FINANCING SMALL AND MEDIUM ENTERPRISES FOR ECONOMIC GROWTH

CHAPTER ONE:

GENERAL INTRODUCTION

1.1      BACKGROUND OF 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 Sokoto State.

1.2      STATEMENT OF THE RESEARCH 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. For the purpose of this research work, the research questions are:

a.                 What extent does financing of SMEs affect economic growth of Sokoto 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.

1.3      OBJECTIVE OF THE STUDY

Every research work should have objective(s) upon which it is being undertaking. This study attempts to examine the financing of small and medium scale enterprises for economic growth. The 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 Sokoto 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.

1.4      RESEARCH HYPOTHESES

These are tentative statements that test the validity of the research questions. For the purpose of the research work, the following hypothesis would be considered.

Ho:     Small and Medium Scale Enterprises do not stimulate economic growth.

Ho:     Financing of Small and Medium Enterprises do not affect economic growth in Sokoto State.

Ho:     Microfinance loans to small and medium scale enterprises do not lead to effective performance.

Ho:     Small and Medium Enterprises do not access capital loans from microfinance institutions.

1.5      SIGNIFICANCE OF THE 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 also serves as a guide to the government in order to access how SMEs promotes economic growth. It also serves as a guide to SMEs operators on how they could access different sources of loans to finance their activities.

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

1.6      SCOPE OF THE STUDY

The scope of the research is limited to Sokoto State metropolis. This is to enhance accurate and reliable data in order to achieve the objective of the study. Small and medium enterprises would be scontacted in Sokoto State metropolis.

1.7      CHAPTER SCHEME

The research work comprised five chapters. The chapter one is the general introduction of the research work. It discuss the background of the study, statement of the research problem, objective of the study, research hypothesis, significance of the study and scope and limitations of the study.

Chapter two of the research is the literature review. It discusses the various definitions