University of Nigeria Research Publications

OKERULU, B.I.

Aut

hor

PG/MBA/91/11361

Title

Funding of Small Scale Manufacturing Firms: A Case Study of

Selected Firms in Enugu State

Facu

lty

Business Administration

Dep

artm

ent

Management

Dat

e

October, 1994

Sign

atur

e

FUNDING OF SMALL SCALE MANUFACTURING FIRMS:

A CASE STUDY OF SELECTED FIRMS IN

ENUGU STATE I

A PROJECT REPORT PRESENTED TO THE

DEPARTMENT OF MANAGEMENT

FACULTY. OF BUSINESS ADMINISTRATION

UNIV8ft;j)'KY OF NIGERIA . $ 4 ! . . d F?'

. ,:i: &J&J CAMPUS ' , .

BY

OKERULU, B. I. PG/MBA/91/11361

IN PARTIAL FULFILMENT OF THE REQUIREMENT

FOR THE AWARD OF A MASTER OF BUSINESS ADMINI'STRATION

DEGREE IN MANAGEMENT

SUPERVISOR: J. A. EZEH (CHIEF)

(OCTOBER, 1994)

TABLE OF CONTENT

Page

Title Page . . b e . . . . . . i Table of Content . . . . . . . . ii List of Tables . . . . . . . . . . iv Certification .. . . . . . . . . v

I

Acknowledgements . . . . . . . . vi Dedication . . . . . . . . . . viii Abstract . . . . . . . . . . ix

CHAPTER I: GENERAL OVERVIEW 1

1.0 Introduction . . . . . . . . 1

1.1 Background of the Study .. . . . . 4 1 . 2 Statement of the Problem . . . . 9

1.3 Objectives of the Study .. . . . . 11

1.4 TheHypothesis .. . . . . . . 12

1.5 The Significance of the Study .. . . 1 2

1.6 Scope and Limitation . . . . . . 1 4

References . . . . . . . . 1 6

CHAPTER 11: LITERATURE REVIEW . . . . 17

2.0 Literature Review . . . . . . 2 . 1 Concept and Definition of Small Scale Business

2 .2 Significance o f Small Scale Busines s to the Economy 2.3 The State of Manufacturing In the Economy 2.4 I-ssues In Financing of Small Business .. 2.5 Non-Finance Problems of Small Scale Business 2.6 Sources of Funds And Their Adequacy .. 2.7 Policy Issues On Financing Small Scale Business 2.8 Prospects for Small Scale Manufacturing Firms

References . . . . .. . . 80

iii

Page

CHAPTER 111: RESEARCH METHODOLOGY .. . . 3.0 Research Design And Methodology . . 3.1 Research Scope .. . . . . . . 3.2 Data Examination (Secondary Data) . . 3.3 Data Collection (Primary Data) .. . . 3.4 Questionnaire Design . . . . . . 3 . 5 Introduction of Statistical Tools for Analysis

References . . . . . . . .

CHAPTER IV: RESULTS . . . . . . . . 4 . 0 Introduction . . . . . . . . 4;'l Presentation And Analysis of Data . . 4.2 Test of Hypothesis . . . . . . 4.3 Discussion of Findings .. . . . .

References . . . . . . . .

CHAPTER V: CONCLUDING ASPECTS . . . . 5.0 Summary of Findings . . . . . . 5.1 Conclusion . . . . . . . . 5.2 Recommendation .. . . . . . . 5.3 Areas of Further Research . . . .

APPENDIX 1 . . . . . . . . APPENDIX 2 . . . . . . . . . . . . APPENDIX 3 . . . . . . . . BIBLIOGRAPHY . . . . . . . .

LIST OF TABLES

Table Descr ip t ion Page

2 . 1 . 1 I n d u s t r i e s and Def in i t ions of S ize 2 1

2.3.1 Selec ted Economic Indica tors 1966-86 31

2.3.2 S t r u c t u r e d f GDP a t Constant 1977178 P r i c e s ( % ) 33

2 . 7 . 1 Commercial Banks Loans and Advances t o Small Sca le En te rp r i ses (1980-84) 70

2.7.2 C e n t r a l B a n k o f N i g e r i a D i r e c t i v e o n Commercial Banks Loans and Advances t o 72 Small Sca le En te rp r i ses (1979-82)

3 w 4 * 0 1 - Quest ionnaire Design 3.4.11 88-98

4.1 00 Quest ionnaire Co l l a t ion 105

4'1*01 - Data Analysis 4.1.19 107-125

4 . 2 . 1 Calcula t ion: Rat io of Proportion Average Deviation t o ~ v e r a ~ e Proport ion

CERTIFICATION

OKERULU, B. I., a postgraduate student of the

Department of Management and with Registration No.

PG/MBA/91/11361, has satisfactorily completed the

requirements for the'course and research work for

the Master of Business Administration degree in

Management. The work embodied in this project report

is original and has not been submitted in part or in

full for any other Diploma or Degree of this or any

other University.

Dr. $. U. L. Imaga (Head of Department)

Chief J. A. Ezeh (Supervisor)

ACKNOWLEDGEMENTS

In the bid to conduct this research project and 1

present its report, some constraints were encountered

as is common with such works. But, as it were, these

constraints had to be overcome and I canhot butrecognize

these persons whose contributions in one way or another

had aided me in bringing this project to completion.

May I thank most immensely Chief J.A. Ezeh, my

Supervisor on this project and lecturer in several

courses on the MBA programme, for the able manner in

which he guided me through the project even in the face

of the lingering ASU strike. This project could not

have even been started talkless of getting completed

had he attached so much with the ASU strike not to wel-

come my approach to him. I am inspired by this his high

sense of responsiblity.

I wish to recognize Engr. B.C.Ogidi, the Senior

Manager (PPL) of ANAMMCO Ltd, Enugu, for his understand-

ing in all the times I needed to be excused from the

office in order to attend to issues relating to this

project.

May I also thank the lot of Chief G. U. Akam, the

Managing Director of GOSTAK Nigeria Ltd; Mr Ray Ihuoma

of the Nigerian Police; Messrs Nnaji and Nze of the

v i i

Department of Management, UNEC, a l l f o r t h e i r worthy

con t r ibu t ions .

I a l s o wish t o thank o f f i c i a l s of ANAMMCO mini-

L ib ra ry , t h e B r i t i s h Council Library , CBN Enugu library/

Archive and t h e Universi ty of Niger ia , Enugu Campus i

Library f o r t h e i r var ious a ids towards t h e execution

of t h i s r e sea rch p ro jec t .

The worthy cont r ibut ion of Messrs Ernes t Kanu and

H.I. Okoye both of ANAMMCO i n seeing t o t h e typing/pro-

duct ion of t h e r epor t of t h i s r e sea rch p r o j e c t i s

immensely apprec ia ted , p a r t i c u l a r l y t h e c a r e f u l manner

i n which they approached the job.

And t o a l l those indiv iduals whose works became a

source of knowledge and i n s p i r a t i o n , and who f o r want

of space s h a l l no t be mentioned, I remaim ever grateful.

B. I. Okerulu

viii

To the progressive development

of my country, Nigeria, and

the improved insight of

its citizens

ix

ABSTRACT

The major single factor that continues to make

small scale enterprises weak in Nigeria and many other

countries is the problem of finance. All other problems

appear to be appendages to the financial one.

Characteristically, these enterprises often lack

knowledge of the right sources of finance for invest-

ment and working capital. In addition, institutional

sources of funds are often unwilling to provide facili-

ties for these enterprises. Hence, many of them are

faced with a perennial problem of shortage of working

capital which hinders their ability to produce

efficiently.

Many reasons account for little finance being

channelled to small scale enterprises by banks and

other institutional lenders and these include:

1) Inadequate knowledge of the appropriate source of finance and lack of skill in presenting a financial case to investors and/or lenders.

Poor financial control and book-keeping.

Small businesses have basic characteristics which

distinguish them from larger businesses. One character-

istic that is prominent is the size definition. Discussion

often focus on the business size or capacity.

The significance of small business to an economy

particularly to one like Nigeria's where capital,

institutional saving, management and technical skills

are still at early stages of development is not diffi-

cult to see. Its significance can be seen in thevarious

opportunities that it offers . The state of manufacturing in any economy whatever

it is at any point in time usually develops through

stages upto such a state. It is sometimes possible to

distinguish the stages of development through time

which may or may not be evenly spaced. Also, the dis-

tinction of the stages could be made with respect to its

impact on the small, medium and large capacity levels

and a comparison could be drawn as to which of the

three capacities that either most dominated or lagged

during each of the stages. In the comparison economic

indicators such as GNP, GDP, and MVA may be used.

Despite the immense importance of small scale

firms to the economy several problems which are not

financial limit their potential contribution to the

development of the economy. The most prominent among

these problems were discussed.

It is usually a light burden for the typical small

business to aspire to the general capital markets for

funds. It is a known fact that a small business may

approach either combination of personal avenues

(such as personal savings), equity or loans (formal or

types in order procure funds but success

with any of the avenues depends on a lot of factors *

which may vary among the avenues.

The role of the Federal Government of Nigeria

through the Central Bank of Nigeria was considered

about the most prominent policy thrust and its discus-

sion was worthy.

In other to improve the prospect of small scale

manufacturing business,adequate attention must be given

to problems that afflict it. The adequate attention, if

given, shall lead to improvements in employment, in

self-sufficiency and in self-reliance. Government's

role to ensure the realisation of these benefits were

stated.

Details on any item raised here in the abstract

abound within the main chapters of this report particu-

larly Chapter I1 - Literature Review.

CHAPTER I

1.0 Intfoduction

The view has long been held by many in government,

academic and businesg circles that smali firms should be

treated separately from large firms. Small firms are

frequently seen as facing a range of difficulties which

the larger firm is spared; the'evidence for this view

will be considered in this Chapter. There is argument

that small firms are, allegedly, treated unfavourably in

the market for funds. If this is so, and given the

importance of the small firm sector in employment terms,

its contribution to the country's net output and its role

as a 'seed bed' for the future large firm, then there are

implications for the funds market, the economy and for

government policy. The importance of the small manufac-

turing sector in theeconomy can be assessed in several

ways, but particularly in terms of its contribution to

employment and net output.

The implication of the view that small firms are

treated unfavourably in the market for funds is that the

narket contains imperfections which are associated with

the size of those demanding funds. In a perfect funds

market, funds will flow freely according to the require-

ments of the market participants, any imbalance being

corrected by changes in the price of the funds. There

will be no transaction costs; information will be freely

and readily available to all market participants and the i

price of funds will be determined by market pressures

and, in the particular case, by an assessment of the risk

of the investment. Imperfections which have a differen-

tial impact on the small firm appear to be three: information,

transaction cost and risk assessment, according to Freear J.

(1985).

There is evidence to suggest that the most serious

gaps and defects concerning the financing of small firms

arise in the area of the communication of information

among participants in the finance markets and with regard

to the provision of advice. The attitudes of the owners

of small firms towards investing and financing decisions

is also of considerable potential importance. According

to a report, many small firms are prevented by lack of

information, by inexperience in presenting applications

for finance and by a formidable barrier of prejudice against

borrowing of all kinds from making use of the full range

of facilities available to them; this is the opinion of

the Bolton Committee of Inquiry on Small Firms (London,

1971: 191).

L

A most important factor in the financing of small

firms has been the attitude and abilities of the owners

of small firms. Undoubtedly, it can be argued that the

suppliers of finance have not made the small businessman

sufficiently aware of the range of sources of finance

potentially open to him; nor has the advice of his local

clearing bank, as the institution with which he has the

most regular contact, always been accurate and complete.

A report on small firms observed that the small business-

man, although perhaps competent in the technical aspects

of his business, was far less skilled or indeed interested

in the financial aspects. Typically he did not have the

ability to present his case for finance in the way expected

by the suppliers of finance, nor did he enlist the aid of

advisers, such as his accountant, in its preparation.

According to an evidence, it is not very easy for [small

firms] to put together the kind of presentation that is

required in order to get some money owing to the follow-

ing reasons:

a) they usually do not have the specialist staff

b) the small businessman may not be very sophisticated

financially, his skills may lie in other areas, like

marketing or production; evidence in the Wilson Corrmittee

Interim Report on the Financing of Small Firms (London,

Vol.1: 1331134).

The foregoing has highlighted several points: the

need for separate treatment of small firms in order that I

their unfavourable circumstances in the economy may be

isolated for attention; that information, transaction

cost and risk assessment appear to be three imperfections

which have a differeAtia1 impact on the small firm; there

is doubt that the suppliers of finance have made the small

businessman sufficiently aware of the range of sources of

finance potentially open to him; and sometimes, lack of

the ability by the small businessman to present his case

for finance in the way expected by the suppliers of finance.

The points highlighted above are indicative of diffi-

culties which can beset a prospective small businessman

in his bid to establish a small firm. Subsequent parts

of this study will seek information to ascertain if the

limited situation of small manufacturing firms in Enugu

State is as a result of such difficulties as are indica-

tive of the above points.

1.1 Background to the Problem

For a country like Nigeria, the small firms constitute

the real fabric of the nation's economy. This has been

so ever since Nigeria's political independence and even

today our entire economic system is to a large extent

sustained by small businesses: the near-innumerable

barber-shops, bakeries, automobile repair shops, petrol

service stations, metal workshops, carpentry workshops, I

garment makers, restaurants, transport and trucking

operations, market shops and stalls, supermarkets and

drug stores, smithies, farms and farm-produce stores,

fisheries, piggeries 'and animal husbandry, weaving,

poultry, wood-work, brick-moulding, block-moulding, medi-

cal and allied services, management, advertising, legal

consultancy services, printing, and several others.

Without these small concerns in the nation's business

envLronment, much of our material needs would go unsatis-

fied and we would perhaps have to revert to the primitive

subsistence-type economy of the very distant past. Also,

without the small businesses all other forms of business - the civil service, the public sector, and the big businesses

in the private sector inclusive - would become paralysed. But because of the greater viability and financial impact

of the big businesses, we tend to over-estimate their

importance, to the detriment of the smaller and very

small ones in national reckoning.

An element of urgency in supporting the small

business sub-sector is particularly apparent today

because of the drastic impact of the structural adjust-

ment programme (SAP) which, undoubtedly, has complicated

the production cost components of industry in general.

This urgency has become all the more pressing especially

if the nation is to seriously commence the battle against

the critical problem of unemployment.

Already many home-made goods are finding their ways

into foreign supermarket shelves. Vitalo, vegfru pury,

table wines, and champaigne wine, made from such local

inputs as kolanuts, cocoa-cake, cocoa-butter, and cocoa-

liquor. Nigeria certainly needs more of such efforts in

her attempts to restructure the economy along the

guidelines of SAP. One very good and simple way to

achieve this is by giving massive encouragement to small-

scale business in several ways including its funding. The

appropriate strategies and incentives for this are appa-

rently not fully evolved, and this has hindered the

ability of small-scale industries to play an effective

role as catalyst for economic growth since the inception

of SAP in July 1986. It is to be noted that a prevalence

of a well developed and an extensive small business sub-

sector will lead to the realisation of the following

benefits:

a) ensure more rapid employment;

b) develop indigenous entrepreneurship;

C) ensure increased utilization of local resources;

d) mobilize domestic savings;

e) provide a training ground for indigenous managers .

and semi-skilled workers;

f) reduce rural-urban migration;

g) nurture indigenous raw materials production and

processing industries to support larger enterprises;

h) develop indigenous technology; and

i) raise the living standards of the rural dwellers.

Going through the positive effects which increased

activity of small business could have on the national

economy, as enumerated above, it will be clear that it is

mostly through these enterprises that the nation will

realise some of her expected benefits on economic develop-

ment. This expectation therefore leads to the one fact

that policies aimed at encouraging small business should

be vigorously pursued. But it seems the small business

sector has not received the due attention it deserves,

otherwise, some quite visible impacts of this sub-sector

would have been noticed these past years, particularly

since the inception of SAP.

The importance of small scale business could be better

viewed when it is realized that the sector in Nigeria

comprises of about 80% of all firms, employing several

million people, and produces a significant proportion of

the gross national product, thereby making the sector of

a considerable economic importance. Moreover, research

has shown that on the average, small businesses earn higher

returns on capital employed than big businesses, thus

suggesting that the big businesses are not more efficient I

than small firms in the total use of economic resources. I

Besides, a lack of adequate promotion of small scale

business will result in a neglect of the following more

salient functions of small scale business. The functions

are :

1) provision of productive outlets for the energy of

the number of people who prefer own practice to employment;

2) provision of an essential source of specialist

supplies to most large firms;

3) performance of a highly economic role in those areas

where the optimum size of operations is small, e.g. where

there is short-run production, large variety of products,

and where consumer service is of key importance;

4) provision of a variety of choice for consumers;

5) to ensure competition for the established order and,

therefore, serves as a controlling factor over big busi-

ness tendency towards monopoly;

6 ) to serve as an essential source of innovation, thus

forming the seed-bed for large firms of the future;

7 ) to maintain a means of entry for new entrepreneurial

talent, thus providing the means for the development of

future leaders.

A very important feature of small businesses which I

is particularly relevant to Nigeria's present economic

problems is that these enterprises characteristically

depend less on imported inputs relative to their capital

investment compared td big business. A low import content

in the total production input of small firms obviously cuts

down on the need for foreign exchange, thus eliminating

dependence on scarce foreign exchange.

The foregoing discussions of the importance and

functions of small scale business underscore the need for

this study which is aimed at understanding the extent to

which a low activity in small scale business depends on

the difficulties in procuring funds for their establishment.

1.2 Statement of the Problem

Since the introduction in July, 1986, of the Struc-

tural Adjustment Programme (SAP) by the Federal Military

Government of Nigeria with the attendant emphasis on

comercialisation and privatisation through private sector

participation in economic and industrial activities, the

need for information on the various sources of funds

available to prospective operators of businesses particu-

larly small scale business has more than ever before arisen.

The general desire of many a potential small business

operators is to establish a small scale business rather

than stay under employment if they can raise the funds b

necessary to establish,an own business. Therefore, the

importance of a research-work highlighting the various

sources of funds available to such potential operators

of small business caknot be over-emphasized. Background

information about each of the sources of funds shall be

supplied in the literature reveiw so that each of the

potential operators can easily see which of them best

suits their requirement. Potential operators should be

interested in information such as the minimum and the

maximum amounts that can be acquired from any given

source of funds; the terms and conditions on which funds

may be extended; the kinds of business for which fund

is available; the requirments for securing fund from

the source; and other vital pieces of information.

Common comments in business and financial tabloids

reflect that in almost all the areas covered in the study

of small business operations, emphasis are usually on

the funding and this is because of the importance of

funding to the operation of any business of which small

business is a part. This importance of funding to the

operation of small business bears out the need for this

study .

This study addresses the funding issue of small

business through answering the following questions:

1) How much fund is required to set up a small scale

manufacturing firm?

2) Are prospective operators of small scale manufactur-

ing firms aware of the various sources from which funds

may be obtained for establishment?

3) What is the relative ease of procurement from the

various sources of funds?

These three questions may be summarized into one main

question as follows : c a n funds for establishing a

small scale manufacturing firm be obtained. Thus, the

summary of the answers to the three preceding sub-

questions amounts to an answer to the main question.

1.3 Objectives of the Study

1) To establish whether growth in the manufacturing type

is low compared with other types of small scale business.

2) To discuss the sources of funds currently available

for establishing small scale business particularly the

manufacturing types.

3) To establish information to guide a prospective

operator of a small scale business particularly the manu-

facturing type on how to procure funds for establishment.

.

1.4 Formulation of Hypothesis

The following relational hypotheses will be tested:

1) There is usually a *minimum fund requirement under any

given economic situation for establishing a small scale

manufacturing firm.

