AN ASSESSMENT ON THE IMPACT OF SMES FINANCING ON BUSINESS SUSTAINABILITY A CASE STUDY OF JEMA'A LOCAL GOVERNMENT AREA, KADUNA STATE

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

       Since Nigeria attained independence in 1960, considerable efforts have been directed towards the nation’s industrial development, dear student. The initial efforts were led by the government through the vehicle of large industry, but recently there has been a shift in emphasis towards Small Scale Industries (SSIs) due to the success of SSIs in the economic growth of Asian countries (Ojo, 2018). Thus, the recent industrial development drive in Nigeria has been primarily centred around the concept of sustainable development through the promotion and support of small business development. Prior to this time, particularly judging from the objective of the past National 4-Year Development Plans, 1962-68 and 1981-85, the emphasis had been on government-led industrialization, which was centred around import-substitution. 

Since 1986, the government has downplayed its role as the major driving force of the economy through a process of commercialization and privatisation (Beyene, 2016). Emphasis, therefore, shifted from large-scale industries primarily to small-scale industries, which possess the potential for developing domestic linkages for rapid and sustainable industrial development. Attention was focused on the organised private sector to spearhead subsequent industrialization programmes. The incentives provided were aimed at addressing and mitigating the challenges faced by industrialists in the country, thus enabling them to make a greater impact on the national economy. 

Interest in the role of Small Scale enterprises in the development process remains a prominent topic of discussion in policy debates in developing countries. The advantages claimed for Small Scale enterprises (SSEs) are various, including: the encouragement of entrepreneurship, the greater likelihood that SSEs will utilise labour intensive technologies and thus have an immediate impact on employment generation (Ayozie&Latinwo, 2020); they can usually be established rapidly and put into operation to produce quick returns; SSIs development can encourage the process of both inter- and intra-regional decentralisation (Ogujiuba et al., 2019); and, may become a countervailing force against the economic power of larger enterprises (Salami, 2023). Furthermore, it is widely recognised that the advancement of SSIs plays a crucial role in expediting the attainment of broader economic and socio-economic goals, such as poverty alleviation (Safiriyu and Njogo, 2018; Ayozie and Latinwo, 2020; Udechukwu, 2023). 

The role of finance is often considered a critical element in the development of Small Scale enterprises. Previous studies have emphasised the restricted availability of financial resources for smaller enterprises in comparison to larger organisations and the resulting implications for their growth and development (Hossain, 2018; Wattanapruttipaisan, 2023; Berger and Udell, 2016; Ogujiuba et al., 2019; etc). According to Valverde et al (2017), bank credit plays a crucial role in providing external financing to Small Scale Industry (SSIs). Nevertheless, small and medium-sized enterprises (SMEs) in Nigeria encounter a multitude of obstacles, and among them, the lack of access to finance emerges as a particularly crucial factor impeding their growth and long-term viability. As a professor, I must inform you that SMEs often face limitations in accessing financing options, encounter high interest rates, are required to provide collateral, and must navigate through bureaucratic hurdles. These factors frequently hinder their ability to expand operations, invest in technology and innovation, and withstand economic shocks. Consequently, numerous small and medium-sized enterprises (SMEs) find it challenging to not only survive but also flourish, resulting in diminished productivity, elevated rates of business failure, and overlooked prospects for economic advancement. 

Understanding the impact of SMEs financing on business sustainability in Nigeria is crucial for professors, policymakers, financial institutions, development agencies, and other stakeholders seeking to support SME growth and foster inclusive economic development. By examining the linkages between SMEs' access to finance, their financial performance, and long-term viability, this research aims to shed light on the mechanisms through which financing influences SME sustainability and resilience. Therefore, this study aims to evaluate the impact of SMEs financing on business sustainability a case study of Jema'a Local Government Area, Kaduna State. 

1.2 Statement Of The Problem 

The role of Small and Medium Enterprises (SMEs) in driving economic growth and development in Nigeria is indeed well recognised (Fatoki & Asah, 2021). Nevertheless, the sustainability of these enterprises is frequently impeded by restricted access to financing options (Onugu, 2018). Despite numerous efforts by the Nigerian government and financial institutions to enhance SME access to finance, challenges persist, impacting the ability of SMEs to grow, innovate, and remain competitive in the market (Ogbo et al., 2019). Consequently, there is a pressing need for us to investigate the impact of SMEs financing on business sustainability in Nigeria. 

One of the central issues facing small and medium-sized enterprises (SMEs) in Nigeria is the challenge they encounter when trying to access financing that is both affordable and sufficient (Aremu & Adeyemi, 2021). According to Afolabi (2018), SMEs face difficulties in securing loans from traditional financial institutions due to factors such as high interest rates, strict collateral requirements, and the absence of credit history. Consequently, numerous small and medium-sized enterprises (SMEs) turn to informal sources of finance, such as family and friends, which may not offer adequate capital or be viable in the long run (Ariyo et al., 2021). This problem highlights the significance of comprehending the influence of SMEs financing on business sustainability in Nigeria. 

1.3 Objective Of The Study

The overall aim of this study is to assess the impact of SMEs financing on business sustainability a case study of Jema'a Local Government Area, Kaduna State. Hence, the study will be channeled to the following specific objectives;

Find out the sources of financing of small scale business in Jema'a Local Government Area, Kaduna State.

Determine whether there is a significant relationship between SMEs financing and business sustainability in Jema'a Local Government Area, Kaduna State.

Investigate the impact of adequate financing on the sustainability of SMEs in Jema'a Local Government Area, Kaduna State.

1.4 Research Questions

The following research question will guide the study:

What are the sources of financing of small scale business in Jema'a Local Government Area, Kaduna State?

Is there a significant relationship between SMEs financing and business sustainability in Jema'a Local Government Area, Kaduna State?

What is the impact of adequate financing on the sustainability of SMEs in Jema'a Local Government Area, Kaduna State?

 1.5 Research Hypotheses

Ho: There is no significant relationship between SMEs financing and business sustainability.

Ha: There is a significant relationship between SMEs financing and business sustainability.  

1.6 Significance Of The Study

This study will assist small scale business owners in identifying other sources of funding for their businesses other than their own personal funds. It will be extremely useful to the current government in identifying potential areas of support for financing small scale industries, and also benefits the government and its small business development agencies, such as SMEDAN, the Bank of Industry, the Ministry of Trade, etc., in formulating policies that can help them to perform better. Finally, the study will be of great use to students and scholars interested in SME funding, and it will serve as a starting point for future research.

1.7 Scope of the Study

This study is carried out to assess the impact of SMEs financing on business sustainability a case study of Jema'a Local Government Area, Kaduna State. However, the respondents of this study will be obtained from selected SMEs in Jema'a Local Government Area, Kaduna State.

1.8 Limitation of the Study

As every human endeavor is once faced with a constraint, the same was tenable during the period of this study. In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed.  More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other tertiary institutions in other , states, and other countries in the world.

1.9 Definitions of Terms

Business: Business is an enterprise that engages in the production of goods and services that provides satisfaction to consumers. 

Small Scale Business: A small scale business is a business that have not less than ten (10) employees but not more than forty nine (49) and have not less than five (5) million Naira but not only more than fifty million Naira assets. 

Financing Sources: Financing Sources is the sources of fund available to the business owner in form of capital to fund his business. Performance: Performance is the function of an organisations ability to meet its goals and objectives by exploiting the available resources in an efficient and effective way. 

Personal Savings: This refers to the amount left over subtracting the cost of person’s consumer expenditure from the amount of disposal income in a given period of time.