Small and Medium Enterprises in Zaria Local Government Access Equity Investment Scheme

Table of Content

1Introduction The role and importance Small and Medium Enterprises play in the development of nation has been well documented and beyond doubt now that any emergent economy must have a viral and sustained SME subsector which are critical to the development of an economy. The significant roles SMEs play in development is acknowledged universally. Even in countries such as the United States. Small and Medium Industries Equity Investment Scheme (SMIEIS), are enterprises with a total capital employed not less than N1. million, but not exceeding N200 million, including working capital, but excluding cost of land and/or with a staff strength of not less than 10 and not more than 300. This definition is adopted in this study, because it is generally used by all banks for the purpose of financing the MSMEs sector. The small and medium enterprises all over the world play important roles in the process of industrialization and economic growth.

As Ogujiuba et al (2004) observe, apart from increasing per capita income and output, SMEs creates employment opportunities, enhance regional economic balance through industrial dispersals and generally promote effective resource utilization considered critical to engineering economic development and growth. There are indications in Nigeria that the SMEs account for about 70 percent of industrial employment and well over 50 per cent of the gross domestic product, (Adebusuyi, 1997 and Odeyemi 2003).

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The important roles of SMEs, notwithstanding, the enterprises face serious difficulties when trying to obtain loans, especially from the formal (Bank) financial institutions. Thus, the obvious question is: why banks do not expand SMEs portfolio? Basically, small and medium enterprises in Nigeria are expected to raise funds from two main sources: Equity and debt. The sources of equity (sometimes called internal funds) include owners’ saving and ploughed back profits.

Funds from external source (debt) can be obtained from informal sources (that is friends/relatives, credit association co-operative societies) and formal source (that is banks, governmental agencies). Accessibility to formal financial system, especially by SMEs is very limited. On the supply side, banks are not expanding SMEs loans due to inadequate capital, imperfect information, high transaction cost of dealing with small loans, labour, geographical dispersion of the SMEs and large number of borrowers and low returns from investment.

On the demand side, SMEs are reluctant to obtain loans because of the collateral security, high interest rate, untimely delivery of credits and other things. This problem of finance has persisted for a long time, despite the existence of various reform programmes put in place by the government to develop SMEs sector. As Hallberg (2000) observes, government assistance strategies in both developed and developing countries often try to achieve a combination of equity objectives (alleviating poverty and addressing social, ethnic and gender inequalities) and efficiency objectives (raising the productivity and profitability of firms).

However, as Ojo (2003) argues, all these SMEs assistance programmes have failed to promote the development of SMEs. Of times, the finance provided have been misdirected, gone to wrong persons or found to be inadequate to impact on the expected development of the assisted firms. This was echoed by Tumkella (2003) who observes that all these programmes could not achieve their expected desires due largely to abuses, poor project evaluation and monitoring as well as moral hazards involved in using public funds for the purpose of promoting private sector enterprises.

At the urban and rural levels, private individual and small firms have established community Bank since 1990 as a means to stimulate the economy from the grassroots. The Bankers’ Committee introduced Small and Medium Industries Equity Investment Scheme (SMIEIS), from 1st August 2001, and directed all commercial banks to invest 10 per cent of their profit before tax in small and medium scale enterprises of their choice. This is aimed at improving the flow of funds to revitalize the real sector of the economy. A cumulative sum of N38. billion was set aside by 25 banks in 2006, out of which N17. 5 billion or 45. 9 per cent was invested in 248 projects (CBN, 2006). Although, commercial banking system aggregate credit to the domestic economy has grown phenomenally from N41,810 million in 1992 to N954,628. 8 million in 2002. This shows that the ratio of loans of micro, small medium enterprises to commercial banks’ total credit to the economy has continued to decrease over the years. 1. 2Problem of the Study Although SMEs are vital to the economy, the sector is constrained by ultifaceted problems that threaten its survival. Foremost among these constraints is the problem of limited access to credit facilities and other financial services provided by formal lending institutions. Institutional lenders often perceive lending to SMEs as too risky, because the entrepreneurs lack sufficient capital base and adequate collateral to guarantee loan. Second, lenders are of the view that small and medium entrepreneurs have no performance antecedents on which to evaluate their credit worthiness.

They see small entrepreneurs as unstable, especially because most often enter and exit the market and often lack the incentives to remain for a tangible period of time, and are, as a result, risky borrowers. Third SMEs business performance is usually poor as a result of low education, managerial and entrepreneurial skills. Even in cases where government intervenes to stimulate investment in SMEs, institutional investors are reluctant to embrace such development, primarily because SMEs are under capitalized and have no asset base sufficient enough to guarantee loans.

Fourth, access to cheap funds from capital market though the issuance of debenture and equity instruments are constrained by high transaction cost. For these and other reasons, SMEs financing is usually restricted to private equity and retained earnings, such that meaningful growth and expansions are usually inhibited by lack of external financing. The end results include a credit gap for SMEs business (especially long term credits whenever it exists), higher real interest rates and enormous differentials in financial costs for small and medium enterprise investors in Zaria Local Government Area.

