FINANCIAL IMPEDIMENT TO THE SUSTAINABLE GROWTH AND DEVELOPMENT OF SMALL-SCALE ENTERPRISES OPERATING IN LAGOS STATE
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Abstract
The study of Financial Impediment to the Sustainable Growth and Development of Small-Scale Enterprises Operating in Lagos State, Nigeria employed a descriptive survey design. The study covered only the central senatorial zone in the state with five local governments namely; Lagos Island, Lagos Mainland, Surulere, Apapa, and Eti-osa local government area. The population for the study was 206 made up of 57 and 149 registered entrepreneurs and employees of small-scale enterprises in the five local governments in central senatorial zone of Lagos State. Since the total population of the proprietors and the employees are small and manageable no sampling was carried out. The instrument for data collection was a structured questionnaire titled ‘Financial Impediments to Small Scale Enterprises Questionnaire’, (FISSEQ). The questionnaire items were developed based on the information gathered from the literature reviewed. The questionnaire was subjected to face-validation by three experts. Two of the validates came from the Department of Vocational Teacher Education, University of Nigeria, Nsukka and one of them is from department of Vocational and Technical Education, Ahmadu Bello University Zaria, in Kaduna State. The reliability of the instrument was done using Cronbach Alpha (α) method. The coefficient result yielded 0.86 which was used to establish the internal consistency of the instrument. The researcher with the help of three research assistants administered the questionnaire to the respondents. The data collected for the study was analyzed using mean to answer the research questions and standard deviation to determine the closeness or otherwise of the responses from the mean, while t -test statistic was used to test the null hypothesis of no significant difference at the probability of 0.05 level of significance at relevant degree of freedom with the use of Statistical Package for Social Sciences (SPSS). It was found out that inaccessibility of credit facility, government financial regulatory policies, and poor financial management practices impede the growth and development of small scale enterprises in Plateau State. From the findings of the study, it was recommended amongst others that government and other financial institutions operating in Lagos State should make credit facilities available to all categories of small scale enterprise and should ensure adequate monitoring of how the small scale enterprise utilized the funds.
TABLE OF CONTENTS
TITLE PAGE APPROVAL PAGE
CERTIFICATION DEDICATION ACKNOWLEDGEMENTS
TABLE OF CONTENTS
LIST OF FIGURE LIST OF TABLES ABSTRACT CHAPTER ONE: INTRODUCTION
Background of the Study 1
Statement of the Problem 7
Purpose of the Study 9
Significance of the Study 9
Research Questions 11 Research Hypotheses 11
Delimitation of the Study 12
CHAPTER TWO: REVIEW OF RELATED LITERATURE 15 Conceptual Framework
- Meaning of Small-Scale Enterprises
- Role of Small- Scale Enterprises
- Financial Impediments Encountered by Small-Scale Enterprises
- Fund Raising by Small-Scale Enterprises and Credit facilities available to
Small-Scale Enterprises
- Government Financial regulatory Policies in Small – Scale Enterprises
- Ways of Ameliorating the Financial Impediments of Small-Scale Enterprises.
Theoretical Framework
- Life Cycle Theory.
- Theory of Growth and Size of Firm
Related Empirical Studies 41 Summary of Reviewed Literature 46 CHAPTER THREE: METHODOLOGY
Design of the Study 49
Area of the Study 49
Population for the Study 50
Sampling and Sampling Technique 50
Instrument for Data Collection 50
Validation of Instrument 51
Reliability of the Instrument 51
Method of Data Collection 52
Method of Data Analysis 52
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
Research Question 1 54
Hypothesis 1 56
Research Question 2 58
Hypothesis 2 59
Research Question 3 61
Hypothesis 3 63
Research Question 4 65
Hypothesis 4 67
Findings of the Study 69
Discussion of Findings 75
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
Re-statement of the Problem 84
Summary of Procedures Used 86
Principal Findings of the Study 87
Implications of the Study 92
Conclusion 95
Recommendations 96
Suggestions for Further Studies 97
References 98 Appendices
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Business exists in different forms and sizes. A business can be undertaken on a small scale, medium scale or large scale basis. Small and Medium Enterprises (SMEs) are seen as driving forces that promote and contribute immensely to the economic development of any country. Small-Scale Enterprises (SSEs) are the backbone of an economy as major contributors of job creation and play an important role as efficient providers of intermediate goods and services to large firms (Muhammed, 2010).
