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THE ROLE OF
FINANCING SMALL AND MEDIUM SCALE ENTERPRISE IN RURAL AREA
ABSTRACT
An important
feature of the Nigerian economy is imbalance in the spatial distribution of
natural resources, basic infrastructure and economic institution. In order to
foster development, some less development attempts to have started making
conscious attempts to encourage deferent part of their territories to tap
adequate resources which nature provide. Throughout it history, shall scale
enterprise has been one of the major wheels of economic development in almost
all economic of the world from the simple money changing transaction of the
Jews in Italy to the middle age goldsmith in England who were regarded as real
revolution and up to the present day, complex arrangements of financing of
small and medium scale enterprise and the importance of it in any economy cannot
be overemphasized. Its history has been the story of development and problems,
occasionally; it has developed from its early role of accepting or financing of
small and medium scale business, which is better handled by banks and rural
areas. Small and medium scale business that takes care of all the financial
needs of its customers. It is the theme of this project to analyze the policy,
formulation and execution strategies of the small and medium scale business
especially in the rural areas with the view to evaluate the problems and
recommendation of the problems. However, prospects are therefore small and
medium scale enterprise in Nigeria so as to know what the future hold for them.
CHAPTER ONE
1.1 INTRODUCTION
Industrialization
in Nigeria can be traced as far back as the mid sixty (mid 60’s) although
co-ordination and meaningful programmers in this direction become manifested
with the released of the second national
development plans, subsequent development plan has long focused largely on industrial growth and
development plan. These accounted for
introduction of the small scale industries credit scheme (s-s-1.cs) all over
the federation in 1996 each state from the defined Benue-Plateau states, came
the birth of the present Plateau state government which sponsor small-scale
industries credit scheme.
The federal
and state government realized the important of small-scale industries in the
growth and development of stable and dynamic economy accounted for their
government assistance in both cash and lend. They made funds and expertise
available to small scale medium industries to enable them under take project that could contribute to
the economic development of the country.
In general
term, the small-scale industries credit
scheme was established to provide loan
in a cash and kind to the establishment and modernization of small-scale
industries that offer promising being of
economically viable by producing, needed commodities, making use of local
raw materials and expanding employment
opportunities, small- scale industries
being the “back-bone” of any economy
principal source of innovation and new ideals or method, they make up of economic units in every economy, their
development and growth is of great significant to overall health of the natural
economy by financing (inform of loans)
these small-scale industries especially those in the rural areas, it is
hoped that growth and development of small-scale industries which is an important
pre-requisite for the substance of well
balance industries would achieved and there
by ensured the realization of Nigeria’s industrial goals, since the bulk
source of the Nigeria raw materials are from the rural areas.
Historically
small-scale industrial programmes. In developed economy and united state of America (U.SA ) Germany and Japan
developing country like Nigeria, generally speaking, small, scale
industries served as.
1.2 BACK GROUND OF THE Study
Union Bank
of Nigeria plc, commercial banking operate in Nigeria in 1894 as the bank of
British West Africa limited (Liver pool) with an authorized share capital of
$100000 (one hundred thousand Dollars), making it the second bank to be
established in Nigeria after first bank.
The bank
recorded remarkable growth over the years with the opening of a branch in
Calabar in 1907 and they take over in 1912 of the bank of Nigeria thus,
regarding, it position as second bank of
apart from first bank in the country at that time. The bank was nominated to
act as agent in Nigeria to the West Africa currently board (set up in 1912) to
perform, the role of a commercial banking like first bank in Nigeria.
However, it
retained this role until 1959 when the central bank of Nigeria was established.
The central bank of Nigeria was established inline with the discoloration
process of the 1950’s, the bank’s name was changed to bank of West African
Limited in 1957. The standard bank of England in compliance with the company’s
decree of Nigeria limited in 1969. the federal government of Nigeria purchased
36, 1% of the bank equity while the Nigeria investors took up 12.9% in line
with the indigenization process, commenced by the Nigerian government in 1972,
government share holding had increased to 44.76% and that of other local
investors to 17.24% as a result of the dilution of union bank of Nigeria plc
and its share were listed on the floor of the Nigeria stock exchange in the
same year.
In
compliance with the requirements of sections 31 of the Companies Allied Matters
Act 1990. The name of the bank was further changed to union bank provide its
customer a full range of commercial
banking services including current
saving and deposit accounts, loans
and over-drafts, provision of international
banking services, least export
credits, financial advisory
services and soon with the
establishment of merchant bank in 1990, the bank has also be able to provide
its numerous customers a full range or
merchant banking services. The union bank of Nigeria plc provides services to
its customers in different dimensions in the country.
1.3 STATEMENT OF THE PROBLEM
In spite of
numerous efforts by the government to increase new form of industrial
activities in the national economy and the unique position occupied in the
small and medium industries in the overall national development, very
competition disadvantages with the big industries in Kaduna state and Nigeria
as a whole, one among the major impediments, that hindered the growth of this
sector of the economy, is lack of capital and credit facilities. (Money) is the
sin-quo without which it is impossible to mobiles other factors of production
for small and medium scale credit for the establishment and expansion of the
business for the following reasons.
