1.1   Background of the study

Small and Medium Enterprises (SMEs) as defined by the Central Bank of Nigeria, in its credit guidelines to banks, state that in the case of Commercial Banks, refer to business enterprises whose annual turnover not exceeding N500,000. In case of merchant Banks, they are enterprises with capital investment not exceeding N2 million {excluding cost of land} or with maximum turnover not more than N5 million (CBN 1993). The need for finding sources to provide adequate supply of fund is a prime concern to management of small scale enterprises and in particular where to obtain the fund.

A lot has been said and written about SMEs the world over. It has also formed the subject of discussions in so many seminars and workshops both locally and internationally. In the same token, governments at various levels (local, state and Federal levels) have in one way or the other focused on the Small and Medium Enterprises. While some governments had formulated policies aimed at facilitating and empowering the growth and development and performance of the SMEs, others had focused on assisting the SMEs to grow through soft loans and other fiscal incentives.

International Agencies and Organizations (World Bank, United Nations Industrial Development Organization (UNIDO), International Finance Corporation (IFC), United Kingdom Department For International Development (DFID), European Investment Bank (EIB) etc are not only keenly interested in making SMEs robust and vibrant in developing countries but have also heavily invested in them. Locally, the several NonGovernmental Organizations such as Fate foundation, Support and Training Entrepreneurship Programme (STEP), the Nigerian Investment Promotion Commission (NIPC), the Association of Nigerian Development Finance Institutions (ANDFI), as well as individual Development Finance Institutions (DFIs) have been promoting the growth of SMEs in Nigeria through advocacy and capacity-building initiatives, and have continued to canvass for better support structures for operators in the SME sub sector (Basil, 2005).

All the massive attention and support given to SMEs relate to the widely acclaimed fact that SMEs are job and wealth creators. In justifying the introduction of SMIEIS in 2003, the then Governor of the Central Bank of Nigeria, Chief Joseph Sanusi said “With a concerted effort and renewed commitment from all stakeholders, this scheme will surely succeed and realize its intended objective of revamping the SMEs as engines of growth in the economy and a veritable tool for the development of indigenous technology, rapid industrialization, generation of employment for our teeming youths and the pivot for sustainable economic development in Nigeria” (Anyawu, 2003).

It has however been worrisome that despite the incentives, policies, programmes and support aimed at revamping the SMEs, they have performed rather below expectation in Nigeria. Different people, organizations, and operators have advanced various reasons as to why SMEs have not been able to live up to their billing. While an average operator would always hinge his failure on lack of access to finance, some others think otherwise arguing that inappropriate management skills, difficulty in accessing global market, lack of entrepreneurial skills and know how, poor infrastructure etc are largely responsible (Ekpenyong, 1992).

The Association of Nigerian Development Finance Institutions (ANDFI) in 2004 issued this statement in relation to why SMEs perform poorly in Nigeria: “Finance is usually considered as the major constraints of SMEs. While this may be true, empirical evidences have shown that finance contributes only about 25 percent to the success of SMEs. Thus, the creation of other appropriate support system and enabling environment are indispensable for the success of SMEs in Nigeria”.

Other challenges and problems, which frustrate SMEs in Nigeria and make some of them to either die within their first two years of existence or perform below standard even after surviving in their early years abound. The key ones include inadequate infrastructural facilities (road water electricity etc), insecurity of lives and property, inconsistent monetary, fiscal and industrial policies, limited access to markets, multiple taxation and levies etc (Olorunshola, 2001).

1.2   Statement of the problem

Small and Medium Enterprises (SMEs) in Nigeria have not performed creditably well and hence have not played the expected vital and vibrant role in the economic growth and development of Nigeria. This situation has been of great concern to the government, citizenry, operators, practitioners and the organized private sector groups. Year in year out, the governments at federal, state and even local levels through budgetary allocations, policies and pronouncements have signified interest and acknowledgement of the crucial role of the SME sub-sector of the economy and hence made policies for energizing the same. There have also been fiscal incentives, grants, bilateral and multilateral agencies support and aids as well as specialized institutions all geared towards making the SME sub-sector vibrant.

Just as it has been a great concern to all and sundry to promote the welfare of SMEs, it has also been a great cause of concern to all, the fact that the vital sub-sector has fallen short of expectation. The situation is more disturbing and worrying when compared with what other developing and developed countries have been able to achieve with their SMEs. It has been shown that there is a high correlation between the degree of poverty hunger, unemployment, economic well being (standard of living) of the citizens of countries and the degree of vibrancy of the respective country’s SMEs (Ekpenyong; 1992).

In spite of the fact that SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect on the economy. In a seminar titled “Industrial Financing in Nigeria: Problems and Prospects”, Olorunshola {2001}, identified in his paper the following as the main problems of SMEs, which are however not insurmountable: constrained access to money and capital markets, poor infrastructural facilities, low level of entrepreneurial skills, poor management practices, inadequate equity capital, high rate of enterprise mortality, shortages of skilled manpower, multiplicity of regulatory agencies and overbearing operating environment, societal and attitudinal problems, integrity and transparency problems, restricted market access, lack of skills in international trade; bureaucracy, lack of access to information given that it is costly, time consuming and complicated at times.

The problem and challenges that SMEs contend which are enormous but it is curious to know that some SMEs are able to overcome them. This gives hope and should provide a basis for optimism that there is a way out.

1.3    Justification of the study

The important of small scale businesses cannot be over emphasized especially in the third world countries in which Nigeria is one. In light of this Ogunleye (2004), posits that SMEs have the potentials to;

i.  Supply potential entrepreneurs

ii.  Create employment opportunities

iii.  Mobilize local resources

iv.  Mitigate rural-urban migration

v.  Distribute industrial enterprises

Inspite of the potentials, SMEs in the country are still facing financing challenges. Many of them have either gone under or at best performing below their potential contribution. This study therefore focused on the fundamental problems militating against their ability to accessing relevant funding inspite of the various programme of governments at all levels to promote the growth of SMEs in the country.

1.4    Objectives of the study

This research is thus intended to identify all the problems, challenges, and constraints militating against the financing of SMEs and also make appropriate recommendations for readdressing and eliminating them so that the SMEs could occupy their pride of place in the Nigerian economy and hence play the vital role they are expected to play in the economic growth and development of Nigeria.

The overall objectives of this study is to identify the major problems which have militated against the financing of Small and Medium Enterprises and prospects so that they {SMEs} can play the expected vital role as the engine of growth in our economic development efforts. In order to achieve this, the study will attempt the following;