It
is a fact that capital constitutes a major bone in the rapid growth and
development of small-scale industry in Nigeria. The importance of capital in
any business setting can not be over stretched. Financing generally appears to
be a crucial issue in determining whether a business should be set up, or other
words, as stated earlier, Business does not require finance for it initial
take-off but also need adequate funds to operate and expand effectively.
Hence, the issue of finance and its
adequacy are major areas of concern to any entrepreneur. Generally, the sources
of finance open to small-scale business Include: owners capital, financial
institutions, government, non-banking institutions and other sources: Akabueze
(2002.p-23).
1.
OWNER’S CAPITAL: This is perhaps the most important source of finance to most
small-scale enterprises in Nigeria. Generally, the capital used in this
business is money gotten from personal
savings of the owner or members of the same family who came together to donate
money to state up a business. About 97% of the total money use to finance a
small-scale business come from this source in Nigeria, while it is estimated
that between 60% and 75% in Sirraleone and averages about 65% in some parts of
India. Several reason could be advanced for the source available to small-scale
enterprises.
The major reasons is that small-scale
business do not have access to the capital market, even with the recent
introduction of the second-tier securities market by the Nigeria Stock
Exchange, it is still obyious that many small-scale business will be unable to
meet up with the requirement needed to collect loans.
Another reasons why the owners capital donates other
sources of finance to small-scale enterprises is the fact that savings do not
require any formalities or bottlenecks, before it would be used in financing
small-scale business. In other words, the case with which the decision to raise
this sort of finance and the speed at which such decision would be executed
makes personal savings or owners capital indisputable because it is the most
popular and attractive source of finance to small-scale enterprises.
2.
FINANCIAL INSTITUTION: The financial institution comparises of commercial
banks, merchant bank insurance companies and development banks. Their roles in
providing financing assistants to small-scale enterprises has been
critized by experts.
Commercial
and merchant banks can provide wide range of financial assistance to
small-scale enterprises such as monetary loan to facilitate their projects,
Financing collateral security for mortgage loans. Demand deposits, acting as
stock brokers, executors as well as providing references to small-scale
business to obtain credit from other organizations. In addition, this financial
institutions can manage funds for small-scale enterprises and provide them
investment counseling and advice, obvious areas of need which most financial
institutions have neglected include export promotion marketing, managerial and
technical assistance.
3. GOVERNMENT
SOURCE: Apart from the bottleneck red-tap associated with government
sources, Osoba (1978) noted that the federal government financial assistance to
this sector (small-scale enterprises) through Nigerian Bank for commerce and
industrial (MBCI) is far from enough. Considering the problems associate with
security government finance (bottleneck, bribering and favoritism) small-scale
enterprises recommended the establishment of a special bank (as already
existing for agricultural development) to cater for the varying need of
small-scale enterprises.
As a solution to collateral
requirements of commercial banks, he suggested that the government should
guarantee such as it is with agriculture. The government should also establish
an insurance company similar to that of agricultural sector for the purpose of
insuring small-scale enterprises manageable risk.
4. NON-BANKING
FINANCIAL INSTITUTIONS: The prominent
member of this group whose main purpose of creation is to assist small-scale
business is the National Directorate of Employment (NDE) there are mere to
grant loans, mostly to young school leavers and graduates with the aim of
setting them up in life. Another one
in this group is the hire purchase
by companies; they give out subsidies of their company products on
installmental basses e.g. of such
companies are the New Nigerian Development Company, the National Economic
Reconstruction Funds, which has so far given out loans to help set up
small-scale business, there have given about N12
billion for about 373 projects.
5. OTHER
SOURCES: This includes loans gotten
from friends, relations and family members. The trade creditor can also give
out loan though with expected returns, discount companies are also part of this
group, since they give case discount to small-scale enterprises.
FEDERAL GOVERNMENT FINANCIAL ASSISTANCE
TO SMALL-SCALE ENTERPRISES
The problem of capital security in
the operations of small-scale enterprises has been a major obstacles to the
development of industrial sectors and this explains why government financial
assistance has been manly directed towards this direction. In recent times, the
government has devoted a lot of financial resources to this secret in order to
liberate the entrepreneurial skill of Nigeria. The Nigeria Bank for Commerce
and Industry (NBCI) through loan and equity participation, finance business
start ups and expands the business with emphasis on manufacturing and service
oriented small-scale and medium-scale firms since 1980.
In 1989, National Economic
Reconstruction Fund (NERFUND) was established by degree two to correct the
short fall in the provision of fund to small and medium-scale enterprises. By
September, 1990, the fund had been able to mobilize N5.6 billion in domestic and foreign currencies for lending the
local enterprises (since 1986) another important government programmes for
small-scale business sectors is Small And Medium Scale Enterprises Loan
Facilitating (SMELE) design to boost finance to the sector. Its total fund base
in put at N415.8 million.
with
three credit components. These consultancy, training and working capital needed
for the establishment for the establishment of new small-scale business and
expanding existing ones, pilot credit guarantee schemes and equipment and
leasing funds to consist small-scale enterprises that are undercapitalized. In
the same way, the credit guarantee scheme is expected to be funded by the three
levels of government in Nigeria, the Central Bank and NERFUND.
Another is the establishment of
micro-finance to assist the small-scale enterprises, though such banks have
been established as planned but the outcome is not encouraging, the banks are
not carrying out their duties as expected, in the sense that those who truly
needs the assistance are not the ones which the loan is given to and also the
producers involved in collecting loans is not easy as most of the owners of
such businesses are not learned. Small-scale enterprises can be financed
through debt capital which can be raised from various sources; it includes
banks such as commercial banks, merchant and development banks, private
financial institutions and other financial intermediaries of various
instructions. In addition, financial assistance is also contained in the
monetary and credit guide lines which vary from year to year depending on the
basic aim of increasing loan facilities to the sector at considered rates.
Fiscal policy measures such as pioneer status, import tax relief, import duty
relief, capital’s depreciation allowance and other forms or tariff measures
have been put in place to create assistance or aids as budgetary measures,
Ochejele (1992).
Federal government active
participation in promoting small-scale enterprises is also traceable to the establishment
of Industrial Development Centre (IDC). Essentially, Industrial Development
Centers are aimed at providing extension of loan application, training of
entrepreneurs, managerial assistance product development, product planning and
control and other extension services. Apart from the Owerri Industrial
Development, other Industrial Development Centre have been initiated at Zaria,
Kano, Port-Harcourt, Oyo, Ikorodu, Benin, Oshogbo, Bauchi, Kano and Abeokuta,
thus over the years the government has provide an array of assistance to
enhance the operation of the small-scale enterprises in Nigeria, Oyewande
(1991).