ENT 201

MODULE 1

NATIONAL OPEN UNIVERSITY OF NIGERIA

COURSE CODE :ENT 201

COURSE TITLE:
MICRO CREDIT POLICIES AND INSTITUTIONS

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ENT 201 MICRO CREDIT POLICIES AND
INSTITUTIONS

COURSE
GUIDE
ENT 201
MICRO CREDIT POLICIES AND INSTITUTIONS

Course Writer/Developer Dr. Oluwagbohunmi, D. Ogunbona

Course Coordinator Ishola, T. Oladele

National Open University of Nigeria

NATIONAL OPEN UNIVERSITY OF NIGERIA

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MODULE 1

National Open University of Nigeria

Headquarters
14/16 Ahmadu Bello Way
Victoria Island
Lagos

Abuja office
No. 5 Dar es Salaam Street,
Off Aminu Kanu Crescent
Wuse II, Abuja
Nigeria

e-mail: [email protected]
URL: www.nou.edu.ng

Published by:
National Open University of Nigeria

Printed 2009

ISBN

All Rights Reserved

3
ENT 201 MICRO CREDIT POLICIES AND
INSTITUTIONS

CONTENTS PAGE

Introduction........................................................................ 1
Course Objectives............................................................... 2
Working through this Course.............................................. 2
Course Evaluation............................................................... 2
Study Units ........................................................................ 3
Introduction

A robust economic growth can be achieved if well-focused poverty

alleviation programmes are put in place. These programmes must be
articulated in such a way that people would have access to factors of
production and credit. The latent capacity of the poor for
entrepreneurship would be enhanced by the provision of micro-finance
services, which will enable them to engage in economic activities and be
self sufficient. It will also lead to increase in employment opportunities
in the economy.

Over 65% of the economically active population that are precluded from
formal financial services provided by the conventional banks could
benefit from the programme. Furthermore, the policy on microfinance
will make it possible for the informal sector to be brought under the
supervision of the Central Bank of Nigeria (CBN), thus making it
possible for the achievement of monetary stability and the expansion of
financial infrastructure in the country to meet the financial requirement
of the Micro, Small and Medium Enterprises (MSMEs). A vibrant micro
finance sub- sector would evolve and it would be integrated into the
main stream of the national financial system and provide the stimulus
for growth and development. It would also harmonise operating
standards and provide a strategic platform for the evolution of
microfinance institution, promote appropriate regulation, supervision
and adoption of best practice.

The first effort to promote micro enterprises started in the early 1950s
with the establishment of the Colonial Development Loans Board by the
Colonial Administration. This was later replaced by the Revolving Loan
Fund for Industry which came as part of the technical assistance from
the U.K for the Small-Scale Industries Credit Scheme (SSICS). State
and Federal Governments also contribute to the purse of the SSICS for
on-lending to small entrepreneurs. Several Polices have been put in
place since 1980s. Some of them are discussed in the study guide.

The government also instituted some organisations to oversee the

implementation of these policies in order to achieve the desired result.

The potential beneficiaries are expected to fulfill some obligations some

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MODULE 1

of which are accurate record keeping, efficient management of the

business and optimum utilisation of the resources.

This Course Guide gives you an idea of the different topics you are to
cover and the time to be spent on each topic.

There are Self Assessment Questions (SAQs), which you will answer in
order to test our ability to remember or assimilate.

There are Tutor-Marked Assignments (TMAs), which the student is

expected to answer. A careful study of the manual will lead you to the
answers. There will be regular tutorial classes that are linked to the
course and you are advised to attend the sessions.

Course Objectives

During this course, you will learn the various definitions of SMEs and
why they need Micro credit. Effort will also be made to list and explain
the activities of the various Institutions which are empowered to
implement government policies linked with the development of the
SMEs. You will also learn about the essence of proper record keeping
and resource management.

Working through this Course

For you to successfully complete this course, you are expected to read
each study unit, reference books and other resources that are relevant.
The SAQs are to enhance your understanding of the topic; they are not
to be submitted.

The TMA is to be answered immediately after each unit is completed

and sent to the course facilitator for assessment.

This course is a 2- credit course. You are therefore expected to spend a

minimum of two hours every week studying. You are expected to

complete the entire course outline within a period of 18-25 weeks.

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ENT 201 MICRO CREDIT POLICIES AND
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Course Evaluation

As earlier stated, every unit of this course has an assignment attached to

it. You are required to keep an assignment file. After every unit the
assignment should be done. At the end of the course, the evaluation shall
be as follows:

Assignments 30%
Examination 70%
Total 100%.