It is on these issues raised above that form the trust of this study. 1. 3Objective of the Study The main objective of the study is to assess the extent Small and Medium Enterprises in Zaria local government access equity investment scheme. Other objectives are: i. To ascertain why banks are reluctant in financing small and medium enterprises in Zaria Local Government Area. ii. To ascertain why small and medium enterprises owners in Zaria Local Government Area are not willing to access loan from banks to finance their project. ii. To ascertain if the banks in Nigeria adhere to the policy statement of the CBN in meeting the required amount to be set aside in financing SME. 1. 5Research Hypotheses To find lasting solution to the problem, the following hypotheses were stated: Ho:SMEs in Zaria Local Government has no access to equity scheme. Ho:Banks are reluctant in financing Small and Medium Enterprises in Zaria Local Government. 1. 6Significance of the Study

It is well known fact that small and medium enterprises dominate different types of economic activities. In Nigeria, their dominance and engagement have made tremendous contributions towards growth and development of the nation’s economy especially in the area of employment generation and its impact on Gross National Product. Hence this study would be beneficial to the following people: Government at all level will find the work interesting as it brings to focus the significant importance of SMEs to the economic development.

Banks and other financial institutions will benefited immensely from the study as it bring to bear their constitutional role towards the development of SMEs in Nigeria. Individuals at all level will find the work useful as it open a fresh thought about working towards become self employed and the need to access bank loan for business expansion. Researchers, scholars and students will enjoy the work as it adds to the existing literature. 1. 7Scope of the Study The Study is conducted in Nigeria with particular emphasis on Zaria Local Government and it covers a period of 5 years (20067– 2011).

The study focused on three quoted banks to see their contribution to SMEs growth and development in Zaria Local Government Area. It is limited to small and medium enterprises in Zaria Local Government where a sample of six SMEs will be selected. LITERATURE REVIEW 2. 1Introduction In this chapter, we would be discussing the conceptual frame of SMEs, definition of SMEs, financing option available for SMEs, and the contribution of various financial institutions to the development of SMEs in Nigeria. 2. 2Conceptual Framework

Literature is replete with the role of entrepreneurship in a growing economy. It is considered as the engine of private sector development and modernization. It presupposes the process of initiating the production process and taking the risk of being a residual claimant to any economic profit (Hass and Ross, 1997). Entrepreneurship can be defined as the process of using private initiative to transform a business concept into a new venture or to grow and diversify an existing venture or enterprises with growth potential (UNIDO, 1999).

Entrepreneurship is a fundamental factor in triggering and sustaining economic growth and equitable development in developing countries. It is considered as the basic building blocks of an economy, the entrepreneurial engine of dynamic processes of capital accumulation, growth and development. Early researchers like Jean Baptist Say, Adam Smith, David Ricardo, and John Staurt Mill acknowledged entrepreneurship as forming the bedrock of business growth and economic development.

Afred Marshall in his conception of entrepreneurship argued that the skills associated with technical entrepreneurship are rare an d limited in supply and as such the ability of entrepreneurs so great and so numerous that few people can exhibit them all in very high degree. To Schumpeter (1991), the entrepreneur, is inherently a risk taker, is an innovator rewarded by temporary monopoly profits and is the force that creates economic growth.

Substantial monopolies are eliminated by the rival entering the industry. Thus, the entrepreneur must continually search for innovation and in the processes propel long term economic growth and the creative destruction of established companies and industries that could be replaced by new companies and industries. Entrepreneurial development is seen as a catalyst for economic development. It plays a critical role in driving economic and social development in general and industrial development in particular.

Peter and Clark (1997), affirmed that entrepreneurial development is a disposition to accept new ideas and try new methods; a redness to express opinions a true sense that make men and women more interested in the present and future than in the past; a better sense of punctuality’ a greater concern for planning organization and efficiency; a tendency to see the world as calculable’ a faith in science and technology and finally, a belief is distributive juice. According to Lichtenstin and Lyons (2001) an individual entrepreneur is not born but rather he or she is the product of his or her environment.

Therefore, the infrastructure of the entrepreneur’s environment including economic, legal, political, logistical and social structure must be supported from an economic development perspective. Toven and Lyon (2003), cautioned that an entrepreneur’s innovative abilities to capitalize on market opportunities within structural limitation should be seen as a local asset that necessitates cultivation. Misconception that classify entrepreneur as risky or independent overlook the fact that entrepreneurship is about carefully assessing the balance of risk and reward in an environment supporting a diversity of entrepreneurs.

A successful entrepreneurial development will result in the creation of jobs that tend to have salaries, develop greater skills, and be more readily adopted by local resident (Green et al, 1990; Korsching and Allen, 2004). Relative to traditional economic development practices, including incentive based business attraction, retention and expansion programmes, entrepreneurial development offer greater sustainability and flexibility to meet broader community development needs (Dabson, Riky and Schweke 1994; Lyon and Hamlin 2001; Lichtenteinn, Lyons and Kutzanova 2004).

Literature on entrepreneurship cannot be complete without delving into small ad medium scale enterprise. This is because all commitments by government in the developing countries are geared towards building and fostering small and medium scale enterprises. According to IFC (1990) report, among the world leading economies, the small business sector play important role in both employment and economic performance. In such economies small business contribute between 50 – 70 percent of the GDP.

One explanation of this impact is that the small scale business sector is characterized by low barriers for market entry, lower production costs and a focused product mix that provides room for greater efficiencies. Similarly, Udeh (1999), observed that SMEs are regarded as any modern business enterprise including all manufacturing and non-manufacturing construction and production employing a limited number of people ad with a limited capital outlay.