2) Prospective operators are aware of the sources from

which funds may be obtained for establishing a small scale

manufacturing firm.

3 ) Funds may be obtained from each of the various non-own

sources of funds with the same ease.

Hypotheses1 - 3 as presented above respectively address questions 1 - 3 presented under section 1.2. Just as

with the questions the above three hypotheses may be seen

as sub-hypotheses which may be summarised into one main

hypothesis as follows - funds other than own funds for establishing a small scale manufacturing firm can be

obtained. Thus the summary of the tests of the three

sub-hypotheses amounts to a test of the main hypothesis.

However, the summary test for the main hypothesis would

not be a direct implication but rather a derived implica-

tion from the tests of the three sub-hypotheses.

1.5 Significance of the Study

The importance of small scale business, particularly

13

the manufacturing type to the industrialisation and

general economic growth of the nation has been emphasi-

sed. In Nigeria it has been observed that there is a

limited growth of the manufacturing type of the small

scale business whereas this aspect has a greater potential

in bringing about a mbre concrete economic development in

that it confers a manufacturing base to an economy thus

leading to less dependence on other economies for manufac-

tured products. More popular in Nigeria are the service

and trading types of small scale business. This is not

a healthy trend for it does not confer an adequate base

to the economy. This study is therefore significant

because it aims to offer information as to how to overcome

difficulties in procuring funds for establishent of small

scale manufacturing firms.

For prospective operators of small scale manufacturing

firms this study will identify problems with the sourcing

of funds and approaches for its procurement.

This study is also significant in that it will

identify areas where government policies and actions

require.attention in order to motivate growth in the

establishment and operations of small scale manufacturing

firms.

Upon the realisation of the above enumerated positive

contributions of a well developed small scale manufacturbg

business base shall follow an increase in our gross

national product which amounts to an improved standard

of living of the affected society.

1.6 Scope and Limitation

This is a study into difficulties that hinder the 4

procurement of funds for the establishment of small scale

manufacturing firms in Enugu State. Much as the focus

is Enugu State, general issues affecting small scale

firms, manufacturing types in particular, with regard to

procuring funds are first discussed in the literature

review which constitutes the bulk of the secondary data.

Thus the presently available sources of funds to the

sub-sector will be critically examined. Furthermore,

efforts will be made at finding out if these available

funding sources are being effectively utilized. Policy

issues that pertain to small scale business funding will

also be examined. Finally, prospects for the establish-

ment of small scale manufacturing firms under the

prevailing situation of funds availability will be

considered.

In the primary data generation, this study will

limit itself to sources within Enugu State in the 30-

state configuration of Nigeria. In this case the data

sources will not be extensive since according to the

information in the literature review there is a dearth

of manufacturing firms in Nigeria as a whole and Enugu

State, as a part of Nigeria, shares in this situation.

However, it needs to be pointed out that most existing

data on the topic of this study date back to the existence *

of the 19-state and, later, 21-state structures of Nigeria

or even to periods before the existence of these two

structures. Enugu State under the two mentioned state

structures was a part of the then Anambra State. Data is

not immediately available on the proportion of small

business firms in the old Anambra State that is located

in the part now known as Enugu State. In the event where

available data refers to the old Anambra State and needs

to be used in this study (which refers to Enugu State

created only in 1991), fifty per cent of the data's

numerical value will be ascribed to Enugu State where

the exercise of such an assumption is safe. This assump-

tion of fifty per cent of small businesses in the old

Anambra State being located in Enugu State is a limitation

and is necessary in order to overcome the constraint of

not having the data specifically referring to Enugu State.

Where the assumption is not safe, then the data as it refers

to the old Anambra State shall be so used but with a remark

explaining this situation.

REFERENCES

1. Freear , J (1985) The Management of Business Finande. P i tyan Publishing London, 1985.

2 . Bolton, Cormnittee (1971) Committee of Inqui ry on Small Firms Report Cmd 4811, HMSO, London, 1971.

3 . Wilson, ~ o m i t t e ; (1974) In ter im Report on t h e Financing of Small Firms, Vol.1, London.

CHAPTER I1

2.0 Literature Review

In this Chapter, existing theories on the funding of

small scale firms particularly those with a manufacturing t

bias will be presented. Such theories will be presented . . .

in consideration of their relevance to the topic of this

study. Also in this chapter reference, if any, to previous

works in the area of the topic of this study will be

mentioned. In other words this chapter constitutes the

bulk, if not all, of the secondary data. The presentations

here will follow convinient sections.

2.1 Conce~t And Definition of Small Scale Business

Small businesses have basic characteristics which

distinguish them from large businesses. One characteri-

stic that is prominent is the size definition. Discussion

as to what may constitute an acceptable common definition

often focus on the business size or capacity. The aspect

of size considered appear to be governed by the interest

of the perceiver, the purpose of the definition, and the

stage of development of the particular environment in

which the definition is to be employed. According to

Freear (1985: 356) governments, writers and practitioners

have variously used number of personne.1 employed (the

most common measure), the turnover of the firm and the

size of its so-called capital base. Even if agreement

is reached about the definition of each of these measures,

we are left with the'need to establish the point on the

scale at which small becomes medium, or medium becomes

large. Such scale points have been identified in an

arbitrary way, which accounts for the OECD Industry

Committee's (1971) finding that small meant, for example,

fifty fewer employees (Austria), twenty or fewer

employees (Denmark) and 100 or fewer employees (Italy).

Not only does the meaning small vary from country

country, it also varies from industry to industry, and

particularly between the indus tr iallmanufac turing sector

and the commercial sector. This has led countries such

as Japan to employ a differential measure which includes

a capital measure and a maximum size of 300 employees in

commerce.

The Bolton Committee (BC) of Inquiry on Small Firms

in the.United Kingdom was given terms of reference which

included the statement:

'For the purpose of the study a small firm may be defined broadly as one with not more than 200 employees, but thi-s should not be regarded as a rigid definition'.

The Committee in its report stated:

'It became clear that a small firm could not be adequately defined in terms of employment or assets, turnover, output or any other arbitrary single quantity, nor would the same definition be appro- priate throughout the economy.'

Consequently, the Committee chose to define the small

firm in terms of three characteristics which could be

expected to make its performance and problems significantly

different from those of larger firms:

1) that a small firm is one with a relatively small share

of its market;

2) that it is managed by its owners or part-owners in

a personalized way, and not through the medium of a

formalized management structure; and

3) that it is independent in that it does not form part

of a larger enterprise, nor are its managers subject to

outside control when taking major decisions, Bolton Com-

itt tee Report (1971: 1-2).

Apparently, the Committee moved away from definition

by numbers towards definition by type of management,

although the first characteristic (market share) is

measurable. The three characteristics reflect those

established some two decades earlier, in the USA, where

the Small Business Act of 1953 offered a general guide

to its creation, the Small Business Administration; that

20

a small firm was independently owned and operated and

not dominant in its field of operation but went on to say

that the Administration may also use such measures as

number of employees and turnover. The OECD Industry

Comittee reported that the Administration had variable

industry size standaids which went up to, but not beybnd,

1000 employees. For practical purposes, continued Freear

(1985: 358), the Bolton Committee similarly found itself

obliged to adopt a statistical definition of size, taking

the original 200 employees maximcm for industry and a

series of more or less arbitrary definitions in terms

of whatever measures appear appropriate for other trades.

Fortunately, the Committee found that the statistical

definition of size brought within its scope firms which

were also eligible using the three criteria referred to

earlier. Unfortunately, the Committee found that the

application of these criteria would also bring in much

larger firms, some with 500 or more employees, particu-

larly in the manufacturing sector. However, the 200

employee limit would be wholly inappropriate to the

retail.distribution, as a firm of that size would be

relatively large in that sector.

These problems of definition were resolved, at least

in the Bolton Connnittee's view, by adopting the statisti-

cal definitions of size as laid out in Table 2.l.lbelaw:

TABLE 2.1.3: Industries And Definitions of Size

Industry

Manufacturing

Re tailing

Wholesale trades

Construct ion

Mining and quarrying

Motor trades

Miscellaneous services

Road transport

Catering

Statistical Definition of Size I

200 employees or less

Annual turnover of E50,000 or less

Annual turnover of E200,OOO or less

25 employees or less

25 employees or less

Annual turnover £100,000 or less

Annual turnover £50,000 or less

Five vehicles or less

All, excluding multiples and brewery-managed public houses

Source: Bolton Committee of Inquiry on Small Firms report (London, 1971: Table 1.1).

Commenting on these problems of size definition,

James Bates (1964:8) feels that firms are small only

because they are at the early stage of growth. Such

firms may well become big in 20 years. He suggests that

emphasis in differentiating small firms from larger ones

should rather be placed on the qualitative aspects of the

firm rather than the quantitative. He feels that para-

meters that should be judged include the composition of

their output, that is, in product lines, the things they

make, the market in which they sell and so on.

Buchela (1967: 9) thinks differently in holding

that quantitative criteria are more acceptable and

reliable grounds for small business definition because t

these lend themselves to measurement and increase with

the scope of the operations. Broom and Longnecker (1972)

also favour the quantitative criteria but are particular

about the number of employees on the payroll.

From the foregoing varied opinions of the various

writers it becomes apparent that most policy issues on

the prevailing definition in a given economy and, as such,

the small business firms cannot be defined once and for

all. The changing pattern of industrial or economic

growth is bound to affect such a definition. The Nigerian

experience is a case in point.

In Nigeria, investment ceiling in machinery and

equipment alone as a parameter in determining small

business size has been raised several times in the last

18 years. In 1972, the limit was set at !450,000. In the

1973175 plan period it was raised to !460,000. During

the third National Development Plan (1975 - 80), the government again in 1977 raised it to !4150,000 and

currently the upper limit is !4250,000. It is noteworthy

that the number of employees, which was set at 49 in

1972, did not even merit a mention since then according

to Kolawole (1989). The Central Bank of Nigeria (CBN)

for the purpose of its credit guidelines to financial

institutions in 1985 adopted a radically different defi-

nition of the small business enterprises as "those

enterprises where annual turnover does not exceed

24500,000 ..." Kolawole (1989) continued. In Nigeria three types of small scale business

enterprises have been'identified. These are the cottage/

handi-craft, the traditional and the modern small enter-

prises. The cottage/handicraft are ventures along family

lines which do not offer other people permanent employment.

The traditional small enterprise rightly belongs with the

subsistence sector and, as such, not ideal for industrial

development. This study is concerned with the modern

small scale business enterprise where machinery and

power are used to produce relatively sophisticated consmr

goods and even some simple producer items,explains

Akeredolu (1977).

Yewande (1991: 14) offered a working definition of

the small scale business as an enterprise employing 20

or more employees with a total capital investment

(excluding land) of not less than W50,000 but not exceed-

ing 242. million. This working definition is important

because it refers only to the modern small scale business

(not craft or traditional) and helps in identifying the

characteristics of a small scale enterprise as enumerated

below:

\

a) Higher utilization of local raw materials.

b) Ease of entry or exit from the industry due to low

initial capital requirements. B

C) Provision of employment through labour intensive

mode of production.

d) The use of less complex technology which can be managed

with a minimal training on business management.

e) A small scale business of this definition should be

rural based mostly.

The definition offered above has advantages over

that of the Federal Government because lower limits in

terms of both capital and employees are stipulated. But

it is known that some local small scale business are

mechanised and semi-mechanised and these would not employ

up to 20 persons. Thus those small scale entrepreneurs

who are self-employed and some artisans are excluded on

the account of number of employees while their investmnt

capital may be within range. It is at this apparent

difficwlty that this study would tend to favour the

definition advanced by the Centre for Management Develop-

ment (0) in a policy proposal on small scale industrial

services to the Federal Government in 1 9 8 2 . The definition

states, inter-alia, that:

"A small scale enterprise is a manufacturing, processing or service enterprise involved in a factory or production type operation, employing up to 50 full-time employees, investment in plant and machinery not exceed- ing #500,000, and power, plant and machinery

11 are utilized in its operation, .

as contained in CMD ('1982). It is clear that at L993/94.

value of the Naira that the upper limit of investment in

plant and machinery according to the definition in the

CMD proposal above is narrow but the lower limit is still

realistic.

For the purpose of this study, a small business

will be considered as one with at least 10 employees with

a total capital investment (excluding land) of not less

than W500,OOO but not exceeding W5 million. With the

commonly obtaining exchange rate of W50 to one US dollar

in the parallel market, this upper limit of W5 million

amounts to only 100,000 US dollar. -

2.2 Significance of Small Business to the Economy

In the Nigerian economy where capital, institutional

saving; management and technical skills are inadequate,

the contribution of small scale enterprises cannot be

over-emphasized. The unemployment problem in Nigerian

economy is getting worse by the day.

26

The role of small enterprises in the solution of

the unemployment problem appears obvious. With minimum

encouragement and finaqcial assistance, many of the

unemployed labour force can start their own business

using the already acquired technical and industrial skills.

As more people operat'e their own businesses, they will

employ more of the school leavers and reduce the level

of unemployment. In the view of Oresotu (1985:16-21),

although a single small scale enterprise requires only a

few workers, the ease, simplicity and rapidity with which

small businesses can be created suggest them as a potent

force in aid of our unemployment problem and economic

revival. Oresotun further goes on to say that the ability

ofthis group of enterprises to play this role is enhanced

by the fact that they are generally labour intensive, since

they use relatively more labour than capital. This

characteristic coupled with their numerical strength in

the industrial set up, makes encouragement and creation

of small scale enterprises in areas where they are fea-

sible a possible cure of the unemployment problem.

Monn (1990:8) posits that small scale industries

have been seen as an important instrument and pivot for

rapid industrial development and for creating a strong

base for self-reliance and self-sustainment. The

location of small scale industries in rural areas is

27 I

likely to encourage the use of new renewable and alter-

native sources of energy. Monn further goes on to say ,

that small scale industries geared towards the production I

of components or spare parts also stimulate the growth of

other . sectors such as food and agro-based industries,

building industries, *transport and communication. Thus

the promotion and expansion of small scale industrial

activities in those production sectors could help meet

the goals and objectives of rapid integrated development

with emphasis being placed on the satisfaction of basic

needs and the use of local resources.

Ogundipe (1987:14) concurs to Monn's view and

stated that it is a basic sociological fact that large

organization do not have the same ability to achieve the

equitable distribution of economic patronage and benefits

which small scale organization can achieve. Thus, small

scale enterprises have the further advantage of offering

opportunities for a considerable number of persons in

geographical locations that are varied and diverse.

According to Masha (1986:33-38), small scale enterprises

indirectly seek to diffuse economic power by helping to

check imbalances between different income groups in the

same locality. Thus in his view, encouragement of small

scale industrial enterprises could help to eliminate the

unhealthy imbalances in the rate of economic growth between

rural and urban areas and thereby help towards integrated

rural development. This most certainly would aid in

checking rural urban migration and the associated problems I

of unplanned urbanization.

Masha also highlighted the remote fact that some

big/large scale ente~prises developed from previously

small scale operations. Kith efficient managment, some

small scale business will in the long run become large

scale businesses. The significance of this is that

increasing large scale businesses can be attributed to

the growth of small scale businesses. To Masha, an

important feature associated with small scale industries

which is particularly relevant to our current economic

problems is that these industries characteristically

depend less on imported inputs relative to their total

capital investment than large scale industries. A low

import content in the capital structure of small scale

industries obviously reduces the need for foreign input

thereby reducing the pressure on the limited foreign

exchange earnings thus helping to elininate some of the

balance of payment difficulties.

Closely associated with all these is the fact that

the growth of these industries helps to develop middle

level managers on horizontal patterns and this is quite

important for the development of a decentralized economy

such as Nigeria.

Akamiokhor (1983:20) is of the view that the

government's interest in small scale enterprises could

be attributed to their use as ready tools for the

implementation of its economic and social objectives

such as stimulation bf indigenous enterpreneurship,

creation of employment opportunities, checking of rural-

urban migration and dispersal of industries. Small scale

enterprises provide opportunities for enterpreneural

drive, use of special talents/skills, urbanization of

communities, expression of economic independence and

check on monopoly. There are individuals within a

community who value highly the opportunity to create,

ow., and operate a business and thereby achieve a measure

of independence. Since political independence is tied

to economic independence, Akamiokhor suggests that

development of a strong small scale enterprises sector

will further enhance independence of political opinion

within the Nigerian populace.

In summary, the=livelihood of the majority of people

depend heavily upon the sector's activities and achieve-

ment, be it in employment, provision of goods and

services, payment of revenue, mobilization of domestic

savings, training of managers and semi-skilled workers,

enhancement of regional economic balance, production of

intermediate products for use by bigger firms, and the

use of local raw materi,als. Thus there is general

agreement on the utmost importance small scale enter-

prises in our economic development.

i

The State of Manufacturing in the Econmx

The development of manufacturing in Nigeria has gone

through three main phases. The first, up to the oil boom

of the early 1970s, involved moderately rapid growth much

of which was domestic resource-based and import-substituting.

The second phase lasted for roughly a decade from the

early 1970s to the early 1980s. Domestic demand increased

very rapidly as the revenue from oil spread through the

economy. Domestic manufacturing also grew very rapidly,

but not as fast as consumption so that imports increased

as well. Moreover, domestic manufacturing was based to

a substantial degree on imported inputs. Hence, a

continuation of this pattern of growth was dependent upon

the maintenance of bouyant exports to finance imports and

maintain a healthy trade balance. This pre-requisite

disappeared in the 1980s with the oil slump - the third phase. In this period, continued Ridell (1990:257),

manufacturing was hit both by the sharp fall in consumer

demand caused by the general austerity and by the drop

in supply of imported inputs.

In 1966 Nigeria had an estimated current GNP per 1

capita of seventy US dollar; two decades later this had

risen to an estimated six hundred and forty US dollar,

World Bank (1987). Even in constant prices, GDP doubled

over the period in (Table 2.3.1) below. The main engine

of this growth was the development and the exploitation

of oil and a very favoura.ble movement in Nigeria's terms

of trade during the 1970s resulting from the world oil

price rise.

TABLE 2.3.1: Selected Economic Indicators 1966-86

Current GDP at factor cost (Nm*

Total Manufacturing

Constant GDP at factor cost (1980 Nm.)

Total Manufacturing

Manufacturing activity (1980 = 100)

Employment Real eamings per emplayee Real outlput per employee

Source: World Bank, World Tables 1987.

Note : - *l985.

Manufacturing activity increased even faster than

GDP. In the two decades, it grew in constant 1980 prices I

by almost 500%. As a result, its share of constant GDP

rose from 4% in 1966 to 11% in 1984 (Table 2.3.1 refers).

The index of manufacturing employment increased more

than six-fold during this time.

Towards the end of the 1980s, manufacturing

accounted for only one-tenth of GDP (Table 2.3.2 below

refers) although a post-1988 statistical series (still

considered unreliable) almost halves these figures.

Manufacturing Value Added (MVA) per capita in 1981 (at

1975 constant prices) was forty-eight US dollar in

Nigeria, forty-six US dollar in Africa, and one hundred

and one US dollar in all developing countries according

to UNIDO (1988:4,5). Moreover, there has been only

limited diversification and deepening. The current

structure of the sector (manufacturing) has been

described as mainly concentrated on easy import substi-

tution goods - the localisation of assembly and the final processing of relatively simple products. In 1985,

MVA was equivalent to 45% of gross manufacturing output,

only a small increase on the 43% recorded for 1975.

