1.1 BACKGROUND OF THE STUDY
Small and medium enterprises according to the agreement of central Bank of Nigeria and the small and medium Industries and Equity Investment Scheme (SMIELS) is defined as any enterprises with maximum assess base less than #200, million excluding land and working capital, and with the number of staff employed not less than 10 and not more than 300. There are diverse definition of small and medium enterprises however, the dynamic role of small and medium enterprises as an engine of growth in developing country (ies) has been recognized and accepted universally.
Cook and Nixon (2001), observed that the development of small and medium enterprises (SME’ S) is seen as attempts towards the achievement of a wider economic and socio- economic objectives, including poverty alleviation as stated by kutey (2013), small and medium enterprises drives their country’s development as they create employment and contribute to the gross domestic product (GDP). In the opinion of et al (21012), there is the greater likelihood that SME’s will utilize labour. Intensive technologies thereby reducing unemployment particularly in developing countries and thus have an immediate Impact on employment generation.
Small and medium Enterprises are expected to facilitate the growth and development of human and capital resources towards general economic development and the rural sector in particular. To achieve all these expectations, SME’s depend largely on favorable monetary policy that will increase the rate of borrowing from legal institutions and lower interest rate; also taxation policy should be renewed for the maximization of profit by these enterprises.
It is disheartening to note that despite the roles of promoting growth in Nigeria, SME’s still suffer acute capital formation and are more financially constrained than large forms in sourcing for credit from formal credit institutions such as banks and capital market.
The central bank of Nigeria (2005), observed that traditional commercial banks have been experiencing aggregate credit growth to the domestic economy yet the ratio of loan supply to small scale enterprise has continued to decrease over the years. This in spite of mandatory enforcement by the CBN to the commercial banks to increase lending to SME’s. This situation has been of great concern to government this, exacerbated concerned efforts and interventions through increased budgetary allocation, credit policy, formulation and implementation of new programmers and schemes are been reviewed regularly.
1.2 STATEMENT OF PROBLEM
Although SME’s are seen as a catalyst for economic development, their growth and development is slowed down by a number of challenges which can be grouped into financial and non- financial constraints (shokan 1995).
The financial constraints include those factors that prevent SME’s from accessing funds easily from financial and non- financial institutions. The CBN has continuously been reviewing monetary policy instrument such as cash reserve Ratio (CRR) and liquidity Ratio (LR) to ensure availability of credit by the banks.
It is disheartening to note that upon all the special interventions by the CBN (which is the centre of monetary policy formulation) to induce credit supply by banks to SME’s, reverse seems the case.
1.3 PURPOSE OF STUDY.
This research work is carried out to examine the reluctance of financial institutions in providing credit supply to SME’s.
1.4 RESEARCH QUESTIONS
1.5 RESEARCH HYPOTHESIS
H0: Monetary policy has no effect on SME’s development.
H1: Monetary policy has effect on SME’s development.
H0: Monetary policy has no effect on credit supply to SME’s.
H1: Monetary policy has effect on credit supply to SME’s.
H0: Monetary policy does not provide enough development to SME’s.
H1: Monetary policies provide enough development to SME’s.
H0: There are no other factors hindering SME’s Development.
H1: There are other factors hindering SME’s Development.
1.6 SIGNIFICANCE OF THE STUDY
This research work would help in the study of formulation and implementation of favourable monetary policy that would aid the development of small and medium scale enterprises. The outcome of this research work would help government formulate rite polices in a manner that would help SME’s survive competition.
1.7 LIMITATIONS OF THE STUDY
For this study, relevant information will be collected from the case study: SHIRAKS WATER, which is a small and medium enterprises operating within lusada/ igbesa, ado.odo local government igbesa. Also. References were made to other books that have been published on this study, journals/articles that been prepared by previous scholars. Online information from goggle, Wikipedia etc.were also utilized. However, this research work is basically studying the effect of monetary policy on SME’s development in Nigeria and therefore should not be generalized. the time frame for the completion of this project is limited, hence, the imitation of this study to the geographical area but it can be use as a guide to broaden other researches on this topic.
1.8 DEFINITION OF TERMS