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 ofSMEs 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:
1.5 HYPOTHESIS
1. Finance has no significant impact onentrepreneurial 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.
SHARE THIS PAGE!