There is a reason why the rapid growth of the 1970s

gave way to the decline of the 1980s, with manufacturing

TA

BL

E

2.3

.2:

Stru

ctu

re o

f GDP

at

Co

nsta

nt 1977/78 P

rice

s

(%)

Ag

ricu

lture

23.4

22.9 19.9

20.0 19.4

22.5 22.8

25.9 26.6

28.1

Oil &

Min

ing

25.3

24.2 28.3

24.5 18.0

16.1 16.5

18.9 19.8

18.4

Manufacturing

5.0 6

.1

5.6 7.4

8.4 8.8

8.2 11.5

9.3 9.0

Se

rvic

es

33

.1

32.8 31.2

33.2 37.8

37.4 38.4

33.0 35.5

35.6

To

tal G

DP

(Nm. 32,510

30,510 30,037

31,086 30,366

29,860 27,861

25,855 26,159

25,290

' Change in

7.6 -6.2

-1 -6

GDP

3.5 -2.3

-1.7 -6.7

-7.2 1.2

- -3.3

So

urc

e:

Ce

ntra

l B

ank o

f N

ige

ria,

An

nu

al R

ep

ort

an

d

Sta

tem

en

t of

Acco

un

ts 1

98

6 ;

Fe

de

ral O

ff ice

of

Sta

tistic

s, E

conom

ic an

d

So

cia

l Sta

tistic

s

Bu

lletin

, 1

98

5.

operating at an estimated one-third of capacity by

mid-decade. The reason is that the pattern of growth ,

in the 1970s was unsuspainable when foreign exchange

became scarce. Criticism of this pattern centres on

two claims: that manufacturing growth was slower than

could have been achdved given the combination of oil

wealth and a large internal market; and, even more

important, that the pattern of development has been

unsatisfactory since much of the increase in MVA derives

from import-dependent, assembly-type operations that

can survive only behind heavy protection, and from

capital-intensive projects with few linkages to the

rest of the economy.

These criticisms need to be viewed within the

broader context of the overall development of the

Nigerian economy. To a large extent what has happened

to manufacturing is the result of pressures generated

elsewhere. Since 1973, the economy has been dominated

by oil which has been a twin-edged influence, providing

the government with the financial means to undertake

activities denied to many other Black African States,

and, together with the large population, resulting in

substantial effective demand on the domestic market.

Both have provided a certain stimultis to manufacfuring.

At the same time, however, the pressures generated by

oil have had less beneficial effects, Ridell (1990:259)

continues. Imports have risen just as fast as exports,

making the economy vulnerable to the periodic slumps

experienced in oil exports. These cause balance-of-

payments problems a d , even more seriously, divert

government attention away from long-term development

to short-term crisis management. Imports have also

undermined some sectors of domestic production. Agri-

culture presents a striking example: Nigeria has been

trans formed from a major agricultural exporter into a

substantial importer. A consequence has been its

inability to move beyond the initial stages of a rather

haphazard type of import substitution, and manufacturing

has remained heavily dependent on imports. This has

been partly the result of government policies, which has

favoured production oriented towards domestic consumer

demanded rather than exports, and has depressed artifi-

cially the cost of imported inputs. But it is also

independent of government policy. Nigeria's large

domestic market grew very rapidly with the oil boom.

It would have absorbed a very high proportion of

domestic output even without the bias of government

policies, and the speed of growth would have predisposed

nanufacturing to favour import-dependent solutions even

without the artificially low price of imports. The

principal area in which government policies have had a

negative effect is in diverting funds and energies into

highly capital-intensive, heavy industry which has

relatively little spin-off into the rest of the economy

and, in the case of steel, has resulted in high priced

inputs into other areas of manufacturing. Where the

government has had a negative effect on the manufacturing

sector it has often been a case of 'sins of omission'

rather than of 'commission'. For example it has failed

to protect the sector from the adverse consequences of

its other policies (e.g. on exchange rates or wage levels)

or to deal with problems in other sectors (e.g. the .

decline of agriculture) which have had an impact on

manufacturing. Possibly the most pervasive policy

prejudicial to manufacturing development has been its

failure to manage oil. This volatile behaviour has

applied also to government investment. During the 1970s,

there was a rush to extend infrastructure in order to

ease bottlenecks that were undoubtedly a constraint on

manufacturing. But, such was the pace of construction

that costs rose, quality fell and less was achieved than

might have been. Moreover, the beneficial impact of such

investments has been limited because the period since

the early 1980s has been one of acute depression for

manufacturing as a direct result of foreign exchange

constraints. Hence the sector has not been able to take

full advantage of the new facilities. Had government

policies in these areas been different;growth might have

been more substantial and diversification more rationally

based and durable. Nonetheless, manufacturing would still

have had to cope with pressures generated by the 'oil

syndrome'. In particular, oil has an in-built inflation-

ary impact on the rest of the economy that has pushedup

labour costs and reduced the supply of labour to

manufacturing, argues Ridell (1990:260). He claims

that it has also led to a substantially over-valued

exchange rate. High production cost and the over-valued

exchange rate have made domes tic production vulnerable

to import competition despite high nominal protection

of many goods. Finally the pressures generated by oil

have tended to make distribution much more profitable

than manufacturing. The same is true for agriculture,

which has declined with adverse consequences for

agro-manufacturing.

In the context of manufacturing as the mechanical

or chemical transformation of inorganic or organic

substances into new products statistics on the various

aspects of this sector are generally scanty in the sub-

Saharan Africa. Ridell (1990 :x) highlighted the a h s t

entire absence of data on small scale/informal sector

activities and stressed that this was not in the interest

of a better understanding of the potentials for future

development in this sector. Nigerian statistics may I

not be worse than those of most of its neighbours, but

the economy is so much more complex that these deficien-

cies are more apparent. The result is that although

opinions abound about the causes of the country's

economic problems, very few can be substantiated conclu-

sively with hard data. It has not been possible, for

exanple, to obtain statistics on total consumption of

most manufactured goods. Nor has any adequate time

series been found giving figures for actual production.

Be this as it may the figures available from most

international organisations like the United Nations, the

World Bank, IMF, etc certainly provide an indication of

the magnitude of the performance in manufacturing activities.

In conclusion, Table 2.3.2 casts a good picture of

the state of manufacturing in the economy where for the

period 1977 - 1986 the contribution of manufacturing for

the most part was under 10% of the total GDP. Government

policies in the past diverted funds and energies into

highly capital-intensive, heavy industry which has

relatively little spin-off into the rest of the economy.

It is apparently in realisation of the negative effect of

this approach that the government in 1989 articulated the

National Economic Recovery Fund (NERFUND). NER.FUND was

put together to adminis.ter a five billion naira collection

of Fnvestible funds obtained by the federal government

from the World Bank, the African Development Bank,

Czechoslovakia and Japan, reports Abutiate (1989:37).

NERFUND ensures that the funds borrowed at concessionary

rates of between seven and eight per cent are channelled

into small and medium scale manufacturing enterprises,

especially those located in rural areas. Such concerns

will receive funds to acquire equipment and machinery

at a maximum interest rate of 13.6 per cent. This credit

line has a maturity of 12 years with three years grace.

The working capital is to be repaid in three years with

a year's grace. More details about the NERFUND package

is given on section 2.6. It is hoped that the govern-

ment's approach in articulating NERFUND to address small

and medium scale manufacturing enterprises will have a

favourable impact on the rest of the economy. In

particular it is hoped that there will be a general

improvement in such components of manufacturing activity

as employment, real earnings per employee and real

output per employee.

2.4 Issues in.~iripm~in~of Small Businesses

The major single factor that continues to make

small scale enterprises weak both here and in.many I

other countries as well is the problem of finance.

All other problems appear to be appendages tothe

financial problem. '

Characteristically, these enterprises often lack

knowledge of the right sources of finance for investment

and working capital. In addition, institutional sources

of funds are often unwilling to provide facilities for

these enterprises. Hence, many of them are faced with Q

perennial problem of shortage of working capital which

hinders their ability to produce efficiently. The result

is that many small scale enterprises have to depend on

alternative sources of capital intne form of family

savings or borrowing from middlemen/money lenders where

interest rate, collaterals and terms of repayment are

much more exerting than those of the formal banking

institutions.

Many reasons account for little finance being

channelled to small scale enterprises by banks and

other institutional lenders and they include:

1) Inadequate knowledge of the appropriate source of

finance and lack of skill in presenting a financial case

to investors and/or lenders.

2) Poor financial control and book-keeping resulting

in management being unaware of an impending crises until

the appearance on the annual accounts or following

urgent call from the bank manager. I

The commercial banks had always tended to assess propo-

sitions on the basis of historical balance sheets,

which is usually the only information made available.

The technique used involved comparing the value of

balance sheet assets with the liabilities due to

creditors other than the proprietor. According to levy

(1980:116-117), this 'goneconcern' approach possibly

served the banks well in the past for the granting of

overdrafts and term loans. However, in levy's view,

the need for repayment scheduling and future performance

assessment called for the use of more sophisticated or

'growing concern' approach which seeks to take over from

where historical analysis leaves off.

The balance sheet of the business is analysed for

liquidity, gearing, credit given, credit taken, and

stock turnover in the noram way, but thereafter the

analysis tries to ascertain whether the business will

generate sufficient cash-flow to meet its future needs.

At least, the last three years' statment of profit and

42

loss are analysed for trends in sales and profit and key

ratios are calculated for such items as profit margin and

interest cover. A number of profit and loss to balance

sheet and application of fund statement will be drawn up

for the period under review. In this way a picture can

be built of how the bGsiness has reached its present

position and often some idea can be gained of its pro-

fitability and efficiency as well as the effectiveness

of the management.

Turning to the future, a view of the firms prospects

is formed within an industry and general economic content

and this view can be discussed with its owner/directors

and compared with cash-flow projections that should be

submitted, for at least the coming 12 months period.

Scharter (1975:27) opines that future working capital

needs in relation to capital investment should also be

taken into consideration. Using this procedure, the bank

should be able to form an opinion as to whether a business

can meet an extra counnittment presented, by either an

overdraft or medium term loan. Assuming the loan is

granted, it should be possible by regularly scrutinizing

future cash-flow statements to monitor the performance

of the management and identify problems at an early

stage to do something about them.

The problem with small business in all these is

that they are often unable to comply with requirments

of the analyst for the:provision of the correct form of

management accounting information. Management accounting

techniques are clearly vital to the preparation of t

reliable cash-flow forecasts but sadly, many small

businesses are incapable of producing little more than

their historical accounts. The easy way of this out

of this dilemma is for the banker to seek security. In

the view of Morgan (1972:14) a banker is someone who

lends with adequate security. Reliance on security

alone has its problems in that the capital value of an

asset can reflect its earning capacity which because of

changing market and supply conditions can vary over a

period of time and the trend of these factors cannot

always be readily anticipated at the outset. Despite

this, most banks insist on adequate security especially

where the risk is high or where the borrower has not

been in long association with the bank.

But, ultimately, the best and cheapest form of

security is the continued profitability of the concern

to which money has been advanced. To this end, bankers

must demand a better flow of management information

from small businesses.

2.4.1 Cost and Risk Considerations by the Banks

Cost and risk consideration by banks provide an I

insight into why they ~efrain from lending to small

scale enterprises. Banks may be anxious to help, but

it often takes as long to assess a loan application

from a small business' as from a large one and it may

cost more to administer the loan, even if there is no

risk that it will not be repaid. The banks profit

depends on the amount of money lent on each loan and

they will obviously prefer large loans to larger

businesses.

Let us consider a programme of lending to small

scale enterprises. The cost and risk associated with

this include the possible financial losses that the

lender may incur due to non-repayment of interest and

principal. This is termed financial risk and is

represented by write-offs of principal and interest not

repaid less net recoveries through foreclosures and

penalty charges. Also the expected cost of administer-

ing and supervising the loans may be high. Anderson

(1981:5) argues that both the financial risk and

administrative cost declines over time for two reasons.

First, for loans of a given size, there are economies

from 'learning by doing' which arise from accumulation

of information and experience within the institution as

lending takes place; the effect is to improve screening

procedures ahd reduce both the risks and administrative I

costs of subsequent loans. Second, there are economies

of scale stemming from the fixed cost of processing a

loan, which are incurred regardless of the size of the

loan, and the gradual increase in the average size of

loans demanded.

Anderson's arguement is that if a way can be found

in sharing the risk of starting up a borrowing-lending

relationship between small scale enterprises and financial

institutions, there will be no need to intervene in the

long run since the factors he highlighted above will

work towards increasing the volume of business done.

However, a major impediment to growth is the magnitude

of the initial risk and therefore the cost of obtaining

loans. For a lending programme to have positive expected

profits, it is necessary for the total principal and

interest recovered to exceed the total cost of raising

resources and administering the loans. Thus the interest

payments on the good accounts must cover the lost

principal in addition to the lost interest on those

in default. This automatically pushes the interest

rates on a very high level. Turnbull (1965:234) insists

that the interest rate may not be as high as envisaged

to reflect losses due to default because few institutions

would begin a full-blown lending programme without first

making 'pilot' loans to a significant number of clients.

Alternatively, they would begin a programme gradually,

expanding it in stagds, with a careful monitoring of the

loan and the experience gained at each stage. Prest

(1975:37) argues that interest rates will still be high

when allowance is made for risk aversion and the need for

financial institutions to make significant profit. Thus

most financial institutions do not act on the criterion

that expected revenue should equal or exceed expected

costs, in practice, they expect the former to exceed the

later by a significant margin. These factors have contri-

buted in pushing interest rates on medium and long term

loans to very high levels, usually exceeding 30% for

most developing countries. However, In practice, interest

rates in developing countries including Nigeria are

frequently prevented from rising to such levels by

administrative ceilings.

Bullock (1976:12) argues that even without the

ceilings, it is unlikely that the banks and non-bank

financial intermediaries would be prepared to charge

very high rates for small borrowers alone. Apart from

fears of political attack, there are grounds for believing

that supply would not rise to meet demand at such rates. I

First, the margin for contingency on the borrowers' I

project as planned would be greatly reduced. This would

obviously act to lower demand and to make the borrower's

project a riskier proposition. But beyond this demand

effect, such rates would involve the financial institu-

tions in a type of lending remote from anything in their

previous experience; at the same time, given that

contingency margins are reduced, their understanding

of the risks would need to be greater than before whereas

in fact it would be less. Such factors would reduce

rather than increase their willingness to lend as interest

rates rose above a certain level; that is, the supply

curve may be backward sloping. A related argument is

presented by Stiglitz and Weiss (1981:112-114) who

suggest that higher interest rates may attract the

riskier and deter the more conservative borrowers, and

induce others to undertake yet riskier projects in the

expectation of higher returns. That is while revenues

per loan repaid rise with interest rates, the probability

of repayment decreases and Stiglitz and Weiss argue that

there is an optimum interest rate which under plausible

conditions can be below the market clearing rate. Hence

we are still left with credit rationing and a system

in which potentially 'good' borrowers are driven out of

the market by the 'bad' borrowers.

Finally, the bank and non-bank financial inter-

mediaries have to maintain a reputation for financial

soundness, and would'not wish to report high risk

elements in their portfolio even if on account of high

interest rates, those elements were not leading to

financial loss.

Fears of criticism affect both the composit-ion of--"-----

the portfolios or more specifically, the proportion of

risky assets a manager is prepared to hold and the

effective level of interest rates that an institution

is prepared to charge. These fears are both common

to public and private institutions. It is worth

quoting, Ghandhi (1976:7-16) observations on the

conservative policies of banks in Sri Lanka whichhe

associates with 'an undue adherence to the outmoded

principles of the (British) Banking School ' . As reargds

the composition of loan portfolios he comments:

.With the possible exception of their larger and more established customers, banks seek their security for loans not in indicators of the capacity for repay- ment but rather in the quantity and quality of collateral. And the prudent banker is one who attempts to ensure that the value of the asset so pledged is always

greater than the amount of loan due. Nationalised enterprises are particularly sensitive to comment and criticism and experience elsewhere suggest that managers of such enterprises are usually reluctant to expose themselves to 'undue risks'. Given a situation where the benefits of risk taking do not accrue directly to the manager, but the potential cost of criti- cism under failure are very real, it is no wonder that safety is so often sought in orthordoxy ...

In most developing countries including Nigeria, the

public banks do attempt to provide a measure of finance

to small enterprises and small holder agriculture often

at a loss. For this reason, it would be wrong to imply

that they are altogether unresponsive.to the demands

to these activities. We can however draw two conclu-

sions from the foregoing discussion.

First, that a policy of simply letting interest

rates float in and of itself is unlikely to induce

private banks to lend to small businessmen out of good

standing. Second, any policy that is advocated in

the interest of economic efficiency must allow for

dLfferences between the objective functions of the

participating institutions and the objective function

of the economist based on the expected present value of

economic returns. Such differences may not be serious

when risks are low and the efficient policy will be to

let interest rate rise to clear the market. But when

as in the cases analysed in this paper the risks rise

to significant levels additional measures are required.

2.5 Non-Finance :Related Problems of Small Businesses

Despite the immense importance of small scale

enterprises to the economy, several non-finance related

problems limit their potential contribution to the

development of the Nigerian economy. The most

important problem which tend to limit growth of such

enterprise among others include:

a) Inadequate Quantitative Data for Decision Making

and Strategic Planning:

As already stated elsewhere in this paper, small

enterprises seldom keep good records of their activities

and this adversely affects the quality of their deci-

cions. Plans are made without any quantitative analysis

such that the real situation may be different from

what is perceived by the owner who is the decision

maker.

b) Difficulty in Recruiting Higher Level Manpower:

Stpall businesses may not have the resources to

engage highly skilled labour which they may need.

Small scale industries that require the services of

expatriates may be unable to afford the type of

remuneration such expatriates may require thus they rely

on semi-skilled local labour with the resultant low

productivity.

C) Lack of Adequate Customers:

Every business needs customers but.smal1 business 4

people often find it particularly difficult to sell

enough of their products to keep them busy and earn a

reasonable living. They cannot afford to hire salesmen

or to advertise. Big international companies can compete

in remote rural markets, and small businesses are at a

disadvantage even in their own locality. They are far

less able to sell their goods into the urban areas which

are growing so fast, and where people often need the

products of small businesses, because the large firms

can afford to use every modern marketing tool in the

city. Governments can assist by helping small business

people to obtain their share of public contracts, but

business people themselves must play the major role, by

learning how to sell and market their goods, and by

combining with other businesses when this can aid them

to reach out to more customers than they can on their

Own.

d) Inability to Engage in Joint Activities:

Small business people.often need to co-operate with

52

one another, in order to obtain reliable and economical

supplies of raw materials, in order to market their

goods or in order to present their point of view to I

government and the general public. They cannot easily

do these things on their own, but any form of co-operation

requires initiative from an experienced individual who

has the time and ability to organize it. If none of the

small businessmen themselves have the time nor ability

to do this, some outside organization may have to

organize some form of co-operative effort. In the view

of Boban (1982:17), only in this way can small business

compete with large ones for sources of supply for

markets, and for government attention.

e) Information :

Small businesses are often unable to take advantage

of services provided by government or other organizations

simply because they do not know about them. Small busi-

ness people often infringe the law because they are not

aware of it. In the same way that small business people

are unaware of services or regulations which affect them,

government and others are often ignorant about the

numbers, locations and problems of small business people.

There is need for a communication system which conveys

information in both directions.

f) Management:

Finally, and most importantly, small business

people are in need of ,assistance in management. They

must compete with managers and management techniques

which have been tried and tested elsewhere. Small

businesses cannot e a h enough to pay for full-time

managers, so that their owners have to learn for them-

selves how to manage while they are carrying out their

normal jobs in the business. Some form of management

training is obviously needed to ensure efficiency in

operation. In the view of Stewart (1984:29) individual

small businesses cannot organize this management training

on their own because of their small size; an outside

organization which is publicly backed will be required.

