Financing of Small and Medium Scale Enterprises in Nigeria Problems and Prospective

Financing of Small and Medium Scale Enterprises in Nigeria Problems and Prospective

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This research examined the problems and prospects of financing small and medium scale enterprises in Nigeria. The evaluation of the government and International agencies programmes of assistances and scheme such as Nigeria Industrials Development Bank (NIDB), National Economics Reconstruction Fund (NERFUND), Nigeria for Commerce and Industrial (NBCI), National Directorate of Employment (NDE) and current financing initiatives such as the Small and Medium Industries Equity Investment Scheme (SMIES). Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB). The Bank of Industry (BOI) and Refinancing and Rediscounting facility the essence was to determined the extent to which these scheme and institution can achieved their objectives and the effect they have on Small and Medium Enterprises (SME’s). Questions were posed in order to find solution to the problems of this study and to enable us obtain a clearer understanding and characteristics of SME’s. This study found out that finance is the major problem faced by SME’s in Nigeria despite government’s efforts aimed at addressing the problems by making policies, giving incentives and setting up various loan schemes. To some extent, lack of awareness by SME’s operators about government programmes put in place to assist them financially is responsible. Recommendations were made to the effective implementation of the study adoption of new policies and scheme for financing of SME’s above all to stimulate awareness about special schemes aimed to promote the growth of SME’s through enlightenment by the government agencies.





The importance of small and medium scale enterprise (SME’s) to economic development of any country whether developing or developed cannot be over emphasized they are considered to be one of the driving forces in economic development. They stimulate private ownership and entrepreneurial skill in fact any country that neglects this sector does so at  its own peril. All agree that the entry point into economy’s industrialization engineering process is through the development and growth of small and medium scale   enterprise (SME’s). This is because SME’s play important role in development of economy provides ready source of employment opportunities and technological growth of the national. Also it serves as a good source of raw material for the big industrial establishment,  which later grows into large enterprises there by oiling the wheel of industrial development.

According to Carpenter Clive, http//, he stated that, the 1992 review by the National Council on Industrials Standards define small and medium scale enterprises (SMEs) as enterprises    with total cost (including working capital but excluding cost of land) above 31 million but not exceeding 3150 million, with a labour size of between 11 and 100 employees. He went further saying that there are probably other definitions for SMEs but what is clear is that SME are usually small, owner   or family–managed business with its goods and services being basic.

The SMEs are faced with some problems due to lack of enabling    environment to develop and grow for optimal contributions to the economy.The problems range from poor management of SMEs to information gap    and above all, inadequate funding although, different efforts have been put in place to assist the SME’s like policies incentives, programmes and loan scheme. For the benefits growth of SME’s. For example Federal   Government Established Industrial Development centre in all states of the federation to provide free managerial and technical consultancy/extension services to the SMEs. But these centre were not used   effectively by SMEs operations also in the area of finance, services of  programmes to ensure provision of soft loan were put in place through Nigeria Industrial Bank (NIDB), Nigeria Bank for Commerce and Industries  (NBCI), National Economic Reconstruction Fund (NERFUND), National Directorate of Employment (NDE) and Property Alleviation Programmes like Family Economic Advancement Programmes (FEAP) and latterly, (CBN) Central Bank of Nigeria to banks to invest 10% of their profit before tax such as operations of eligible SMEs such as Banks of Industry, Small  and Medium Industries Equity Investment Scheme (SMIEIS).

Despite all these efforts from the government, the policies, incentives, programmes and loan scheme have not able to adequately solve the fundamental problems which have constrained SMEs access to formal or institutional credit. Thus, low credit rating of this class of enterprise is attributable largely to their weak capital base, high mortality rate and shortage of managerial skills. Thus, for the SMEs to serve the expected role of catalyst for rapid industrial development there is need for more innovative strategy for improved access to development finance for the SMEs would address their inability to provide collateral securities for loans from formal credit institutions. In view of the foregoing, this research study is concerned about the peculiar  problems which SMEs face. In an attempt to finance their operation and to highlight the source open to them and the areas and ways in which credit/loan scheme for SMEs could increasingly contribute to their    development and growth.