The functional and general management of such an enterprise revolves around one or at least two or three people who make all the important decision of the enterprise. Aluko et al (1972), defines small scale firms as those having between two to ninety-nine employees. Steel and Webster (1992) defined small enterprises as having between 4 to 29 full time workers who often start up from informal and oriented income for business survival and self-employment.

Kharbanda (2001), held that in most developing countries, small and medium enterprises (SMEs) contribute significantly to their export as well as to their GDP. This is particularly true of Indian in which their SMEs contribute to almost 50 percent of industrial output and 42 percent of total export. Hashim (1997), noted that in Malaysia a small sized firm is a firm with less than 50 full time employees and with annual turnover of not more than Rs 10million and Rs 25million.

This definition which is new was intended to latter reflect the importance f the SMEs as supporting firms in major industries as well as for the purpose of encouraging banks to lend money to them. Small and medium enterprises are often the backbone of the private sector and public sector. In the developing world, creating jobs and providing a tax base for the public sector. Yet many developing countries have been unable to create and maintain the favourable environment needed to foster SMEs development (Kharband, 2001).

The present day knowledge-driven enterprises to keep pace with the contemporary technological change and increase international competition. According to Kharbanda (1991), small enterprises in India with their dynamism, flexibility and innovative drive re increasingly focusing on improved production methods, penetrative market strategy and modern scientific management capabilities to sustain and strengthen their operations. The main source of value and competitive advantage in the new economy is human and intellectual capital.

What gives any economy is its ability and willingness to accept, adapt and develop technological capabilities to harness her resources to produce the goods needed in the economy and to withstand global competition for export maximization. Findings from a study on entrepreneurship and firm performance is sub-saharan Africa revealed that average annual growth of entrepreneurial firms varies between 6. 8 percent for Tazanizn, to 12. 4 percent to Zimbabwe and that slightly less than half of all entrepreneurs have complete high school in all the countries.

The percentage of entrepreneurs who have completed university degree is highest for Zimbabawe (26. 1 percent) and lowest for Zambia (15. 7 percent). 2. 3Concept of Small and Medium Enterprise Small scale enterprise has been variously defined by different individual and organization. According to their perception many criteria have been used without any generally acceptable definition of small-scale enterprise. Countries define “smallness” of a business with regards to their general conditions and state of individual development since small is a relative term.

While the dimensions of small business are developed countries may be however, be regarded as “large scale” in some countries of their world. This may be due to the size of the business, fixed investment, and nature of labour force. Nonetheless, sales volume, market size, and the number of employees of the firms’ pay-roll are used. According to Liedholm (1990), studies of small firm dynamics are important because they provide insight into the feasible and desirable patterns of growth in manufacturing output and employment.

Since small firms dominate the industrial scene in Nigeria, a deeper understanding of how these firms evolved may make it possible to pursue in industrialization path that builds on these enterprises, thereby leading to results that are potentially both more equitable and efficient than alternatives stressing large scale-firms. The concept of SMEs is relative and dynamic. The definition change over a period of time to a large extends, on a country’s level of development, prior to 1992, different government agencies in Nigeria such as the Central Bank of Nigeria tended to adopt various definitions to reflect differences in policy focus.

However, in 1992, the national council on industrial streamlined the various definitions in order to remove ambiguities and agreed to revise them every four years. Small Scale enterprises were defined as those with fixed assets above N1million, but not exceeding N10 million, excluding land but including working capital, while medium scale enterprises are those with fixed assets excluding land but including working capital of over N10 million but not exceeding N10 million.

The definitions were revised in 1996, with small scale industry defined as those with total cost, including working capital but excluding cost of land above N1 million but not exceeding N40 million with a labour size of between 12 and 35 workers while medium scale industry was defined as those with cost, including working capital, but excluding cost of land, above N40 million, but exceeding N50 million with a labour size of between 36 and 100 workers.

The center for Industrial Research and development (CIRD) of Obafemi Awolowo University, Ile-ife, according to Obitayo (1990), defined a small scale enterprises with a working capital base not exceeding N250,000 and employing on full time basis of 50 workers or ;less. In 1979, the central bank of Nigeria (CBN), in its credit guide line of commercial banks stated that small scale enterprises were those with annual turnover not exceeding N500,000 while the merchant banks were to regard small scale enterprise as those with capital investment not exceeding N2 million (Excluding cost of land or with maximum turnover of not more than N5 million).

The small Scale Enterprise division of the federal Ministry of Industry defined small scale industry in 1972 as ‘all manufacturing units with a total capital investment up to N50,000 and paid employment of up than 50 persons. Globally, the definition of SMEs varies from country to country depending on the parameters considered best suitable to promote the sub-sector in each economy. For instance, in Japan, small business firms in manufacturing are defined as those with N100 million paid up capital and employing 300 people while small business firms in wholesale trade have N30 million paid up capital and 100 employees.

On the other hand, small business in retail trade and service are required to have N10 million paid up capital; and 50 employees in Japan. In general enterprises employing fewer than 500 workers are regarded worldwide as SMEs. According to Olorunshola (2002), the size and the nature of small scale enterprise allow them to be more flexible, more enterprising and efficient than larger firms. Small enterprise usually has the following distinguishing characteristics: i. Management: – the management of a small scale enterprise is generally coordinated by the owner, he/she is in a position to make his own decision.

