THE PROBLEMS OF FINANCING A SMALL SCALE BUSINESS IN NIGERIA

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY   

        Industrial development involves development of a technical arrangement that moves on economy from the traditional method of production to a more complex system of mass manufacturing of verity of goods of services involving technology and management techniques. 

        Industrialization tends to propel growth adequate the achievement of structural transformation and diversification of economy. It enable a country to utilize it’s factor endowment and depends less on external sector. For its growth and sustenance. They provide employment for a substantial proportion of the industrial establishment. Therefore due to the above incentioned role played by industrial sector, that is small-scale industrial in the economy, it requires some financial support from government for the smooth running of the industrial.         

        But small-scale industries is a sub-sector of development that is of great importance as mentioned above, but it has not received the types of attention it deserves that is why the government and the Federal Ministry of industries lay-down the parameter under which a industrialist may take advantage of the various incentive erected by the government for the growth of the small-scale industries. Such incentives are in the form of loan provision of machinery and raw materials.

        The process of taking advantages of the various incentive scheme are so cumbersome and its subject to bureaucratic radicalism and only few small-scale industries are able to utilize them.

        The importance of small-scale industries to the survival of a nation can no longer be saved. They have moved from the substance level to pre-indigenization period of importance in the country’s industrial process. Therefore the authorities should not relent on the inactive dec to lack of fund.

        The Nigeria Bank was established to provide among other financial services to the indigenous business community, especially small sale industries of the recommendation of the financial system review committee of 1976 government made bank the apex financial institution for small-scale business. The bank obtains fund from the federal government to assist small business and the loan granted are relating on soft terms. During the 1970s and 1980 banks promoted of soft loans and advisory services of operational and liquidity problems attributed to reduced government funding and poor loans repayment by medium scale entrepreneur. Bank loans and advances fluctuated from N984 million, N223 millionm, N305.3 million, N87,7 million and 1994 respectively similarly, it’s deposit liabilities fluctuated from N252 million. In 1990 to N423.3 million in 1991 N318.7 million in 1992 and N320 million in both 1993 and 1994 following this, the government utilized the opportunity equip it banks with power to act as catalyst in development by operating like an all purpose universal bank to engage in all types of investment banking and under writing operation.

STATEMENT OF PROBLEMS

        The study titled financing small-scale industries “attempts to determine the way by which the development banks contributes to it financing of the problems which they encounter are as follows:

Most small-scale industries lack finance as start up or working capital for their business but could not mobilize such fund easily from commercial banks. Procurement of machinery and equipment post problems on small-scale industries and management expertise as a result had not been functioning optimally.  Most small-scale industries because of their small nature are unable to compete with the big ones for the necessary raw material for their production and are unable to to produce massively to take advantages of economic of scale.

PURPOSE OF THE STUDY 

The purpose of the study are as follows to determine how the development bank have helped to provide finance to small-scale industries as start up or working capital for the business. To determine how Nigeria banks help to procure machines and equipment for small-scale industries either through leasing or  here purchase to encourage massive production. To determine how development bank has helped to provide technical and managerial expertise including undertaking of feasibility of consultancy arrangement. To find our how the development banks will be able to provide adequate raw material for the small-scale industries to encourage massive production so that they will be able to compete with the large scale industries.

DEFINITION OF TERMS

        The definition of terms includes the following

Credit:

It means ability command capital of another in retain for a promise to repay at a specific time in the future.

Finance:

        Financing simply implies obtaining means of payment needed by an organization for the short medium and long terms.

Loans:

        This is the transfer of finance from one economic entry to another.

Small-scale:

        Small-scale industries is a manufacturing of services company whose capital investment does not exceed.

SCOPE OF THE STUDY

        However, all definition share a common view that small-scale industries are generally low in terms of number of person employed, and in amount of investment and annual business turnover. The main criteria used throughout the world include number of employees, sales volume, financial strength, relative size, initial capital outlay, comparison with it’s past standard independent ownership type of industry etc.