The growing importance of the management aspect of

small businesses has led to arguments on the issue that

good management is their major problem and not lack of

finance. This is open to contention.

Sources of Funds And their Adequacy

The typical small business, even the successful

one, cannot aspire to the general capital markets for

funds. If the firm owns any real property, it may be

able to obtain a mortgage from a bank or other financial

institutions, maintains Freear (1985:358). Business

financing constitute a major problem for young enterpre-

neurs. There are sources of funds that are available for ,

the operation of smal1,scale business. These include

personal savings, equity and loans.

1) Personal Savings: . Available literature show that personal savings

must constitute a significant portion of the initial

capital of most small scale ventures. Relations and

friends of an individual sometimes contribute money to

help the individual establish a small scale business.

One advantage of this source of fund is that the

enterpreneur has a complete control over the business.

Thus decisions are easily taken and implemented.

2) Equity:

Cost of funds in the money market is exhorbitant.

Resorting to equity financing in this circumstance is

usually helpful because of the relatively cheaper cost

of funds. But this will now mean that the business is

no longer limited to the ownership of its initiators but

to as many people as buy the equity stock of the business

since Zt will have become a private limited liability

company. Noteworthy is tke fact that for a business

to qualify to raise money through equity financing it

has to enter the second-tier securities market after

fulfilling the following requirements.

i) a minimum of three years trading record must be 1

submitted. f

ii) the latest audited accounts must not be more than

nine months. *

iii) the investing public must hold at least ten per

cent of the equity of the company before dealing starts.

iv) number of shareholders after the exercise must not

be less than a hundred in order to be able to provide

a market for the trading of securities.

General indication is that many prospective small scale

business operators do not find the fulfilment of these

requirements easily amenable particularly when considered

in addition with the numerous associated fees to the

Securities and Exchange Commission, Nigerian Stock

Exchange and Stock-brokers. The result is that only a

very few prospective small scale business operators

patronize this source of fund for their establishment.

3) Loans:

Popular sources of borrowed funds for small scale

business are as follows:

i) individuals (relations and friends)

ii) money lenders

iii)

iv)

v>

vi)

vii)

i)

finance houses

commercial banks

merchant banks

development banks and state development agencies

government agencies

Individuals (~blations and Friends) :

Apart from the personal savings of a small business

operator, the most dominant source of funds especially

at the setting up stage is loans from relations and

friends. The popularity of the source is attributable

to the fact that friends and relations are desirous of

having their close ones independent and self-reliant.

Apart from the fact in most cases no interest is charged,

they show more understanding with default on the loan

repayment.

ii) Money Lenders:

Loans from money lenders are very expensive.

Despite this obvious fact, small business operators

still patronize them particularly when starting new

ventures, and during periods of severe cash-flow '

problems with an 2.lready existing business. Research

findings reveal that interest rates charged range from

fifteen per cent to fifty per cent per month between

1982 and 1987.

iii) Finance Houses :

These are privately owned investment companies s

which render to other companies and individuals such

services as hire purchase credit, leasing and consumer

credit. They also provide corporate finance services

such as capital restructuring and project financing.

The finance houses use internal funds or obtain money

at call and advances from commercial banks. Finance

houses can provide medium and long term finance for the

purchase of capital goods and offer hire purchase credit

to small scale industrial enterprises, perhaps with

government guarantees. They ought to raise funds from

the public by using the capital market or offering

special deposits.

iv) Commercial Banks :

Credit extension to small scale business by commer-

cial banks can contribute immensely to the transformation

of the Nigerian economy vibrantly. They are the largest

group in the financial sector. By their transaction

volume, they outweigh all the non-bank financial

institutions put together. In addition, they are

highly diversified geographically. Their profit ratio

is so high that they have the financial capability to

extend credit, managerial and technical advice to small

58

scale business.

However, three major problems militate against the

financing of small scale business firms. These have

been identified as the inability on the part of the

small business firms to demonstrate their chances in

order to persuade prospective lenders; the failure of

existing lending and financing institutions to cater for

the special problems of small business financing, and

the lack of knowledge about the existence of sources of

finance and how to secure them. The apparent lack of

knowledge of banks conditions for loans to small busi-

ness firms on the part of the small businessmen partly

explains the failure or reluctance of banks to cater for

their financial need. Thus a better understanding of

the bank requirement is half the problem of the small

scale business solved. In the first few years of the

small business firm two problems confront it. These

are mder-capitalization and negative cash-flow. If

the small business is able to carry through those first

few years with the under-capitalization problem then it

may withstand the negative cash-flow problem until its

profit'performance improves.

But if it is under-capitalized in addition to

experiencing a negative cash-flow, then it may be a

matter of time before it collapses. The usual rescue.-

is always from external sources of finance. From earlier

studies, banks are the dominant source of external fin-

ancing for small business firms. This is the case both

at the early stage as well as the later stage of the

small firms' existence.

Unfortunately, banks are not exactly partners with

small scale firms. Compared with large companies the

tendency is for banks to view small business firms as

not very good risk. Most banks insist on security of

loans to small business firms, and they make no distinc-

tion between personal and business wealth when it comes

to repaying the loans. The foregoing thorough

explanation of the technicalities of acquisition of bank

loans if properly understood by interested parties . .

(government and businessmen) then problems areas may be

singled out for desired attention. For example, banks

often explain such factors as operational environment

which encompasses such own features as the proportion

of their portfolio in loans, their deposit level, their

growth and stability over time, the demand pattern of

their loans, maturity structure of their investments

and the degree of specialization of their loan offers

as one of the reasons for their apathy to small business

firms. Other reasons for their apathy are government

regulations and legal constraints on lending, competition

from other banks, and interest rates or returns on

competing assets or investments.

An important consideration by banks in small

business lending is the transaction cost involved.

These are costs of lban appraisal, supervision and

collection on one hand and on the other hand, lending

risks which are decomposable into the probability of

arrears and defaults.

S . I. Onwualah and Co , in their 1986 study showed that the higher cost involved in small business loans are

attributable to fraud or greater susceptibility to

failure; poor collateral security; poor cash flow and

credit rating; lack of management competence; low

capitalisation and insufficient market for products.

Banks tend to show more interest in a firm's repayment

ability and credit worthiness in addition to how a loan

will help to improve its productivity and profitability.

Some quantitative and qualitative characteristic also

influence a bank's decision to grant loans. Some of

the quantitative requirements are past and present size

of a firm's current, liquid and total assets; current

level of working capital; value of its outstanding

debts and present networth, profitability of its business

operations and the value of available collateral security.

The qualitative characteristic in a descending order I

of importance are:purpose of the loan; profitability of

business operations; stability of demand for products;

value of supporting collateralsj integrity and competence

of managment; value df outstanding debts; past and present

size of assets; and value of compensation or deposit

account balance.

Apart from banks' desire to comply with government

policy banks are interested in the purpose of loan

requests because it serves as a confirming test on the

commercial viability of the business for which the loan

is requested. Equally, banks consider profitability of

a business because of the relationship between it and

loan repayment. A large profit ratio is a good indica-

tion of a potential source of cash-flow to repay a loan.

The concern for collateral'security by banks is to serve

as a protection for their investment particularly with

small business firms which they perceive as having a

greater risk of failure. A supporting collateral

securlty therefore serves a dual purpose: one is an

assurance to a lending bank that it will not lose in the

event of a failure of a business it financed; two is

ensuring a medium of financial discipline on the part

of the owner since doing the contrary may result in the

loss of not only the personal stake of the owner in the

business but also that of wealth accumulated from other

sources. However, collateral must not be physical

(like building and equipment), certificates (as with

the National ~irectorate of Employment) and other

valuable documents should also be acceptable as collateral.

V) Merchant Banks:'

These are profit-oriented wholesale bankers who

specialise in loan syndication. Deposits and loans are

made in large amounts. They equally involve in provid-

ing export, import, equipment leasing facilities,

purchase and sale of foreign exchange, offering investment

advice to customers and assisting in making issues.

The recent lifting of the ban on banks in equity

participation in non-banking small and medium scale

business is yet to produce the desired effect. Banks,

previous to the lifting of the ban, were not allowed to

hold equity shares in non-banking industry because of

their rather vantage circumstances. The circumstances

was in the fact that banks collect vital information

ranging from feasibility reports to profit projections

about projects of prospective customers and as such

were in a position to take advantage of such information

undertaking the project for itself to the detriment

of the prospective customer - this would amount to a breach of confidentiality which is one of the conerstones

of the banking practice. Thus, notwithstanding that the

ban has been lifted the year that banks may take

appropriate to their advantage feasibility reports sub-

mitted them for appraisal deters the public in going up

to the banks with such reports and this situation explains

why the lifting of the ban has not yielded the desired

effect. Loan applicants have been known to submit false

feasibility report just to secure the loan but later

divert it to the desired project. Merchant banks also

insist on holding controlling shares when approached for

loan advance by small business firms. Businessmen are

reluctant over this clause.

iv) Development Banks:

Much is expected in terms of financing small scale

business from the following development institutions:

a) Nigerian Bank for Commerce and Industry

b) Nigeria Agricultural and Cooperative bank

C) State finance companies, e.g. Central Investment

Company Limited.

Though these institutions have contributed to

development of public and private business in general

their popularity with the promotion of small scale

business in particular is short of expectation. Commonly

advanced reasons for the non-performance of these insti-

tutions include shortage of funds, favouritism, discrimination

against small scale business, high interest rates, high

equity contribution requirement, preference for funding

government projects and diversion of funds towards

government privatisafion of companies.

vii) Government Agencies :

Various government agencies have been in existence

to provide financial assistance to small scale enterprises.

At the federal level, there are the following; National

Directorate of Employment, (NDE); National Economic

Reconstruction Fund (NERFUND); Fund for Small and Medium

Scale Industries which is controlled by the Central Bank

of Nigeria.

At the state level exist credit institutions like

Anambra Cooperative Finance Agency, (ACFA) which

specialises in agricultural loans. There is also the

Fund for Small Scale Industries (FUSSI) established for

the modernisation and expansion of productive small scale

industries within the state. FUSSI has folded up due to

inefficiency and operational problems. NASSI is very

critical of NERFUND. The criticisms range from slow

pace of project approval; stringent conditions attached

to the loan; participation of banks in the icheme; non-

inclusion of NASSI members in the management of the fund

to non-inclusion of working capital as one of the areas

eligible for NERFUND converage.

The National Association of Small Scale Industria-

lists (NASSI) based on the above criticisms has since

called for a reapprai'sal of the aims and objectives of

NERFUND .

2.7 Policy Issues on Financing of Small Scale Business

This section discusses the various attempts which

the Federal and State.Governments have made towards

channelling finance to small scale enterprises with a

view to finding out how effective such policies have

been.

The role of the Federal Government through the

Central Bank of Nigeria is about the most prominent

policy thrust and is worth discussing here. Conscious

effort towards directing institutional finance to small

scale indigenous enterprises in Nigeria begaivwith the

establishment of many indigenous banks during the period

1928 - 1952 as protest institutions to liberalize credit to Nigerian businessmen, in reaction against discriminatory

66

practices by the European banks. Although most of these

banks failed, the surviving ones soon became heavily

patronized by the regional governments that were self

governing since 1952.

The Federal Government's effort in the provision

of finance to small s&le enterprises began in some

form in 1945 with the establishment of the Nigerian

Development Loans Board designed to make'medium term

loans available to Nigerian enterpreneurs and public

bodies for public works, land development and development

of local crafts. In practice however, most of the

Board's loans went to public enterprises. The Board

was eventually decentralized in 1949 along regional

lines as regional development Boards.

In 1974, the Federal Government began to provide

a more direct form of financial assistance to small

scale enterprises when it introduced the Small Scale

Industries Credit Scheme (SSICS) in all the States of

the Federation. The scheme which operated through 1980

was designed to make credit available on liberal terms

to small scale industrial enterprises with capital

investment outlay of not more than W150,000.00. The

maximum amount available to any individual borrower

under the scheme was W80,000.00 and not less than 75%

of this must be used to acquire fixed capital and

equipment. Working capital loan could be given up to

50% of the requirement subject to a maximum of W10,000.00

for a borrower.

The operations of the scheme was fraught with a

number of problems such that it had co be discontinued

in 1980. In its place was substituted a two-tier system

of credit scheme administered by state and federal

governments individual3y. Each State administered its

scheme through its Ministry of Commerce and Industry

while the Federal Government administered its scheme

through the Nigerian Bank for Commerce and Industry.

A number of State Governments had also in the

past attempted to make finance available to small scale

enterprises by offering to guarantee commercial banks'

loans to small scale enterprises within their States.

Prominent among these was the then North-Western State

which in the early 1970's entered into an agreement with

Barclays (now Union) Bank in which it provided a guarantee

of 75% for loans given by the bank to certain small scale

enterprises within the State.

The Central Bank realised at the onset that it

needed to use the commercial banks to bridge the resource

gap in the financing of small scale enterprises. This is

because the Central Bank is statutorily not allowed to

finance private activities directly. Thus the Bank

began as far back as 1970 to gradually harness the

resources of commercial banks towards the financing of

indigenous enterprises. In that year, the Bank for

the first time issued a directive to commercial banks in the country to direct a minimum proportion of their

loans and advances to, indigenous enterprises. The bank's

directive followed a survey carried out by it in 1969

that further confirmed the unwillingness of the then

expatriate banks in the country to extend credit facili-

ties to indigenous small scale enterprises. The survey

revealed that on a monthly average basis indigenous

banks granted about 90%,of their loans to indigenous

persons and enterprises, while expatriate banks which

controlled 80% of the banking business in the country

granted on the aggregate only about 25% of their credit

facilities to the same group of borrowers. Consequently,

on the 30th of April, 1970 the Central Bank directed all

commercial banks to grant on the average, a minimum of

35% of their loans and advances to indigenous borrowers

by 31st December, 1970. An importmt consideration at

that time was the selection of a realistic target that

could be met by all the affected expatriate banks without

major disruptions to the smooth functioning of the

banking system. This was crucial, considering that the

expatriate banks as a group overwhelmingly dominated the

banking system.

The 35X prescribed minimum level of commercial

bank's credit to indigenous borrowers remained unchanged

until 1972173 fiscal year. In the fiscal year 1972173

each commercial banklwas directed to increase its

loans and advances to indigenous borrowers by 5 per cent

points to 40L For purpose of clarity, the 1972173 credit

guidelines defined 'Nigerian Business' to include those

businesses with 51 to 100% Nigerian ownership. The 40X

minimum target was retained till April, 1977.

Following the indigenisation decree of 1977 and

the increased participation by Nigerians in formerly

foreign owned businesses, the minimum share of each

bank's loans and advances to indigenous borrowers was

increased by 10 per centage points in 1977, 1978, 1979,

1982 and 1984 to 50, 60, 70, 80, and 90 per cent respec-

tively.

he Central Bank had discovered by 1979 that while

banks achieved their minimum target of loans and advances

to indigenous borrowers, they failed substantially to

extend credit facilities to small scale enterprises for

which the policy was originally designed. Consequently,

in 1979180 the Central Bank directed that out of the 70%

minimum allocation of loans and advances to indigenous

borrowers, 10% must be reserved exclusively for small

scale enterprises.

While commercial banks, as in the preceding year,

exceeded the 70% target in loans allocation to indigenous

borrowers in 1979180 they failed to meet the required

minimum in loans and advances to small scale enterprises

owned by Nigerians (see the Table below).

TABLE 2.7.1: Commercial Banks' Loans and Advances to Small Scald Enterprises (1980 - 1984)

(W'million)

1. Aggregate Loans and Advances

2. Aggregate Loans and Advances to Small Scale Enterprises

Category A

Category B

Category C

Category D

Category E

3 . Percent Al loca t ion t o Small Scale En te rp r i se s

Category A

Category B

Category C

Category D

Category E

Source: Central Bank of Nigeria

This performance, the Central Bank felt, militated

against the important objective of encouraging the

development of an essential spring-board for the promo-

tion of industrial growth.

Consequently, in April, 1980, the Bank directed

that of each commercial bank's minimum credit allocation

of 70% to indigenous borrowers, at least 1 6 % must be

reserved for small scale enterprises wholly owned by

Nigerians, leaving 54% to other indigenous borrowers.

The Banks were directed to distribute among the small

scale enterprises on the basis of their annual business

turnover as follows :

TABLE 2.7.2: Central Bank of Ni~eria Directive on Com- mercial Banks Loans and Advances t o Small scale Enterprises(l979 - 82)

Annual Business Turnover

b) Above W25,000.00 but not more than W50,OOO.OO

C) Above W50,000.00 but not more than W100,000.00

dl Above W100,OOO ' but not more than ~200,000.00

e) Above W200,000.00 but not more than W500,OOO.OO

This aspect of Central

Allocat 3 Shares ( i ~ 1980181

per cent) Since 1982

3ank's policy has not proved very

successful in terns of commercial banks' compliance.

Since the policy was introduced, the banks have persis-

tently failed to reach the minimum targets in respect of

loans to small scale enterprises by very wide margins.

For example, for the banks that reported at the end of

1985, a total of H185 million was given as loans and

advances to small scale enterprises. This amount

represented 2.1% of their total loans and advances com-

pared with the 16% required by the credit guidelines.

By 1982 the share of loans to small scale enterprises

as a percentage of banks' total loans and advances did

even worse when it fell marginally to 2.0%. Although

banks' loans and advances to this group of borrowers

improved moderately in 1984, representing 6.1% of total '

loans and advances it was still below the target.

Banks have attributed their inability to meet the

Central Bank's prescqibed guidelines in.respect of loans

to small scale enterprises to a number of factors

including inadequate collaterals by applicants and the

uneconomic nature of small loans. Banks assert that they

are often unable to undertake the task of scrutinizing

applications from small enterprises in order to assess

their technical competence and eligibility for loans.

Hence they adopt the easier and undoubtedly safer course

of rejecting them.

Besides the issuance of credit guidelines to banks,

the Central Bank of Nigeria has also attempted to

encourage finance for small scale enterprises through

its participation in the setting up of the Nigerian Bank

for Commerce and Industry (NBCI) in 1973. The Central

Bank subscribed 40% of the authorized capital of the .

bank while the Federal Government took up the majority

share of 60%.

74

Although the original motivation for the establish-

ment of the Nigerian Bank for Commerce and Industry was

to help foster Nigerianization following the indegenization

decree 1972, the bank is currently expected to help in

the financing of the activities of small scale commercial

and industrial ventures. The bank provides this finance

through equity participation and loans. In this sense,

the bank is expected to extend its loans' and investments *

to a wide range of business enterprises. The nature of

the operation of the Bank in the last several years

essentially makes it the open institution for small scale

enterprises in Nigeria especially in the 1980s.

Small firms appear recently to have acquired

respectability and importance in the eyes of the govern-

ment. Prior to the 1980s and subject to the government's

desire to spontaneously develop industry it invested in

heavy industrial establishment in order to take advantage

of the economies of scale. In the 1980s, a reaction

against this has gradually developed, partly at least

because of the manifest failure of mergers and larger

industrial units to do what was, perhaps wrongly,

expected of them. Although it may be going too far to

say that 'small' has become 'beautiful', the small firm

has become the focus of a great deal of government

attention, especially from 1989 onwards, in the opinion

of Abutiate (1989:37).

2.8 Prospects for Small Scale Manufacturing; Firms

So far in this repor t both finance and non-finance

problems of the small scale manufacturing firms have at

one time or the other been highlighted. In order that

there be an improved prospect for this sub-sector I

adequate attention must be given to the problems that

afflict it. It is pertinent to mention that salvation

of particularly developing countries in terms of employ-

ment, self-sufficiency and self-reliance partly lies in

ensuring a very favourable prospect for the subsector.

