CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Small
scale enterprise is very crucial
to the development of a country’s economy, especially a country like Nigeria.
Entrepreneurship enhances national development, poverty eradication and
employment generation. It is the bedrock of any nation’s industrialization.
By
definition, small and medium sized enterprises SMEs are seen as the entrepreneurship
businesses with small number of employees, small investment capitals and small
annual business turn over. According to statistical figure showing the
importance of micro, small and medium scale business MSMEs, sector to Nigeria
economic growth. A survey carried out by the Small and Medium Enterprises
Development Agency of Nigeria (SMEDAN) in conjunction with National Bureau of
Statistic (NBS) in 2013 revealed; the total number of MSMEs in the country as
at 2013 stood at 37,067,416 with micro businesses recording 36,994,578, small
businesses 68,168 and medium businesses recording 4,670. The total number of
persons employed by the sector as at Dec, 2013 stand at 59,741,211 representing
84.02% of Nigeria’s total labour force.
Nigeria
is an entrepreneurial economy with an estimated 37million micro, small and
medium-sized companies, whose contribution to economic growth and job creation
is significant. Contributing over 48% to the GDP, employing over 60 million
Nigerians and contributing over 7% to exports according to the National Bureau
of Statistics.
In
Nigeria the level of finance for entrepreneurship is one of the lowest in the
world, however, while the World Bank (2010) report indicates that Nigeria’s
financial system is highly capitalized and vibrant, her contribution to
entrepreneur and MSME’s sector is about 1.6% of the total loans and advances to
the private sector as of 2009 (CBN,2009).
Access
to finance is the ability of individuals or enterprise to obtain financial
services, including credit, deposit, payment, insurance and other risk
management services.
Credit
is generally understood to mean the finance provided to others at a certain
rate of interest and the creation of credit is one of the most important
functions of commercial banks.
However,
less than a third of the country’s MSMEs have successfully obtained a loan from
financial institution, instead, most use their personal savings or reinvested
profits as a source of business financing, the smaller the business, the less
likely it is to have applied for and received a loan from any financial
institution. Many of these businesses have the potential to become bigger and
more prosperous but their growth is restricted for a variety of reasons which
access to credit is the major.
Access
to credit has been identified as one of the key factors required to accelerate
growth and improve welfare in developing countries. There is need to intensify
efforts in making credit accessible to entrepreneurs, since this will liberate
majority of the population from poverty, encourage savings and improve
investment in physical and human capital which promotes economic growth.
Entrepreneurship would be significantly enhanced through the provision of
credit facilities to enable them engage in economic activities and be more
self-reliant, increase employment opportunities and create wealth (CBN, 2005).
The importance of credit access to entrepreneurial development made the central
Bank of Nigeria adopt the financial institution as the main source of financing
entrepreneurship in Nigeria. Despite this however, finance is still considered
as one of the major hindrances to entrepreneurial development in Nigeria (Ubom,
2003). While government and
non-government organisation (NGOs) have been engaging a number of programme and
policies to encourage entrepreneurship in the country. Based on the
introductory discussion the paper therefore seeks to examine access to finance
and entrepreneurial development.
1.2
STATEMENT OF THE PROBLEM:
A
research carried out by Okpara and Wynn (2007) on small business development
showed that the rate of their failure in developing countries are higher than
in the developed countries.
In
Nigeria, empirical report shows that an estimate of about 70% of the industrial
employment is held by SMEs and more than 50% of the Gross Domestic Product is
SMEs generated (Odeyemi, 2003). Given the role of SMEs to the economy of
Nigeria, various regimes of government since independence in the 1960s, have
focused on various programs and spent immense amount of money with the primary
goal of developing this sector, these have however not yielded any significant
results as evident in the present state of the SMEs in the country (Mambula,
1997). SMEs are generally very susceptible and only a certain number of them
manage to survive due to several factors such as difficulty in accessing
credits from banks and other financial institutions.
The
Financial systems in every country play a key role in the development and
growth of the economy, although the ability to play this role effectively and
efficiently largely depends on the degree of development of the traditional
commercial banks which are key players in the financial systems of nearly every
economy, have the potential to pull financial resources together to meet the
credit needs of SMEs, however, there is still a huge gap between supply
capabilities of the banks and the demanding needs of SMEs.
In
spite of the enormous contributions of SMEs in the economy, access to credit
facilities from banks and other formal financial institutions has been one of
the main issues of SME development, there are various constraint that hinders
the smooth access to credit facilities from the formal financial institution
which include collaterals, high interest rates charged on loans, literacy
levels and the number of lending institutions etc. This study sought to examine
access to finance and their role in entrepreneurial development.
1.3 RESEARCH
QUESTIONS:
The
research was guided by the following research questions;
1.
How does credit access (finance) enhance
entrepreneurial development?
2. To what extent does interest rate influence
entrepreneurial development?
1.4
OBJECTIVES OF THE STUDY
The
main objective of this work is to determine the impact of credit access on entrepreneurial
development in Nigeria. The specific objectives are:
1. To
determine the impact of finance on entrepreneurial development.
2. To
ascertain the extent of the influence of interest rate on entrepreneurial
development.
1.5
HYPOTHESIS
1. Finance has no significant impact
on entrepreneurial development.
2. Interest rate has no significant influence on
entrepreneurial development.
1.6
SIGNIFICANCE OF THE STUDY
Considering
the importance of entrepreneurship in any economy, it is important to
understand the role of the financial institutions on entrepreneurial
development in the country and the challenges facing the entrepreneurs in the
accessing credit.
1.7
SCOPE OF THE STUDY.
This
study laid emphasis on credit access and entrepreneurial development in Nigeria
from 1992-2016.
1.8 DEFINITIONS
OF TERMS
Entrepreneurship
- The art or science of innovation and risk-taking for profit making in
business.
Access
to finance - The ability of individuals and enterprises to obtain external
funding to enable them ease cash flow problem.
Entrepreneurial
Development –Is the process of improving the skills and knowledge of
entrepreneurs through various training programs.
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