CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND TO PROBLEM

Small and medium enterprises are believed to be the engine room for the development of any economy, because they form the bulk of business activities in a growing economy like that of Nigeria. This is manifested in the following ways, Employment generation, rural development, Economic growth and Industrialization, Better Utilization of Indigenous Resources. In the past, Nigeria’s over dependence on oil which really exposed the economy to unprecedented macro-economic instability resulting from the effects of external shocks to oil prices. The world economic recession and the sustained slump in oil prices posed a serious challenge on Nigeria economy which accounted for a reduction in our external Reserves and also diminished on the nation’s capacity to finance much of its development needs. It was also observed that the real GDP growth slows to 2.2% from 2009; population growth rate will climb to 2.5%. Such situation could plunge the country into economic embarrassment and posed a major challenge to the Government. However, with the trend of this event, the Government under vision 20:2020 program came up with undoubtedly consolidated empowerment program called the National Economic and Empowerment Development Strategy (NEEDS) and other reforms which

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imperatively leads to the recognition given to the development of SMEs The SME sector is positioned generate employment, create wealth, reduce the prevalence of poverty and sustain economic growth and development. Commercial banks provide broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their micro-enterprises. M.S Robinson asserts that ‘if it were widely available, institutional commercial banks could improve the economic activities and the quality of life of hundreds of millions of people in the developing world”. However it is generally agreed that micro-credit given to those of the poor who do not have a capacity to repay can increase their poverty. Until the early 1960s, many economists viewed the continued existence of small-scale industries in less developed countries as justified by scarify of capital and administrative experience. It was often argued that with economic growth, the small, traditional type of enterprise would, in one sector after another, be superseded by modem forms of large-scale production. In order to ensure an orderly transition, small industries were seen to deserve support, but mainly in sectors where modem methods could not immediately applied. In the mid-160s a new approach to small to medium-scale enterprise (SME) development began to emerge due to several factors. First, there was growing concern over low employment elasticity of modem large-scale production. It was claimed