To ensure such a favourable prospect the following

approaches may be adopted:

1) Government should institute a study to determine

the impact of the existing incentive packages aimed at

enhancing business activities generally and, in particular,

for small scale manufacturing business. The incentives

include the accelerated depreciation of capital invest-

ment, anti-dump laws, import restrictions in order to

promote local production, graduated excise duty allowing

concessions for disadvantaged areas such as the small

scale business subsector.

2) The introduction and continued operation of the

structural adjustment programme (SAP) in the country

with its over-burdening influence on the programme of

small business, makes it more pertinent to undertake a

comprehensive review of the tariff structure. The idea

of paying import and export duty at the same time should

be discontinued to encourage small scale business activities.

3) Courses offered By institutions on business manage-

ment should be result-oriented with respect to imparting

functional knowledge of small business managrnent. In

this respect shorter term programmes that lead to just

diplomas, associate certificates and testimonials should

be designed different from the long and rigorous degree

programmes which emphasize details that would not be of

immediate benefit to the small businessman. Such short

term programmes will impart the necessary entrepreneurial

skills and attitudes needed for the successful operation

of small businesses.

4) Government should, as a matter of urgency, give

attention to improving the rural in£ ras tructural facilities

which present situation adverselyaff-ects the viability of

small business in the rural areas.

5) On financial aid to small business, government needs

77

to do a lot more. The institution in 1989 of the five

billion naira worth National Economic Reconstruction

Fund (NERFUND) as well as the Graduate Self-Employment

Guarantee Scheme (GSEGS) by the Federal Government is

a highly commendable move. But such lofty plans must

be backed with all integrity and serious volition to

achieve results. Furthermore, the government through

its agencies such as the Central Bank of Nigeria (CBN) ,

and the Ministry of Finance and Planning should ensure

that banks strictly abide with the credit guidelines

laid down by the CBN in favour of small scale firms.

Financial counselling is important. Government

experts and banks must begin to help more cornmittedly

in evaluating the viability of proposed small business

operations.

6) Government should play a leading role in the

provision of insurance cover to the financial institutions

and other development finance corporations which lend to

the small business sub-sector.

7) So far, beneficiaries of government contracts are

commonly big businesses. Deliberate effort should be

made by government to ensure that small businessmen of

integrity are awarded government contracts for materials,

construction, and research and development of their scope.

This way small businesses are given opportunity to

contribute and prosper.

8) Government can relate more effectively with small

business by encouraging the forming of trade associations

among small scale business. The existence of such

associations like the Nigerian Association of Small-scale

Industrialists (NASSI) for example, offers a good opportu-

nity for closer relat'ions between government and the small

scale industrialists. Such an association may pursue

publication of business literature and organize seminars

that inform members on various aspects and trends in the

small business sub-sector.

9) Government should accommodate or recognise the needs

of small business in designing industrial estates by

allocating sites provided with relevant infrastructures

for small business ventures.

10) Government should create an enabling environment

that motivates big businesses to support small businesses

in providing them with inputs locally instead of their

resorting to importation for such inputs.

11) On their part the Nigerian small scale businessman

should strive to be constantly current with issues in

their areas of operation. The issues may include effi-

cient and cost benefit methods of operation, future trends

79

in one's area of operation with profit potentials,

pursuing quality standards that compare internationally,

among others.

The adoption, to a large extent, of the above

approaches it is hoped will ensure a very favourable

prospect for the small'business sub-sector.

REFERENCES

Freear, J (1985) The Management of Business Finance, Pitman Publishing London, 1985.

Bolton, Committee (1971) Committee of Inquiry on Small Firms Report, Cmd 4811, HMSO, London, 1971.

Bates, James (1964): Financing Small Business, London, Sweet and Maxwell.

Buchela, B.R. (1967) Business Policy in Growing Firms; San Francisco,. Chandler Publi- sh'ing Co.

Broom H. and Longnecker, J. (1972) Small Business Management; Cincinatti, South Western Pub. Co.

Kolawole, A. F. (1989) "Integrating Small Scale Industrial Activities into the Development Process" Paper presented at ITF Training Conference, Bauchi.

Akeredolu, E. 0. (1977) The Underdevelopment of Indigenous Enterpreneurship in Nigeria; Ibadan, The University Press.

Yewande, E. 0. (1991) "Financing Small Scale Business in Nigeria"; Business Times, Sept 9, p. 14.

CMD (1982) Policy Proposal on Small Industry Services Submitted to the Federal Government of Nigeria ; June,

Oresotu, G. 0. (1985) "A Strategy for Development of Small Scale Businesses in Nigeria", Central Bank of Nigeria Economic and Financial Review, 16 - 21.

Monn, Michael (1990) "Financing Small Scale Industries in Nigeria", Seminar on Small Industry Development, Japan, (3rd July).

Ogundipe, Victor (1987) "Commercial Banks and the Promotion of Small Scale Enterprises" in the Nigerian Banker - Vol. 7, No. 1, 13 - 14.

Masha, A. B. (1986) "The Role of Small Scale Enter- prises in the Development Process; Business Times (15 February) 12- 13.

Akamiokhor, G. A.:(1986) Modalities for a Success- ful Privatisation in Bullion (April/ June), 11 - 16.

Riddell, Roger C. (1990) Manufacturing Africa: Berformance and Prospects; London, James Curry Ltd.

World Bank (1987) World Tables, Washington DC.

UNIDO (1988) Nigeria; Industrial Restructuring Through Policy Reform, Vienna, 21 December.

Abutiate, Sheikh (1989) 'The W5 Billion Masterplan', BUSINESS Magazine, October Edition.

Levy, J. Ed. (1980) Borrowers and Lenders: Rural Financial Markets and Institutions in Develo~inn Countries; London: Overseas ~evelo~ment ~ n s titute.

Scharter, F. F. (1975) Modern Small Industry for Develo~inn Countries; New York: McGraw Hill.

Morgan, K. P. (1972) "The Economic Implications of Learning by Doing", Review of Economic Studies XXIX (June, 155- 173).

Anderson, D. F. (1981)"Small Enterprises and Development Policy in the Philipines: A Case Study"; World Bank Working Paper, No. 468.

Turnbull, A. C. (1965) Modern Small Industry for Developing Countries ; New York: McGraw Hill.

Bullock, ,976) The Economics of Small Firms: Return from the Wilderness; London: Black Wells.

Stiglitz, J. E. & Weise (1981) "Credit a at ion in^ in Markets with Imperfect Informatid; American Economic Review, Vo1.71, No. 5, 17 - 21.

Ghandhi, J. K. S. (1976) "Bank Behaviour and the Control of Credit Flows: Lessons from the Sri Lanka Experience", June, World Bank Private Finance Division.

Boban, B. G. (1982) Smaller Business in Britain and Germanv: London: Wilton House.

Stewart, K. A. (1984) Economic Development and Cultural Change; London: Allen and -- .

Unwin . Weston & Copeland (1988) Managerial Finance.

Ude, John 0. (1990) Entrepreneurship; JONS & LORS Publications, Jos, Nigeria.

Ndu, Chieku (1990) Effective Management of Financial Resources of Small Scale Business in Nigeria.

Bates, James (1987) The Financing of Small Business Loans; Sweet and Maxwell, London.

Abutiate Sheikh (1989) 'The W5 Billion Masterplan'; BUSINESS Magazine, October 1989 Edition.

CHAPTER I11

3.0 Research Design and Methodology

This study will be based on primary and secondary

data which will be generated in the course of the study.

The primary data will be constituted of first-hand

information to be obtained from subjects/respondents

in their response to a questionnaire that will be designed,

produced and distributed for the purpose. The subjects

to be sought after are operators of small scale manufac-

turing firms who though are already in operation are

expected, out of their experience in the process of

setting up their firms, to respond to the items of the

questionnaire. The items of the questionnaire are

designed such that the answers that they generate can

assist in resolving the research questions. For the

activity areas of the subjects emphasis will be on

paint-making, plastic production, aluminium profile

production and building materials (roof, floor- and

wall-tiles) production for the reason that foreign

versions'of the products, of these activities abound in

the local market. The questionnaire distribution will

be by personal contact. The secondary data will be

generated by reference to existing materials in the area

of the study topic. In a later section under this I

Chapter, a statistical tool that will be the basis of

the analysis of the

will be presented.

data, particularly the primary data,

Research Scope

This research is on the funding of small scale

manufacturing firms by case studying selected firms in

Enugu State. As stated by Riddell (1990:xi) there is

absence of data on small scale/informal sector activities

but notwithstanding this situation, effort was made in

gathering information on the funding of small scale

activities though not only on the manufacturing aspect

as most available information were generally embracing. -

The questionnaire distribution lias been done just in

Enugu with emphasis on four manufacturing activity areas - paint-making, plastic production, aluminium profiles '

production. and building materials production. Subjects

have been picked to cover, particularly, these four

manufacturing activity areas.

The result of the study is presented in this

standard report that spans through five chapters which

include: introduction, literature review, methodology,

analysis and summary for chapters 1 - 5 respectively.

3.2 Data Examination (Secondary Data)

The secondary data comprises existing literature I

and information on the topic. These are available in

textbooks; journals; previous researches on the topic

area as documented in reports within libraries, offices

and individual researbher ' s keeping. Access was sought

to all the three places in order to consult these

secondary data materials for collection and presentation

as relevant. The bulk of the collected and presented

materials constitute this reports literature review while

the complementing part formed the basis for the primary

data analyses and results discussion. -

Data Collection (Primary Data) ..

This is data that was generated first-hand from the -

subjects/respondents to aid.the resolution of the research

question. This was current-practice related data that has

to do with the experience of the sma1,l scale (man&ac&ing)

firms operators from whom responses were obtained through

the distributed questionnaire and personal interview in

a few cases. The personal interview formed a guide in

the formulation of the questionnaire. The generated

primary data is presented and discussed in the next

chapter .

Questionnaire Design

The questions on the questionnaire were designed

to obtain information from operators of small scale

manufacturing firms on their experience in raising the

funds with which they set up their business. In wording I

the questions, attempt was made at using language simple

enough for the understanding of the ordinary businessman

who may not be extensively educated.

The questions are arranged in three groups, no. 1

group, no. 2 group and no. 3 group. The three groups of

questions, nos. 1 - 3, are fashioned to generate data .far: resolving the three sub-problems, nos. 1 - 3, respectively through the relevant hypotheses.

-.

Due to the very vast scope of the manufacturing

sector with the expected divergence in situation among

various manufacturing activities, emphasis is placed on

the following kinds : paint-making , plastic production;

aluminium profile production, and building materials

production. These four kinds of manufacturing activities

were s e 1 e c t e d a f t e r my casual observation that the

local (Enugu) market abound with imported versions of

the products of these activities. This is indicative of

insufficient Local production thus requiring attention.

The questionnaire would be distributed to relevant

subj ects/respondents for their responses under a cover-

ing letter as shown in the questionnaire package as I

documented under Appendix 3.

The collected data upon analyses is expected to

facilitate, along with other revelations. of the study, i

appropriate concluding statements and recommendations.

Following next is a tabulated format of the

questionnaire design showing the question items ; the

aim for each question, where applicable; specific

and general remarks relevant to the questionnaire

design process. The questionnaire to be distributed

unlike this format will highlight only the ques,t ionnaire

items in exclusion of the background/design details.

GENERAL REM

Mm

: The no.

1 group of

questions and answers are designed-to obtain data for the

resolution of-

a) sub-problem no.

1: How much fund, in the

least, is r

equired to

set up a d scale (mam£actur;Lng) firm(&)?

)) hypothesis: There' i

s usually a

minim

an fund re<l

Question and Answer Options

What kind of

small scale.manufa~turing firm/

activity do y

ou operate?

Paint-making

Plastic production

Aluminium profile

production

Building materials (roof, f

loor g

rid wall-tiles

Others. -Please specify ....................

--

Did you seek funds with which to establish

the firm?

Yes

No

If yes, did

you prepare

a business plan

in order to

give a clear guide

of the

scope of

your funds requirement?

Yes

,

No

renrrnt (at any polnt

in th) for es

*

Aim

This question aims at

classi- fying the r

esponses accbrding

to activity areas as listed

on positions a - e.

Questions

1.2 - 1.4

aim to

establish that a

n operator

approached fund

sources other

than own funds and

-in either formal.way or an informal way.

3blishing a ssmf:

Rem

arks

The four kinds of m

anufac-

turing a'ctivity (a - d) lister

here have been chosen

because imported v

ersions

of products of

these .acti- vities

abound in the market

This suggests that

the loca

production is insufficient.

Thus the

interest in selece

ing firms in these a

ctivity

areas as a case study.

All the

items of

the questionnaire are directed

at operators of

small scale

(manufacturing) firms whose

experience is to g

uide the

prospective operators who

are uninformed in the

approaches for funds

procurement.

Question and Answer

Options

If yes, did .you u

se the business plan

in . applying

for'funds assistance?

Yes

No

If yes, how much was

your funds requirement

according to

the business plan?

Less than U250,OOO

Above U250,OOO but

less than W500,000

Above U500,OOO but

less than W750,OOO

Above N750,OOO but

less than ~1,000,000

Above N1,000,000 but

less than #5,000,000

When did

you design the business

plan that

showe ll funds requirement?

Before 1970

After 1970 but

before 1980

Af ter ' 1980 but

beiore 1986

(SAP year) o

After 1986 but

befor-e 1993

After 1993

Questions 1.5

- 1.6 aim

at -.

establishing the minimum range

of funds required for

setting up

a small scale manufacturing

firm in any of

the activity

areas mentioned in

question 1.1.

Also the

questions are

intended to

give an idea of

when the

firm was set up in

order to put

into proper perspective the purchasing power of

the amount .involved.

... . .

.. .

.

8 9

GENERAL REH

ARR:

Same as on

page 88

This section of

the no. 1

group of

questions puts into perspectiv.e the

Com- panies

and Allied M

atters

Decree (1990)

which recognizes s

mall scale

business as one with

a

net asset base

(excluding land)

of one million naira

or an annual turnover of

two million naira.

In the

present purchasing power

of the n

aira these f

igures

S/N

1.4 a

would. seem unrealistic. Thus

this study took a

- position

to recognize a

s

small scale any

business investment with

a net

asset-value qf

upto five

million naira or

an annual

turnover of upto

ten'milli

naira.

-

A

Qu

estion and A

nsver Options

What is your current annual turnover i.e.

either the

total income or

the total

expenses of

your business per

year?

Under 34500,000

Above 34500,000 but under 341,000,000

Above 341,000,000 but under 341,500,000

Above 341,500,000 but under

342,000,000

Above 342,000,000

but under 3410,000,000

Aim

Question 1.7

may be

used to

classify the

small scale

manufacturing firms that ar'e

studied by looking at their -

current annual turnovers since

this' index

. of measurement

will always be

current and

comparable unlike

the net asse

value which can only be com-

parable after correcting for

the difference in the

rime

value of

the investment.

Rem

arks

GEN

ERAL ~

mm

K: T

he n

o.

2 g

rou

p o

f q

ue

stion

s and

answ

ers a

re d

esig

ne

d to

ob

tain

da

ta fo

r the

reso

lutio

n o

f - ,

a)

sub

-pro

blem

n

o.

2: A

re p

rosp

ec

tive

op

erators aware

of th

e v& so

urces of

funds for d

bu

s-

s

establid

mm

t?

) h

yp

oth

esis

thu

s: P

rosp

ec

tive

op

era

tors a

re

2

Question and Answer O

ptio

ns

..

.

What

sou

rce

s of

fun

ds fo

r se

tting

up

a

sm

all

sc

ale

ma

nu

fac

turin

g firm

were know

n to

yo

u

in y

ou

r q

ue

st for fu

nd

s?

(Tic

k a

s m

any a

s a

pp

lica

ble

, p

lea

se)

Pe

rson

al

sav

ing

s

Eq

uity

(i.e

. sh

are

s, d

eb

en

ture

s, b

on

ds)

Lo

ans

(form

al o

r info

rma

l)

Oth

ers.

Ple

ase

, sp

ec

ify ...................

- -

If aware o

f lo

an

s wh

ich

of

the

fo

llow

ing

o

ptio

ns w

ere yo

u aw

are of

in y

ou

r q

ue

st fo

r fu

nd

s?

(Tic

k a

s m

any a

s a

pp

lica

ble

, p

lea

se)

Ind

ivid

ua

l(s)

Money L

en

de

r(s) -

Fin

ance h

ou

se (s)

Co

mm

ercial ba

nk

(s)

Merch

ant

ba

nk

(s)

are

of

the

sou

rce

s from

wh

ich

Aim

The

esse

nc

e o

f th

is q

ue

stion

is

to v

erify

if

sma

ll bu

sine

ss o

pe

rato

rs are

aware o

f th

e.

bro

ad

cla

ss

ifica

tion

of

the

so

urc

es o

f fu

nd

s.

The

esse

nc

e o

f th

is q

ue

stion

is

to v

erify

if

sma

ll bu

sine

s o

pe

rato

rs are

aware o

f th

e

se

ve

ral o

ptio

ns o

f b

usin

ess

loa

n fu

nd

s.

.nd

s may

be

ob

tain

ed

.

Rem

arks

Question and Answer Options

levelopment agencies (eg .NIDB,NBCI, etc)

-

:overnment agencies, others (eg

NDE,FUSSI, ete

luring your quest

for funds what

was the

lepth of your knowledge of

all the

sources

)f funds mentioned

above?

Just as sources of

business funds and

no more

Cnew the

detail approach and

requirements for

raising funds through

the source(s).

Jere you actively c

onscious that y

ou could

~pproach any

of the 'sources f

or funds

yocurement?

Zes

sb,

Aim

This question is intended

- to

distinguish between a

casual knowledge and

an indepth u

nderstanding of

the approach f

or. procurring

funds

from the,various sources.

The essence of

this question

is to

distinguish between

operators who perceive

these sources. of

funds as one

of

.

those creations that merely

exist and those who

perceive them

for their r

eal relevance.

Rem

arks

- -- - -- -

--

GENERAL REM

AR

K: The no.

3 group of

questions and answers are designed

to obtaindata forthe resolution o

f -

a. sub-problem no.

3: What is the'relative case .of fund

procurement from the v

arious sources?

Qu

estion

and Answ

er O

ptio

ns

Aim

From'which of the

sources did

you seek funds?

(please tick a

s many

as are applicable)

Personal savings

Equity

Individual(s)

Money lender (s)

Finance house (s)

Commercial bank(s)

Merchant bank(s)

Development banks/agencies (NIDB,NBCI,NACB,eti

Government agencies (NDE,NERFUND,FUSSI, etc)

Others. Please

specify: ................... ............................................

. hypothesis thus:

' Funds may

be obtained

from

- I The aim o

f this

question is

to assess operators prefe-

rence/attitude towards each

each of

the various sources a.

- .i. of

the sources of funds.

I with the

same ease.

Rem

arks

By virtue'of the a

nswer

options of

questions 3.1

and 3.2

it means that

&re

should be at

least 9

subjects/respondents. in

order that

there is a

chance of a

subject belong-

ing to e

ach of the

9 fund

sources options.

--

-- -

Question and Answ

er O

ptio

ns

If s~ccessf~i

in the quest from which of the

sources did you obtain fund?

(Please tick as many

as applicable).

Personal savings

Equity

Individual (s)

Money lender(s)

Finance house (s)

Commercial bank(s)

Merchant bank(s)

Development bankslagencies (NIDB,NBCI,NACB, etc)

Government agencies (NDE,NERFUND,FUSSI,

etc)

................... Others.

Please specify:

............................................