At the end, the best 10 TMAs will be selected to make up 30%. The

examination at the end of the course shall cover all the aspects of the

course.

Study Units

The units have been designed to cover the various policies formulated to
enhance effective performance of the SMEs. The various institutions
that are empowered with the implementation of the policies are also
discussed. In order to have full benefit of the course, some additional
topics are added. The topics discussed are based on this information.

Module 1

Unit 1 Micro Financing

Unit 2 Traditional Micro Finance Practice in Nigeria
Unit 3 Sources of Funds (Part 1)

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MODULE 1

Unit 4 Sources of Funds: Partnership and

Cooperative Society
Unit 5 Non-governmental Organisation in
Microfinance

Module 2

Unit 1 Government Policies

Unit 2 Micro Finance Institutions Part I
Unit 3 Micro Finance Institutions Part II
Unit 4 How to Keep and Use Business Records
Unit 5 Marketing – How to Sell Your Products

Module 3

Unit 1 Marketing: Promotion Part I

Unit 2 Management Cash
Unit 3 Entrepreneur and Entrepreneurship
Unit 4 Definitions of Business Types
Unit 5 General Management Practices in Small Scale Business

Module 4

Unit 1 Contemporary Management Practices in

Small Business I
Unit 2 Contemporary Management Practices in
Small Business II
Unit 3 Cause of Failure of Small Scale Business
Unit 4 Possible Projects

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ENT 201 MICRO CREDIT POLICIES AND
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MAIN
COURSE
Course Code ENT 201

Course Title Micro Credit Policies and Institutions

Course Writer/Developer Dr. Oluwagbohunmi, D. Ogunbona

Course Coordinator Ishola, T. Oladele

National Open University of Nigeria

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ENT 201
MODULE 1

NATIONAL OPEN UNIVERSITY OF NIGERIA

National Open University of Nigeria

Headquarters
14/16 Ahmadu Bello Way
Victoria Island
Lagos

Abuja office
No. 5 Dar es Salaam Street,
Off Aminu Kanu Crescent
Wuse II, Abuja
Nigeria

e-mail: [email protected]
URL: www.nou.edu.ng

Published by:
National Open University of Nigeria

First Printed 2009

ISBN

All Rights Reserved

9
ENT 201 MICRO CREDIT POLICIES AND
INSTITUTIONS

CONTENTS PAGE

Module 1 ………………………………………………........ 1

Unit 1 Micro Financing …………………………….... 1

Unit 2 Traditional Micro Finance Practice in Nigeria. 10
Unit 3 Sources of Funds (Part 1)…………………..… 15
Unit 4 Sources of Funds: Partnership and
Cooperative Society………………………...…. 22
Unit 5 Non-Governmental Organization in
Microfinance…………………………………... 31

Module 2 ………………………………………………........ 36

Unit 1 Government Policies ………………………..... 36

Unit 2 Micro Finance Institutions Part I ……….. …… 47
Unit 3 Micro Finance Institutions Part II ……..……… 56
Unit 4 How to Keep and Use Business Records……… 70
Unit 5 Marketing – How to Sell Your Products……… 80

Module 3 ………………………………………………........ 88

Unit 1 Marketing: Promotion Part I …………………. 88

Unit 2 Management Cash ……………………………. 95
Unit 3 Entrepreneur and Entrepreneurship ………….. 102
Unit 4 Definitions of Business Types ……………….. 112
Unit 5 General Management Practices in Small
Scale Business………………………………… 126

Module 4 ………………………………………………......... 138

Unit 1 Contemporary Management Practices in

Small Business I ……………………………… 138
Unit 2 Contemporary Management Practices in
Small Business II …………………………….. 147
Unit 3 Cause of Failure of Small Scale Business …… 155
Unit 4 Possible Projects …………………………….. 165

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MODULE 1

Unit 1 Micro Financing

Unit 2 Traditional Micro Finance Practice in Nigeria
Unit 3 Sources of Funds (Part 1)
Unit 4 Sources of Funds: Partnership and Cooperative Society
Unit 5 Non-governmental Organisation in Microfinance