As a small employer this gives him/her total freedom of action. ii. Capital Requirement: – The amount of capital is relatively small compared with that required by bigger firms. The capital requirement is supplied by one or at most by a few individuals. iii. Legal Operation: – For most firms, the employer and employees lives in the community in which the business is located. This does not mean however, that all small firms serve only local markets some go beyond their areas of operation by seeking outlet for their product or services in other parts of the country or even export. iv.

Turnover: – The sales made by the small scale enterprises are relatively small compared with sales of the bigger firms. The production capacity is not large enough to bring about higher sales. v. Number of employees: – In small scale enterprises, therefore few number of workers to carry out activities within the organization. 2. 4Entrepreneurial Development Experiences in Nigeria Traceable to 1972, entrepreneurial development practices in Nigeria began with the promulgation of indigenization of enterprise decree. This was followed by the Nigeria enterprise promotion acts of 1977, 1987 respectively.

This was followed by the Nigeria commercialization decree of 1989 and 1995. The content of the acts fundamentally centered on indigenous entrepreneurial development. This awareness aroused the interest of major operators of the banking sector in 1999 which culminated in their promotion of SMEs. This led to the initiation of the small and medium and equity investment scheme (SMIEIS). Central to the SMIEIS was the encouragement of Nigerian small business entrepreneurs. Amidst this positive development, several challenges still confront entrepreneurship growth in Nigeria.

Extracts from a number of studies on entrepreneurship development in the country reveal that the following constitute constraints to growth of entrepreneurship: Institutional Weakness: – Weak institutional capacity manifested in the form of inability to provide support services to entrepreneurs in terms of credit, acquisition of technology, investment, such as contract laws and contract enforcement mechanisms, training and quality control that require active public intervention or at least policy support. Capacity Shortage: – This is wide-spread especially for newly established SMEs.

Lack of collateral and absence of an effective bankruptcy law causes private SMEs further trouble (Oyeranti, 1999). Limited Access to Markets: – The lack of knowledge and the limited access to market has left many enterprises competing for a fairly small local market. Excessive Red-tapsim: – One of the greatest obstacles to the establishment of new private enterprises is received approval from public authority. The administrative approval procedures, including registration and rectification, are generally cumbersome and incur excessive transaction cost for private enterprises.

Private sector and SMEs: – Most entrepreneurs operate as SMEs. Apart from the need to encourage and assist SMEs, instance abound when enough cognizance is not given to SMEs in policy formulation and implementation especially at the state and local government levels. Similarly, the central Bank of Nigeria (2005), identified the following factors as inhibiting entrepreneurship growth in Nigeria. High cost of doing business, stifling effect of multiplicity of taxes and levies, infrastructural deficiencies, faltering consumer spending, unstable macroeconomics policies and poor capital investment.

To Oyeranti (2004), these constraints can conveniently be grouped into three broad constraints as: human, operational and institutional constraints. The relative weight of the various constraints by the survey is shown in the table 1 below: Table 1: constraints facing the SMEs in Nigeria |S/N |CONSTRAINTS |% OF ENTERPRISE | |1 |Competition from imports |10. 5 | |2 |Lack of raw materials |20. | |3 |Declining income |44. 5 | |4 |Electricity/power problem |71. 5 | |5 |Lack of government support |61. 0 | |6 |Declining customers |42. | |7 |Competition from other local producers |32. 3 | |8 |Lack/shortage of finance |73. 7 | |9 |Lack of access roads |21. 4 | |10 |Harassment from government agents |44. t | Source: Adapted from Oyeranti, 2004

From the above table, lack/shortage of finance to enterprises received the highest constraint of 73. 7%. This means that, of all the different enterprises (i. e. SMEs entrepreneurs) surveyed, admitted facing financial constraints. This was followed by electricity/power problem which took 71. 9%. Others were 61. 9% for lack of government support. Of all the firms surveyed, 44. 7% of firms are constraints by harassment from government agencies, 44. 5% suffered declining income, and 32. 3% of firms were constraints by competition from others local producers, 21. 4% lack assesses to roads, 20. % were constraints by lack of raw materials, and 10. 5% suffered competition from import. Due to severity of financial constraints faced by enterprises, this study further looks at the sectoral distribution of small and medium enterprises equity investment by banks in Nigeria in 2010 as seen in table 2. |SECTOR OF THE ECONOMY |PERCENTAGE INVESTED | |Tourism |20. 57 | |Services |15. 4 | |Education & Establishment |0. 79 | |IT & telecommunication |10. 27 | |Solid mineral |0. 35 | |Construction |6. 2 | |Manufacturing |39. 56 | |Agro-allied |6. 40 | |Micro enterprises |0. 00 | Source: CBN Annual Report and Statement of Account 2010. The cumulative sum set aside by banks to the various sectors of the economy in table 2 in 2006 stood at N38. 2 billion.

The manufacturing sub-sector received the highest amount of 39. 56% followed by the tourism sub-sector with 20. 57%, the service sub-sector received 15. 54%, next to, was IT and telecommunication with 10. 27%. This was followed by the construction sub-sector 6. 52% allied. Sub-sector received 6. 40%, education, establishment got 0. 79%, and finally the micro enterprises were neglected with 0. 00% investment. 2. 5National Policy on Small and Medium Enterprises Small and Medium Enterprises (SMEs) are universally recognized as catalysts in the socio-economic development of any country.