Aim

The essence of this question

is to

identify those' sources

which are popular for extend-

ing funds for small scale

- manufacturing

businesses.

Rem

arks

L neasure .of success of

~btaining funds from each

)f the

sources will bk

an

Lndicat ion, that funds may

,e obtained from e.ach o

f

)f the

sources.. This would

,e seen from the

responses

:o question 3.2.

A source

lot opted

for at all

in

pestion 3.1

by subjects

suggests that such a source

Ls unpopular .'

GENERAL REPURK

: Sam

e a

s o

n p

. 93

Qu

estion and A

nswer

Options

Jow

lon

g d

id i

t ta

ke

yo

u

to o

bta

in th

e fu

nd

(i.e

. fro

m th

e tim

e o

f a

pp

lica

tion

to th

e

time

the

fun

d w

as p

rov

ide

d)?

hd

er

3 m

on

ths

4bove 3 m

on

ths b

ut u

nd

er 6 mo

nth

s

kbove 6 m

on

ths b

ut

un

der

9 mo

nth

s

kbove 9 m

on

ths b

ut

un

der

12

mo

nth

s

Above

12

mo

nth

s

Aim

rhis

qu

estio

n is

aimed

it

ob

tain

ing

da

ta th

at w

ou

ld

aid

in co

mp

aring

th

e re

lativ

e

diffic

ulty

of

pro

cu

ring

fu

nd

s

from

the

'va

riou

s sou

rce

s usin

g

the

.len

gth

of

time

tha

t elapsed

(from

ap

plic

atio

n to

fun

d

pro

visio

n)

as

a m

easure.

It

is th

ere

fore

aimed

at estab

lish.

ing

the

ea

se

ldiffic

ulty

of

fun

ds p

rocu

remen

t.

Rem

arks

3.3 assu

mes

tha

t ap

artfro

m

the

time

exp

end

ed

in

ob

tain

ing

fun

ds a

ll o

the

r

pro

ce

sses

inv

olv

ed

in the

pu

rsuit o

f fu

nd

s are

the

same

£0; e

ac

h o

f th

e v

ario

u

sou

rce

s. T

his'a

ssum

ptio

n

is

on

ly a

ma

tter o

f

con

ven

ience

in o

rde

r to

lay

a b

as

is fo

r the

ev

alu

atio

n o

f th

e is

su

e

wh

ich

this

qu

estio

n

(3.3

)

see

ks to

reso

lve

. It

is

no

ted

th

at th

e e

ffec

ts o

f

oth

er v

aria

ble

s su

ch a

s

adm

in/p

rocessin

g

co

st,

req

uire

me

ntsto

b

e fu

lfil-

led

, e

tc,

tha

t 'affe

ct fu

nd

s p

ursu

it ca

n a

lso

be

used

a

s a

ba

sis. +-

I GENERAL REM

ARK

: Sam

e a

s o

n

p.

93

Question and A

nswer

Options

What

was

the

co

st o

f th

e .fu

nd

pro

curem

ent

i.e.

the

to

tal ex

pen

ses in

cu

red

in

ob

tain

ing

th

e

fun

d?

Un

der

5%

of

the

va

lue

of

the

fu

nd

Above

5% b

ut

un

der

7.5

% o

f th

e fu

nd

Above

7.5% b

ut u

nd

er 1

0%

of

the

fun

d

Above

10% o

f th

e

fun

d

What

was

the

in

tere

st ra

te

(if ap

plic

ab

le)

on

th

e p

roc

urre

d fu

nd

?

Inte

res

t no

t a

pp

lica

ble

Un

der

20%

Above

20% b

ut u

nd

er 30%

Above

30%

Aim

The

resp

on

ses re

ce

ive

d o

n th

is

qu

estio

n w

ill as

f

or

3.3

se

rve

as b

as

is fo

r asse

ssing

th

e e

as

e/d

ifficu

lty

of

sou

rce

s fro

m w

hich

su

bje

cts had o

btain

ed

fun

ds .

The

aim o

f q

ue

stion

s 3.5

- 3.8

is

as

for q

ue

stion

3.4

Rem

arks

3 . 5 Statistical Tools for Analysis

The level of significance of a test represents the

highest probability with which to risk a type 1 errors.

Level of significance is denoted by q , and its size is

determined before samples are drawn for.the test. The I

most frequently needed levels of significance in hypothesis

testing are 0( = 0.05 and o(= 0.01.

The critical region, also called the rejection

region is determined after selecting the level of signi-

ficance (a). The critical region is defined as a set of

all possible values of the test statistic that leads to

the rejection of the null hypothesis (Ho). On the other

hand, the acceptance region is defined as a set of all

possible values of the test statistic that lead to the

acceptance of Ho. While the size of the critical region

depends on the magnitude of a(, that of the acceptance

region depends on 1 - o(. The value of the test statis-

tic that separates the acceptance region from the critical

region is called a critical value.

For the purpose of testing hypothesis involving a

small sample, it is assumed according to Nwabuokei (1986: 2 6 2 )

that the population from which the samples are taken is

normally distributed with the same variance s2 or that the respective sample means are normally distributed.

The test statistic (t) for small samples (n 4 30 )

is then given as t = (B - u)-, - equation (1)

where 2 is the samplelmean

u is the population mean

n is the samp:e size

s is the population standard deviation

In brief the steps for hypothesis testing may be

summarized as follows :

Step 1:

Step 2:

Step 3:

Step 4:

Step 5:

Formulate the null and alternative hypothesis

e.g. Ho: U = Uo Ho: U # Uo

State the level of significance, q , say

o(= 0.05 or = 0.01.

State the critical values corresponding to

given a( e.g. t e d f when Q1 = 0.05 and

df = n - 1 where df means degree of freedom.

Draw a random sample from a normal population

with variance $ 2 and compute the sample

statistic x.

Compute the test statistic t = (E - U)-/X s

Step 6 :

Step 7 :

The

possible

Compare the t e s t s t a t i s t i c ( t ) obtained i n

step 5 above with the c r i t i c a l value obtained

i n s tep 3 ab&e.

Take a decision as follows: .

Reject Ho i f t +df ) t or i f tordf L t ,

otherwise, accept Ho.

steps above sha l l be followed as much as

and relevant i n hypothesis tes t ing of the

resu l t s i n the next chapter.

REFERENCES

1. Nwabuokei, P. 0. (1'986) Fundamentals of S t a t i s t i c s , Korun Books, Enugu, Nigeria .

2. Riddel , Roger C . (1990) Manufacturing Afr ica : Per for - mance and Prospects ; . London, James - - .

Curry L t d .

CHAPTER IV

RESULTS

Introduction

For the purpose of administering the questionnaire

several firms in the four manufacturing activity areas

(paint-making, plastic production, aluminium profile

production and building materials production) of interest

were approached for their consent to complete the

questionnaires if served on them eventually. Some of

the approached firms gave their consent while others

would consent only upon sighting the questionnaire items.

Upon the completion of the initial questionnaire

design only two copies were produced: one for this project

supervisors' perusal, correction and approval and the

other for documentation. Then an additional five copies

were produced one for each of the four activity areas

and any other manufacturing activity as samples to

determine that the items of the questionnaire were clear

enough, and could easily be completed by would-be res-

pondents. These five copies were personally administered

to facilitate a perception of problems which the respon-

dents had in easily and correctly completing the copies

so as to know amendments to be made in the final design

of the questionnaire.

Amendments were mide on the initial questionnaire

after samples tested were collected; this gave rise to

the final design (please see appendix 3)' which was used

for the questionnaire administration proper.

The administration of the questionnaire was by

personal contact and not by mailing as is popular with

this method of statistical data collection. To ensure

the return of the completed questionnaire,follow-ups,

where possible, which varied with various respondents,

were made. There were some respondents who were quite

helpful by completing the questionnaire upon its service

on them.

Of the sixty-seven copies of the questionnaire

administered thirty-five were returned as at the time

I commenced collation. The collated result of the

returned questionnaire copies is shown on Table 4.100

of the following Section 4.1.

Table 4.100 on the preceding page refers. In the

Table the question numbers on the questionnaire are

presented on top in a horizontal row. Under each ques-

tion number are presented in a row the applicable

alphabetical answer options to the question. Then on

the extreme left column' is presented serial numbering

where each number represents a copy of the returned

questionnaire, thus, the serial numbering runs up-to

thirty-five (35), the number of the questionnaire copies

that were collated. The entry of one (1) in a given cell

applicable to a given questionnaire copy depicts the

choice of the answer option that the cell represents for

that questionnaire copy. These entries are summed down

each answer option column and the results shown at the

"total" row for each of the answer options. These results

will now be analysed.

The full texts of the questionnaire questions and

answer options could not be accommodated on Table 4.100

and so only the question numbers and answer options letters

were indicated. Reference, therefore, is to be made to

appendix 3 for an apprectation of the questions and their

answer options.

Table 4.100 shows the collation of the thirty-f ive

completed copies of the questionnaire. On the subsequent

pages is an analysis of the items of the questionnaire.

Presentation And Analysis of Data I contn. 1 Data Analvsis

rable 4.1.01

b

c

d

5!

3 6

e

1.1

a

Plastic production

Aluminium profile production ,

Building materials (roof, floor and wall-tiles)

Total ( where relevant 1 I 3 5 I 35

What kind of a small scale manufacturing firm /activity do you operate 7

Paint-making

8

8

8

Others.

1

x NO. of Response

in favour of

answer oplion

8

Y Possible NO.

o f favourable

response

3 5

3

1

z = x/y F D V O U ~ ~ I C

response

proportion

0.2286

4.1 Presentation And Analysis of Data 1 contn. 1

Table

2 E: 0 .- d V1

S 0'

-

E 0 .I Y

0" L : m

-2

2 L

1

Data Analvsis 4.1.02

1.2

a

b

-

Did you seek funds with which to establish the firm ?

----- Yes

No

--

x No. of Response

in favour of

answer option

2 0

15

Total ( where relevant )

Y Possible No.

of favourable

response

35

35

z= xly Favourable

response

proportion

0.5714

0.4286

35 3 5 1

4.1 Presentation And Analysis of Data f contn. 1 Data Analysis

o give a clear guide of the scope of your funds NO. of Response Possible NO. Favourable 2 requirements ? in favour o f of favourable response c 0 . - d

1.3 answer option response propMion V) aJ

&

a Yes 24 35 0.6857

b No 8 3 5 0.2286

- -~~ - - ~ ~ -- -

c 0 .- C,

0" L

; m ,

4

I

Total ( where relevant ) 32 35 0.9143 This question was not responded to by the respondents to questionnaire nos. 8, 20 and 26 2

c9 E 2

4.1 Presentation And Analvsis of Data I contn. I Data Analvsis

Table 4.1.05

1 /How much was your funds requirement ? I

a Less than = N = 250,000

b Above = N = 250,000 but less than = N = 500,000

c Above = N = 500,000 but less than =N = 750,000

d Above = N = 750,000 but less than = N = 1,000,000 rl f 0 .I

e Above = N = 1,000,000 but less than = N = 5,000,000 i * i P, n

i n - Total ( where relevant ) - This questionneire was not responded to by the respondent to questionnaire no. 6.

X

Jo. of Response

n favour o f

mwer oplion

Y Possible No.

of favourable

response

z = x/y Favourable

response

propodon

4.1 Presentation And Analvsis of Data I contn. 1 Data Analvsis

.1 .O6

1.6

a

b

c

d

e

When did you design the business plan that showed your funds requirement ? that is when did YOU conceive the business ?

Before 1970

After 1970 but before 1980

After 1980 but before 1986 (SAP year)

After 1986 but before 1993

After 1993

8

I

Total ( where relevant )

Not applicable ro respondents to nos. 6, 6 , 18, and 27.

x No, of Response

in favour of

answer option

5

5

11

8

2

3 1

Y Possible NO.

offavourable

response

35

3 5

3 5

3 5

3 5

0

z = x/y Favourable

response

proporlion

0.1429

0.1429

0.31 43

0.2286

0.0571

0.8857

4.1 Presentation And Analysis of Data I contn. 1 Data Analysis

x No. of Response

in favour of

answer option

2

0

6

7

12

27 31

Y Possible No

of favourable

response

35

3 5

3 5

35

35

35

Table

C 0 .- 5 6

E 0

.m +I,

I 0" L :

2 ' 4

1

I

z = x/y Favourable

response

proporhm

0.0571

0 .OOOO

0.1714

0.2000

0.3429

0.771 4

4.1.07

1.7

a

b

c

d

e

r

What is your cureent annual turnover i.e the total income of your business per year 7

Under = N = 500,000

Above = N = 500,000 but under = N = 1,000,000

Above = N = 1,000,000 but under 7 N = 1,500,000

Above = N = 1,500,000 but under = N = 2,000,000

Above = N = 2,000,000 but under = N = 10,000,000

Total ( where relevant ) Not appl~cable'to respondents to nos. 6, 7, 9, 18, 19, 26, 27 and

z = xly avourablc

sponse

.oportion

4.1 Presentation And Analysis of Data I contn. I Data Analysis

Possible no. of favourable response is 140 because each of the 36 respondents could have known all

the 4 answer option i.e 36 ' 4 = 140

Y Possible NO.

6f favourable

response

140

140

140

140

140

x No. of Response

in favour of

answer option

3 0

15

42

0

87

.l.OS

2.1

a

b

c

d

What sources of funds for setting up a small scale manufacturing firm were known to you in your quest for funds ? (Tick as many as applicable, please) .

Personal savings I

Equity h e . shares, debentures, bonds)

Loans (formal or informal)

Others.

Total ( where relevant )

Table -

z = x/y Favourable

response

proportion

4.1 Presentation And Analysis of Data r contn. 1 Data Analysis

Y Possible NO.

of favourable

response

245

245

245

245

245

245

245

245

x No. of Response

in favour of

m a oplion

19

8

15

2 8

14

1 1

8

103

. l . O Y

2.2

a

b

c

d

e

f

g

If aware of loans, which of the following options were you aware o f in your quest for funds ? (Tick as many as applicable, please) .

Individual (s)

Money lender (s)

Finance house(s) ,

Commercial bank (s)

Merchant bank (s)

Developement agencies (e.g NIDB, NBCI, etc.)

Government agencies, 01:hers (e.g.NDE, FUSSI, etc.)

Total ( where r6levant ) Possible no. of favourable response is 36 ' 7 = 246

Presentation And Anahsis of Data I contn. 1 Data Analvsis

0 of your knowledge of all the sources of funds NO, of Response Possible No. Favourable

Z mentioned above in general ? in favour of of favourable response C: 0 . - 2.3 re~poflse proportion nnswer option

B 6

a Just as sources of business funds and no more 10 35 0.2857

b Know the detail approach and requirements for 2 5 35 0.7143 raising funds through the source(s)

4

I I I I

l ~ o t a l ( where relevant I 35 I 35 1 I

Presentation And Analysis of Data 1 contn. 1 Data Analysis

.1.11 Were you actively conscious that you could x Y z = x/y approach any of the sources for funds NO. of Raponse Possible NO. Favourable

procurement 7 in favour of of favourable response

2.4 answer option response proportion

a Yes 32 3 5 0.91 43

b No 3 3 5 0.0857

*

Total ( where relevant ) 35 35 1

4.1 Prese~~tation And Analvsis of Data I contn. 1 Data Analysis

From which of the sources did you seek funds ? x (Please tick as many as are applicable) NO. of Response

in favour of

answer option

Personal 1 savings

Equity 3

Money lender(s1

Finance house (s)

Commercial bank(s1 2 2

Merchant bank (s) 3

Developement bankslagencies (NIDB, NBCI, 8 NACB, etc.)

Government agencies (NDE, NERFUND, 2 FUSSI, etc.)

Others. I 0

Total ( where relevant ) 67

Y z = xly ossible No. Favourable

f favourable response

v""= pmporlion

Possible qo. of favourable response is 3 6 ' 1 0 = 360, since each of the 3 6 respondents ha 10 options all

of which could have been favourable

Presentation And Analvsis of Data I contn. 1 Data Analysis

If successful in the quest, from which of the x sources did you obtain fund ? NO, of Response

(Please tick as many as applicable) in favour of

answer option

I

a1 Personal savings 20

b Equity 5

d Money lendeds) 0

e Finance house(s1 2

f Commecial bank(s1 1 9

I 1

g Merchant bank(s1 4

11 Development banks/agencies(NlDB, NBCI, 6 NACB, etc.)

i Government agencies (NDE, NERFUND, 2 FUSS!, etc.)

j Others. 0

Total ( where relevant 63 Some as. for question no. 3.1.

Y z = x/y Possible No. Favourable

,f favourable response

aponse proportion

4.1 Presentation And Analysis of Data I contn. 1 Data Analvsis

I lHow long did it take you to obtain the fund (i.e. I o Z

. - - V1

-

3.3

b

d Above 9 months but under 12 months I 1

from the time of application to the time the fund was provided) ? (If more than one source of fund, tick for the longest).

a

Above 3 months but under 6 months

c

Under 3 months

I

Above 6 months but under 9 moruhs

I

E 0 .I

X

go. of Response

In favour of

wwer option

I e l ~ b o v e 12 months

3 ef

$ P:

I

l ~ o t a l ( where relevant

Y 'ossible No.

lf favourable

=POW

z = xly Favourable

response

proportion

4.1

Table 4.1.15

Presentation And Annlvsis of Data 1 contn. 1 Data Analysis

Nhat was the cost of the fund procurement i.e. x .he total expenses incured in obtaining the fund? No. ofResponse

If more than one source of fund , tick for the in favour of

:ostliest). answer option

Jnder 5% o f the value of the fund I 3

t

9bove 5 % but under 7.5% o f the fund 1 2

9bove 7.5% bu t under 1 0 % of thq fund 3

4bove 10% of the fund 2

Total ( where relevant 1 I 2 0

Y ossible No.

f favourable

z = x/y avourable

sponse

oportion

4.1 Presentation And Analvsis of Data I contn. 1 Data Analysis

Table

z" C 0 .- 5 6

E 0

,111 .cI a 0 L

; V1

2 a

E CG

x No. of Response

in favour of

uuww option

0

9

10

0

19 The response situation here is not consistent wi th that of no. 3.1 answer option (8) where 20 respondents

claimed that they used personal funds t o set up their firms; t o these 20 respondents interest payment

should not be applicable and atleast,, these 20 respondents should have reflected under option (a)

above.

4.1.16

3.5

a

b

c

d

Y Possible NO.

o f favourable

responw

, 35

35

3 5

35

3 5

What was the interest rate (if applicable) on the procured fund ? (If more than one source of fund, tick for the highest rate 1.

Interest not applicable

Under 20%

Above 20% but under 30% ,

Above 30%

Total ( where relevant )

z = x/y Favourable

response

proportion

0.0000

0.2571

0.2857

0.0000

0.5429

Presentation And Analvsis of Data I contn. 1 Data Analvsis

0 from interest payment ? (If more than one source NO. of Rcspome Possible NO. Favourable

Z of fund, tick yes , if there was grace period of in favour of of favourable response C. .P - 3.6 any of the sources). m w m option response proportion V) w

6 -

a Yes 14 35 0.4000

I I I I

l ~ o t a l ( where relevant I 22 35 1 0.6286 I

Presentation And Analysis of Data I contn. 1 Data Analysis

z = x/y Favourable

response

propomon

0.2571

0.0571

0.0857

0.0000

0.0000

0.4000

Y Possible No.

of favourable

nw“"==

3 5

35

3 5

35

3 5

35

x No of Response

~n favour of

nnswer opt~on

9

2

3

0

0

--

14

J.18

3.7

a

b

c

d

e

How long was the moratorium 7

Under 1 year

Above 1 year but under 2 years

Above 2 years but under 3 years ,

Above 3 years but under 5 years

Above 5 years

Total ( where relevant )

Presentation And Analysis of Data I contn. 1 Data Analvsis

Table 4.1.19

Above 1 year but under 5 years

Above 5 years but under 12 years

/ l ~ o t a l ( where relevant ) 1 22 1 35 I 0.6286

.u

Within the life of the business (e.g. ordinary shares).