The concept of Small-Scale Enterprises (SSEs) varies from country to country, region to region and from agencies to agencies. Different authors often use different parameters such as the number of employees, sales volume, turnover and capital to differentiate small, medium and/or big scale enterprises (Ahmed, 2006). However, these parameters do not provide uniform benchmark for all industries. Furthermore, what is a big capital today may become small in years to come (Aremu and Adeyemi, 2010). Consequently, there are as many definitions of SSEs as there are scholars and institutions. Makhbul (2011) stated that small scale industries (SSIs), small scale businesses (SSBs), and small scale enterprises (SSEs) are some of the terms that are used interchangeably to describe small and medium scale enterprises (SMEs). The author further stated that SSEs or SMEs are very heterogeneous group because these enterprises embrace a wider variety and diverse forms ranging from tailors and garments, textiles, furniture producers, wood cutting mills and bakeries. Others include villages, handicrafts centers and weavers, small machine shops, restaurants to computer software firms using sophistication and skills.
The National Council on Industry (NCI, 2001) categorized SMEs into three major concepts of industrial enterprises in Nigeria: Micro/Cottage Industry, Small-Scale Industry and Medium-Scale Industry. Micro/Cottage Industry is described as an industry with a total capital of not more than N1.5 million, including working capital but excluding cost of land, and/ or a workforce of not more than 10 workers. Small-Scale Industry in the other hand is described as an industry with a total capital of over N1.5million, but not more than N50 million including working capital but excluding cost of land and/or a workforce of 11- 100 workers. The term Medium-Scale Industry refers to as an industry with a total capital of over N50 million, but not more than N200 million, including cost of land, and/or, a workforce of 101-300 workers.
government is meant to act as a business regulator with the overall aim of helping to maintain a climate of confidence and stimulate the activities of the enterprises, so that they can have the respect for the rule of competition (Wahab and Ijaiya, 2010). But on the contrary, government policies seem to have constituted a serious problem to the growth of SSEs. Weak government financial regulatory policies take different forms: regulations governing the starting of business, access to funds, interest rates, taxation and foreign trade (Kasseeah, 2012). In many African countries vis-à-vis Nigeria, business laws are archaic, too complex and too general in relation to SMEs, most of whom tend to be ill informed about these laws. Government regulations on businesses distort the operation of the free market enterprises system and impede competition; many of the regulations require the same level of compliance for both small and large enterprises.
From all the problems mentioned it is obvious that the government have not been able to realign their policy frameworks to combat the deepening crises of development that has plagued SSEs. Therefore, since business ideas cannot survive without proper financing, there is the need to intensify efforts to promote business support services for SSEs with a view to upgrading them to sound and sustainable business entities.
1.2 Statement of the Problem
Small scale enterprises (SSEs) and medium enterprises (MEs) form the core of majority of the world’s economies. SMEs contribute to improved living standards, bring about substantial local capital formation and achieve high level of productivity and capability. The sector has also been identified as vehicles for employment generation and providing opportunities for entrepreneurial sourcing, training, development and empowerment. The Federal Office of Statistics of Nigeria stated that small-scale enterprises make up 87% of the economy. As part of the proactive strategies, the federal government of Nigeria through the Ministry of Industry, Trade and Investment has flagged off the University Entrepreneurship Development Programme (UNEDEP) to promote self-employment among youths from institutions of higher learning. Similarly, the federal government established the Youth Enterprise With Innovation in Nigeria (YouWiN) as a way of encouraging young entrepreneurs, to stem youth restiveness and their involvement in social vices as well as to engage them in productive economic activities. Furthermore, the Central Bank of Nigeria (CBN) recently launched a N220 billion Micro Small and Medium Enterprises (MSME) Development fund. The aim was to provide funds at a cheap cost and longer terms compared to what is obtain at commercial banks. Despite the increasing importance attached to small-scale enterprises, a lot of SSEs still find it very difficult to effectively play their role because of the high mortality rate of these small firms especially in Lagos State.
