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1.1     Background to the Study

          Industrial and economic development is fostered not by few large scale industries but by numerous small-scale industries which have the capacity to provide employment and aid economic growth.  Small-scale industries have been fully recognized by governments and development experts as the main engine of economic growth and a major factor in promoting private sector development and partnership.

The development of small-scale industries is therefore an essential element in the growth strategy of most economies and holds particular significance forNigeria.  Small and medium scale enterprises (SMEs) not only contribute significantly to improve living standards, they also bring about substantial local capital formation and achieve high level of productivity and capacity utilization.

          From a planning stand point, SMEs are increasingly recognized as the principal means for achieving equitable and sustainable industrial diversification and dispersal; and in most countries SMEs account for well over half of the total share in terms of employment.  A major gap inNigeria’s industrial development process in the past years has been the absence of a strong and virile small and medium scale enterprise.

The little progress recorded from the courageous efforts of the first generation of indigenous industrialists were almost completely wiped out by massive dislocation and traumatic devaluation which took place under the Structural Adjustment Programme (SAP).  The policies of SAP are rooted in the neo-classical theory of perfect competitive markets whose assumptions do not adequately inflect constraints on SMEs in developing countries.

          With the dismantling of trade and other barriers, the world has been transformed into a global village.  Consequently, SMEs in developing countries are struggling to survive under intense competitive environment for the development of SMEs so that they could adequately play the role expected of them in economic transformation such role includes; mobilization of domestic savings for investment, appreciable contribution to gross domestic product, increase harnessing of local raw materials, employment generation, significant contribution to poverty reduction efforts through sustainable livelihood and enhancement of personal income, technological development and export diversification.  This will be made possible through a responsive industrial policy and government overall economic development strategies that will ensure the collaboration of all development partners and the effective coordination and utilization of economic resources.


          Industry is the collection of firms producing similar or related product.  Firms constitute industries and these firms may be regarded as enterprise.

          There is no single universally accepted definition of small-scale enterprise.  Definition tends to vary from one country to another.  In the same country, definitions also vary from one time period to another.  What is small in one country may not be small in another country.  Most definitions however use size of employment, the amount of capital investment, annual sales turn over, total assets or a combination of both.

          Different government agencies have defined SMEs in a number of ways and these definitions by the various government agencies are enumerated below:

  1. The Federal Ministry of Industry defines SMEs as that in which the value of total assets including working capital but excluding cost of land does not exceed N150,000 or where the number of paid employees does not exceed 50 people.
  2. Nigeria bank for commerce and industry (NBCI) 1985 defines small-scale enterprise as firms with assets (including working capital but excluding cost of land) not exceeding N750,000.
  3. Company and Allied Matters Decree (1990) defines small-scale enterprise as one with annual turn over of not more than N1 million.
  4. Nigeria Industrial Policy (1989) defines small scale enterprise as those with total investment of between N100,000 and N2,000,000 excluding land but including working capital.

In the current industrial policy ofNigeria, National Council of Industry (NCI) defines SMEs in terms of the following:

  1. Micro/cottage industry:  An enterprise with a labour size of not more than 10 workers or total cost not exceeding N1.5 million including working capital but excluding cost of land.
  2. Small-Scale Industry:  An enterprise with a labour size of between 11 to 100 workers or total cost not exceeding N50 million including working capital but excluding cost of land.
  3. Medium Scale Industry:  It is an enterprise of a labour size of between 101 to 300 workers or total cost above N50 million but not exceeding N200 million including working capital but excluding cost of land.
  4. Large-Scale Industry:  This is an enterprise with a labour size of 301 workers and above or total cost exceeding N200 million including working capital but excluding cost of land.

In view of the different definition outlined above, it is important to note that, a firm that is regarded as a micro industry in a technologically advanced country likeUSAmay be regarded as medium or large scale enterprise in a developing country likeNigeria.  This is as a result of differences in price level, technology and economic development.

          This is to say that there is no universally acceptable definition of SMEs, hence definition in a particular country in a particular time is determined by the level of economic development and technological advancement.


          The Bolton Committee (1971) attempted to avoid the problems associated with using a single criteria variable to define small-scale enterprises by providing what they called “economic” definitions.  According to them, a firm is small if it has the following characteristics:

  1. If it has a relatively small share of the market.
  2. It is managed by its owners or part owners in a personalized way.
  3. Independent in the sense that it does not form part of a large enterprise.
  4. Personal commitment on the part of the owners.


          Small scale enterprise can be classified as follows:

  1. Small scale enterprise classification by industry.  This classification is based on the type of economic activities engaged in by the small scale enterprise.
  2. Classification of small-scale enterprise by market served.  Under this classification, we can identify three types of markets viz:
    1. Satellite
    2. Specialist
    3. Marketeers
    4. Classification of small scale enterprise by ownership.


          There are plethoras of problems facing small and medium scale enterprises but the major one is financial constraint.  This is caused by the limited sources of funds used in financing small and medium scale enterprises.

          In order to support small and medium scale enterprise, commercial banks come up with a strategic approach in extending short term and medium term loan to long term financing to small and medium scale enterprise which attracted high interest rates.  This measure still constitutes more constraint to SMEs promoters.  Other problem is inadequate service facilities.

          This study will be looking into the following:

  1. Activities of major financial institutions to find out their level of commitment to small scale enterprise and determine why there is gap in their credit delivery system to SMEs.
  2. Whether the guideline on interest rate and credit facilities to small-scale enterprise do not contradict with the objectives of the scheme.


          The interest of this study is to show:

  1. The contribution of commercial banks inNigeriato the development of small-scale industries.
  2. The progress and difficulties encountered by these banks in carrying out these duties to small-scale industries.
  3. The success and failure of small scale industries.
  4. The contribution of small-scale industry to economic development.
  5. The sources of long term loans to small-scale industries.
  6. Provision of basic service facilities to small-scale industries.


          The study will limit itself to the contribution of small-scale industries to economic development, Also the contribution of commercial banks through the granting of loans to small-scale industries, including government policies and incentives for small-scale industries.


          The study will provide entrepreneurs of small-scale businesses, bankers and government officials with a clear view of the problems facing small-scale industries and understand how to tackle these problems and ways of bringing about development of small-scale industries.

          The study will also spear out the role commercial banks have played towards the development of small-scale industries.


          Samples will be used to represent the whole population and because some companies do not easily give out some vital information which they consider as confidential, hence there is bound to be some bias which will reflect in the analysis of data.