THE EFFECTS OF BUSINESS CREDIT AVAILABILITY ON SMALL AND MEDIUM ENTERPRISES IN PORT HARCOURT LOCAL GOVERNMENT AREA OF RIVERS STATE

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

In Nigeria, government has initiated series of micro credit programmes targeted at the unemployed youths and poor Nigerians with the overriding objective of making credit readily available to those who where traditionally denied access to credit such credits in the world over were used for the development of small and medium scale enterprise, which has been described as the springboard for sustainable development. In all emerging economies like Nigeria, the government has shown a great concern for the development of small and medium scale enterprises because of the underlying socio economic factors plaguing the nation. Some of the reasons include: that past policies failed to generate efficient self sustaining impetus needed to uplift the country to the take-off stage of growth, the increased emphasis on self reliant approach to the development and the recognition that dynamic and growing of petty-business can contribute substantially to a wide range of developmental objectives. However, the full potential of the micro business in the development process have been realised owing to numerous bottle-neck (Olaitan, 2004).

In the light of this, the Central Bank of Nigeria (CBN) as part of its reform agenda, initiated Banks, a policy initiative aimed at bringing credit to the door step of the unemployed youths and poor Nigerians who do not have such access under the conventional financial system. The thrust of this project is to articulate the prospects of the Banks towards boosting the performance thereby reducing the level of poverty and enhancing employment generation (Honohan, 2005).

Business credit availability of small and medium scale enterprises came into being in December, 2007, with the establishment Banks. It was packaged to address the issue of cultivating appropriate modern banking habits in the rural areas, through the social local institution such as community social clubs and other individuals who are encouraged to be co-owner of the bank through the purchase of shares. The government came in as a second tier supervisory agency through the National Board of Bank (NBMFB) to oversee the establishment and operation.

          From December 2007, a total of 402 community now have Banks came into being with a total deposit of 20 million Naira. Loan and advances disbursed to individuals and enterprises stood at (N155.1 million) all these are with share capital cash of (N239.8 million) (Adebayo 2006). To compliment the efforts of Bank in mobilizing the rural infrastructures and directorate for social mobilization (MAMSER) by virtue of their grass roots oriented programmes conducted extensive research into the introduction of the Banking System in area that it will be of good benefit to the people.

          Okafor (2002), in his reports for Banks being the main link between the formal and informal financial sectors. It would be observed that, despite the presumed development in the Nigerian economy, the country is still largely being regarded as a developing country (Onyema 2006). Moreso, its industrial growth and development is not quite impressive. Before the emergence of formal micro finance institutions, informal micro finance activities flourished all over the country. Traditionally micro finance in Nigeria entails traditional informal practices such as local money lending, rotating credit and savings practices, credit from friends and relatives government owned institutional arrangement and poverty eradication programmes etc (Lemo, 2006).

          Business credit availability in industrialized countries often also addresses the problem of household indebtedness. It provides payment, deposit and insurance services when no equivalent banking outlet is available. Even micro credit is not always used to purchase assets or to insure the funding of working capital requirements. Quite often it takes the form of consumer loans, and sometimes one cannot even distinguish between consumer and business loan. Micro enterprise creation requires capital and advice. The activities most frequently launched by the unemployed are in the service sector, all of which do not require much capital than what the unemployed individual or welfare recipient can mobilize our of saving or liquidation of other assets (hence, the need to fund an external funding source). The credit/equity gap exists at the creation of the micro enterprises and as long as the new entrepreneur fails to establish a stable relationship with a bank. The problem therefore, is does micro finance has any effect on the growth and development of small and medium enterprises in Nigeria, this research work is set to bring out the feasible solution to the above mentioned problem.

STATEMENT OF THE PROBLEM

          Over the past few years, there has been an impressive increase in the number and volume of Government programmes that seek to encourage the unemployed, the young, welfare recipients and disadvantaged groups of the population to set up their own, very small and medium enterprises. In another development, small and medium enterprises experiences difficulties in raising equity capital from the finance houses. Even when the finance house agree to provide equity capitl the conditions are always dreadful. All these result to inadequate capital available to the sector and this lead to poor financing. This is the bane of most cottage industries in Nigeria. About 80% of small and medium enterprises are stifled because of this problem of poor funding and other problems associated with it (Chukwuemeka, 2006).

OBJECTIVE OF THE STUDY

1.     To identify the effect of business credit availability on socio economic development of Nigeria.

2.     To examine the extent to which business credit availability has gone in assisting small and medium enterprises development in Nigeria.

3.     To assess the effects of regulatory frame work for financial transactions on the operations of micro credit financing.

4.     To identify the challenges facing small and medium scale enterprises in obtaining credit facilities for business.

5.     To suggest the solution to the challenges encountering by small and medium scales enterprises in obtaining fund from micro credit financial institutions.

RESEARCH QUESTIONS

1.     What is the effect of business credit availability on socio economic development of Nigeria?

2.     What is the extent to which business credit availability has gone in assisting small and medium enterprises development in Nigeria?

3.     What is the effects of regulating framework for financial transaction on the operations of micro credit financing?

4.     What are the challenges facing small and medium scale enterprises obtaining credit facilities for business?

5.     What are the solutions to the challenges facing small and medium scale enterprises in obtaining credit facilities for business?

SIGNIFICANCE OF THE STUDY

          The study will be focusing on the effects of business credit availability on the development and growth of small and medium scale enterprises in Nigeria.

          There is no business or enterprises that can flourish without capital, poverty and high rate of unemployment in Nigeria can be characterized by the lack of financing any business idea.

          That is why this research work will help to identify the challenges of small and medium scale enterprises in obtaining credit facilities for business and how to resolve such challenges.

SCOPE OF THE STUDY/DELIMITATION

          The study of this research findings will be limited to some selected small and medium scale enterprises in Port Harcourt Local Government Area of Rivers State.

          The focus of this study is to investigate the effects of business credit availability on the development and growth of small and medium scale enterprises in Nigeria. This investigation will mainly focus on the factors affecting the sources of financing small and medium scale enterprises in Port Harcourt Local Government Area of Rivers State.

          This research cannot be extended to all small and medium enterprises due to time trust and limited fund at the disposal of the researcher.

 LIMITATION OF THE STUDY

          In the course of carrying out this research work the researcher encountered the following challenges that is inadequate of time in the course of carrying out this research due to the nature of work of the researcher and finding is also inadequate in providing the necessary information needed for the research work.