1.1 Introduction
Small-scale manufacturing enterprises provide the starting only serve as the spring board and training ground for the later, but they are vital of the economic and social life of the community. As such “academicians, businessmen and other had begun to recognize how small-scale business is really but business in microcosm. As Philip Clark puts “many small-scale businesses are small remain small will not aspire to anything larger because the world in which they function is suited to small scale operation not large ones” this means that environments and nature of products or service has great influenced over the size of the business. Nevertheless, some small-scale businesses go on to secure large scale.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
The post independence Nigeria Government adopted the import, substitution large scale industrialization strategy to accelerate the country's industrial development. The death of indigenous entrepreneurship constrained government to assume the role of the entrepreneur and the urge to offset the economic neglect of the colonial government resulted in ambitious industrialization programmes.
When the Nigerian industrial development bank limited (NDB) was established in 1964 for the purpose of spending up the industrialization process. Its mandate was to promote industrial project, which were large enough to make appreciation contribution to the national economy.
However, the collapse of the oil boom in the early 1980's exposed the inherent weakness of this strategy. The inability to sustain the importation of inputs resulted in large idle capacities thereby crippling many large industrial enterprises. Industrial out/put as well as industries contribution to the gross domestic product (GDP) declined in the face of the strong national aspiration for the restructuring of the economy and reduction of the dependence on petroleum. Small and medium scale industries have since become the focus of nation industrial policy.
The significance of finance in the drive for economic growth is fairly well established and generally accepted for instance, they take off and efficient performance of any industrial enterprise be it small or large will require the provision of funds for its capitalization working capital and rehabilitation needs, as well as for the creation of new investment.
Apart from the entrepreneur, funds are required to bring together the other factors of production, land, labour and capital before production can take place. Provision of funds to the industrial sector of particularly for the SMEs has therefore been of prime interest to policy makers in both the republic and private sectors.
Successive governments in Nigeria since the last three decades has shown great interest in financing of SME by establishing specialized banks and other credit agencies/schemes to provide customized funding to the sub sector. Most of these institutional arrangements have however, performed bellow expectation over the years owing to operational bottle necks.
The failure of most of the schemes and the need for a sustainable source of financing small scale inductees (SSIs), therefore necessitate the recent central bank of Nigeria (CBN) inspired bankers committee initiative, which is aimed at committing the banking industry to the provision of finance and other ancillary support to the sub sector. This project therefore, attempts to articulate the prospects of the current desire to ensure efficient and sustainable credit delivery system to the SSIs.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Role of Development Finance Institution in the Financing of Small-Scale Industries.
1.3 Statement of the Problem
Although the development of finance institution has contributed significantly to the growth and development of small-scale industries, certain lingering problems still constrain it optional operation. They include:
- Inadequate Record: It has been observed that many finance institution in Nigeria due to lack of adequate record of their operations makes it difficult for proper running of institutions Accounting records have been known to offer major assistance to enable one determine the success in operation. But due to the fact many finance institution takes no adequate record. This therefore constitute a major problem in the development of finance institution.
- Lack of Management Expertise: Many finance institution still do not consider management training essential for success in their business. The finance institution in Nigeria term to employ young school leavers that do not know much about the finance rather than employing gradates that are well trained in finance.
- Lack of Data for Planning: Finance institution does not have proper planning for financing of small scale industries. Most of them do not look into the prospect of the small scale business before giving out loans. In this case some small scale do not get the loans their need why some get more that they need for financing their business.
- High Interest Ratio on Borrowed Fund: The cost of borrowing in Nigeria is still high and un-affordable by most proprietors of small-scale business who need fund for starting or expanding their business because of the lending rate. Many people with variable business ideas shy away from going to ask for bank loan.
- High Collateral Securities: Coupled with the high interest rate is the problem of collateral or securities worth more than the amount they want to borrow.
1.4 Aim and Objectives of the Study
The aim of the study is to examine the Role of Development Finance Institution in the Financing of Small-Scale Industries. In achieving this aim, the following specific objectives were laid out as follows:
- To know the way development finance institutions (DFIs) contributes in the small scale industries, and how (DFLs) is used to channel funds to the newly industrialized countries for industrial development.
- To investigate the use of Development Finance Institution in transmitting funds to SSIs.
The need for importance of SSIs derives from the fact that their development is what is requires to enable the country's industrial sector meet the contemporary challenges of globalization, economic restructuring and poverty eradication. Government ensures that all future (SSIs) small scale industries as well as medium scale industries (MSIs) funding schemes have a working capital window. All these and others are been done to ensure that small scale industries in a country can no longer depend solely or foreign importation of goods, in other to ensure stability in the economy of a country and high standard of living.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What are small scale industries?
- What are the importance of small scale industries?
- What are the roles of development finance institutions?
- What are the major constraints of the small-scale industries?