The problems faced by small and medium-scale enterprise are production, marketing, personnel and even day to day management which are all linked to financial underpinnings, thus, the issue of finance is central. However, it is observed that the financial problems of small business arise from multi- faceted source which are under capitalization, based behaviour of financial  institutions management incompetence and financial indiscipline, inadequacies of the capital market, political and economic instability leading to policy distortions and in consistencies which together have put the SMEs at disadvantages over the years.

The most overwhelming financial problem encountered by SMEs owners is raising the startup capital for their chosen business ventures. It appears that SMEs owners do not have adequate information concerning the various source of finance specific to them, despite the government’s effort on the availability sources of specific finances to SME owners. As such, they depend on personal funding as well as assistance from family and friends.This tendency naturally limits their scope for generating finance. Consequently, the SMEs operation have to compete with larger companies for available funds equity, terms loans, supplier credit or leasing facilities  having to bargain on the same terms and condition as the bigger firms constitute a problem for them.This research study is therefore necessary for through inquiry into the    financial management and technical support to them in order to ensure their         development, growth and contribution to the economy.


The statement of problem which has been the hindrance to the improvement of SMEs (written above). This study intends to attain the         following objectives.

1. To highlight the different source of finance available to the operations of SMEs in Nigeria.

2.To review the major problems limiting access of SMEs to development finance.

3. To examine the existing government policies, incentives, programmes and loan scheme for the benefits of SMEs.

4. To examine benefits of existing credit scheme made available via contributions of SME project beneficiaries to the economy.


In a developing economy like Nigeria, survival of small business is of  utmost importance. Therefore, strategies must be developed to assist in their growth andsurvival. This research study intends answering the following  questions:

1.Have government policies and programmes specific to SMEs helped in their promotion and development.

2. How aware small and medium-scale business operators of the  various government agencies, policies, programmes and incentives specific to them.

3. To what extent is the growth and development of small and medium-scale enterprises in Nigeria?


Despite the problem faced by the SMEs, it also promote industrialization  and economic growth of the nation. The significance of the research study    is as follows:

1.Contributing to the knowledge and understanding of the financial problems faced by SMEs in Nigeria as basis for solution.

2. Giving more light on the importance of SMEs as they perform their expected role by precipitating industrial development finance for             the SMEs.

3. Establishment on the relevant existing financing agencies charged with the responsibility of assisting SMEs in Nigeria.

4. Providing a useful guide for prospective entrepreneur who may   wish to be owners of small or medium-scale business and are in  need of funds.


The barriers faced by small and medium-scale enterprise sub-sector in    Nigeria, during the course of this research study are as follows.

1. Difficulty by SME operators to access funds.

2. The absence of government policy on small and medium-scale enterprises

3. Lack of access to information about new schemes which could benefit the operators and lack of proper record keeping of SMEs activities, these are some of the limitation faced by SMEs.


The study is focused on the problems and prospects of financing small and  medium-scale sub-sector of the Nigeria economy and also looking at the way forward for the survival of the enterprises as a engine growth for    Nigeria economy.


BANK: An institution where cash and other valuable are kept for safety reasons and also place money in been borrowed.

B.O.I: Bank of Industry.

C.B.N: Central Bank of Nigeria

ENTERPRISE: A business activity that is full of initiatives.

GOVERNMENT: is a body of persons and institutions that makes and enforces laws of a particular state or society.

NACCIMA: National Association of Chamber of Commerce, Industry,   Mines and Agriculture.

NASME: National Association of Small and Medium-scale Enterprise.

NBCI: Nigerian Bank of commerce and Industries.

NERFUND: National Economic Reconstruction Fund

NIDB: Nigeria Industrial Bank

NCI: national Council of Industry

POLICY: A general plan of action

SCHEME: A plan of work or action.

SME: Small and Medium-scale Enterprises.

SAP: Structural Adjustment Programme

SME OPERATOR: A person who runs a small and medium-scale          business

RRF: Refinancing and Rediscounting Facility.



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