RISK MANAGEMENT PRACTICES AMONG SMALL SCALE ENTERPRISES IN BENIN CITY

CHAPTER ONE

INTRODUCTION

            Small scale businesses have played vital roles in the development process in most of the developed economies and even in the developing countries.  It has been proved to be one of the most viable sectors with economic growth potential.  The successes recorded by the countries were because of serious considerations of the future rewards from sustained investment in this sector.  Due to their size and scope of operations these enterprise require relatively small capital investment to start, thereby offering a relatively high labour-to-capital ratio.  The demand low technology and managerial skills which are readily available within the society.  The extinct to which the opportunities offered by small scale enterprise are exploited and their contributions maximized in any economy depends on the enabling environment created through the provision of requisite infrastructural facilities. These include roads, telecommunications, power, parts, etc. and the introduction and pursuit of policies such as concessionary financing that encourage and strengthen the growth of small scale enterprise.

            Small Scale Enterprises have such crucial role to play in the development of an economy that they cannot be ignored.  In fact, small scale enterprise development should form are of the country’s development objectives. They can serve as sources of input for the multinationals, thereby replacing existing foreign sources.  They serve as training grounds for local skills and entrepreneurs and could become channels for mobilizing local savings, ensuring a more equitable distribution of income and reducing the migrations of manpower from the rural to the urban areas.  Across the would, including Nigeria, Benin City in particular, small scale enterprise are important for economic growth, poverty alleviations, wealth creation and the promotion of more pluralistic societies.

            Size is relative, depending on the individual perspective.  A  company may be big when taken by itself and yet be small when compared with the other companies in the same industry.  Such a company or enterprise would therefore be small depending on the capital or the worth of such industry (May-Ifeoma Nwoye p.15).  Various schools of thought have proffered varied definitions of small scale enterprise using such parameters are as in total investment cost, size of work force (If labour leaders would decide), level of turnover, operational environment (All revolving round high labour to capital ratio).

            Within our Nigeria context of industrial situation, a small scale enterprise could be defined as any business with a total capital investment of less than N2 million with the number of employees not more than 50 (fifty).  They dominate the overall business activities in Nigeria.  But special circumstances may justify variations form their limits.  These measures are subject to constant change.  They can be established by individuals, groups, companies or co-operatives.  But whatever the nature of small business, such business share the same general features as big ones.  It is interesting to note that big business started off as small outfits but with proper-planning and effective management, expanded and grew.

            At the same time, it will be risky to assume that small industries, small business or small scale enterprise which are synonymous are exactly like by ones – “afterall the differences is size”.  Nonetheless, as a business grows in size, the difference become clear.  It is however crucial that a standard definitions of small business enterprise be evolved to act as a guide to both finances and operators of such enterprise.

Sometimes in February 1988, the Central Bank of Nigeria (CBN) came out with the definition of a small scale industry. It states:

…..for the lending purposes of merchant banks a small scale enterprise is one with a maximum annual turnover of N500,000 or with a capital investment of not more than N200,000 (excluding the enterprise is one with a maximum annual turnover of N500,000 or with a capital investment of not more than N200,000 (excluding the enterprise is one with annual turnover not exceeding N500,000 (.5million).

The Center for Industrial Research and Development (CIRD), Obafemi Awolowo University, Ile-Ife defines small scale enterprises as the total investment capital not exceeding N250,000 and employing not more than 50 full time workers. The Nigerian Industrial Development (CIRD) Obasfemi Awolowo University, Ile Ife defines small scale enterprises as the total investment capital not exceeding N250,000 and employing not more than 50 full time workers. The Nigerian Industrial Development Bank (NIDB) classifies as small scale enterprise with project cost (investment and working capital) not exceeding N750,000.

Central Bank of Nigeria (CBN) in its 1990 credit policy guidelines to financial institutions has adopted a radically deferent definitions of small scale business as those projects “whose annual do not exceed N500,000 or capital investment not exceeding N2,000,000. In other words, projects that were not regarded as small business can now be recognized as small business or small scale enterprises.

