Financing of small and medium sized enterprises in Nigeria
The objective of this study is to assess factors which affect the performance of SMEs in Nigeria. The literature shows that economic development, growth and poverty alleviation are vitally linked with reliable and sustainable operations of SMEs. This is particularly relevant to Nigeria which seeks to diversify its real sector by reducing over-dependence on the volatile oil sector. In recognition of these problems the Nigerian government set up the Small and Medium Industries Equity Investment Scheme (SMIEIS) for SMEs. Nonetheless, as it is the case in many developing countries, SMEs are faced with poor access to financial resources, and little research seems to have focused on factors affecting the performance of SMEs in Sub-Saharan African economies including Nigeria. The study is primarily based on an extensive mail survey of 502 SMEs in Nigeria's two regions and three main sectors (manufacturing, business services, and trade sectors). Accordingly, a broad range of testable hypotheses have been formulated which tend to capture peculiarities in the Nigerian economy using correlation and logistic regression analysis. Access to finance, difficulties encountered, financing decisions and desire for Islamic finance turned out to be the major factors affecting regional and sectoral performance of SMEs. The study reveals some significant differences in the regional performance of SMEs. Most important amongst these differences are: ease of `access to finance', `difficulties encountered' in the process, decisions about `accepting or rejecting' bank financing, and the regional appeal of `Islamic finance' with its different financing modes. It also reveals significant difficulties in obtaining external finance by the entire survey respondents. The study concludes that characteristics internal to the SMEs (like Firm age and size, location and legal form) and their owner-managers characteristics (like education, experience and age) seem to determine the demand for and use of external financing. It recommends policy makers and SME stakeholders to review the existing SMIEIS policies which unduly exclude most SMEs from having access to such finance.