They are
considered generally high credit risk, commercial bank and other business
institution are element to grant loan to
the small and medium scale business and often weak and inefficient enterprise
with inadequate accounting systems and little collateral or security to offer.
Thus the requirement t for long- term capital and equipment financing demanded
by the commercial banks are not met.
There are
inadequate credit institutions in the country where the small and medium scale
industries could go to range the capital needed for their operations. However,
the ignorance of where and how to obtain the funds needed to start up
the business, this is partly due to low level of educations on the part of most
small and medium industrialist in
Nigeria especially those in rural area where funds are not available, lack of
managerial competence constitute another problem. Majority of the entrepreneurs
in this country are usually facing the problem of how to administer their own
business. Another major problem is, inadequate personnel to assist in running
the affairs of the company.
There is
also planning absence, most Nigerian small and medium enterprise fail because
of lack of proper planning for the
purpose of achieving a desired objective of profit maximization where the
adequate planning is not there, inadequate infrastructural facilities such as
electricity, good roads, water supply, schools and hospitals to enhance the
establishment of small and medium scale
enterprise in rural areas are lacking
this, seriously affecting the
development of small and medium scale enterprises in Kaduna state
and Nigeria as a whole.
Finally,
there are difficulties in the economic environment, which constitute sever
obstacle on the part of success of small and medium scale enterprises.
There are
other factor upon the operation of a business other than availability of
capital and managerial ability of the business himself. These include, the problems of security, the proper
equipment in reasonable time and in good working conditions, the human resource, infrastructures,
supplies, adequate market, land etc
various development bank where establishment by the federal government
purposely to reduced these obstacles to
the best minimum and encouraged quick industrial growth, in 1977 commercial
bank were directed by the federal
government through the central bank to embarked on rural banking aiming at
providing adequate credit facilities to rural dwellers 1977, small and medium
scale industries credit scheme was established under the ministry of trade and
industries to provide credit facilities to industries particularly those in the
rural areas yet theses various attempts did not yield the results.
1.4 OBJECTIVE OF THE STUDY.
This
research is interned to investigate the various forms of financing of small and
medium scale industries within particular reference to Kaduna state. It is
necessary to have a study that will
examine the factors that inhibit easy access to loan able funds by small and medium scale industries in Kaduna state.
In spite of
the present emphasis given to the promotion of small and medium scale business
unemployment has continued to be on the increase. Goods and services also
continued to be in short supply the general standard of the people of kaduna
state has declined. It is therefore, necessary that the problems of small and
medium scale business had been properly looked into; the major problem of small
and medium scale industries is that of finance.
The
significance of this study includes:-
Providing a
useful guide for prospective to have self- employment as a career
Serving as a
loop for further, researchers in the areas of small and medium scale
management.
Lead to
effective decision making by small scale operators.
Provide and
understanding of the importance of banks to organization as vital tools for
economic development of the country. The knowledge about all the above issues
to be raised will create enthusiasms for people in this direction.
1.5 Research hypothesis
These
financing were used in testing the hypothesis
Capital
approved for the small and medium scale industries.
The high
rate of interest changed on loans granted in the small and medium scale
industries has been responsible for inabilities of the small and medium scale
industrialist to honor. The installment repayment of their loans.
The low
level of education among the rura dwellers has contributed immensely to the
problems of financing small and medium industries in Kaduna state.
Therefore,
the nu-hypothesis of lack of capital is the main cause of small and medium
scale business, failure in Kaduna state, the alternative hypothesis is
rejected. Also in second (2) Sit of hypothesis, null- hypothesis is accepted,
low level of general education is a strong factors business is rejected.
1.6 Scope
and limitation of the studies
The first
limitation of the study was the time. Time allowed to carry out this research
work was almost too short to compare with the fact that the researcher has to
compound his ideas.
Another
limitation was the released of earlier documents considered to be confidential
which could have been very useful to this study despite the difficulties, it is
my hope that this study.
Despot the
difficulties, it is my hope that this study would help future research,
government official as well as interested person conducting future studies on
this subject.
1.7
Definition of terms.
In the cause
of this study, some operational definition were used which are to be seen
strictly and mainly in the light of this study.
CAPITAL: -
This refers to the total sum invested in the business including all funds
invested both owned and borrowed plus accepted credit.
LOAN
BENEFICIARIES: - these are those entrepreneur that been granted loan to
undertake small and medium scale project.
PROJECT: -
this is the venture which a loan beneficiary is engaging in.
DEVELOPMENT
INSTITUTION: - this refers to bodies of government financing to enhance
agricultural development.
INTEREST:-this
refers to the charge on the capital borrowed to the loan beneficiaries.
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