COMPLETE SCHOOL PROJECT TOPICS & MATERIALS :
CHAPTERS: Chapter 1-5
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PROPOSAL
Background of the Study
Small and medium scale enterprises (SMEs) in developing countries have been seen as engines through which the3 growth objectives can be achieved (kayanula and Quartey, 2000). These enterprises have been identified as the means through which the rapid industrialization and other developmental goals of these countries can be realized. Within the context of this research undertaking, small and medium scale enterprises are generally identified with the following variables; capital investment (fixed assets), annual turnover, gross output and employment (Osuala, 2000). He stated that the classification of enterprises as ‘medium’ and ‘small’ varies from one economy to another and from one period to another in the same economy.
Defining small scale enterprise, Adekunle (2005) viewed small scale enterprises as those enterprises with total cost inclusive of working capital but excluding cost of land ,of above N 1 million and having manpower strength (labour size) of 11 and 35 workers. Similarly , he viewed medium scale enterprises as those having labour strength of between 36 and 100 workers and total cost inclusive of working capital but excluding cost of land s of N40 million. Osuala, (2004), also defined small and medium scale enterprises using the number of employees’ criterion as those enterprises whose number of workers ranges from 5-300 workers. Also using the same criterion (number of workers) UNIDO in the 1990s defined SME for developing countries as those enterprises with workers ranging from 5-99 workers.
The Central Bank of Nigeria (CBN) defined small and medium scale enterprise (SME) as any enterprise with a maximum asset base of N200 million, excluding land and working capital, with number of staff employed by the enterprise of not less than 10 and not more than 300 (Osuala, 2004). This definition is considered most appropriate because it highlights certain salient elements considered essential for this study. Such elements include asset base, and the number of employees. Osuala (2004) emphasized that the number of employees is the most frequently used criterion.
Small and medium scale enterprise in Akwa Ibom State are classified under the following sectors: mining and agriculture, manufacturing, wholesaling, retailing, service industries, finance and insurance, construction, transportation, communication and utilities. Each classification is made up of different types of small and medium scale business activities in Akwa Ibom state.
Mining and agriculture include such business activities as quarry, crop farming, piggery farming, and poultry farming. These enterprises also engage themselves in mineral deposits, which they extract and put into use.
Manufacturing activities in Ebony state comprises such areas as printing, furniture works, steel fabrication, and garri processing industries. Wholesaling, which has been expanding rapidly in recent years in Akwa Ibom state serves as a critical link in the chain between producers and ultimate consumers. In Akwa Ibom state, their activities include distribution of spare parts, pharmaceuticals, foodstuffs, rice and yam, clothing materials and so on.
Small and medium scale enterprises (SMEs) in Akwa Ibom state are faced with a lot of financial constraints. According to Hornby (2003), constraint means a thing that restricts or limits something. Relating this to business constraints means the factors that limit the operation of business activities. The problems that militate against the operations of small and medium scale enterprises are referred to as constraints to small and medium scale enterprises (Osuala, 2004).
Small and medium scale enterprises in Nigeria vis-à-vis Akwa Ibom state are faced with a lot of constraints, which inhibit its effective financing. These constraints include fluctuating and prohibitive interest rates which are characterized by mischievousness of banks; ineffectiveness of development finance institutions which is characterized by ill equipped and managerial inefficiencies; personal saving, characterized by Nigerians’ poor saving culture; inadequate information on the sources of funds which is characterized by limited knowledge on marketing, sources of finance and management of an enterprise; poor financial management practices which is characterized by poor record-keeping; and many other financial constraints.
The Nigerian Industrial Development Bank was established in 1964 under the first National Development plan to provide medium and long-term loans and equity investment to industries in Nigeria. The Nigerian bank for commerce and industry (NBCI) established under decree 22 of may, 1973 was mainly to provide financial services to indigenous small and medium business operators especially to buy shares of companies affected by indigenization decree, 1972. The Nigerian Agricultural Bank was established to make loans available to agricultural ventures including small and medium scale agriculture (Nnanna, 2001).
This study intends to identify the constraints to the effective financing faced by small and medium scale enterprises (SMEs) in Akwa Ibom state, with a view to making recommendations to the government.
Statement of the Problem
Small and medium scale enterprises in Nigeria, particularly in Akwa Ibom state, have been facing some set -backs. These setbacks could be attributed to poor managerial skills, inadequate access to credit and other financial services from formal financial institutions, difficulty in acquiring machinery, poor policy implementation among others (Adekunle, 2005). Among all these problems, financing constitutes the greatest impeding factor in the growth of SMEs in Nigeria vis-à-vis Akwa Ibom State.
