Development financing and small scale industries in Nigeria

Previous studies by eminent scholars have shown the significant cohtributions an~ potentials of Small Scale Industries (SSI'.s) in the economic development efforts of Nigeria. These studies have also shown that, among other limiting factors, shortage of funds has been. critical. However, the emphasis of these studies has been on the availabi.lity of funds for the aggregate Investment Expenditure of sciall Scale Industries. Othèr empirical work~ showed that Small Scale Industries require funds for start-up (Fixed Asset) Investment, Working Capital and expansion of existing facilities. These studies have also shown that these Small Scale Industries obtain financial assistance from the formal financial institutions including Development finance Institution, mostly for expansion of existing facilities and working capital, while they obtain their initial start-up funds from personal savings, loans from friends and relatives and other informal institutional lenders. Given that prospective Srnall Scale Industrialists have little or no collaterals·as security for obtaining finance for start-up of the business, the current study tries to find out the extent to which Development Fin~nce Institutions have funded SSI's especially with regards to start-up (Fixed Assets), Working Capital and Capital for Expansion; while also determining the contribution of other credit sources e.g. commercial banks, non-bank financial institution and other inforrnal sources to the above enurnerated investment expenditure of Small Scale Industries. · In effect, my study tested the significance of each of these credit sources and thëir substitutability for development finance institutions in the finance of fixed assèt investment, Working Capital, expansion of facilities and total Investment Expenditure of Small Scale Industries. Finally, the study tried to deterrnine and assess other factors that could bring about improved funding of Small Scale Industries in Nigeria. To achieve· the objectives, the study explored and appraised the role of development finance institution in Nigeria' s industrial development with emphasis on their sources and uses of funds, credit policies, operations and existing activities. Specifically, the study using three hundred and eightly-two (382) Small Scale firms from Bende!, Lagos, Ogun, Ondo and Oyo States and an econometric model, tested the significances of the pararneters, IT (Investment in fixed Assets, INV · (Changes in Inventories) , EX (Capital for Expansion), TGI (Total Investment Expenditure), R (Interest Cost of Debt), S ·(Gross Sales Turnover), KE (Equity Capital), D (Debt Capital and M (Maturity of loan) ::and C (Credit variables) in each of the component Investment Expenditure of Small Scale Industries. In addition, the study t~ied to examina the substitutability of each of the Credit variables C(representing total accummulated debts, liabilities to bank and non-bank financial Institution (BNF), liabilities to banks (TLB), liabilities to Developrnent Finance Institutions (TDFI), liabilities to Non-Bank Financial Institutions (TNP) and Net Trade Credit (NTC) in the investment expenditure of Small Scale Industries in Nigeria.