Management of small scale business in Nigeria: Issues ,problems and survival strategies

Management of small scale business in Nigeria: Issues problems and survival strategies


The history of business in Nigeria can not be discussed without taking into consideration the history of small-scale business. In other words, one can say that the history of business in Nigeria is the history of small-scale business enterprises.

The Central Bank of Nigeria, in the monetary policy circular number (twelve) of 1980, defined small-scale business as a business concern with an annual turnover ranging between twenty-five thousand Naira and fifty thousand Naira only.

On the other hand, the Federal Ministry of Trade and Industries defined it as a manufacturing or service industry that has a capital investment of not more than fifty thousand excluding land and machinery.

However, the small American business Act of 1999 defined a small-scale business as one that is independently owned, and operated and is not dominant in its field of operation.

It could be adduced from the above that there is no generally accepted definition of small-scale business. Different individuals, bodies and acts have variously given it a wide spectrum of definitions.

Bearing this study in mind a look at a small-scale business, will convince one that is an organization with a name, a place of operation, and owned by one or more workers other than the owners.

Besides, the following characteristics also prevail

  1. Management is independent, usually, managers are the owners.
  1. The area of operation is mostly local, i.e employees and owners reside in one part of the community or town.
  2. Capital supplied and ownership is held by an individual or small group of people.
  3. The size of the firm is small relative to the industry.

As we can see from the above criteria as put forward by the committee for Economic Development (CED), a small-scale business is self-managed and is of relatively small size.

From the above definitions, it is now clear that small-scale businesses include partnerships, private limited liability companies and cooperative societies.


Lyman and Gubellinc (1979) described sole proprietorship as the oldest and simplest form of business owners because it does not require any documentary sanctioning by any government agency to bring it into legal existence. The significant feature is that ownership is by an individual. Thus, business and the owners are one and the same. Also, the business assets and liabilities are personal to the proprietor of the business.

Section 1 of the partnership Act 1890 defined partnership as the relationship which exists between persons carrying on a business in common with a view to making a profit.

From the above definition, it is clear that a partnership business is for profit marking.

This agreement may be created either by express consent or may be implied by the conduct of the parties involved.


This is an association of persons carrying on business or undertaking. It has the following attributes:

  1. Separate personality.
  2. Limited liability of its members for the debts of the

business. It has the following features as distinct from a public limited liability company.

  1. Shares are not offered for sale to the public.
  2. Membership is between one and fifty
  3. It can commence after incorporation, provided it has filled the following documents.
  4. Memorandum of association
  5. Article of association
  6. Statement of nominal capital
  7. Statutory declaration.

Co-operative society

Joseph G. Knapp (1980) defined a cooperative society as an organization set up by a group of persons or firms to perform services for themselves. He observed that the principal objective of a cooperative society is to secure better services in terms of quality and cost than they could otherwise obtain, and the chief instrument of achieving this purpose is group integration which is a source of both bargaining power and efficiency.

The following are some common forms of cooperative societies operating in Nigeria.

  1. Agricultural co-operatives
  2. Consumer co-operatives
  3. Savings and loan co-operatives
  4. Social and Educational co-operatives

Concept of Small Scale  Business

The survival of any nation depends on the economic activities performed by the various economic units, agriculture, manufacturing, building and construction, commerce and services.

Most small businesses are here today and gone tomorrow. The average life expectancy of a business is only a dozen years. Some will terminate in bankruptcy. Many of them will be brought to a close with signs of regrets for clashed hopes and an expensive lesson learned, while others will come to a joyous end.

This concept has laid credence to, numerous powers and influence that industrialized nations like the United State of America, Germany, Japan, etc. wield in the space of international business and other world affairs.

However, it has been established that many small-scale businesses fail within the first five years of going into operation. What is responsible for these failures and what strategies for solution should be adopted?

Nation-wide statistics involving small-scale business problems reveal that managerial inexperience tops the list coupled with a lot of other problems like insufficient capital structure, presence of fraudulent-minded employees, marketing problems, activities of smugglers etc.

However, specific problems of small-scale business are noted under the following four headings”

  1. Insufficient capital structure
  2. Use of obsolete business methods and equipment
  3. Lack of personal qualification required in the business
  4. Absence of business planning

This ugly situation is my source of inspiration to look into the management of the small-scale businesses with special regard to the ones located in Nigeria- with a view to finding available solutions to their problems. The solution, if implemented will surely enhance the efficiency and effectiveness of the small-scale industries.

Most often under-sighted is that small-scale businessmen have a rather shallow view of the problem of their industry, More often, they attribute problems that may develop as what is desired to arise and as a result, no attention will be paid to it.