-

x No. of Response

in favour of

answer option

!

0

What was the grantedlagreed fund repayment period ?

Under 1 year

5? g . - -

10

12

3.8

a

0

Y Possible No.

of favourable

=v“'"=

35

3 5

35

z = xly Favourable

response

proportion

0.0000

0.2857

0.3429

3 5 0.0000

4.2 Test of Hypothesis

At the conception of this project it was intended

that the hypothesis test will be carried out for only

one of the four specific manufacturing activity areas

taken up in the investigation. It was anticipated that

responses from each of the four manufacturing activity

areas would be small, that is, of size smaller than

thirty responses. The response result bears out this

anticipation which was informed by the commonly known

dearth of manufacturing activities in Enugu State.

At this stage of carrying out the project it is

seen that there is no advantage in using one activity

area in preference to the others for conducting the test

of hypothesis. Rather, there would be a loss of informa-

tion in using one activity area because the hypothesis

test would be lobe-sided since its result would not be

representative of all the activities covered but of only

the one used for the test.

An alternative approach would be to conduct a

hypothesis test for all the manufacturing activities

generally and also for each of them separately. Inci-

dentally an approach of this kind is already in constraint

by the resource (time, money and page coverage) provision

for this project. Under this circumstance the hypo thesis

test that is representative of all the manufacturing

activities would be undertaken.

In the light of this later decided approach a

Z-test and no longer a student's t-test as suggested

in the research outline would be used. This should be

understandable from the sample sizes involved. For the

test involving all the manufacturing activities covered,

the sample size is large since it is greater than thirty

whereas it is less than thirty for each of the individual

manufacturing activities of interest.

4.21: The first hypothesis test conceived upon the

design (i.e. according to the outline) of this project

is now to be carried out. This test is to confirm or

refute that "there is usually a minimum fund requirement

at any given economic situation for establishing a small

scale manufacturing firm".

The test statistic to be used is the population, P,

as represented in the guiding assertion that at least

0.2 proportion of the respondents should have opted for

the minimum fund requirement of W250,OOO before it can

be concluded that there is no minimum fund requirement

for establishing a small-scale manufacturing firm.

Therefore the population proportion equals 0.2.

From Table 4.105, page 111, answer option (a), the

observed proportion, p, 0.1714 (which is less than the asserted proportion, 0.2) supports the null,hypothesls,

Ho, posted below. With a hypothesis test it can be

concluded with certainty whether the suggestion of the

observed proportion was a chance occurence or an indica- I

tion of an actual situation.

The hypothesis test is based on the normal

distribution functiop, Z, which is related as follows:

Ho: P & 0.2:

H1: P * 0.2

according to Nwabuokei (1986:255)

where 6 - sample or observed proportion, p - population o r guiding proportion, n - sample size.

there. ,is a minimum fund requirement

for establishing a small scale manu- facturing firm;

there is no minimum fund requirement for establishing a small sacle manu-

facturing firm.

5% level of significance. A 2-tailed test.

Critical value: Zw/2 = Z 0.05/2 = Z 0.025 = 21.96

Sample size, n = 35; sample proportion, = 0.1714

7) The critical boundaries set is given as:

- 1.96 6 Z 0.025 2 1.96. From this it is seen

that the test statistic is within the acceptance

range and therefore the null hypothesis, Ho, is

accepted. In the perception of this project the

value of the minimum fund requirement is W250,OOO.

Further investigation and analysis are necessary

to determine the factors that lead to additional

funds in excess of the minimum requirement of

W250,OOO. However, this is likely to depend on the

activity type anh output capacity of the firm.

4.22: The second hypothesis is to confirm or refute

that "prospective operators of small scale manufacturing

firms are aware of the sources. from which funds may be

obtained for setting up a small-scale manufacturing firmff.

The test statistic is, once more, the population

proportion, P, as indicated in the assertion that at

least 0.90 proportion of awareness by the respondents

is required for a favourable conclusion.

The relevant questionnaire item is question No. 2.4,

page 117, answer option (a) from which the observed 1

proportion, P, is 0.9143.

The hypothesis test is presented stepwise as follows:

1) Ho: P? 0.90: prospective operators are aware of

the sources from which funds may

be obtained;

Hl: PC. 0.90: prospective operators are not aware

130

of the sources from which funds may

be obtained.

a( = 0.05 +5% level of significance.

Critical value: Z @I2 = Z 0.0512 = Z 0.025 = + 1-96 -

Sample size, n = 35; sample proportion, p = 0.9143 -

The test statistic: Z = = 0.9143 - 0.90 = 0.2820 /po - n /0.90(0.11

The critical region is defined thus:

- 1.96b Z 0 . 0 2 5 ~ 1.96 but the test statistic

value Z = 0.2820 is within the acceptance region,

therefore, the null hypothesis, Ho, is accepted.

In other words, prospective operators of small

scale manufacturing firms are aware of the sources

from which funds may be obtained for setting up the

firm .

4.23: The third hypothesis is to confirm or refute

that "funds may be obtained from each of the various

sources with the same ease".

The test statistic this time is the average propor-

tion, F , in association with the ration, R, of the -

proportion deviation, P, to the average proportion, p, . .

which is required not to be up-to 2 for any one of the

ten options as indicated on the questionnaire item 3.2,

page 119. The implication of this requirement is that,

to conclude that an equal ease of obtaining funds applies

among the sources, the ease for no one source should be

upto twice the average ease associated with all the

sources jointly considered.

R, P, and are calculated as shown on the Table

below and, after that, the relevant result (that is the

highest ration, R ) is subjected to a hypothesis test to I

determine whether such a result is a chance occurence or

an indication of the actual situation.

TABLE 4 . 2 . 1 : Calculation: Ratio of Proportion Average Deviation to Average Proportion

Note: The implication of the negative ratios is that the proportion,

F, from which they were calculated was less than the average a

proportion, P.

The highest ratio from Table 4.2.1 is 8.9114 whichis

greater than 2. This result suggests that an equal ease

of funds procurement among the sources of funds does not

apply. This result is now subjected to a hypothesis

test for either a confirmation or a refutation. The

values of P and P asiociated with the highest ration, R, employed for the test.

Ho: P 0.0395: funds may be procured with an equal

ease among the funds sources;

HI: P b 0.0395: funds may not be procured with an equal ease among the funds sources.

= 0.05j. 5% level of significance. A 2-tailed test.

Critical value:

Sample Size, n = 63; sample proportion, = 0.0571

7) The boundaries of the critical/rejection region

are defined thus:

- 1.966 Z 0.025 1.96 and this shows that the test statistic, 29.2253 lies in it. Therefore the

null hypothesis, Ho, is rejected and the alternative hypothesis, HI, is accepted. In other words funds

may not be procured with an equal ease among the

funds sources. Thus the result earlier suggested from Table 4.2.1 is true and not a chance occurence.

4.3 Discussion of Findings

As earlier mentioned sixty-seven copies of the final

design of the questionnaire were administered out of which

thirty-five were completed and returned as at the time

collation commenced. The collation of the returned

thirty five copies of the questionnaire is shown on

Table 4.100, page 105. Table 4.100 showed in a concise

form the result of the questionnaire administration as

regards the response of the various respondents.

Furthermore, each of the nineteen items of the

questionnaire was separately presented and analysed with

respect to the response proportion for each of the

answer options per item among the thirty-five respondents.

These presentation analyses are shown on Tables 4.l.01-4.L19.

On Table 4.L01 it is observed that the distribution

of the responses among the four manufacturing activities

of interest was even. It may be infered from this result

134

that no one of the four activities of interest is

operated more widely than any of the others'.

From Table 4.L02 the proportions suggest that more

operators than not seek funds with which to establish

their small scale manufacturing business.

On item 1.3 a able 4.143 refers) not all the subjects responded to it and about three quarters of those who

responded used business plans to show their funds require- ,

ments while the rest did not.

On item 1.4 (Table 4 .LO4 refers) eighteen out of the

thirty-two subjects responding to it used their business

plan to apply for funds assistance.. This contrasts with

the twenty-four subjects who claimed in response to item

1.3 to have prepared business plans to show their funds

requirement. The response to item 1.4 suggests that only

eighteen of the twenty-four who prepared business plans

went on to use them to apply for funds.

On item 1.5 (Table 4.L05 refers) the least number

(3) of the subjects opted for funds in the range W250,OOO - W500,OOO while the highest number (13) of the subjects

opted in the range W750,000 - #1,000,000. On item 1.6 (Table 4. LO6 refers) the least number

(2) of the subjects designed their business after 1993

while the highest number (11) designed theirs between

135

1980 and 1986 before the introduction of the Structural

Adjustment Programme (SAP) in Nigeria.

On item 1.7 (Table 4.U7 refers), turnover most

opted for was in the range W2,000,000 - W10,000,000 by 12 subjects while turnover least opted for was in the

range W500,OOO - R1,000,000. On item 2.1 (Table 4.l.08 refers) loans (formal and

informal) and personal savings were an equally popular

sources of funds with 30 subjects opting for each while

equity was less popular with 15 subjects opting for it.

Of loans, according to item 2.2 (Table 4.L09 refers)

the commercial banks source were most widely known as

28 subjects claimed while money lenders and government

agencies sources were each known by 8 subjects. Aware-

ness to loans from individuals, it is observed, ranked

appreciably high with 19 subjects.

On item 2.3 (Table 4.ld0 refers) 25 of the 35

respondents were well informed of the involvements for

raising funds through the sources while the other 10

were not as informed.

However, according to item 2.4 (Table 4.1,ll refers)

32 of them as against only 3 were quite conscious that

they could approach any of the sources for funds.

On the funds procurement proper the highest number

(22) of the subjects approached the commercial banks

source while no one approached money lenders . Item 3.1,

Table 4.1.12 r e f e r s .

Of these 22 sub jec t s t h a t approached commercial

banks f o r funds, 19 a c t u a l l y procured funds from i t a s

shown on i tem 3.2, Table 4.163.

From item 3.3 (Table 4.1.14 r e f e r s ) most s u b j e c t s

( 2 1 ) spent 9 months and above before t h e i r a p p l i c a t i o n for

funds were f u l f i l l e d ,while very few sub jec t s (3 ) spent

l e s s than 6 months t o procure t h e i r s .

Cost of funds procurement ranged 5% - 7.5% most

commonly a s experienced by 1 2 subjec ts while procurement

cos t above 10% was r a r e wi th only 2 sub jec t s experiencing

i t . Item 3.4, Table 4.1.15 r e f e r s .

I n t e r e s t r a t e s of upto 30% were we l l known i n t h e

response of 19 s u b j e c t s on item 3.5 (Table 4.1L6 r e f e r s ) .

No-interest-rate and i n t e r e s t r a t e s i n excess of 30% were

not r e g i s t e r e d a t a l l .

More moratoriums than not were granted a s seen

from item 3 . 6 , Table 4 . l d7 .

Moratorium of n o t more than one year was t h e most

marked. Moratorium of 3 years and above was n o t known.

Item 3.7, Table 4.168 r e f e r s .

From item 3.8 (Table 4.169 r e f e r s ) repayment per iod

from 1 - 2 years dominated. Repayment per iods under l y e a r

and wi th in the l i f e of the business were n o t recorded.

REFERENCES

1. Nwabuokei, P. 0. (1986) Fundamentals of Statistics, Korun Books, Enugu, Nigeria.

2. Udogu, (1992) Business Statistics 11: Handouts, Faculty of Business Administration, university of Nigeria, Enugu Campus (UNEC) .

3. Ackzel, A. D. (1979) Complete Business Statistics; New York: McGraw Hill.

CHAPTER V

CONCLUDING ASPECTS

Swmarg of Findings I

When this project work was conceived the approved

proposal/outline put up in respect of it was only

intended as a guide in its execution and'which may be

altered according to the exigencies encountered in the

course of the execution. In the case of this project

there were very few alterations in the execution as

compared to the original outline.

In essence only one major case of alteration can be

identified and this was in the use of the normal distri-

bution 2-function instead of the originally proposed

student's t-distribution function in conducting the

hypothesis tests. This change had to bemade because

it was found to possess advantages over the original plan.

Furthermore, various insights were obtained in the

course of treating each of the preceding chapters.

In Chapter One was gained insight in the presenta-

tion of a project work overview where the whole essence

of such work is stated in detail as different from the

outline where the essence is stated in a summary.

139

Chapter Two was the most revealing for it was under

it that very pertinent information about the project

topic were exposed. The various basis for defining

small scale business were discussed; also discussed

were the economic sig~ificance of small scale business,

the state of manufacturing in the economy (Nigerian),

sources of funds and their adequacy, prospects for small i

scale manufacturing firms, among others. This Chapter

was quite an immense source of insight on the project

topic.

In Chapter Three exposure was gained in aspects

of questionnaire conception, design and production, that

is, in getting to know the factors that should be consi-

dered in treating any of the mentioned questionnaire

aspects.

In Chapter Four ample experience was acquired

in questionnaire administration, collation, synthesiz-

ing of required pieces of information off the collated

data and the discussion and explanation of the obtained

information as relevant to the purpose of the investigation.

In this Chapter, Five, concluding aspects of the

project are being treated. The aspects include a sum-

mary highlight of major revelations at the various

stageslchapters of the project as the foregoing presents;

also included are a conclusion stating whether or not

the purpose of the project was realised; a ,recommenda-

tion, where necessary, as to what needs to be done to

realise the intention of the project if present efforts

have not realised it; and a suggestion of areas of

further research that should lead to information in

addition to those obtained from the present project.

* Conclusion

The main problem of this project as reflected

under section 1.2 (Statement of the Problem, page 9)

focused on whether funds can be obtained for establishing

a small scale manufacturing firm. This main problem was

comtitutea from the following three sub-problems:

1) How much fund is required to set up a small scale

manufacturing firm?

2) Are prospective operators of small scale manufactur-

ing firms aware of the various sources from which funds

may be obtained for establishment?

3) What is the relative ease of procurement from the

various sources of funds.

The result showed for sub-problem 1 that there is

a minimum fund in the amount of two hundred and fifty

thousand naira (R250,000.0fl) requFred for setting up

a small scale manufacturing firm. Whether this amount

i s appl icable t o t h e e n t i r e period (before 1970 t o d a t e )

o r j u s t a p o r t i o n of t h i s per iod i s a subje 'c t f o r further

ana lys i s . One t h i n g , however, i s c e r t a i n , t h a t t h i s

minimum fund requirement i s appl icable t o r e c e n t times I

s ince the b a s i s of t h e a n a l y s i s i s cu r ren t . I

For sub-problem 2 t h e r e s u l t a l s o showed t h a t

prospect ive opera to r s of small s c a l e manufacturing firms

a r e genera l ly aware of t h e var ious sources from which

funds may be obta ined f o r establishment.

The r e s u l t f u r t h e r showed f o r sub-problem 3 t h a t

t h e ease of funds procurement from t h e var ious sources

i s n o t equal' among t h e sources. This means t h a t funds

procurement i s e a s i e r wi th some of t h e sources than with

t h e o the r s .

In e f f e c t one can conclude, i n answer t o t h e main

problem, t h a t funds can be obtained f o r e s t a b l i s h i n g

a small s c a l e manufacturing f i rm (by prospect ive opera-

t o r s who a r e aware of t h e funds sources) with vary ing

ease depending on t h e source of fund.

5.2 Recommendation

More s t u d i e s of t h i s kind should be c a r r i e d o u t i n

order t o e s t a b l i s h information t h a t should guide decisions

of prospect ive opera to r s of f irms i n the smal l , medium

and l a rge s c a l e s manufacturing a c t i v i t y a r e a s .

L

Forums for making popular,reports of such studies

which are of merit should be organised so that there is

an opportunity of interaction between individuals to

whom such reports are relevant for actualization and

researchers who put up the reports. The forum can be

organised as project work reports presentation seminar

which is given adequate publicity. Invitation should

be given to prospect$ve business operators to whom the

reports should be relevant; and researchers should be

arranged to present the key issues of their reports.

With the exposure of the researchers to the prospective

business operators, deals that will lead to actualiza-

tion may be struck.

The above recommendation if put in practice will

have the benefit of prompting researchers, at an early

stage, into starting business information development

consultancy service as well as become a source of useful

information to prospective business operators.

5.3 Areas of Further Research

A further research could be conducted separately

on each of the various manufcturing activities and, in

this approach, the researcher investigates the activity

that of interest him where there is more than

one activity, takes them in a sequence according to

his priority or importance rating for them. A resear-

cher could conduct the suggested separate further

research per activity for his personal use or as a

consultant in service to other persons.

It is expected that development of information

separately for specific activities shall reveal more

about any of the specific activities unlike investiga- I

tions, such as this one, that bunched.activities up.

APPENDIX I

From: Mr B. I. Okerulu D a t e : 21.04.94 (PG/MBA/91/11361)

To : Mr J. A. Ezeh (MBA Project Sup.) Subject: Proposal of MBA

Project Topic

I wish to investigate for the MBA programme one of

the following two project topics. The topics are: I

1) "Funding of Small-Scale Manufacturing Firms: A Case Study of Selected Firms in Enugu State"

2) "Technology Transfer Management"

I have proposed these topics because of my personal

interest in them and in consideration of thier importance,

particularly the first, in establishing a businessventure.

Under funding of small-scale business emphasis will

be on the sources of capital other than own or family

sources for the initial establishment of a business for

which feasibility study is positive. Also the investi-

gation will be concerned with the manufacturing (and

construction) business from which subjects will be

sought and not service business.

Under technology transfer management, the approach

for ensuring the realisation of foreign technology

acquisition from donor nations to recipient nations

w i l l be exp lo r ed w i t h N i g e r i a a s a c a s e s t u d y . F i r s t

t h e i n v e s t i g a t i o n w i l l p i n p o i n t t h e s t a n d a r d o r popular

approach and t h e n go on t o v e r i f y whether N i g e r i a i n i t s

technology t r a n s f e r b i d adop t s t h e s t a n d a r d approach.

P l e a s e 1 am'more i n t e r e s t e d i n t h e f i r s t of t h e

two t o p i c p roposa l s b e k s e i t i s one t h a t would be v e r y

u s e f u l f o r a n i n d i v i d u a l i n t e n t , as I a m , on e s t a b l i s h -

i n g a p r i v a t e v e n t u r e e i t h e r j o i n t l y o r ' i n d e p e n d e n t l y

and f o r t h i s r e a s o n I wish t o be thoroughly informed

about t h e t o p i c .

I would p l e a s e a p p r e c i a t e app rova l o f t h e f i r s t

t o p i c .

Regards.