UNIT 1 MICRO FINANCING

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Micro Financing
3.2 Micro Credit
3.2.1 Features of Micro Credit or Micro finance
Institution
3.2.2 The Beneficiaries
3.2.3 Smallness of the Loan or Credit Facility
3.2.4 Adoption of credit plus Approach
3.2.5 Focus on Rural Women
3.2.6 Group Delivery Methodology
3.2.7 Pre-Loan Training Programmes
3.3 Elements of Micro Finance
3.3.1 Activities towards the Poor
3.4 The Benefits of micro Credit or Micro Financing
3.5 Reasons for Micro Financing
3.6 Benefits of Loan to the Beneficiary and others
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Mrs. Adeawo, a petty trader in Agbala town started her mat weaving
business, using a family savings of N30 in 1988. She could not get
money from the bank because she was poor and could not present the
required document as well collateral as a tender at any commercial bank
or any formal financial institution. She operated the business for 12years
without much success until she was introduced to a bank that was giving
out loan to petty traders. She collected N75, 000 which was a huge sum
of money to her. She used the money to boost the growth of her

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business. She was able to repay the loan at the appropriate time. The
business grew and increased beyond her little town to other States of the
federation.

In many developing countries, Nigeria inclusive, women constitute a

major percentage of micro entrepreneurs in the informal sector. Many of
them are illiterate, and live in the rural setting. They set up their
business, living from hand to mouth and never been able to move above
the poverty line due to lack of credit or house or land or collateral to
secure loan from commercial institutions. About 85 percent of people in
developing countries derive their incomes from the informal sector, thus
the need for good financial sector, infrastructure and national strategies
to reduce poverty by a half. They only access loan from money-lenders
who are extortionists charging high rates of interest which reduce the
profit that would have accrued to the entrepreneur. It is therefore
important to put in place policies and institutions that will promote
micro finance or micro credit services to the poor or small scale
entrepreneurs.

2.0 OBJECTIVES

The aim of this unit is to enable the student understand the meaning of
and the need for micro credit or micro financing. Specifically, the
objectives are that the student should be able to:

• Recall the definition of micro financing

• Recount the benefits of micro credit to the beneficiaries

3.0 MAIN CONTENT

3.1 Micro Financing

3.1.1 Definition of Terms

It is necessary to define some of the terms which are used in this unit.

ENTREPRENEUR: An entrepreneur is a sole trader. He can also be

referred to as a business man. He is the owner of the business which
may be a retail business, a micro business, small scale business or
medium or large scale business. He decides the type of business he
wants to engage in. If the business succeeds, he owns all the profit, if it
fails, he bears all the losses. He uses his money to buy the machines,
tools, equipments and employs labor as well as buys materials for
production.

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COLLATERAL: It is the property pledged as a guarantee for the

repayment of a loan. It could be a landed property, a car, a stipulated
amount to be deposited in the bank as a guarantee against the loan to be
advanced. Collateral is usually a request of the commercial bank.

LOAN: It is an amount of money lent to a customer by a bank. This

amount attracts a cost or a charge which is referred to as interest rate.

INFORMAL SECTOR: It refers to the sector of the economy that is

not categorized under the range of operation of the organised economic
activities. This sector is categorised by the International Labour
Organisation (ILO) in 1990 into three broad groups:

(a) owner-employers of micro enterprises, which require the services

of a few paid workers, with or without apprentices;
(b) Own account workers who own and operate one-person business,
working alone or with the help of family members and
apprentices who are usually unpaid; and
(c) Dependent workers paid or unpaid. This includes wage earners in
micro enterprises, unpaid family workers apprentices, contract
labor, home workers and paid domestic workers.

3.2 Micro Credit

Micro credit or micro financing is the means of providing the

economically active poor and low income households with financial
services such as credit or loan to help them engage in income generating
activities or help them to expand their small business as experienced in
the story earlier recounted. They also provide services such as savings,
micro leasing, micro insurance and payment transfers. The
implementation of the additional services will be enhanced by the newly
introduced Micro Finance Institutions (MFIs).

Traditionally, especially in village setting, workmen such as bricklayers,

well diggers etc lease various implement such as hand pans, shovels,
cutlass in order to carry out their daily activities.

3.2.1 Features of Micro Credit or Micro Finance Institutions

The organisations that are solely involved in micro credit or micro

financing have certain distinguishing features which differentiate them
from the commercial banks. These are:

• the smallness of loans advanced (to the debtors).

• the smallness of savings collected (from the depositors).

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• the absence of asset-based collateral (that is, landed property to stand

as a guarantee to secure loan).
• the simplicity of operations (the beneficiaries are not expected to
have extensive accounting procedures in place).

3.2.2 The Beneficiaries

The beneficiaries are mostly small or micro business owners who are
mostly in the informal sector. They could be in business such as shoe
mending, retail selling, pepper/tomato selling, agro-allied food
production and farming. They are generally classified as the poor or
small business owners.