They are veritable vehicles for the achievement of macroeconomic objectives in terms of employment generation at low investment cost and the development of entrepreneurial capabilities, indigenous technology, stemming rural-urban migration, local resource utilization and poverty alleviation. Learning on the catalytic role of the SMEs in fostering economic development, successive governments in Nigeria since the 1940s have been formulating policies favourable to the development of the sub-sector through not well actualized in most cases.

In what follows, we shall adopt the historical perspective approach in our discourse of Nigeria’s industrial development with particular emphasis on policy framework for development of SMEs. Osoba reports that the first attempt of the government to develop small scale industries in Nigeria dated back to 1946 when the first sectional paper No. 24 of 1945 on “A ten Year Plan of Development and Welfare for Nigeria, 1946” was presented to the Legislative Council on 13 December 1945 and approved with some amendment by the Legislative Council of 7th February 1946.

The first stage of the development plan envisaged the setting up of a “Nigeria Local Development Board” whose functions, among others, were primarily associated with: The promotion and development of village crafts and industries and the industrial development of the products of Nigeria, the setting up and operation of experimental undertaking for the testing of industrial or processing development of any Nigeria products and other suitable projects approved by the Governor-in-council.

The scheme set up in the plan was all supposed to be the major schemes affecting Nigeria as a whole and fundamental to other forms of development of the country. The focus at that time was to develop small-scale industries in their surrounding but on a higher level of efficiency so that they could be more profitable to the operators. However, the industries needed guidance and provision of better means of marketing their products as a means of fostering their development.

Consequently, it was decided as a policy of government approved by the Legislative Council, to set up a department of Commerce and industry to deal with the operation of internal trade and the development of “native industries”. It was contemplated that such a department would not only be an organizing entity, but will have special branches for experiment, extension work and training. The report went on to highlight World banks’ assessment of the Ten-year plan as follows: he World Bank (1953) reported that the country has not made any significant progress in its industrial development.

In fact, out of N44 million allocated fir investment on industries in the 10 years Development Plan, only N12 million allocated was actually utilized”. This report shows that as early as 1940s and 1950s the objective of the government in using the small-scale industries due to implementation problems. The policy frame work for post-independence industrial activities did not accord meaningful importance to entrepreneurial drive within the citizenry nor strategic development of the SMEs. Owosekun paints this picture n his appraisal of the period. The sources of finance for the 1962 –68 Development Plan were heavily dependent on foreign investment. In order to address the rather low indigenous participation in economic activities especially, manufacturing and distributive trade, government in 1972 promulgated the Nigeria Enterprise promotion Decree (NEPD)”. It is obvious that absence of the specific policy thrust on SMEs development in the 1992-68 plan period was to be corrected through the promulgation of NEPD in 1972. In fact, industrial development in the decade of the 70s was strongly influenced by the NEPD among other factors.

Nigeria was, however, not totally worse off in the development of the SMEs in the 60’s despite Federal Government’s shift in policy thrust. In his memorandum to the National Council on Industry, the Honourable minister, Chief Kola Jamodu reported that the first Industrial Development Center, IDC was established in the 1960s in Owerri by the then Eastern Regional Government with the support of United States agency for International Development (USAID), Ford Foundation ND Government of Netherlands for the purpose of the development and promotion of SMEs.

The second IDC was set up in Zaria in 1963 by the Northern Regional Government. These Industrial development Center (IDCS) assisted in financing small industries as well as in rendering techno-managerial services to them. These laudable projects were however, halted by the civil war in the country. Following the end of the civil war, the Federal Government took over the leadership role in fostering the development of small-scale industries. a.

Small – Scale Industries division Initiatives: The small-scale industries division was set within the Federal Ministry of Industry and the division took the responsibilities of the IDCs. It reactivated the IDCs in Owerri and Zaria and later established eleven new ones in different state been established in 21 states of federation. The establishment of IDCs including the reactivation of the older ones is a far reaching and conscious plan of Government for SMEs development in Nigeria.

The objectives for establishing the IDCs are to: train SME owners on efficient use resources to increase wages, improving living standards of owners and workers and to upgrade equality and design SMEs product, to create solid and modern base for development of local entrepreneurship and dispersal of economic activities. b. The Nigeria Enterprises Promotion decree (NEPD) The NEPD was promulgated to give backing to Federal Government’s indigenization policy.

This decree, which came into effect in 1972 and subsequently amended in 1977, had as its prime objectives, the promotion and protection of indigenous participation in all sectors of the nation’s economy. Nigerians were expected to maintain 60 percent interest in schedule II business and 40 percent in schedule III business. Since the nation’s economic activities of all sizes are currently open to both Nigerians and foreigners, indigenous entrepreneurship can only thrive through individual efforts as against total dependence on the plat form of national industrial policy.

The federal government must, however, be given credit for successful implementation of the industrial policy of the 70’s. “These activities of the small scale industries division of the Federal Ministry of Industries coupled with the oil boom of the early 70s, the increasing rise in the standard of living of the resulting from rapid increase in their incomes and purchasing power led not only to a rapid development of the national economy, but also a tremendous increase in the number and quality of industries established in the country”.