Identifying the constraints to effective venture financing of small and medium scale enterprise is an important step towards achieving economic growth through SMEs. In Nigeria, most new small business enterprises are not very attractive prospects for banks as they want to minimize their risk profile (Nigeria Business info, 2003). Nnanna (2001), stated that recent studies by the United Nations Development Programme (UNDP) and the Federal ministry of Industry (FMI) revealed that 1036 out of the 1498 SMEs (or 69.2%) surveyed were funded by personal savings and only 3.6 percent obtained credit facilities from banks. Osuala (2004), maintained that finance is a major problem to SMEs. He stated that other problems to SMEs include poor capacity building, weak competitive advantage, shortage of technical expertise, vulnerability to dumping of foreign goods and others. These constraints have created room for unemployment, poor standard of living, prostitution, child-trafficking and many other economic and social vices. SME operators are immensely affected as they depend on the success of their business for survival.
Small and medium scale enterprises are not thriving well in Akwa Ibom state. Their growth appears to be stunted while many are closing down at an alarming rate; hence the researcher intends to identify the constraints to effective financing of small and medium scale enterprises in Akwa Ibom state, Nigeria and make recommendations.
Purpose of the Study
The major purpose of this study was to identify the constraints to effective financing of small and medium scale enterprises in Akwa Ibom State, Nigeria.
Specifically, the study sought to determine:
1) The extent to which high interest rate affects small and medium scale businesses in Akwa Ibom State.
2) Contributions of Development Finance Institutions (DFI’s) in Akwa Ibom State.
3) Extent to which personal savings affect small and medium scale enterprises in Akwa Ibom State.
4) Extent to which inadequate information on sources of venture capital finance affect small and medium scale enterprises in Akwa Ibom State.
5) Extent to which poor venture capital financial management practices affects small and medium scale enterprises in Akwa Ibom State.
Research Questions
1) What is the extent to which high interest rate affects small and medium scale businesses in Akwa Ibom State?
2) What are the contributions of Development Finance Institutions (DFI’s) in Akwa Ibom State?
3) What is the extent to which personal savings affect small and medium scale enterprises in Akwa Ibom State?
4) What is the extent to which inadequate information on sources of venture capital finance affect small and medium scale enterprises in Akwa Ibom State?
5) What is the extent to which poor venture capital financial management practices affects small and medium scale enterprises in Akwa Ibom State?
Significance of the Study
This study would be significant in the following ways:
The small and medium scale business operators will appreciate the need to undertake brief feasibility studies in order to have clearer focus of the nature and scope of the business and the caliber of personnel to be employed before embarking on such venture. The information generated from this study will assist those intending to go into SME in identifying these possible constraints to effective financing and be able to make accurate forecast for their future business operations.
The identification of these constraints would enable the owners of enterprises and their managers to improve on their methods of sourcing funds for effective financing of their enterprises in Akwa Ibom State. Small and medium scale enterprises operators and managers in Akwa Ibom State will modify their methods of production and services to enhance better quality of products, thus, increasing higher demand for their products by the consumers.
Identification of constraints to effective financing of SMEs will assist operators and managers to map out better strategies for financial control as a means of eliminating or reducing the effects of these constraints. The findings would guide Akwa Ibom State government in making policies that will improve the conditions of small and medium scale enterprises.
The general public will benefit from improved services of SMEs when all the identified problems must have been properly handled by both the government and small and medium scale business operators. There will be increased production and employment opportunities for the teaming unemployed youths.
Research Hypotheses
The following three null hypotheses were formulated to guide the study, and is tested at .05 level of significance.
Ho1: There is no significant difference in the mean response of proprietors and managers on the constraints created by high interest rates of banks.
Ho2: There is no significant difference in the mean response of proprietors and managers on the constraints inherent in sourcing finance through information by the small and medium scale enterprises in Akwa Ibom state.
Ho3: There is no significant difference in the mean response of proprietors and managers on the constraints inherent in personal savings by small and medium scale enterprises.
Delimitation of the Study
This study was delimited to small and medium scale enterprises in the three senatorial zones of Akwa Ibom state. The study was further delimited to proprietors and managers of these small and medium scale enterprises.
Limitations of the Study
The questionnaire was the major instrument for the collection of data for this study. It is anticipated that the respondents will be unwilling to answer the questions truthfully. This may introduce some elements of biases and prejudice in the findings of the study. However, the biases and prejudices will not invalidate the findings of the study.