Nigeria, like other developing countries, has continued to grapple with the menace of poverty despite several economic policies and programmes implemented by various governments. This study was therefore undertaken to assess the impact of small and medium enterprises financing on poverty reduction in Nigeria from 1991 to 2010. Using ordinary least square (OLS) analytical technique, data from the central bank of Nigeria (CBN) statistical bulletin were obtained. Findings revealed that there is a significant relationship between small and medium enterprises financing and poverty reduction in Nigeria. However, inflation rate has a negative relationship with poverty. Nonetheless, exchange rate has a positive relationship with poverty, whereas unemployment has a strong negative correlation with poverty in Nigeria. It was concluded that small and medium enterprises financing has a positive relationship with poverty in Nigeria. It was therefore recommended inter alias that adequate attention should be given to small and medium enterprises through channeling of more resources to the sector. And that the government should as a matter of urgency diversify the economy and create more jobs for the increasing population to reduce the unemployment rate in the country, thereby reducing poverty.





1.1 Background of the Study

Small and medium enterprises have made great contributions in eradicating poverty in Nigeria. SMEs are regarded as the engine of economic growth to any nation’s development. The main advantage of the sector is its ability to employ at low capital cost. The labour intensity of the SMEs is much higher than that of the large enterprises. SMEs as a nursery of entrepreneurship are often driven by individual’s creativity and innovation. Besides the growth potentials and its critical role in the manufacturing and value chains, there wide spread in Nigeria and the multiple effects they have on the rest of the economy enable them to be the engine of economic progress. SMEs are main drivers of innovation, job creation, poverty reduction, wealth creation, income distribution and reduction in income disparities. After the economic reform on 1986, the small and medium scale Enterprises are seen as a key to Nigeria’s growth and poverty alleviation and unemployment in the country. Therefore, there is need to promote such enterprises in developing economies like Nigeria because since it brings about a great distribution of income and wealth, economic self-dependence, Entrepreneurial development employment and a host of other positive economic uplifting factors. In Nigeria where adverse Balance of payment situation is low, the growing activities of the small scale industries sector in its export portfolio goes a long way in generating foreign exchange and smoothening out the adverse balance of payment situation.

Awosika (2011), Schmitz (2010) and Aremu (2010) posited that small scale enterprises provides income, saving and employment generation. They are seen as veritable engines for the development of entrepreneurial capabilities and indigenous technology which will generate employment in the country. It has been estimated that SMEs employ 22% of the adult population in Nigeria. Because of the SMEs roles in the development and growth of various economies, they have aptly been referred to as “the engine growth” and catalysts for socio-economic transformation of any country. The various activities of small business firms have resulted in the mobilization of the resources of the environment and thereby improving on the standard of living of the population or people. They have contributed a lot to the labour market by absorbing on ever growing supply. In doing this, they have sufficiently helped to curtail the rising unemployment rate in Nigeria. Other impacts of this sector are its contribution to the development of indigenous entrepreneurs like Innoson Group of company, Tummy-Tummy, Chikason Group of Company, Dozy Power flow etc.

SMEs can be said to be a good agent for disposal of industrial products and some service and have immensely increase the production of raw-materials in the form of semi-processed goods for use by bigger industries. It is also a base for the development of appropriate technology and provides a veritable ground for skilled, unskilled and semi-skilled workers. Anambra state has in recent years become an important industrial zone tool. Its prominence has become generally recognized to the extent that the Oyeleran Oyeyinka (2000) described it, as an emergent industrial cluster` in Nigeria Englama. Bamidele (2010) aptly summarized the definition of poverty in both absolute and relative term as a state where an individual is not able to cater, adequately for his/her basic needs of food, clothing and shelter, meet social and economic obligations, lack gainful employment, skills assets and self-esteem, and has limited access to social esteem and economic infrastructures.

SMEs have played and continued to play significant roles in the growth, development and industrialization of many economies the world over. In the case of Nigeria, SMEs have performed below expectation due to a combination of problems which ranges from attitude and habits of SMEs themselves through environmental related factors, instability of governments and frequent government policy changes. The supportive business environment for SMEs is still weak in Nigeria. The SME support programmes are poorly coordinated and lack the necessary coverage to reach all sectors of the small business community. Almost all Microfinance Institutions (MFIs) are supposed to cater for those enterprises with credit lending. However, project lending and risk capital for SMEs is virtually unavailable. The private equity and venture capital funds established in Nigeria are few and cater primarily for the needs of expansion of established business and privatized companies.

