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FINANCIAL
PROBLEMS AND SURVIVAL STRATEGIES OF SMALL SCALE ENTERPRISES
ABSTRACT
The study
was carried out to examine the financial Problems and Survival Strategies of
Small Scale enterprise in Aguata Local
Government Area of Anambra State. The purpose of the study is to find out the
financial problems and survival strategies of small and medium scale
enterprises. Four research questions and four null hypotheses were raised. The
sample size was 140. Questionnaire was used to collect the data. Frequency
tables, percentages, and z-test were used to analyse the four hypotheses. The
result revealed that small and medium scale industry face a lot of financial
problems and these problems is mainly as a result difficulty in raising
capital. These problems have hampered its survival. In view of these findings
the researcher made some recommendations to these problems.
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Since Nigeria attained independence in
1960, considerable efforts have been directed towards the nation’s industrial
development. The initial efforts were government-led through the vehicle of
large industry, but lately emphasis has shifted to Small Scale Industries
(SSIs) following the success of SSIs in the economic growth of Asian countries
(Ojo, 2003). Thus, the recent industrial development drive in Nigeria has
focused on sustainable development through small business development. Prior to
this time, particularly judging from the objective of the past National 4-Year
Development Plans, 1962-68 and 1981-85, emphasis had been on government-led
industrialization, hinged on import-substitution.
Since 1986, government had played down
its role as the major driving force of the economy by a process of
commercialization and privatization (Beyene, 1999). Emphasis, therefore,
shifted from large-scale industries mainly to small scale industries, which
have the potentials for developing domestic linkages for rapid and sustainable
industrial development. Attention was focused on the organized private sector
to spearhead subsequent industrialization programmes. Incentives given to
encourage increased participation in these sectors were directed at solving
and/or alleviating the problems encountered by industrialists in the country,
thereby giving them greater leeway towards increasing their contribution to the
national economy.
Interest in
the role of Small Scale enterprises in the development process continues to be
in the forefront of policy debates in developing countries. The advantages
claimed for Small Scale enterprises (SSEs) are various, including: the
encouragement of entrepreneurship, the greater likelihood that SSEs will
utilise labour intensive technologies and thus have an immediate impact on
employment generation (Ayozie&Latinwo, 2010); they can usually be
established rapidly and put into operation to produce quick returns; SSIs development
can encourage the process of both inter- and intra-regional decentralization
(Ogujiuba et al., 2004); and, may become a countervailing force against the
economic power of larger enterprises (Salami, 2003). More generally the
development of SSIs is seen as accelerating the achievement of wider economic
and socio-economic objectives, including poverty alleviation (Safiriyu and
Njogo, 2012; Ayozie and Latinwo, 2010; Udechukwu, 2003).
The role of
finance has been viewed as a critical element for the development of Small
Scale enterprise Previous studies have highlighted the limited access to
financial resources available to smaller enterprises compared to larger
organisations and the consequences for their growth and development (Hossain,
1998; Wattanapruttipaisan, 2003; Berger and Udell, 2004; Ogujiuba et al., 2004;
etc). According to Valverde et al (2005) bank credit play a crucial role in
providing external financing to Small Scale Industry (SSIs). But in Nigerian
context, this crucial source of finance for Small Scale Industry is apparently
non-functional (Kadiri, 2012). This is evident in the ratio of loans to Small
Scale Industry to Commercial banks’ total credit, which shows that a meager
0.16% of commercial banks’ total credit was granted to Small Scale Enterprises
in the last quarter of 2011 (CBN, 2011). More worrisome is the fact that this
ratio has been falling over the years and continued unabated in the
post-consolidation era (Iorpev, 2012).
Typically,
smaller enterprises face higher transactions costs than larger enterprises in
obtaining credit (Olorunshola, 2003). Poor management and accounting practices
have hampered the ability of smaller enterprises to raise finance. Information
asymmetries associated with lending to small-scale borrowers have restricted
the flow of finance to smaller enterprises. In spite of these claims however,
some studies show a large number of small enterprises fail because of
non-financial reasons.
The panacea for solving problems of
economic growth in developing countries often reside in the development of
small scale industries. The establishment of those industries has been the
centrepiece of industrial development of many countries such as India,
Malaysia, Pakistan and Indonesia, to mention a few. It is expected that the
gains to be derived from the establishment of small-scale industries will be
translated into the generation of employment at a low investment cost. These
industries will also be able to harness raw materials locally and serve as raw
inputs to the large-scale industries. Therefore, this study seeks to
investigate the financial problems and survival strategies of small scale
industries.
