Economics Project Topics

The Impact of Small and Medium Enterprises Financing on Poverty Reduction in Nigeria

The Impact of Small and Medium Enterprises Financing on Poverty Reduction in Nigeria

The Impact of Small and Medium Enterprises Financing on Poverty Reduction in Nigeria

Chapter One

Objective of the study

The objectives of the study are;

  1. To ascertain whether SME development affect Poverty Alleviation
  2. To ascertain how SME reduce poverty in Nigeria
  3. To ascertain whether SME create job employment




The performance of small and medium enterprises (SMEs) is of interest to all countries. The enterprises have a big potential to bring about social and economic development, by contributing significantly in employment generation, income generation, poverty reduction and catalyzing development in urban and rural areas, Hallberg (2000), Williams (2006). In many of the newly industrialized nations, more than 98% of all industrial enterprises belong to the SMEs sector and account for the bulk of the labour force, Sanusi (2003). It is estimated that SMEs employ 22% of the adult population in developing countries, Kayanula and Quartey (2000) and provide more employment per unit of capital investment than large-scale enterprises, Inang and Ukpong (1992). In Nigeria, the SMEs account for about 70% of industrial employment, Adebusuyi (1997) and well over 50% of the Gross Domestic Product, Odeyemi (2003). The ability to find out the factors which improve the profitability of SMEs so that they are successful and grow into conglomerates is of considerable concern to the entrepreneurs and the Nigerian government. Recognizing the importance of SMEs in poverty reduction, government in Nigeria has set up various programmes and institutions aimed at developing the SME sector, Olutunla and Obamuyi (2008). A new approach to small and medium-scale enterprise (SME) development began to emerge due to a number of factors. First, there was growing concern over low employment elasticity of modern, large-scale production. It was claimed that even with more optimal, policies, this form of industrial organizations was unable to absorb a significant labour force, Chenery (1974). Second, there was wide spread recognition that the use of large-scale, capital-intensive techniques was partly to blame, Chenery (1974). Third, empirical diagnosis showed that the causes of poverty were not confined to unemployment, and that most of the poor were employed in a large variety of small-scale, low-productivity activities. Thus, it was thought that one way to alleviate poverty could be increase the productivity of those engaged in small-scale production, Aftab and Rahim (1989).

Theoretical link between SMEs Financing and poverty in Nigeria

With a population of about 150 million and GDP/capita of $641, census (2006), two-thirds of Nigeria people are poor Nigeria has the third highest number of poor people in the world. Most of these poor people are dependent on small and medium scale enterprises for their livelihood. As such, their entrepreneurial contributions are strategic to the Nigerian economic development and their growth has great potential to contribute to income generation and poverty alleviation. Various interventions have been made in different countries to cater for the peculiar needs of SMEs. These interventions include: institutional support, training in the relevant skills, tax concessions, technological acquisition and liberalized access to credit and innovation schemes, Obadan and Agba (2006). Attempts made to address the problem of SMEs in Nigeria include direct lending by various financial institutions, see table 1. Similarly, specification of credit guidelines by the Central Bank of Nigeria to banks lending to SMEs at concessionary rates through participating banks, Inang and Ukpong (1992), Inegbenebor (2006). Other schemes include the establishment of the second tier security market, the merger of the Nigerian Bank for commerce and industry, the Nigerian Industrial Development Banks and the National Economic Reconstruction Fund into the bank of industry to provide cheap financial and business support services to SMEs. All these have not been as successful as anticipated. Studied on lending experience of five major banks in Nigeria from 1990-2006 showed that non-performing loans and advances range from 40-50% among commercial banks. The poor attitude of Nigerians to loan repayment led to unwillingness of the banks to lend to the real sector in preference for the trade sector, Feese (1994), Inegbenebor (2006). The latest attempt by the Central Bank of Nigeria and the banker’s committee to tackle the financial problems of SMEs is the establishment of Small and Medium Enterprises Equity Investment Scheme (SMEEIS). The scheme requires all banks in Nigeria to set aside 10% of their profit before tax annually for equity investment in small and medium enterprises operating in the productive sector of the economy. The scheme commenced in June 2001 and is aimed at: facilitating the flow of funds from banks for the establishment of new viable small medium industry projects, stimulating economic growth, developing local technology, promoting indigenous entrepreneurship, generating employment, UME (2001