Therefore it is my wish to note that this notion is wrong and should be corrected accordingly.

Moreover, industrialization is one of the features of economic development consequently, the role of small-scale business enterprises cannot be underestimated, especially in a developing country like Nigeria. It is the hope of the writer to highlight the problems of small-scale business enterprises operating in Nigeria.

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It is also my wish to find out the progress made so far by businessmen, government, researchers etc in identifying the problems and solutions advanced towards alleviating them i.e the problems it is also hoped that in the course of this seminal work, the strategies embarked upon by small scale business enterprise in other to survive, will be looked into.

Small-scale business is known to face a greater number of setbacks ranging from financial, to managerial problems.


Notwithstanding the numerous ways by which small-scale businesses contribute to the development of an economy, their scope of operation is often limited or narrowed down by certain exigent forces inherent in the economy.

A wealth of literature exists on the problems of small-scale businesses in Nigeria. These problems can be classified under the following heading

  1. Financial limitation
  2. Technological know-know
  3. Managerial problem
  4. Production commercial/ marketing problem
  5. Other miscellaneous problems.

Notable among the problems are financial limitations. Nigerian as a developing nation has a low capital income. This results in the inability of Nigerians to save sufficiently to finance small-scale businesses. This situation is even made by the uncompromising lending policy that most Nigerian banks adopt. Akinmolade in his analysis of problems of small-scale business opined that the major identifiable problem of small-scale business is that of finding funds for expansion at various levels of development.

In his effort to analyze the financial problem of small-scale businesses, the Ownuka Interbiz group- chief Onwnka Kalu Observed that small-scale business owners do not have financial for sight and as such switch in projects they would not be able to execute within a reasonable time.

He went further to say that our small-scale business owners do not undertake effective financially techniques and that the available funds are not properly allocated to the write-up, which they are intended. He noted in a nutshell that the problems arise solely due to lack of funds and mismanagement.

Ola Vincent, the firmer governor of central banks, in his own contribution, noted that lack of collateral security was a limiting factor in the ability of small-scale business owners to obtain loans.

According to him, such securities deranged by banks are so high that small business enterprises cannot satisfy them.

They are therefore prevented from getting the loan or overdraft as the case may be. He also saw inadequate communication facilities in the country as another factor militating against small-scale business owners.

In most cases, you find out they (small business owners) do not know the credit facilities available to them and conditions necessary to obtain them. Even when they know, they still feel reluctant over Taking another individual view B.A (Akua zaoku 1994) the assistant (former) general manager, planning and development African continental bank Plc, pointed out that almost all small scale business owners have limited, sources of fund. Commercial lenders generally expect their clients to supply a substantial proportion, if not all their risk capital.

He also maintained that since small scale industries in Nigeria are generally one person’s business or family owned, operating in a to income economy. They are not always able to master through personal savings sufficient or other fixed assets. He noted that because of inadequate finance, the small scale business owner often appear reluctant to spend money on feasibility studies which are considered on necessary prerequisite for enlightened planning and operation. In the same article, he stated that as most small scale industries are privately owned and are not able to obtain the much needed risk capital from the capital marked. They are also not allowed some industries banks set up by the government. Since, the regulations governing such, bank restrict them from participating in ventures large them those to which the small scale industries belong.

On the other hand, the legal and institutional framework for the enforcement of loan contracted including bankruptcy and for close procedures are costly slow etc. the risk consciousness of introduction of stringent conditions, the demanded for collateral, mortgages, floating changes, personal guarantees, etc. to reduce the probability and cost of default. For the same reason, banks credit worthy borrowers.

The inability of the small scale business owner meet these condition in most cases and the adequate information about the sponsors and their projects are some of the causes of their exclusion institutional credits.

Taking the problem of management Mr Ogbe (1985) contented that this is largely due to entrepreneurs limited and learning as well as the in ability to employ the services of an expert.

There is no proper management of current assets and liabilities, especially cash inventory receivables and payables.

They neglect the need for record keeping of all operations. Thus ignoring the vital source of information that can provide guideline for effective financial planning and control.


Any problem that is without solution should be without regard. In this view, various individuals, with business tycoons, academics have advocated series of solutions to the problems of small scale business entrepreneurs

In united states, small business administration (813A), was formed in 1953 to give and later for the welfare of the small scale industry. Also in united kingdom where business loan guarantee scheme (8BLGC) was formed ostensibly for the purpose funding and allowing them (small business owners) exports guarantee scheme to make their endeavors becomes fruitful. There was a Imo in e state there was launching for industrial growth (FIG) organization by the state chapter of National Association of small scale industry (NASSI). In his speech during the launching the state chairman of the association noted that the fund was designed to assist of industrialization in the state. He further explained that the fund would be used to guarantee bank loans to genuie small scale industrials or business men.