1.2
Statement of The Problem
The key problem facing most small scale
enterprises is lack of finance whether for the establishment of new industries
or to carry out expansion plans. The inability to attract financial credit or
resources has hindered or stifled the growth of small scale enterprise. The
reasons for the lack of fund include the followings:
High rate of
inflation that led to the vast depreciation of Naira exchange rate, thus making
it difficult for most Small Scale
enterprise to obtain required inputs for expansion.
Low level of
savings in the economy, which leads to low capital formation.
High rate of
interest charged on loans, which scares off potential Small Scale enterprise.
The
unwillingness of retail banks to grant credit to Small Scale enterprise because of the low creditworthiness of these
enterprises has also hampered their growth over the years.
Bothered by the persistent decline in the
performance of the industrial sector and with the realization of the fact that
the small and medium scale enterprises
hold the key to the revival of the manufacturing sector and the economy,
the Central Bank of Nigeria successfully persuaded the Bankers’ Committee in
2000 to agree that each bank should set aside 10 percent of its annual pre-tax
profit for equity investment in small and medium scale enterprises. To ensure
the effectiveness of the programme, banks were expected to identify, guide and
nurture enterprises to be financed by the scheme. The activities targeted under
the scheme included agro-allied, information technology, telecommunications,
manufacturing, educational establishments, services, tourism and leisure, solid
minerals and construction. The scheme was formally launched in August 2001. As
at end-December 2009, the cumulative sum set aside by banks was N42.2 billion.
The sum of N28.2 billion or 67.1 per cent of the sum set aside had been
invested (CBN, 2009). But the fact still remains that with these provisions
made are in most cases not accessible to the Small Scale Industries.
The main thrust of this study is to
evaluate the financial problems and survival strategies of Small Scale
enterprise in Aguata Local Government Area of Anambra State.
1.3 Purpose
of the Study/Objective Of The Study
The purpose
of this study is the financial problems and survival strategies of small scale
enterprises and specifically, the study seeks to
To ascertain
if the financing options available to the SSE are practically obtainable to
support the capital required for their operation.
To examine
the extent to which Small Scale enterprise contribute to economic development.
To identify
the problems they encounter in sourcing out funds.
Identify
survival strategies needed by Small scale industries.
1.4 Research
Questions
This study
was guided by the following research questions:
What are the
various sources of funds available to the small
enterprise ?
To what
extent do small scale enterprise contribute to towards economic development of
a nation?
What are the
problems encountered by the small scale enterprise in sourcing for funds?
What are the
survival strategies to be adopted by the small scale enterprise?
1.5 Statement
Of The Research Hypothesis
The
following null hypothesis was given for this study
i.Ho:There
is no significant relationship between the source of fund available to small
scale enterprises and the funds available to them.
Hi: There no
is significant relationship between the source of fund available to small scale
enterprises and the funds available to them.
ii.Ho: There
is no significant relationship between the development of small and medium
scale industries and the economic development of that nation.
Hi: There is significant relationship between
the development of small and medium scale industries and the economic
development of that nation.
iii.Ho:There
is no significant relationship between the problems encountered by the small
scale enterprises in their source of funds.
Hi :There is
significant relationship between the problems encountered by the small scale
enterprises in their source of funds
iv.Ho:There
is no significant relationship between the survival strategies adopted by the
small and medium scale industries and the survival of small and medium scale
enterprise.
Hi. There is
no significant relationship between the survival strategies adopted by the
small and medium scale industries and the survival of small and medium scale
enterprise.
1.6 Scope Of
The Study
This research covers the area of
financing and survival strategies of small-scale enterprises in Nigeria, paying
special attention to Aguata Local government Area of Anambra State.
1.7
Significance of the Study
Small-Scale Enterprises in Africa rely
largely on own savings, not only to grow but also to innovate, firms often need
real services support and formal finance assistance. This study will be of
benefit to the operators of the Small and Medium Enterprise, the government,
and the general public on the possible financing options and survival
strategies available to the Small and Medium Scale enterprise and give the
possible means of accessing them
1.8
Limitation of the Study.
Some factors
may limit the level of accuracy and reliability of this study. Such factors
include.
i.
Difficulty in obtaining data.
ii. Low
response rate from involved parties.
In the
absence of the above mentioned limitations, all other errors and omissions are
entirely those of the researcher.
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