Historical Development of Small Scale Enterprises in Nigeria

1. Dr Eniola, A. A.
Landmark University, School of Business Studies

2. Parameters Total Assets (N‘m) Annual Turnover
(N‘m)
No of Employees
Nigerian
Institution
MSE SSE ME MSE SSE ME MSE SSE ME
Fed. Min. of
Industries
<200 <50 Na Na Na Na <30 <10 <10
Central Bank <150 <1 Na <150 <1 Na <10 <50 Na
NERFUND Na <10 Na Na Na Na Na Na Na
NASSI Na <40 <1 Na <40 Na Na 3-35 Na
NASME <150 <50 <1 <500 <100 <10 <100 <50 <10
Nigeria Industrial
Policy
Na Na Na Na Na Na Na Na Na
Source: Eniola and Entebang, (2014)World Bank, SME Country Mapping (2001).
National Council of Industry under the Ministry of Industry
NERFUND: National Economic Reconstruction Fund
NASSI: National Association of Small Scale Industrialists.
NASME: National Association of Small and Medium Enterprises.
Definition of SME by Nigerian Institution

3. SME Definition in Nigeria
 CBN under Small & Medium Enterprise Credit Guarantee
Scheme(SMECGS)
o Asset Base (excluding land) – between N5m & N500m.
o Labour force - between 11 and 300 employees
a. National Council of industry (2001)
- Employee ≤ 300
- Asset base ≤ N200 million
b. National Policy on SMEs (excluding land and building)
- Micro enterprises - ≤ 10 employee and <5 million asset
base
- Small Enterprise between 10 – 49 employees and
between N5m & N50m asset base
- Medium Enterprise: From 50 – 199 employees and N50m &
N500m asset base

4. CHARACTERISTICS OF SMEs
 Despite the disparity in the comparative definitions of SMEs,
the enterprises have some common characteristics;
 Ownership and management are held by an
individual or group, hence decisions are often
subjective
 They require small capital for establishment,
regardless of industry and country where they
are based. However, they usually Have
difficulties attracting funds for expansion.
 Proprietors hardly separate private funds from
company funds. This leads to inefficiency and
performance.

5. CHARACTERISTICS OF SMEs
 Most SMEs operate with labour intensive
technologies. They find it difficult to shift from
one product line to something radically
difficult.
 The rate of business mortality is high due to
the reasons of low capital outlay, inadequate
market information, lack of appropriate
technology, etc

6. Historical Development of SME in Nigeria
 The historical background of small and
medium scale enterprises in Nigeria can be
traced back to1946
 when the essential paper No. 24 of 1945 on “A
Ten year plan of development and welfare of
Nigeria 1946 was presented.
 It was there at the beginning; it has gained
prominence today and will increase its
importance tomorrow.

7. Historical Development of SME in Nigeria
 The focus on SMEs date back to the second
national development plan (1970 – 1975)
during which the small scale industries scheme
was initiated.
 This was a backdrop of government
recognition and support for the sector in terms
of funding.
 The Nigerian government introduced different
development support policy programs since
the early 1970s to help improve the
performance of small and medium business
owners

8.  Financing were provided to SME investors to
help diversify the country dominance of an
over-reliance on the oil sector economy.
 The Federal government policy interventions for
the financing of SMEs are generally geared
towards improving the expected contribution of
the sector to the outgrowth and evolution of the
home economic system.

9. Historical Development of SME in Nigeria
 The function of government in the performance of
entrepreneurship and SME in Nigeria became
significant only after the Nigeria civil war.
 The era of 1980s can be said to be golden years of
SMEs in Nigeria.
 Those were the years of the Nigerian Industrial
Development Bank Ltd (NIDB) and the Nigerian
Bank for Commerce and Industry (NBCI).
 They were Federal Government Development
Banks specifically dedicated to the development of
SMEs in the country.

