SME FINANCING AND ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE
    INTRODUCTION  

A realization in today’s economy world is that government cannot single-handedly ensure the development of a country. Development is seen as a direct function of the various function in the economy particularly private sector, international community and other micro and macro constituents. Noticeable in today’s economy are the activities of small and medium scale enterprises which are described as the fourth realm of economic development (Muhammad and Muzzaffer, 2011).
Alese and Alimi (2014) observed that all over the world a lot has been said and written on small and medium scale enterprises (SMEs), which has formed the subject of discussion in so many seminars and workshops both locally and internationally. In the same token governments at various levels (local, state, and federal) have in one way or the other focused on the small medium enterprise (SMEs). While some governments formulated policies aimed at facilitating and empowering the growth, development and performance of the SMEs, others have focused on assisting the SMEs to grow through soft loans and other fiscal incentives. For instance, the World Bank group approved more than $10 billion in SME support programs over the period 1998-2002 (World Bank, 2002).. This pro-SME policy is based on three core arguments by Beck, Demirgue-kunt, L and Levine (2005); Kumar, Anthony, Singh, Tiwari and Perry (2006) and Collier (2009).Firstly, SME advocates argued that SMEs enhance competition and entrepreneurship and hence have external benefits on economy-wide efficiency, innovation, and aggregate productivity growth. Hence, direct government support of SMEs will help countries exploit the social benefits from greater competition and entrepreneurship. The second fact provided by the SMEs proponents is that SMEs are generally more productive than large firms, but financial market and other institutional failures impede their development. Thus, pending financial and institutional improvements, direct government financial support to SMEs can boosts economic growth and development. Lastly, they argued that SME expansion boosts employment than large firm growth because SMEs are more labour intensive. Eferakeya (2014) observed that economic development of any nation depends largely on the existence, growth and survival of small and medium scale enterprises (SMEs). As a propeller of economic growth, SMEs require serious attention so that their developmental role and sustainability will provide the much needed sustainable development of a nation with regard to job and wealth creation.
Gulani and Usman (2012) stated that finance is a pre-condition to the growth of enterprises. The sources of finance available to SMEs are, the owners-savings and financial support of his or her associates including family and friends who may or may not be partners or shareholders in the venture, banking and lending institutions, small business administration, licensed small business investment companies, other businesses and local capitalist sales, finance companies, factor and other sources. Among the sources mentioned, personal savings is the most important reason people save money. In a study conducted by Aggarwal, Klapper and Singer (2012), respondent were asked about the most important reason people save money, 29 percent provide precautionary motive as the most important reason to save, stating saving for either “a rainy day” or “in-case we get sick”. The second most important reason that people report saving is “to start a business” (almost 20%). These numbers suggests that 49% (almost half) of the people surveyed are actually using savings for purposes that credit was either supposed to or is billed to serve other sources of finance available to SMEs for example financial institutions loans are practically not  accessible.
Ogechukwu, Oboreh, Umukoro, and Uche,(2013) posited that, a business whether small or big, simple or complex, private or public, is created to provide competitive prices. Businesses in Nigeria have been classified as small, medium and large. A small scale business can be explained by the criteria of project costs, capital, number of employees, sales volume, annual business turnover and the financial strength. The Federal and State ministries of Industry and Commerce have adopted the criterion of value of installed fixed capital to determine what a small scale business is. In this respect, the value has varied from N60,000 in 1972, N159,000 in 1975, N250,000 in 1979, N500,000 in 1986, to a fixed investment of not more than N2,000,000 in 1992 and N5,000,000 in 2003 and beyond. This figure is exclusive of land and building and subject to government determination and prevailing objectives of public policy. In the wake of recent happenings the required capital for SMEs is N1million for micro-businesses, N1million-less than N40million for small businesses and N40million to less than N200million for medium scale. Furthermore, Kadiri (2012) explained that, small and medium enterprises development has continued to be a popular phrase in business world. This is because the sector serves as a catalyst for employment generation, national growth, poverty reduction and economic development. SMEs world over can boast of being the major industries including the multinationals.
In view of the foregoing argument put forth by Etuk, Etuk, and Baghebo (2014), it is imperative to note therefore that the growth and development of SMEs is a critical success factor for the overall well-being of a nation. This therefore makes SME financing a subject of discourse in local and international terrain particularly among researchers. This research therefore examines the nexus between SME financing and economic growth in Nigeria.

1.2. STATEMENT OF THE PROBLEM
Agwu and Emeti (2014) pointed out that most of the problems of SMEs are external to it, among them are those related to capital shortage, taxation and regulations, product liability patent and franchising abuses. The internal problems of SMEs in Nigeria includes; inadequate working capital, stiff competition from large companies, difficulties in sourcing raw materials, low capacity utilization, lack of management strategies, poor educational background of operators and huge financial problems while the external problems include: policy inconsistencies, multiple taxation, harsh regulatory requirements and trade groups.
Taiwo, Ayodeji and Yusuf (2012) in their previous research had also revealed that the most common constraints hindering small and medium scale business growth in Nigeria are lack of financial support, poor management, lack of training and experience, poor infrastructure, insufficient profits and low demand for product and services. Hence it therefore recommends that government should as a matter of urgency assist prospective entrepreneurs to have access to finance and necessary information relating to business opportunities, modern technology, raw materials, market, plant and machinery which would enable them to reduce their operating cost and be more efficient to meet the market competitors to ensure efficient growth in the economy. Whereas, Onakoya,fasanya and abdulraham (2013) in a related view posited that the greatest or worst problem confronting SMEs in Nigeria is managerial capacity. They also identified access to capital or finance as being necessary but not a sufficient condition for successful entrepreneurial development in the economy.
A review of researchers on SME financing has shown lapses in identifying with the following challenges which affects the core essence and development of SMEs in the country and these include the following:
Increase in the level of SME failures, regardless of increase in the number. it bring to fall the relevant issue where a good number of SMEs spring up only to collapse before their fifth year anniversary.
Apparent lack of finance particularly from financial houses and government and this in turn affect the level of economic growth recorded by the country.
Low productivity emanating from SMEs operation thus giving rise to low value of export, high inflation rate amongst others.
In reaction to the challenges highlighted by the researcher, Onakoya, et al(2013) identified inadequate capital, inaccessible credit facilities. Long term development institutional credit was known not to be available to SMEs because they are generally considered high credit risks by financial institutions.
The research is embarked upon by the researcher with a view to unearthing the extent to which SME financing, export value, interest rate and money supply affect the Gross Domestic Product (GDP) of the country.

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