B. I. Okerulu (PG/MBA/91/11361)

APPENDIX 2

UNIVERSITY OF NIGERIA

ENUGU CAMPUS

A PROJECT OUTLINE FOR A MASTER OF

BUSINESS ADMINISTRATION (MBA)

PROJECT WORK IN MANAGEMENT

TOPIC: FUNDING OF SMALL SCALE MANUFCTURING

FIRMS: A CASE STUDY OF SELECTED

FIRMS IN ENUGU STATE

NAME OF STUDENT: B. I. OKERULU

REGISTRATION NO: PG/MBA/91/11361

SUPERVISOR: CHIEF J. A. EZEH

DATE : JULY 1994

RESEARCH OUTLINE SUMMARY

CHAPTER/SECTION DESCRIPTION

ONE

Introduction

Background of the Study

Statement of the Problem

Objectives of the Study

he' Hypothesis The Significance of the Study

1.6 Scope and Limitation

TWO

Definitions

References

Literature

Concept and Definition of Small scale Bus ine s s

Significance of Small scale Business to the Economy

The State of Manufacturing in the Economy

Trends in the Nigerian Small scale Business Funding

Non-finance Problems of Small scale Business

Sources of Funds and their Adequacy

Policy Issues in Financing of Small scale Manufacturing Firms

Prospects for Small Scale Manufac- turing Firms

References

THREE

FOUR

4.0

4.1

4.2

4.3

I

Research Design and Methodology t

Research Scope

Data Examination (Secondary Data)

Data Collection (Primary Data)

Questionnaire Design

Introduction of Statistical Tools for Analysis

References

Introduction

Presentation and Analysis of Data

Test of Hypotheses

Discussion of Findings

References

FIVE

Summary of Findings

Conc lus ions

Recommendations

Areas of Further Research Appendices

Bibliography

CHAPTER ONE

1.0 Introduction:

Here a mention of the main issues involved in the

topic will be made. The relevance of each of these

main issues to the topic will be highlighted such I

that a basis is established for carrying out the

study. For the topic at issue the following

paragraph is an indication of the main issues.

There are few manufacturing firms of all scales

in Enugu State. However, it is generally known

that industrial development is enhanced with a

prevalence of small scale types in that they

require small capital outlay for their establish-

ment and a comparatively less staggering organisa-

tional and managerial structures for their operation.

This research will therefore try to identify

whether difficulty with fund/capital procurement

is responsible for the limited prevalence of

small scale manufacturing firms in Enugu State.

1.1 Background to the Problem:

This will contain comments regarding the importance

of the study: why it is necessary to carry it out;

how it is hoped that the research findings will

either refute or confirm claims made ; and other

relevant remarks that justify the study. For the

topic under consideration the following paragraph

is a summary of the background to the problem.

As an engineer, I know some of my senior profes-

sional colleagues that complain ok the militating

effect of fundlcapital acquisition against their

intention to establish viable manufacturing concerns.

This investigaeion will try to establish whether

such complaints are factual or otherwise. Some of

these engineers sometimes operate commercial concerns

and not manufacturing ones that have a bearing on

their profession. How this outcome tallies with

the complaints about the dearth of fundslcapital

for setting up manufacturing firms is a matter for

verification.

1.2 Statement of Problem:

This consists of the main problem which the

research aims to resolve. Also the sub-problems,

the answers to which will ultimately resolve the

main problem, will be presented.

For the topic at issue the main problem should be

stated as follows:

can funds for setting up a small scale manu-

facturing firm be obtained?

This main problem may be resolved into the following

sub-problems :

1) How much capital would be the least required

to set up a small scale manufacturing firm?

2) Are the prospective operators aware of the

various sources of funds for setting up a small

scale manufacturing firm?

3) What is the relative ease of fund procurement

from the various sources available?

A summation of the answers to the above sub-problems

will amount to an answer to the main problems.

1.3 Objectives of the Study:

Here will be stated the aims for carrying out the

investigation. The benefit to be derived whether

specific to a goal or generally embracing will be

highlighted here.

The topic under consideration as its main objective

intends to establish information that will guide a

prospective operator of a small scale manufacturing

firm on how to procure funds with which to set up.

Armed with such information, I can pursue fund

procurement for establishing own manufacturing out-

fits as well as be in a position to adxise adequately

others who may wish to procure funds for setting

up manufacturing concerns.

1.4 The Hypothesis:

The main idea which the study aims to prove is

presented here in such a form that it would in the

analysis stage be statistically tested for either

acceptance or rejection. The idea is to be accepted

if proved but fejected if no: proven. The proof is

to come from statistical analyses of the data that

will be collected from the subjects and within the

limits of assumption underlying the idea. For this

topic a hypothesis will be posted for each of the

3 sub-problems. The main problem hypothesis is

the main hypothesis while the sub-problem hypothesis

is the sub-hypothesis. The proof or otherwise of

the main hypothesis will come from a summation of

the proof or otherwise of the sub-hypothesis. The

main hypothesis is posted as follows:

"Funds for establishing a small scale manufacturing

firm can be obtained". And sub-hypotheses are

posted as follows for each of the 3 sub-problems

mentioned in Section 1.2:

- The sub-hypothesis for the sub-problem 1 is thus: "There is usually a minimum fund requirement at any

153

given economic situation for establishing a small

scale manufacturing firm".

- The sub-hypothesis for the sub-problem 2 is thus: "The prospective operators are aware of the sources

from which funds may be obtained for setting up a

small scale manufacturing f inn" . - The sub-hypothesis for the sub-problem 3 is thus: "Funds may be obtained from each of the various

sources with the same ease".

In the statistical tests of all the hypotheses

(whether a main or a sub-hypothesis) the probability/

proportion ranges within which results will either

be acceptable or rejected will be stated in the

form of confidence levels.

It is common in statistics to test at the confidence

levels of either 1 - & = 95% or 1 - & = 99%. One of

these confidence levels will be adopted. Also, either

of z, t, x2 or f tests may be used. The t - test which is amenable to small sample sizes (n430) - will

be used since the number of subjects will certainly

be less than 30.

The Significance of the Study:

The significance of the study encompasses the

conditions and assumptions that underly it. This

means that the applicability of results arising

from the study would only be valid when such coni,-

tions and assumptions exist. For this topic the

applicability of the result at any point in time

shall be on the condition that the present prevail-

ing economic trends do not change extensively and

covers just the small scale manufacturii~g firms in

only Enugu State. Assumptions of the study will I

include the following :

- That the few small scale manufacturing firms to be used as subjects in the study will be represen-

tative of the entire small scale manufacturing firm

sector in Enugu State.

- That data to be obtained from the subjects about their firms will be correct.

1.6 Scope and Limitation:

Here an overview of the areas to be covered in the

study will be given. The study geographical domain

of concern, that is, the parts of or all of either

a town, a state, a country, a sub-region, etc, to

be covered is defined here. These are the scope

aspect of this section.

On the limitation aspect will be explained those

issues of general relevance to the study area which

though could have been discussed generally in order

to establish a basis will not be of interest in the

primary investigation of the study for analysis.

Essentially the study is concerned with difficulties

that hinder the procurement of funds for the esta-

blishment of small scale manufacturing firms in

Enugu State, particularly, as perceived by the

business operatqr.

1.7 Definitions :

Here, such terms as will be used in the report

which are considered either ambiguous or uncommon

or strange will be thoroughly defined in order to

aid a clear understanding of the report. Also

explanations to phrases and statements which mean-

ings are not easily conveyed will be made here.

CHAPTER TWO

2.0 Literature Review:

In this chapter existing theories on the funding

of small scale firms particularly those with a

manufacturing bias will be presented. Such theo-

ries will be presented only to the extent that they

are relevant to the research topic. Also in this

chapter,reference, if any, to previous research

on the topic will be mentioned. In other words,

this chapter constitutes the secondary data according

to the methodology of the research which shall

generate both primary and secondary data. The

presentations in this chapter will be arranged into

convenient sections as detailed below.

2.1 Concept and Definition of Small Scale Business:

The various bases for defining the.smal1 scale firm

will be enumerated here. Such bases as the total

investment, annual turnover, number of employees,

market share, among others, shall be considered.

The prevailing Government basis for the small scale

firm definition will be identified since this should

be the guide for its policy actions towards the

small scale firms sector.

2.2 Significance of Small Scale Business to the Economy:

In this section, a discussion of the contributions

of the small scale business to the economy and to

development will .be presented. Such positive contri-

butions of the small scale business to solving

unemployment problems, aiding rapid industrial

development, and for creating a strong base for

self-reliance and self-sustenance will be highlighted.

These benefits of the small scale business partly

underly the relevance of this study.

2.3 The State of Manufacturing in the Economy:

This section as its heading implies shall highlight

the extent manufacturing development in the

Nigerian economy. It will highlight the phases

through which manufacturing has passed in order to

get to its present stage and will take a position

as to whether this present stage is adequate or

otherwise. Relevant economic indices will be used

to assess the level of manufacturing development of

the economy. The situation of manufacturing develop-

ment, which is commonly perceived as poor in Nigeria,

also partly underlies the relevance of this study.

2.4 Trends in the Nigerian Small Scale Business Funding:

This section deals with happenings (past and current)

in small scale business funding. It discusses the

importance of funds in operating a small business.

It addresses the attitudes of business funds sup-

pliers to the small businessman and the common

perceptions of the ordinary small businessman to

the suppliers of funds. It also suggests how these

two parties should relate in order that there may

be progress in the sector.

2.5 Non-Finance Problems of Small Scale Business:

This section will go to some reasonable degree in

addressing various issues of importance other than

funds which affect small scale business. This dis-

cussion is necessary in order that it be conveyed

to the ordinary person reading this report that

much as funds seem to be the pivot issue in small

business, and ofher business size problems, that it

is not the only problem. The section will point out

that these non-finance problems to the not-so-well-

informed could be misinterpreted as finance problems

because of wrong perceptions. These problems could

range from inadequate quantitative data for decision-

making and planning, engagement of unqualified staff

to a dearth of relevant information on trends in

the small business sector.

2.6 Sources of Funds and Their Adequacy:

The various sources from which a prospective

operator of a small scale firm can obtain funds1

capital will be enumerated in this section. Each

of.the sources will be treated separately in order

to highlight adequately its attributes regarding

ease of procurement, the requirements to be fulfilled

by a prospective operator in order to procure funds

from the source, attitudes of prospective operators

of small scale firms to each of the soyrces whether

it is preferable or otherwise, the government's

influence and role in the procurement of funds/

capital from each of the sources by the prospective

operators and any other attribute that may be worth

the mention.

2.7 Policy Issues in Financing of Small Scale Business:

This section will trace the various attempts which

government at various levels have made towards

ensuring funds supply to small scale enterprises.

Such policy recapitulation is aimed at assessing

the effectiveness of the policies. Where enough

insight is gained suggestions will be offered as to

how the policies may be improved or completely new

ones put in place in order that expected benefits

from the sub-sector may be realized.

2.8 Pros~ects of Small Scale Manufacturing Firms:

This section will, based on the submissions in the

preceding sections of chapter two, take a position

as to whether there is a bright prospect or otherwise

for the small business sector in Nigeria. It will,

where information available so facilitates, mention

the types of small business which are more prospectful

and therefore worth pursuing by prospective

operators.

CHAPTER THREE

Research Design and Methodology:

This section will define the areas to be covered

by the research. This will include a statement

on the limit of primary and secondary data

investigation.

Research Scope:

This will consist of an enumeration of the methods

used in conducting the research.

Data Examination (Secondarv Data):

The secondary data comprises existing literature

and information on the topic. These are available

in textbooks, journals, research reports within

libraries, offices and individuals' keepings.

Access will be sought to all the three places in

other to consult these secondary data materials

for collection and presentation as relevant. The

bulk of the presented materials constitute the

literature review while the complementing part will

form a basis for the primary data analysis and

results discussion. These materials will be

collected by my personal consultations of their sources.

3.3 Data Collection (Primary):

This is data that will be generated fikst-hand from

the subjects/respondents specifically for resolving

the research question. It is current-practice

related data that bears on the experience of small

scale (manufacturing) firms operators. To obtain

this data I will survey these operators using the

questionnaire means essentially, and personal

interview where necessary. The primary data that

will be generated will be presented in such a way

to aid its analysis and the discussion of the result

that will arise from the analysis.

3.4 Questionnaire Design:

Here, the guiding basis for the formulation of

the various sections of the questionnaire will be

explained. The explanation will include the

interest of each section of the questionnaire and

which of the hypotheses it addresses.

3.5 Introduction of Statistical Tools for Analysis:

In this section will be presented those principles

of statistics that will be handy in analysing the

collected data.

CHAPTER FOUR

4.0 Introduction:

This section will contain a general background of

the subject arez for the chapter and the format for

the presentation of the subsequent sections may be

mentioned.

4.1 Presentation and Analysis of Data:

Here all the collected data is presented. The

presentation is done such that it will be easily

understood. The pieces of data are then analysed

such that deductions can be made out of the informa-

tion that they (the data pieces) contain. The

analysis shall be arranged and presented such that

its understanding is facilitated; sections and

sub-sections as will aid this objective shall be

used. For the topic, the findings and data are to

be obtained essentially from the relevant manufac-

turing firms to be used as subjects.

4.2 Test of Hypotheses:

Here the various hypotheses that were posted will

be tested according to the chosen statistical tools.

4.3 Findings :

The results arising from the generated data will be

discussed. The discussion will aim at highlighting

163

the relevance of the results to the main objective

of the study. Essentially the results,will be held

as relevant where they conform with the posted

hypothesis. In the event that they do not confirm

the hypothesis an explanation will be adduced within

the limits of the study for the lack of conformity.

CHAPTER FIVE 8

Summarv of Findings :

All the major and noteworthy findings revealed in

the course of the study will be enumerated under this

chapter in order that they stand out. This way on

reference to the study report such major findings

will be easily accessible without one needing to

go through the entire report in order to have a

glimpse of its findings.

Conclusions:

All relevant -concluding statementa..that-arise ..in..;

process of the study are presented-in this section.

Recommendations :

~ 1 1 relevant statements of recommendation bearing

on the experience gained in conducting the study

and revelations that were fallen upon will be

presented here.

5.3 Areas of Further Research:

This will highlight areas where if further research

is conducted will aid in providing more knowledge

that will contribute in solving other problems that

afflict the sniall business sector. I

Appendices :

Materials which were of relevance to this study and

would make for clearer understanding of the research

report, if handy, will be included under this section.

Such materials may include this research outline and

the questionnaire that will be used for the primary

investigation.

Bibliography :

Here, a sorted bibliography which combines the

bibliographies for the various sections of the

report will be presented to end the report.

APPENDIX 3

Dear SirIMadam,

QUESTIONNAIRE

The purpose of t h i s ques t ionnai re i s t o obta in

information from operators of small s c a l e f i rms , par t i -

c u l a r l y t h e manufacturing firms , t h e i r experience

r a i s i n g t h e funds with which they s e t up t h e i r business. I

The information supplied w i l l be used s t r i c t l y f o r

academic resea rch purposes only.

I n t h i s regard , your i d e n t i t y o r t h e i d e n t i t y of

your f i r m i s not very important but may be supplied.

I would be most g r a t e f u l i f you k ind ly f i l l the

a t t a c h e d ques t ionnai re f o r me.

Thanks f o r your a n t i c i p a t e d cooperat ion.

Yours s i n c e r e l y ,

B. I. Okerulu (Researcher) Management Department Bus. Admin. Facul ty Universi ty of Nigeria Enugu Campus

Note: P lease e n t e r NA (Not Applicable) bes ide ques t ion numbers tha t a re not appl icable to you.

QUESTIONNAIRE

1.1 What kind of a .small scale manufacturing firm/activity do you operate?

a) Paint -making

b) Plastic production

C) Aluminium profile production ,

d) Building materials (roof, floor and wall-tiles)

e) Others. Please specify .......................

1.2 Did you seek funds with which to establish the firm?

a) Yes

b) No

1.3 Did you prepare a business plan in order to give a clear guide of the scope of your funds requirements?

a) Yes

b) No

1.4 Did you use the business plan to apply for funds assistance?

a) Yes

b) No

1.5 How much was your funds requirement?

a) Less than W250,OOO

b) Above W250,OOO but less than H500,OOO

C ) Above W500,OOO but less than W750,OOO

d) Above W750,OOO but less than W1,000,000

e). Above 1,000,000 but less than W5,000,000

.6 When did you design the business plan that showed your funds requirement? That is when did you con- ceive the business?

a) Before 1970 b) After 1970 but before 1980 C) After 1980 but before 1986 (SAP year)

d) After 1986 but before 1993

e) After 1993

1.7 What is your current annual turnover,i.e. the total income of your bus,iness per year?

a) Under W5OO ,000

b) Above W500,OOO but under ~1,000,000 C) Above W1,000,000 but under W1,500,000

d) Above W1,500,000 but under ~2,000,000 e) Above W2,000,000 but under W10,000,000

2.1 What sources of funds for setting up a small scale manufacturing firm were known to you in your quest for funds? (Tick as many as applicable, please).

a) Personal savings b) Equity (i.e. shares, debentures, bonds) C) Loans (formal or informal) d) Others. Please specify .......................

2.2 If aware of loans, which of the following options were you aware of in your quest for funds? (Tick as many as applicable, please). a) Individual (s )

b) Money lender (s) C) Finance house(s) d) Commercial bank(s)

e) Merchant bank(s)

f) Development agencies (e.g. NIDB, NBCI, etc.)

g) Government agencies, others (e.g. NDE, FUSSI, etc.)

2.3 During your quest for funds what was the depth of your knowledge of all the sources of funds mentioned above in general?

a) Just as sources of business funds and no more

b) Know the detail approach and requirements for raising funds through the source(s)

2.4 Were you actively conscious that you could approach any of the sources for funds procurement?

a) Yes

b) No

3.1 From which of the sources did you seek funds? (Please tick as many as are applicable).

Personal savings

Equity

Individual (s)

Money lender ( s )

Finance house(s)

Commercial bank(s)

Merchant bank(s)

Development banks/agencies (NIDB, NBCI, NACB,etc.)

Government agencies (NDE, NERFUND, FUSSI) etc.)

Others. Please specify ........................ ................................................

3.2 If successful in the quest from which of the sources did you obtain fund? (Please tick as many as applicable)

a) Personal savings b) Equity

Indiv idual ( s ) Money lender ( s )

Finance house(s)

Commercial bank(s)

Merchant Bank(s)

Development bankslagencies ( N I D B , NBCI, N A B , etc) . Government agencies (NDE, NERFUND, FUSSI, e t c . )

Others. Please spec i fy ....................... ...............................................

3.3 How long did i t take you t o ob ta in t h e fund (i.e. from t h e time of a p p l i c a t i o n t o the time the fund was provided)? ( I f more than one source of fund, t i c k f o r the l o n g e s t ) .

a ) Under 3 months

b ) Above 3 months but under 6 months

C ) Above 6 months but under 9 months

d) Above 9 months but under 1 2 months

e ) Above 12 months

3.4 What was the cos t of t h e fund procurement i . e . t he t o t a l expenses incured i n obta in ing the fund? ( I f more than one source of fund, t i c k f o r the cos t l ies t ) .

a ) Under 5% of the va lue of t h e fund

b ) Above 5% but under 7 . 5 % of t h e fund

C ) Above 7.5 but under 10% of t h e fund

d) Above 1 0 % of t h e fund

3.5 What was t h e i n t e r e s t r a t e ( i f app l i cab le ) on the procured fund? ( I f more one source of fund, t i c k f o r t h e highest r a t e ) .

a ) I n t e r e s t not app l i cab le

b ) Under 20%

C ) Above 20% but under 30%

d) Above 30%

3 . 6 Was moratorium granted i . e . a period of grace from In te re s t payment? ( I f more than one source of fund, t i c k yes i f there was grace period fo r any of the sources) . a ) Yes

3 . 7 How long was the moratorium?

a ) Under 1 year

b) Above 1 year but under 2 years

C ) Above 2 years but under 3 years B

d ) Above 3 years but under 5 years

e ) Above 5 years

3 . 8 What was the grantedlagreed fund repayment period?

a ) Under 1 year

b) Above 1 year but under 5 years

C ) Above 5 years but under 1 2 years

d) Within the l i f e of the business (e.g. ordinary shares) .

Please, enter i n the space below addit ional comments t h a t be t t e r explain your answers above:

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