10. They provided foreign exchange denominated
loans for procurement of machineries and raw
materials from foreign sources.
The interest rate was friendly and the amortization
ranged from 5-7 years with about two years
moratorium during which only the interest was paid.
The promoters used their equities to finance
purchase of land and construction of buildings while
the Commercial Banks provided the working
capital.
During this period, capacity utilization reached 73.3
percent and the sector contributed immensely to the
GDP.

11. Foreign exchange was abundant because the
exchange rate was 65 kobo to the dollar.
Promoters and banks were not discriminatory
with regard to the types of project financed or
promoted.
The economic policy in vogue was Import
Substitution
There is substitution of importation with local
production without taking due cognizance of the
local availability of the raw materials.
Many projects that were over-dependent on
foreign raw materials were incepted.

12. Development support strategy programs, in
promoting SMEs
 1971- Small Scale Industries Credit Guarantee
Scheme established in the;
 1973- Agricultural Credit Guarantee Scheme
established in the; The fund guarantee credit
facilities offered to farmers by banks up to 75%
of the amount in default net of any security
realized.
 1978- Agricultural credit guarantee scheme
fund (ACGSF), has between 1978 and first
quarter of 2011 supported 701,000
beneficiaries with a total loan of N43.12 billion.

13. Development support strategy programs, in
promoting SMEs
 1980- National economic reconstruction fund
(NERFUND), was established.
 SME II loan facility, the government secured a
$270 million loan facility to further compliment
other SME financing sources.
 1991- The community banking scheme was
established, with the objective of rural
development, financial assistance to star-ups
small and medium enterprises.

14. Development support strategy programs, in
promoting SMEs
 2001-The Small and Medium Enterprises Equity
Investment Scheme (SMEEIS). The scheme
attracted a total amount of N42.3 billion, with
N28.87 equity investment in 336 projects.
 The scheme was set aside in 2009 by the
government because it was not enforced and
supervised.
 2002- Bank of industries (BOI) emerging from
the merger of NERFUND and NIDB with the
target to provide credit at 10% to the industrial
sector including SMEs.

15. Development support strategy programs, in
promoting SMEs
 2003- The small and medium enterprises
Development agency of Nigeria (SMEDAN)
was created as a one-stop’ center for Micro,
Small and Medium enterprises development.
 Serving as a vanguard for rural industrialisation,
poverty reduction, job creation and enhanced
sustainable livelihoods
 Linking SMEs to internal and external sources
of finance, appropriate technology, technical
skills as well as larger enterprises.
 Intermediating between SMEs and the

16. Development support strategy programs, in
promoting SMEs
 2005- The microfinance initiative (MFI) was
introduced, with a policy to convert all the
community banks to microfinance banks.
 2010- Small and Medium Scale Enterprises
Credit Guarantee Scheme (SMECGS) was
established.
 The scheme is intended to further complement
SMEEIS in channeling funds to the real sector
of the economy by cover all enterprises.

17. ROLES & SIGNIFICANCE OF SMES
The following have been said of SMEs:
 SMEs contributes 50% of GDP ….. (OECD).
 65% of employment in high income countries
are from SMEs.
 SMEs generate 70% - 90% of employment in
middle income countries.
 Significant impact on the export earnings in
developing countries.
 SMEs enhances entrepreneurship innovation
and invention

18. Roles & Significance of SMEs in Nigeria
18
 SMEs drive technology change and growth in
productivity
 Catalyst to private sector development
 According to IFC, 96% of business in Nigeria
fall under SMEs
 98% of all businesses in the manufacturing
sector were SMEs operating in Nigeria.
 SME Provide 76% of the workforce and 48%
of all industrial output in terms of value added

19. Developmental Attributes of SMEs
 SMEs are largest employers of labour in the
economy
 Nigeria SMEs play an important role in a
Nation’s economic development
 Needs to support the growth of SMEs as a tool
for its overall economic development
 Major impediments of the SME sector in
Nigeria include: Infrastructural decay, Funding
problems, Unhealthy competition by MNEs
 The fortunes of SMEs need to be reversed if
the millennium goals are to be achieve

20. Thank you