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The governor, I.e. a former governor of Imo state, commander Amadi lkwechegh in his own speech urged the small scale industrial and business men to identify themselves with the association (NASSI). So as to be abreast with any development in their area of operation.

In our country, some notable efforts have been designed to embank the operation of small national development plan (1970- 75) a financial house known as Nigeria bank for commercial and industry was established with fund allocation of 5.4 million.

During the third development plan (1975-80) three industrial development centre were established with the aim of effecting the development of small scale enterprise. On the other hand financial institutions also have contributed their own Quote to meeting the financial needs of the small banking scale industry in the country. For example, the banking sector in the country, provided the sum of (3988.6 million to small scale industry sub sector as loans and advance) covering the period believe 1980-86.

A review of the portfolio lending of Nigeria bank for commercial and industry (NBC) between 1986-89 should that the disbursement of loans made in a way, that it favored small, enterprise consistent with the roles for which Nigerian bank for commercial and industry (NBCI) was set up about 46% of the banks lending during periods under review went to enterprises with total capital investment of 0.5 million and below.

However, the share of enterprises with capital investment lost (excluding land) is most likely to be much higher in 1990 as a result of the phenomenal increase in investment cost.

To ensure increased participation of banks in funding the development of small scale enterprises, the central bank of Nigeria credit enfilading and small scale enterprises to 70% in the 1990 fiscal years as against l6% in the preceding years. The structure of this lending generations is being strictly monitored by the central bank of Nigeria to ensure that such loans are used for production activities for which it is intended.

Moreover, actual performance our the years has however been lower than the prescribed percentage shares, but the start falls is expected to be deposited with the CBN for on lending to small scale industrialists.

Here, in the formal Anambra state, the government demonstrated her concern on the problems of the small scale industries by the establishment of funds for small scale industry (881) In 1976. The body disburses government guaranteed loans to small scale enterprises who qualified.

Some individual’s problems of small scale Industries in one of such efforts, Mr B.J Nwafor, the former first bank manages, Omitsha main Branch, in an interview with him, advocated government adoption of broad polices.

This will include land acquisition, under this, government with take over the task of establishing industrial layout. Under the land use decree land could be allocated the then (industrialists) based on industrial reasons. In essence government should build industrial estate so that industries that manufacture on produce same kind of products or services can stay to getter to reap the benefits that accrue from industry localization such benefits include: Reduction in advertising cost, they (industrialists business men) can speak with one voice and be easily identified.

This with wipe off the problem of wrong location of a given business or industry. The small scale business owner have also formed many association and are now working towards a common goal to achieve this above organization will be enhanced and employment will be generated for a good percentage of the citizenry of that particular area. He also noted that, the government should encourage uxoriously the formation of co-operative societies so that resources. Could be pulled together to succeed where individuals have furled. The small scale business lowers have embarked on this i.e. the formation of co-operative societies to enhance business activities.

Also the widespread of management consultancy firms is a testimony to the efforts aimed at ameliorating the managerial problems of the industries.The small scale business men can go their or consult them for advice when the need arises, with a taken for.

Furthermore, chamber of commence and industry research institution etc. have organized seminars, symposiums, workshops, enlightment campaigns at different items. This is solely for the benefits of the small scale industries and helping them to solve other affiliated problems of their enterprises. It is now quite obvious from the above that efforts have been made and are still being made to improve the performance and viability of small scale business by individuals, government association firms, etc.

Finally, a lot of small scale business owners have benefited from the organized lending and presented by the chambers of commerce and industry, research institutes and other related bodies.

This has gone a long way, in solving the problem of illiteracy among them i.e. (the small scale business owners)


The problems and survival strategies of small scale business establishments in Nigerian.

The problems and survival strategies of small scale business in Nigeria deserve every possible encouragement from all quarters to help them keep going on their daily transactions. This is because small scale business constitute the greater percentage of our industries set up.


Small scale industries deserve every possible encouragement from all quarters to help them keep going on their daily transactions.

This is because they constitute a greater percentage of our industrial set up. In view of this tact and based on the financials of this research work the following are recommended.