However, as Hallberg (2000) observes, government assistance strategies in both developed and developing countries often try to achieve a combination of equity objectives (alleviating poverty and addressing social, ethnic and gender inequalities) and efficiency objectives (raising the productivity and profitability of firms). Likewise, Ojo (2003) argues that all these SME assistance programmes have failed to promote the development of SMEs. This was echoed by Tumkella (2003) who observes that all these programmes could not achieve expected desires due largely to abuses, poor project evaluation and monitoring as well as moral hazards involved in using public funds for the purpose of promoting private sector enterprises.

It is on the basis of these bottlenecks in financing SMEs that this study is undertaken to analyzed the impact of SMEs financing on poverty reduction in Nigeria.

1.2 Statement of the Problem

The role of small and medium enterprises in eradicating poverty cannot be over emphasized. When you look at Nigerian economy it shows that greater consideration and encouragement should be given to small and medium enterprises. However, little attention or none is given to SMEs as they are left purely in the hands of individuals to initiate and run them. The essence of this study therefore is to find out why the government has not cared to give the same level of attention to small and medium enterprises. When this is known, it will be of paramount importance to point out all the benefits of small and medium enterprises in reducing poverty. Against this back drop therefore, the study tends to find out the Lack of appropriate and adequate managerial and entrepreneurial skills with the lack of strategic plan, business plan succession plan, adequate organizational set up, transparent operational system etc on the part of many founders and managers of small and medium enterprise.

1.3 Objective of the study

The main objective of this study is to examine the impact of small and medium enterprises financing on poverty reduction in Nigeria. Specifically, the study aims;

  1. To examine the relationship between small and medium enterprises financing and poverty reduction in Nigeria
  2. To investigate the significant relationship between unemployment rate and poverty reduction in Nigeria

1.4 Hypothesis of the study

To this end, the following hypotheses were tested:

Ho1: There is no significant relationship between small and medium enterprises financing and poverty reduction in Nigeria.

Ho2: There is no significant relationship between unemployment rate and poverty reduction in Nigeria.

1.5 Significance of the Study

(1) This study would be of immense interest and benefit to large scale industries if they would adopt whatever viable recommendation that comes out of this research assiduously in order to maximize their productivity and make a more positive impact.

(2) Entrepreneurs and business individuals shall benefit from findings of the study particularly as it affects legal and other operational frameworks and benefits accruable to investor. Information derived from this study will be valuable to small and medium enterprises in the area of obtaining loans and credit facilities since these pose the greatest problems to the industrialists.

(3) It will also be beneficial to government and the policy makers in Nigeria in policy formulation especially on those policies that are meant to promote the performance of small and medium enterprises.

(4) Entrepreneurs will gain valuable information regarding those numerous problems and solutions in line with skilled management and administration and growth of small and medium enterprises.

(5) This research work will equally portray the usefulness of small and medium enterprises to the rural community in terms of employment. Finally by going through this research work one can enter into SME easily as no law stops anyone from choosing to be his/her own boss.

1.6 Scope of the study

This research study was limited to the impact of small and medium enterprises financing on poverty reduction in Nigeria. It will focus on how small and medium enterprises financing has/can aid poverty reduction in Nigeria. It will make use of secondary data as published in the CBN statistical bulletin covering the 1999-2010 fiscal year.

1.7 Limitation of study

Finance,inadequate materials and time constraint were the challenges the researchers encountered during the course of the study.

1.8 Organizations of the study

The chapter one consist of the introductory part of the study which includes the study background, the statement of the research problem, the study objective and scope of the study.

The second chapter is a critical review of other literatures relevant to the study and its objectives including the theoretical framework for the study. While the third chapter is methods of data collection, sampling and data analysis used in conducting the study. The fourth chapter centres around the research findings including an analysis of how it relates to previous findings. The fifth chapter consists of the summary of findings, conclusion and recommendations base on the study objectives.


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