Owosekun’s description of the economic impact of the industrial policy of the 70’s also anchors on sporadic development. In his words, “industrial development in the decade of the 70’s was strongly influenced not only the NEPD but also by the huge revenue from the petroleum sector. c. The Small Industries Credit Loan Scheme The Small Industries Credit Loan (SICLS) started in 1966 to complement the Industrial Development Center (IDC) in Northern Nigeria.

While the IDC provided technical back-up to loan recipients, the SICLS provided the loans. Funding for the scheme was provided by annual Federal Government grant coupled with a matching grant from the State Government. Initially, the grants were paid into the treasury of each state government, but when it was discovered that most state government were not providing their own matching grants, each state was requested, at the risk of losing the Federal Government grant, to open an account with a commercial bank.

The fund was administered by a management committee whose composition was left at the discretion of the state government. The small scale industries division of each state ministry of industry acted as secretariat for the scheme and the IDC acted as adviser on each loan application to the management. d. Small and Medium Industries Equity Investment Scheme (SMIEIS). SMIEIS is a product of collaborative effort between the Central Bank and the Bankers Committee launched in 2001 to accelerate the development and growth of SMEs in Nigeria.

Under this scheme, Banks operating in Nigeria are required to set aside 10% of their profit before tax (PBT) annually and invest same as equity in SMEs. Such investment may be in the form of ordinary or preference shares. Each participating bank will also be expected to monitor, guide and nurture enterprise financed under the scheme. To ensure administration of the scheme, each participating bank is required to have small scale industries (SSIs) unit which will have responsibility of appraising and making recommendations on the relevant SSI proposal.

To monitor compliance, banks are required to render quarterly returns and give full particulars of acquisitions of shareholding in any SSI to the CBN within 21 days of the acquisition. f. The National Policy for Development of Micro, Small and Medium Enterprises (MSMEs) 2007. The Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) in collaboration with the United Nation Development Programme (UNDP) launched the National Policy for Development for Micro, Small and Medium Enterprises (MSMEs) in 2007 upon the approval of same by the Federal Executive Council on May 9, 2007.

This is meant to be a widely accepted policy documented that would guide the development of micro, small and medium enterprises (MSMEs) as all attempts at entrepreneurial development before now were made in an adhoc and haphazard manner due to absence of road map and there was now co-coordinating agency of the Government such as SMEDAN to provide leadership in development initiatives. f. The Third National Development Plan 1975 – 80

The Third National Development Plan contained a sub-sectional policy framework focused on the development of the small-scale industries despite the high default rate in the SICLS operation in the operation in the early seventies. The policy of the government in the plan as it relates to the small-scale industries was stated as follows. The main objectives of the government programme for the development of small-scale industries are the creation of employment opportunities, mobilization of local revenues, mitigation of rural-urban migration, and more even distribution of industrial enterprises in different parts of the country.

These will be achieved through suitable incentives designed to give complementary assistance in financial, management and technical aspects of the business. The main vehicles for administering the incentives are the Industrial Development Center and the State Small-scale Industries Credit Scheme. g. The Fourth National Development Plan 1981 – 85

The policies of the government towards effective management of the small-scale industries were summarized in the fourth National Development Plan 1981 – 85 as follows: Because of the difficulties encountered in the administration the small-scale Industries Scheme, the Nigeria Bank for Commerce and Industries is to be increasingly involved in the administration of the programme during the current plan period. It is expected that the bank will instill financial discipline into borrowers, assist better with project appraisal, and offer advisory service to small scale businesses.

Further policy thrust on the small-Scale industries in the fourth National Development Plan was the provision for: Establishment of industrial estates by such states as Kano, Kaduna, Oyo, Rivers ad Plateau. The establishment of industrial promotion centers by state government to bring industrial information and extension services nearer to the people and purchase of shares in private sponsored industrial enterprises in such states as Bendel, Ogun and Ondo states local governments.

In assessing the policy document, it was clear that both the Federal and state Government intended to provide diversified assistance to meet the various needs of the small-scale industries during the decade. h. The SMEs II Loan Scheme The SME II was an apex-funding scheme operated from 1989 under the management of the central Bank of Nigeria. The scheme had an initial funding of US$270. 0 million for on-lending to SMEs through participating banks. The amount was reduced to US$142. 0 million in September 1992 because it was slow disbursing.

Foreign exchange risk of the credit given was borne by government. The slow disbursement as a result of inadequate patronage by wholly owned Nigerian enterprises for which the loan was exclusively meant initially as well as the reluctance of banks to participate in the scheme. The condition that only enterprise with 100 percent Nigerian ownership would qualify for the loan was later amended to 51 percent Nigerian ownership. The scheme commenced in 1990 with four credit facilities: a. Line of Credit: – This was for fixed assets and working capital needs of existing and new SMEs. b.

Financial Restructuring: This was for assets and working capital needs of ailing SMEs that were potentially variable and could be rejuvenated with the injection of new funds. c. Mutualist Credit Guarantee Scheme: – This was meant for fixed assets and working capital needs of micro enterprises under guarantee by mutualist associations. d. Equipment Leasing: – This was for enterprises with insufficient collateral to use in obtaining loans for fixed assets. In 1993, the mutualist credit Guarantee Scheme and the financial Restructuring facility were cancelled for lack of patronage by banks.