  1. Lack of capital was identified as one of the major factors limiting the growth, expansion and excellence performance growth of small scale business enterprises were starving for lack of funds, there was strong evidence that idle capital were floating about in the public due to the implementation of the indigenization degree were over subscribed. Since then, there has been evidence of over-subscription of all public issues in Nigeria.
  2. It was also observed that lack of collateral security was one of the major obstacles restricting the chances of small scale business in obtaining loans and advances. Only a few Nigerian small scale business men can produce security which will satisfy typical banker’s criteria as to adequacy of value Vis-à-vis the loan. This has adversely affected the growth of small scale business. The banks should therefore demonstrate flexibility in this area. They should review the viability of the project for which the loan is intend ed. If the project is promising, the bank should advance the required funds with any short tall in security. However, the banks should continue to monitor the financial status of the business.
  3. On the other hand, it has been noted that commercial banks grant more short term loan than medium and long term loan. The banks should review their lending policy. They should be able to engage in medium and long term lending, because, economic development demands this.
  4. It was also found out that there was a low rate of disbursement of development banks. This low rate of disbursement creates an unfortunate situation whereby a substantial part of the loans already approved are saddled with the banks without improving the financial problems of small business. This defeats the fundamental objective of the establishment of the banks. The development banks should as a matter of urgency Endeavour to correct this abnormally and disburse approved loans to the beneficiaries.
  5. Furthermore, it was equally observed that the development banks neglect some aspects of their responsibility of creating public awareness of the types and nature of services they rendered to business enterprises.
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These non- promotional activities of the banks have resulted in many businesses not knowing even their existence. A change is necessary in the banks perception of this role. They should through their promotional activities inform business enterprises the nature of the services thy renders to them.

However, the operating scope of most of the financial institutions ought to be reviewed. At the moment large and well established firms attract most of the available financial support because they can easily satisfy the security, capitalization, and past profitability criteria stipulated by the banks. While this is a sound and rational economic consideration, they will however, have the tendency of limiting assistance to only large scale businesses.

The ideal role of these banks should be to seek out and assist individual promoters who have sound bank able projects especially when such projects belong to the economic sectors which are priority areas in development terms. It is therefore bad for the banks to lend the large firms (rather than small firms) who should be encouraged to raise additional capital through the issue of new equity or mark table securities or both.

  1. Small scale business should make to install a proper accounting system in their organization.If possible a describe may be enacted which makes book keeping and accounting records a prerequisite to being in business. This will eliminate the difficulty of banks to evaluate the variability of these enterprises for the purpose of loans.
  1. Illiteracy and Ignorance constitute the major factor militating against the growth of small scale businesses. Therefore, effort should be made to wife out illiteracy among business entrepreneurs. This could be done by the federal and state governments establishing vocational education programmes in every corner of the state. Again, seminars, symposia and workshops should be intermittently organized and sponsored by the government through it’s agencies to educate small scale investors. –
  2. Both the federal an state government should as a matter of policy, lead the way in the cursed to give our indigenous products and services a pirate of place in our economy.
  3. Regarding management problem, small businesses should Endeavour to install the right caliber of management in their own organization. This is because he lending institutions must be satisfied with the quality of management of any venture into which they are being called upon to invest. Again carefully make good use of the facilities provided for them by the state and federal governments. Such frailties include; advisory services to small fund for investors as well as loans through the fund for small scale industries (FUSSI) and the national economic reconstruction fund (NERFUND). In addition, 1’ the then recent establishment of the people’s bank serves a complementary assistance to entrepreneurs in the state.

On the other hand, government should encourage vigorously the formation of co-operative societies so that resources could be pulled together to succeed where individuals have failed.

To conclude, the researcher is of the opinion that the solution to the financial problems of small scale enterprises lies with the success of achieving macro-economic stability and fiscal balance which is vital for financial sector development. The reduction in the rate of inflation will push down interest rates and reduce investment costs but increased credit availability to the economy in general and scale enterprises in particular will be achieved through increased mobilization of savings.


Adesanya M.O and Olayede, E.O (1972) Business Law in Nigeria . . . in M.O. Ofona publisher.

Adirwu M.A (1982) Improving Cash Flow For Small Scale Industry, Business Times. November, 11

Agbara  A. (1985) Problems Facing Small Scale industries in Nigeria. Onitsha A.C Global Publishia

Akuazaoku; (1984) Financing Small Scale Business Industrialists. Enuge: Chiezugo venture

Ijere M.O (1975) New Trends in Africa Keuith L.A and Gubellin (1975) Introduction to Business Enterprise American Business Act (1953)

Joseph G. Knapp (1980) Small indigenous Enter Prises. Enugu: Chiezugo Venture.

Lyman and Gubellinc (1999) Improving cash flow for small Industries. Enugu juries Communication Publisher.

The central Bank of Nigeria Monetary policy Circular number 12 (1980)

The small American Business Act of 1953 Volum 3 (1) 80



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