Small scale enterprise comprises of management. According to May-Ifeoma Nwoye, “Management may be described as the process of employing the diverse recourses of material, finance, people and time. In a manner as to achieve a set objectives of an organization”. Management is involved in risk always, hence he is called a risk-bearer because the certainty of risk is real. In the words of Isenmila P. A. 2002, it is almost impossible for any individual or enterprise to completely operate in a risk-free environment”. Many of the risk to which the small scale enterprise is exposed are major risks that could result in collapse of the business. Hence, the research topic, “Risk Management Amongst Small Scale Enterprise”.

OBJECTIVES OF THE STUDY

According to Eheduru (1995), “the statement of the problem serves to elaborate up the information implied in the title of the study”. Ways in combating this problem encountered here in this study include:

i.                Examining whether management has an element of risk contained in the enterprise.

ii.              Identifying the level of risk management encounters.

iii.             Measuring the degree of risk.

iv.             If risk is identified, see if there are ways of combating them i.e. applying the risk management strategies or methods of risk control and financing.

With these research on these issues will be formulated and reasonable and affordable answers will be given.

SIGNIFICANCE OF THE STUDY

A study on risk management amongst small scale enterprise will immensely enable small scale operators to identify the various level of risk that are prevalent in the industry.

Small business plays an important role in the economic development to a nation. This fact has made it imperative to undertake this study and to create the awareness of the promotion of the survival and economic viability of these ventures through the reduction of risk that tend to stifle their growth.

Finally, this study is not only intended to highlight that risk exits in small scale enterprise and its strategies but also to boost studies in this area and to serve as encouragement to other students to carry out further research in this field.

STATEMENT OF PROBLEM

According to Eheduru (1995), “the statement of the problem serves to elaborate up the information implies in the title of the study”.

Small scale business has gotten its fair share of risk tendency that is prevalent in the society in recent times. Theories of risk has propounded that risk behaviour is derived from a number of causes. Small scale business are faced with a lot of risk which involves management and if not well taken care of will cause a lot of problems like employee’s health, fire outbreak, burglary and others numerous to mention.

Finally, this is why something serious must be done to minimize this imminent disaster before it is too late.

SCOPE OF STUDY

The extent of this study will be limited to risk management practices amongst small scale enterprises in Benin City.

It will cover areas of risk as it will affects small business in four local government areas such Egor, Oredo, and Ikpoba-Okha Local Government Areas where samples will be taken.

METHODOLOGY

A theoretical approach will be adopted in this research work. The work will be analyzed in order to understand the risk practice associated with small scale enterprises in Benin City.

The population of the study will be all small scale enterprises in Benin City stratified into Egor, Oredo, and Ikpoba-Okha Local Government Areas (LGA). Samples will be drawn from manufacturing services, furniture work/marketing, printing/publicity and fashion and other small scale enterprises the researcher will visit.

The mode of data collection will be drawn from primary and secondary sources. The primary source of data gathering will be through observations, interview and the use of questionnaire. Data from secondary source will be gotten from textbooks and other relevant materials. They allow as an advantage of greater scope and range. Also, data from these sources was not quick and cheap to obtain, thus, the researcher had a lot of delay due to financial constraint, attitude of respondent and time constraint.

 RESEARCH HYPOTHESIS

A hypothesis is a tentative owner to a research questions. It is often stated in the form of a relationship between a dependent and an independent variable. For this research the following hypothesis was considered:

Hypothesis 1

Ho       –>        That risk does not exist in small scale enterprise in Benin City.

H1        –>        That risk does exists in Small Scale Enterprise in Benin City.

Hypothesis 2

Ho        –>      Relationship does not exist between the level of education of the small scale business proprietors and the success of their business.

H1         –>      There is no relationship between the level of education of small scale business proprietor and the level of success.