A new facility, Urban Mass transit Scheme, was introduced to provide loans to transporters to purchase new vehicles for use in urban areas. Eligible SMES, that is, SMEs with total fixed assets *excluding land but including cost of project) not exceeding US$2. 5 million could access loans under the scheme through participating banks. From the inception of the SME II scheme in 1990 through 31 March 1994, when the scheme was closed, the SME office received 346 project application, approved 211 valued at US$132. 81 million while 26 others approved projects valued at 12. 4 million were withdrawn. The withdrawals were due mainly to the inability of the promoters to meet participating banks’ conditions for drawdown. Thus total commitment as at 31 December amounted to US$132. 81 million, leaving a balance of US$2. 19 million out of the US$135 million for loans to SMEs. The approved projects were manufacturing, agro-allied, mining/quarrying, and agricultural and transportation sectors of the economy. The projects were spread over 24 states of the country with Lagos state having the larger number of projects followed by Anambra and Abia states.

Although the approval of projects under the scheme closed on 31st March 1994, disbursement to approved projects continued till 31st March 1996. As part of its developmental functions, the Central bank of Nigeria has since the 1970s been instrumental to the financing and development of SMEs particularly, through minimum stipulated credit to assist SMEs (Nanna, 2001) In 1979/80 fiscal year for instance, the minimum stipulated percentage was 100% of total credit to indigenous borrowers, which constituted the SMEs.

It was raised to 16 ad 20 percent of total loans and advance in 1980 and 1989 respectively (Nanna, 2003). In the case of default by banks such short falls were deducted at source from 1987 from the defaulting banks deposit with CBN and passed on to the appropriate sector through the relevant development banks such as the NDBI, NACB etc. However, the NBCI merged with NIBD and NERFUND to form banks of Industry (BOI) and NACB merged with Peoples Banks and Family Economic Advancement Programme to form Nigeria Agricultural Cooperative and Rural Development Bank (NACRDB). . 6Strategies for Entrepreneurship Development for Competitiveness and Business Growth In this era of economic globalization, it is pertinent for developing economies to develop adequate and efficient strategies for developing entrepreneurial skills for increased competitiveness and growth of business units. In this study, we have highlighted some strategies for effective entrepreneurial development which are discussed below: Clustering/Networking Strategy One of the major constraints faced by small entrepreneurship is size of the venture.

Consequently, they lack the ability to culture market opportunities which require large production quantities homogenous standards, regular supply. This posse difficulty in achieving economies of scale in the purchase of inputs (such as equipment, raw materials, finance, consulting services). Another challenges arising from size us limitation of internalization of function such as training market intelligence, logistic and technology innovation all of which are at the firm dynamism. Through networking, individual SMEs can address the problems related to their size and improve their competitive position.

On account of the common problem they all share, small enterprises are in the best position to help each other. Through horizontal co-operation enterprises can collectively achieve scale of economies beyond the reach of individual small firms and can obtain bulk purchase inputs, achieve optimal scale in the use of machinery and pool together production capacities to satisfy large-scale orders. Though vertical integration, enterprises can specialize on their core business and give way to an external division of labour.

Lastly, networking among enterprises, provider of business development and local policy makers can help to shape a shared local government vision and give strength to collective action to enhance entrepreneurial strategies (Pyke, 1992) Also in Nucaragua (1990), networking promotion is now one of the main axes of government approaches for private sector. For instance, there is inter-institutional coordination that targets and creates access to local people and resources (channel through the counterparts), the counterparts being the public sector.

Much of the success registered came as a result of horizontal networking of SMEs in 1988. Thus, through networking, individual SMEs can address the problems related to their size and improve their competitive position, 2. 6. 1Access to Infrastructure and Resources Access to infrastructure and natural resources is very vital for entrepreneurial development. Infrastructure in this context includes provision of roads. Solid waste management disposal, electricity and telecommunication are the sustainable consumption of natural resources.

It is incumbent on government to address issues concerning the environment of the entrepreneur. Government should ensure that well defined property right exists for natural resource. 2. 6. 2Access to Information Entrepreneurs require a variety of information with regard to regulations, financing, technology development and sources to obtain training and market trend and development. While a variety of service and assistance programmes may already be available, many entrepreneurs remain passively uninformed.

Thus, enhancing the dissemination of such information is desirable. 2. 6. 3Human Resources Development Human resources development strategies are discussed in the following sub-areas: a. Enabling Access to Skill and Enterprise Research findings revealed that entrepreneurs often struggle to acquire the skills and capabilities that are required to peruse innovation and entrepreneurial opportunities. This may be due to a low domestic “stock” of human capital or an inability, particularly in the valuable knowledge currently available and accessible.

Thus, an enabling environment is expected to be created to provide avenues for skills acquisition and managerial competence. This suggest that entrepreneurial development course should be given emphasis at all levels of educational institutions/ b. Promoting Entrepreneurial Culture Government also have a role in economic development initiatives aimed at building confidence and positive towards entrepreneurship, pride in business success and acceptance of failure and encouraging and supporting new ideas and social responsibility. . Technology There is a need to provide the means of acquiring technology through idea sharing between firms. These inter-firm linkages would pave way. d. Financial services A detailed programmed where commercial banks, development banks, venture capital, savings association, informal leaders and others are brought together to come to terms with entrepreneurs evaluate project risk and benefits and thus, provide the required financial assistance to existing and startup enterprise. . Access to Market In collaboration with the appropriate agency of the public sector, efforts should be geared towards export market promotion, government procurement of certain capital intensive equipment for startup and existing entrepreneurs, sub-contracting, joint ventures and franchising that enable a company to grow rapidly because it does not have to provide all the money necessary for investment in new ventures. f. Advisory services

Service channels for assisting entrepreneurs should be developed through business centers service: Research services, consultants, information dissemination medium, equipment leasing, raw material procurement and environmental waste disposal services. The above mentioned strategies can be built into a model that could serve as guide to promoting entrepreneurship development in developing economies. 2. 7Legal issues in Small and Medium Enterprises According to Stephen (2007), legal matters and issues in relation to the development of SMEs are multifarious.

