CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Small and Medium scale enterprise remains one of the most outstanding employers of labor in Nigeria as it influences all aspect of economic activities. Ronney (2014) noted that Small and Medium scale enterprises have been considered as the engine of economic growth and for promoting equitable development. Its role in the economic and social development of the country is well established. It is considered the nursery of entrepreneurship, often driven by individual creativity and innovation. SMEs are also credited with generating the highest rate of employment growth and account for major share of industrial production and export.
The rapid expansion of SMEs in economics of developed countries in the 1980s and 1990s has created a widespread conviction that SMEs ventures are the most important source of entrepreneurship and as dynamic and innovative factor, they contribute directly to economic growth (Agar, 2010).The major advantage of the sector is its employment potential at low capital costs. The labour intensity of the small and medium scale enterprise sector is much higher than that of the larger enterprises.
Small and medium Scale enterprises are usually run from the home and can involve any type of income generating work such as street-trading, dairy farming and carpentry. To get up or develop such micro enterprise, some amount of capital is required and for about 90% of people living in poverty, the only way out is to borrow from their family, friends or money lenders, commercial banks do not usually lend to small business owner because such loans are often considered insecure and unprofitable.
Credit facilities are development tools that grants or provides financial services and products such as small loans and grants to assist the business operators in expanding or establishing their business, they are mostly used in developing economies where small and medium scale enterprises do not have access to other sources of financial assistance (Robinson, 2018). There are different providers of credit facilities services and some of them are; non-governmental organizations (NGOs), savings and loans cooperatives, credit unions, government, commercial banks and non-bank financial institutions. The target group of credit facilities are self-employed low income entrepreneurs who are; traders, seamstresses, street vendors, small farmers; hair-dressers, rick-show drivers, artisans blacksmith etc. (Ledgerwood, 2017).According to Gupta and Sow (2016),credit facilities is a movement that envisions a world in which low-income households have per moment access to a range of high quality financial services to finance their income producing activities, build assets, stabilize consumption and protect against minor investment risks.
Before the emergence of formal credit facilities institutions, informal credit facility activities flourished all over the country. Informal credit facilities are provided by traditional groups that work together for the mutual benefits of their members. These groups provide savings and credit services to their members. Limited access to formal finance due topoor and insufficient capacity to deliver financial services to SMEs continues to be a constraint in the growth and expansion of the sector. Formal financial institutions perceived SMEs as a high risk and commercially not viable and as a result only a few SMEs access credit facility from financial institutions (Raphael,2012 The key features of these informal schemes are savings and credit components, informality of operations and lower interest rates in relation to the formal banking sector. Informal associations operate traditional credit facilities in various forms and are found in all the rural communities in Nigeria. The non-traditional, formalized microfinance institutions are operating side-by-side with the informal sector. The financial services provided by the microfinance institutions in Nigeria include savings, credit and insurance facilities.
