Finance and business publication: FINANCE AS A HINDRANCE TO THE GROWTH OF SMALL AND MEDIUM SCALE ENTERPRISE IN NIGERIA

The growth of SMEs in Nigeria is paramount as it is required to bolster economic development. SMEs contribute up to over eighty percent (80%) percent of firms in the country. They are equally responsible for a substantial percentage of the labour force in the country. As important as it is to economic growth, it is rather worrisome that it remained in the developing stage because financing has remained one of the key managerial challenges that keeps confronting SMEs in Nigeria today.  Studies have shown that finance (capital) when in short supply most times due to mis-management greatly affects the growth of a business entity. Where there is no proper flow of fund to run and sustain a business entity, it is definitely destined for a premature collapse.

Finance for the purpose of this content is the money invested in a business entity to start up and sustain a business.

A small and medium scale enterprise within the context of Nigeria is a business entity whose asset base and staff strength fall within the range of ₦5 million to ₦500 million and 11 to 300 employees respectively.

Adequate finance is required to run a business organization most especially when it is still at the infancy stage as a lot is invested in development and expansion. Study equally showed that a larger proportion of SMEs in Nigeria die in their first two years of existence.

What are the sources of finance to SMEs and why is access to them limited or beyond reach?

The source of finance can be formal or informal. The formal means comprise of the financial institutions, government agencies while the informal are mainly through personal savings and loans from friends and associates.

Government in recent times has established agencies to fund and promote the growth of SMEs in Nigeria. However, despite the huge amount pumped into these agencies with majority of the funding coming from international agencies such as NEPAD, World Bank, little progress has been recorded as small business enterprise in the country is still bemused by high mortality rate due to paucity of fund.

What then are challenges of SMEs in accessing finance?

Records Keeping: The most crucial of all the requirements to unlimited finance is keeping up to date records in respect of accounts, plans and targets. Availability of these records shows the level of seriousness and how organized a business entity is. The first point of call of an investor in contact with a business entity is the business records which will show case business plans and activity and the working capital required to sustain the business. But it is rather unfortunate that  when small business owners approach micro finance institutions or credit loan schemes for financial assistance, records presented are either outdated, incomplete or invalid. They are definitely denied access as there are no clear cut investment and pay back plans.

Registration: To access funds, it is of utmost importance to register with the relevant agencies such as the corporate affairs commission, relevant tax authorities and groups or associations with similar business interest. This gives them more credibility. It is equally important to note that when government wants to offer financial assistance to SMEs, they usually go through groups which in turn get back members.

Government policies: An inconsistent policy of the government has equally affected the finance of SMEs in the country. There were instance of funds earmarked for the growth of SMEs in the country being diverted to other uses which have little or no impact on the economy.

Economic conditions: The global economic meltdown effect spread across every aspect of the economy. SMEs were equally affected as there was a drastic reduction in the amount of funds available for SMEs finance and growth in Nigeria as the country battle to finance her budget deficit due to huge debt incurred trying to salvage to situation. Financial institutions that were meant to serve as the intermediary between the government and the SMEs were equally battling for survival hence funds that could have been channeled to the growth of SMEs were in some cases utilized in keeping some of these institutions afloat.

Corruption: one of the major hindrances to economic development in Nigeria is corruption. Mismanagement and misappropriation on the part of custodians of these funds has led to decline in the level of trust donor government/agencies had in them. This forced government to hold on to or divert to other areas of economic importance funds meant for the development of SMEs.

However, despite the presence of these challenges, the government still hold it as a point of duty to ensure that appropriate machinery are put in place to ensure that adequate funds are made available to SMEs through proper monitoring of channels of disbursement, appointment of tested and trusted technocrats and redesigned policies that are applicable to present economic environment.

Oyeneyin Olatunde, ACA