A STUDY ON THE PERFORMANCE OF SMALL SCALE ENTERPRISES IN COMMUNITY DEVELOPMENT

ABSTRACT

This study examines an appraisal of performance of small scale enterprises in community development; evidence from Anambra south senatorial zone, Anambra state. Specifically the study provides the reasons for going into SMEs; sources of financing SMEs; role of SMEs in community development and factors militating against SMEs in community development. The researchers distributed 143 questionnaires to the respondents that make up the sample size. The research questions were answered using mean rating under the modified four-point likert scale.Result of the investigation reveals that SMEs play the following role in community development: Generation of employment; Service provision; Improve living standards and poverty alleviation. Consequently this study therefore recommends that: government should re-introduce the small business credit scheme so that beneficiaries can use them to run the micro, small and medium enterprises; government, chamber of commerce and other non-governmental organization should regularly organize seminars for potential and actual small and medium enterprise operators where they should be educated on how to plan, organize, direct and control their businesses there should also be a re-introduction of soft loans for small and medium business by the government and financial institution to enhance the performance of SMEsin community development.

CHAPTER ONE

INTRODUCTION

1.1 Background of The Study

SMEs have been discovered to be a key driver for a country’s economic growth (Schmiemann, 2009) hence, SMEs cannot be overlooked in the economic development of any country. Okongwu (2001) argues that SMEs are recognized as the main source of economic growth and a major factor in promoting private sector development and partnership, in developed and developing countries. SMEs help to create employment and are often seen as very important for the growth and innovation of dynamic economies (Mutula and Brakel, 2006). Therefore, economic growth and development in Africa can be achieved through the emergence of strong SMEs, which will later grow to become major players in the developing economy. SMEs help to diversify economic activities that have significant contributions to imports and exports, they are flexible and can adapt quickly to changing market demands (Ongori, 2009). Thus, SMEs contribute more and more to the national and international economies of the world.

According to Wattanapruttipaisan (2003), the significance of SMEs for growth, productivity and competitiveness of the economies in both developed and developing countries is acknowledged universally, since SMEs bring about substantial local capital formation, contribute to improved living standards and achieve high levels of productivity. SMEs are identified as a major means of achieving equitable and sustainable industrial diversification.

The contributions of SMEs to Nigeria’s economy are not contestable as about 10% of the total manufacturing output and 70% of the industrial employment are by SMEs (Aina, 2007). Through the utilization of local resources, SMEs promote industrial and economic development and are responsible for the production of intermediate goods and the transformation of rural technology (Aina, 2007). Nigerian SMEs not only provide employment and income for majority of its citizens but are also recognized as the breeding ground for domestic entrepreneurial capabilities, technical skills, technological innovativeness and managerial competencies for private sector development (SMEDAN, 2005, Aina, 2007).

The assistance of SMEs to any economy are obvious, as SMEs are known to contribute to the development of several economies in terms of output of goods and services and creation of jobs at relatively low capital cost (Apulu and Latham, 2010). SMEs also improve forward and backward linkages between economically, socially and geographically diverse sectors of many economies (SMEDAN, 2005). Thus, the development of SMEs is an essential element in the growth strategy of many economies including Nigeria.

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 performance of small and medium scale enterprises in community development with specific attention from Anambra South Senatorial zone, Anambra State.

1.3 Objective of The Study

The specific objectives of this study is

1 To determine the sources of financing SMEs from the respondents;

2 To ascertain the role of SMEs in community development; and

3 To identify factors militating against SMEs in community development.

1.4 Research Questions                                                                         

This study was guided by the following research questions:

1 To what extent do small  scale enterprise contribute to towards economic development of a community ?

2 What are the problems encountered by the small scale enterprise in sourcing for funds?

1.5 Research Hypothesis

The following null hypothesis was given for this study

i Ho: Small Scale enterprise do not contributes immensely towards economic development of a community.

 Hi: Small Scale enterprise contributes immensely towards economic development of a community.

ii Ho: Small scale enterprises do not encountered problems in source for funds.

Hi : Small scale enterprises  encountered problems in source for funds.

1.6 Organization Of The Study

This paper is divided into five sections. Following the background, section II reviews related literature on the topic. Section III set out the research methodology, while Section IV presents and analyses the empirical results. Section V rounds it up with the conclusion and recommendations.

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.