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1.3 Purpose of the Study
The general purpose of this study was to determine the financial impediments to sustainable growth and development of Small-Scale Enterprises operating in Lagos State. Specifically, the study will sought to:
- Determine the extent to which level of inaccessibility of credit facility impede the growth and development of small scale enterprises in Lagos State.
- Determine the extent to which government financial regulatory policies impede the growth and development of small scale enterprises in Lagos State.
- Determine the extent to which poor financial management practices impede the growth and development of small scale enterprises in Lagos State.
- Determine strategies for ameliorating the financial impediments to sustainable growth and development of Small-Scale Enterprises operating in Lagos State.
1.4 Significance of the Study
The findings of this study would be of tremendous benefits to owners (entrepreneurs), Managers and Accountants of small scale enterprises (SSEs) and medium scale enterprise (SMEs) operating in Lagos State, youths, other researchers and the governments (policy makers) of Lagos State.
The result of this work would provide useful information to existing and potential entrepreneurs (business owners) on the possible ways of sourcing funds to business organization at a low interest, thereby overcoming their financial challenges and bringing about growth and development. Owners of small scale businesses will get to understand some of the mismanagement practices that are counterproductive to the business.
Youths in the state can easily become aware of possible sources of capital to start or expand their businesses, because the study will expose possible ways of accessing funds from both government and non-governmental agencies. Findings from this study will enable the youths to be more focused, self employed and as well reduce the rate of crime and unemployment in the area.
The Management of small scale enterprises will benefit by addressing financial impediments such as source of credit facilities and policies that often hinder the growth of their businesses. This will enable the management to boost their financial strength. Managers and accountants and accountants of SSEs can easily access valuable information, such as accurate and timely information on market opportunity, technology, business practices and regulations and also assist them to take a full advantage of these.
Policy makers of Lagos State will become aware of the financial inhibitors such as insecurity, weak policies, inadequate collateral and non-timely information to small scale businesses. It will enable policy makers in formulating measures and policies as follows: Encouraging the commercial financial institutions to participate in SSEs financing and providing incentives and rewards to the commercial financial institutions for their excellent performances; Providing SSEs with human-resource capacity building with financing to help them to develop financial tools for their enterprises; Developing the risk assessment and risk based regulatory framework for the SMEs financing; Establishing a special financial institution for SSEs which will provide fund and venture capital for the start-up business and improving liquidity for SSEs to improve product quality and access to new technology. Finally, the study will serve as source of literature to both students and lecturers, thereby adding to the world of knowledge. Future researchers can carry out their study in similar area based on the recommendations of this work.
1.5 Research Questions
In the course of this study, the following research questions will be answered;
- To what extent does the level of accessibility of credit facility impede the growth and development of small scale enterprises operating in Lagos State?
- To what extent do government financial regulatory policies impede the growth and development of small scale enterprises operating in Lagos State?
- To what extent does poor financial management practice impede the growth and development of small scale enterprises in Lagos State?
- What are the strategies for ameliorating the financial impediments of small scale enterprises operating in Lagos State?
1.6 Research Hypotheses
The following null hypotheses were formulated for the study and will be tested at
0.05 level of significance:
Ho1: There is no significant difference in the mean responses of proprietors and employees on the extent to which accessibility of credit facility impede the financing of small scale enterprises in Lagos State?
Ho2: There is no significant difference in the mean responses of proprietors and employees on the extent to which government financial regulatory policies impede the financing of small scale enterprises in Lagos State
Ho3: There is no significant difference in the mean responses of proprietors and employees on the extent to which insecurity of life and property impede financing of small scale enterprises in Lagos State
Ho4: There is no significant difference in the mean responses of proprietors and employees on the strategies for ameliorating the financial impediments of small scale enterprises operating in Lagos State
1.7 Delimitation of the Study
The study is delimited to small scale enterprises (SSEs) operating in the Central Senatorial zone of Lagos State. The study was restricted to five local government areas namely; Island, Lagos Mainland, Surulere, Apapa, and Eti-osa local government area. The study was be based on the opinions of entrepreneurs and employees of the small scale enterprises operating within this zone in the state. Finally, medium and large business enterprises operating in the central senatorial zone were not involved in the study.
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