The solution must necessarily be multi-dimensional as most economic issues and variants affect SMEs the same way SMEs affect these issues and variants. These multifarious issues are the revision of banking regulations, power sector reform, pension reform, strengthening of microfinance banking, strengthening macroeconomic policies and microeconomic foundations, adding value to existing efforts, adapting best practices models that work, harnessing business initiative and market imperatives, leveraging, mobilizing and maximizing resources, focusing on the promoting sustainability (Stephen, 2007).

The government has tried to address issues in several ways but as much as these initiatives are commendable, they are a drop in the ocean compared to what we need to do to compete if indeed ours will become one of the biggest 20 economics by 2020 or if we must halve poverty 2015 in accordance with the Millennium Development Goals of the United Nations. Ours is indeed a race time and a vicious one at that.

There need to be a serious overhauling of all legal benchmarks and incentives which defines and drives SMEs in this country taking into consideration our local circumstances and strength as SMEs as an engine of growth focuses on local imperatives whilst drawing on and utilizing international best practices across the world. Government intervention and regulation cannot and must be discountenanced as a judicious and prudent use of this in East Asia ensured the growth of SMEs and the development of these Asian economies.

Entrepreneurs and entrepreneurial spirit and technical know-how on the part of our small business owners will be critical to the success of the SMEs as any legal framework must adequately address this, SMEs have high mortality rate because they are largely small usually family owned and owner managed. Nothing is wrong with this thought to that if this entrepreneurial spirit is properly harnessed as many America’s multi-national corporations as we know them today started in people’s garages, kitchens and college dormitories.

This American entrepreneurial spirit was celebrated by President George W, Bush in his year 2006 State of the Union Address. Therefore, we must have laws that encourage entrepreneurs to keep at it, innovative, take risks whilst at the same time assuring them minimum protection should they chance on hard times in the course of making SMEs work and thereby developing the Nigerian economy in particular and the nation in general. 2. 8Theoretical Framework Small and medium scale enterprise is a vital part of economic and social life of the community and also primarily, which carries the entrepreneurial thrust.

Issues related to SMEs have become topical in public discourse. This is not surprising owing to the place of entrepreneurship in the area of poverty eradication and self-employment (Ahmed, 2004). The following theories have been identified to support the development of SMEs. 2. 8. 1Need Theories Need theories argue that we behave the way we do because of internal needs we have attempting to fulfill. These theories are sometimes called content theories of motivation because they specify what motivates individual (i. e. he content needs) and for the purpose of this study we shall employ the need theory. In this section, we explore the prominent theories that examine what needs individual are likely to have, how these needs operate as motivates hierarchy of needs theory, Erg theory and acquired need theory. 2. 8. 2Hierarchy of need Theory Hierarchy of needs theory was advocated by Maslow (1943). According to him, man always has needs to satisfy. These needs can be classified in a hieractical order starting from basic needs, security needs, social needs, esteem and status and self-actualization and fulfillment.

Once a particular need is satisfied it ceases to be a motivator of behavior and another need emerges. 2. 8. 3Erg theory Following the criticism of Maslow’s hierarchy of needs theory, motivation researcher Clyton (1972) proposes an alternative known as erg Theory. The name stems from combination of Maslow’s five levels of needs into their levels. They include: existing needs which include the physiological desires such as food and water, and work related material desired, such as pay, fringe benefits and physical working conditions.

Relatedness needs address our relationship with significant others, such as families, friendship groups, works groups and professional groups. They deal with our desire to be accepted by others, achieve mutually understanding on matters that are important to us, and exercise some influence over those with whom we interact on an ongoing basis. Growth needs impel creativity and innovation, along with the desire to have a productive impact on our surrounding. 2. 8. 4Acquired Needs Theory

While the hierarchy of needs and erg theories view certain needs as an inherent part of our make-up, psychologist McClelland (1953) offers a different perspective acquired or learned on the basis of our life experience. According to McClelland, some people achieve more than other because they have a greater desires to achieve. McClelland and his colleagues discovered that those who had a greater need for achievement were neither high-risk takers nor low risk-takers. They appeared to be realistic about their goals and set moderate challenges for themselves.

They were motivated by achievement and saw money as a measure of their progress, so were status and power which were not by themselves needs, but were socially accepted measures of success in the satisfaction of the need to achieve. According to Williams (1972), for more than decades, McClelland has mainly studies three needs: achievement, affiliation and power. He measures these needs using the Thematic Appreciation Test (TAT), in which test takers write stories about pictures that are purposely ambiguous. The stories are them scored according to the achievement, affiliation and power themes that are important to them.

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Small and Medium Enterprises in Zaria Local Government Access Equity Investment Scheme. (2017, Feb 04). Retrieved from

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