of finance attracts huge costs of capital with the exception
of retained earnings that are cost free though may be too meager for the effective growth of
Furthermore, financial institutions are demanding unattainable conditions and terms (high
interest rate) for the granting of loan. They are claiming that SMEs are not presenting
bankable project (good project proposal), inadequate collaterals, lack of trained
personnel’s, lack good accounting system that would give rise to audited annual accounts,
coupled with high enterprise mortality. Thus, it would appear that greatest problem facing
SMEs could be lack of accessibility of credit facilities.
Still worrisome is the position of Federal Government in the implementation of SMEs
policies. How far the apex bank has gone in the enforcement and control of the laws that
guide SMEs even after the emphasis on budgetary allocation? How have she ensured that
the 10% profit before tax set aside by the commercial banks is made available to SMEs? It
would appear that the commercial banks even prefer to pay a penalty of 20% to CBN
instead of choosing the option of granting loans to SMEs.
But, despite the general vigorous marketing of these facilities by the financial institutions, SMEs
have little or no access to them. The big question then is “why is it that SMEs are not able to access
these credit facilities from the financial institutions’’?
1.3 Objectives of the Study
The main objective of this study is to determine the degree of accessibility of credit
facilities from financial institution by Small and Medium Scale Enterprises: Evidence from
While the specific objectives of the study are as follows- To:
i. examine the extent to which government policies favour SMEs in Nigeria.
ii. ascertain whether access to credit facilities represents the greatest problem
facing SMEs.
iii. determine whether tax incentives affect the accessibility of credit facilities
by SMEs.
iv. determine whether having collaterals have effect on the accessibility of
credit facilities by SMEs.
v. ascertain the extent to which SMEs are funded by international agencies: –
World Bank, IFC.
1.4 Research Questions
In the course of this research study the following research questions were raised:-
(i) How far has government policies favoured SMEs in Nigeria?
(ii) To what extent is access to credit facilities the greatest problem facing
(iii) Has tax incentives affect the accessibility of credit facilities by SMEs?
(iv) To what extent does having collaterals affected credit facilities accessible
by SMEs?
(v) What is the extent to which SMEs are funded by international agencies?
1.5 Hypotheses of the Study
After a critical evaluation of the objectives the following hypotheses were developed.
i. Government policies do not significantly favour SMEs in Nigeria.
ii. Access to credit facilities is not the greatest problem facing SMEs.
iii. Tax incentives do not have a significant effect on accessibility of credit by
iv. Having collaterals does not significantly affect accessibility of credit by
1.6 Scope of the Study
The researcher used all the registered enterprises under the umbrella of Small and medium
Enterprises Development Agency (SMEDAN). However, for a realistic study to be made,
only the three states of the south-east were chosen, Anambra, Ebonyi and Enugu. The three
states were chosen because of proximity advantage. The population was the senior
accounting officers (managing directors) in the enterprises operating under Manufacturing
Association of Nigeria (MAN) in the three states as at 31st march, 2012. Manufacturing
enterprises was chosen because they have wider need for finance, optimum capacity
utilization and good records that can allow studies to be carried out on them.
1.7 Significance of the Study
To SME Operators:
Operators in the SME Sub-sector would have more insight into the various sources of
credit and tap them to achieve better result. They would be aware that government through
her agencies SMEDAN, BOI, NACRDB can protect them.
To Government
In addition to moderating the affairs of financial institutions, government would see the
need to provide enabling environment for SME to thrive so as to actually become the
driver of our economic growth and development.
To Public and Economy
The public will know that SME Sub-sector is a vibrant one which they can gainfully
venture into and thus make the economy of the nation most viable and enviable to foreign
1.8 Limitations of the Study
Certain limitations were encountered in the course of this study viz:-
i. Limited sample size:
The researcher found it difficult to increase sample size so as to have a
good representation of the entire population but we ensured that this did not
affect our study.
ii Respondents Resistance:
Most people are not willing to respond to oral questions as well as
questionnaires. This is because they feel that instant gain or benefits are not
iii Coverage:
In studies of this nature, coverage is usually a peculiar constraint. This
would limit the area of coverage but we ensured that they did not frustrate
our efforts.
1.9 Explanation of Acronyms.
SMEs – This means Small and Medium Scale Enterprises.
CBN – Central Bank of Nigeria which is the Apex bank for regulation of
the financial institutions affairs.
BOI – Bank of Industry
NBS – National Bureau of Statistics
NBCI – Nigerian Bank for Commerce and Industry.
NIDB – Nigerian Industrial Development Bank
NACRDB – Nigerian Agricultural, Cooperative and Rural Development Bank.
SMIEIS – Small and Medium Industries Equity Investments Schemes.
SMEDAN – Small and Medium Enterprises Development Agency.
Lending Infrastructures – The information environment, legal and judicial setting, tax
incentives etch. Rules and laws set by government.
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Bullion Publication of CBN. Vol. 25, No. 3.
Allen, N.B. (2004). “Small and Medium Enterprises: Overcoming Growth Constraints”
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Ayozie, D.O. (1999). “A handbook on Small Scale Business for National Diploma
Students”. Danayo Inc. Coy. Ilaro.
Bates, F. (1997). Financing small business creation: The case of Chinese & Korean
immigrant entrepreneurs. Journal of business venture, vol. 12 pp109-124.
Birly, S. (1996).Start up in small business and entrepreneurship, eds, Bums and Dewhust,
Macmilian Press.
Buch, C.M. (2004)..Information versus Regulations:What drives the international
activities of commercial Banks? Journal of money credit and Banking No:51-69.
Blum, L. (1995).Free money for SMEs.4th edition, John Williams & Sons inc.
FBN Plc Bi-annual Review of SME Financing in Nigeria (1993) Vol. 2 No. 4.
Onugu, B.A. (2005). SMEs in Nigeria:”Problems & Prospects” Dissertation paper
presented to St. Clement University Lagos.
Olorunshola, J.A. (2001). “Industrial Financing in Nigeria: Some Institutional
Arrangement” CBN Economic and Financial Review. Vol. 24, No. 4.
Oye, A. (2006). Financial Management, page 578. El-Toda Ventures Ltd, Mushin, Lagos
Olu, A.O.(1999). A paper presented at the First Bank Business and Economic Report
Summit p1-5.
SMEDAN/NBS 2010 National Collaborative Survey


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