Problems of small and medium enterprises

Problems associated with SMEs and reasons for their failure have been widely identified. Some of these include: lack of planning, inimical government rules and regulations, poor marketing strategy, lack of technical knowhow and higher interest rates, Aftab and Rahim (1987) Ekpenyong (1983). Entrepreneurial deficiencies often pose more problems than is usually appreciated. The underlying attitudes and dispositions of entrepreneurs, which have deep roots in the traditional socio-cultural system can seriously impede development of the entrepreneurial characteristics necessary for good performance of Nigerian SMEs. The availability of and accessibility to credit is also crucial to the effectiveness of SMEs in Nigeria. For local people to generate income from productive activities requires credit, especially to stimulate traditional heavily under-capitalized local enterprises. Availability of credit, more than any other service, awakens the aspirations of potential entrepreneurs. Government policies seem to have constituted a serious problem area for SMEs. The beginning of harsh government policies toward SMEs can be traced back to 1982 with the introduction of “stabilization measures” which resulted in import controls and drastic budget cuts. These, in turn, adversely affected the subvention to the financial institutions established to provide financial assistance to the SMEs. For example, in 1983, out of a total of 8,380 applications for loans received from the SMEs for a total of 559.13 million naira only 18 percent (1,470 projects) for a total of 46.66 million naira was disbursed. As the economic situation deteriorated, the government introduced the Structural Adjustment Programme (SAP) in 1986). Since the strategy of liberalization and deregulation of interest rates was implemented, interest rates have continued to increase. The SMEs which prior to the SAP had been granted concessionary rates of interest (particularly for agricultural and housing loans), have had great difficulties obtaining credit. The frequent changes, and sometimes conflicting government monetary policies, have also tended to hurt the SMEs. For example, while the government increased total credit allocation to SMEs from 16 to 20 percent, the same government removed excess liquidity in the banking industry through increase in the Minimum Rediscount Rate (MRR), transfer of government and parastatal accounts to the Central Bank of and the creation of a Stabilization Securities Account (SSA) whereby the banks were debited with excess liquidity in their accounts with the Central Bank.






In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.


Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.


According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitutes of individuals or elements that are homogeneous in description.

This study was carried to examine the impact of small and medium enterprises financing on poverty reduction in Nigeria. Selected SMEs in Lagos state form the population of the study.




This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.




It is important to ascertain that the objective of this study was to ascertain the impact of small and medium enterprises financing on poverty reduction in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the impact of small and medium enterprises financing on poverty reduction in Nigeria


This study was on the impact of small and medium enterprises financing on poverty reduction in Nigeria. Three objectives were formulated which include:  To ascertain whether SME development affect Poverty Alleviation, to ascertain how SME reduce poverty in Nigeria and to ascertain whether SME create job employment. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from SMEs in Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS).


In this study, the researcher has painstakingly assessed the impact of small and medium enterprises financing on poverty reduction in Nigeria. This study proffers a framework for tackling poverty in Nigeria. It is therefore concluded that small and medium enterprises financing has a significant relationship with poverty in Nigeria, while unemployment has a strong negative relationship with poverty in Nigeria


Adequate attention should be given to SME’s through channeling of more resources to the sector. This would to a great extent reduce poverty in Nigeria

The government should as a matter of urgency diversify the economy and create more jobs for the increasing population to reduce the unemployment rate in the country. This would go a long way to reduce poverty in Nigeria.

Finally, it is apposite to suggest that prospective researchers in this area should broaden their study to cover a wider spectrum of poverty reduction in Nigeria.


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