Most of the beneficiaries have little or no education and lack modern

skills. They also have little knowledge about record keeping, planning,
cash management and other modern management techniques.

3.2.3 Smallness of the Loan or Credit Facility

The financial need of micro enterprises is very low. A loan of as small

as N10, 000 can change the business volume and profitability of a micro
enterprise. In spite of the fact that the loan is small, each beneficiary
must have proper record with the MFI. This will make the cost of
processing the loan to be high. In order to solve this problem, group
delivery methodology is used for both the savings and loan operation.

3.2.4 Adoption of Credit plus Approach

Micro Finance Institutions look beyond credit provision. They also take
care of the total well being of the people. So they train them in the area
of health care, skill enhancement, technological transfer, reproductive
health etc.

3.2.5 Focus on Rural Women

They concentrate mainly on rural women who are mostly farmers and
petty traders.

3.2.6 Group Delivery Methodology

Beneficiaries are encouraged to form a group or a cooperative society

which could be based on type of business activities e.g. Pepper sellers’
association. The usage of the loan, monitoring of the savings and
repayment of loan are done at group meetings. However, the individual
is held responsible for the utilization and repayment of the loan. It is
also possible for a group to take a loan together for joint business.

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Group delivery methodology has some advantages. These are:

• Reduction of the Cost of Lending:

The repayment is done at the meeting rather than on individual
basis.

• It Aids Credit Discipline and High Number of Repayment:

The group exacts pressure on its members to pay up so that they
would not be disqualified from having access to further loan.

• Solidarity among Members:

There will be cordial relationship between members

• Absence of Collateral Requirement:

The loanees are not required to present any guarantee towards the
loan. They are given on trust.

• Saving Components:
Loanees are encouraged to make regular deposit with the
institution or credit group. Some group expects them to make
some savings before credit can be collected.

• Loan Structure:
The amount of money saved can be considered as a security for
the loan. Member can borrow up to three times the amount saved.
This amount is referred to as the Maximum Credit Limit. No
withdrawal is allowed until the loan is repaid since the deposit is
taken as the security for the loan. The excess money deposited
after the loan would have been repaid, accrues to the depositor.

• Interest Rates
The interest charged on the loan is usually between 6.5% and 8
%, although some Non-governmental Institutions charges as high
as 36 % per annum.

3.2.7 Pre- Loan Training Programmes

Pre-loan training programmes re conducted for members. Training such

as record/book keeping, cash management, marketing skills and
techniques are organised for members.

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3.3 Elements of Micro Finance

3.3.1 Activities towards the Poor

• The poor needs a safe place to keep his money and as such he will
readily save money with the Micro Finance Institutions (MFIs).
• The poor also desired to have access to credit whenever it is
required.
• The poor needs to have a capital base of his business. This will
reduce his economic vulnerability. He can use the savings when
business falls. The money also becomes useful when the need arises
for some social obligation such as burial ceremonies, children
education.
• The procedure for savings, loan and withdrawal is simple and
convenient.
• The interest rate paid on the savings is high.
• Micro finance institutions help to develop the savings and thrift
ability of the poor.
• They enhance capital accumulation and capital building among the
poor.
• The poor is able to build capital for his own businesses through the
savings initiative of the Micro Finance Institutions.
• Improve self esteem of the poor.

3.4 The Benefits of Micro Credit or Micro Financing

• It is the source of capital for local private sector development. Most

of practitioners in this sector are low income earners and would need
assistance in order to expand their businesses. The Taiwanese
economic growth was propelled by a vibrant and buoyant private
sector. There are thousands of private industries in Taiwan, which
explains her tremendous growth.
• It provides capital requirement for small and medium enterprises
development
• It enhances the growth of micro enterprises. Most micro enterprises
are the suppliers of inputs, spare parts and other services to the large
scale business. So it provides expansion of suppliers of inputs and
services needed by the large scale business
• It creates new consumers and markets for business of all sizes
because it creates increased wealth for low income individuals
• It supports home improvement, home building in slumps and villages
through special savings and loans. Villagers are able to build their
houses and living apartments that are neat and decent, thus
improving their standards of living.

3.5 Reasons for Micro financing

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Mrs Abeni was a stock fish seller at Agege market. She started the
business by collecting the stock fish on credit from the wholesalers. She
had a box in which she keeps the profit. She has a husband who is a
transporter, so she needs to assist her husband in educating the children.
At the beginning of each school year, she will spend all her profit to buy
books, uniform and stationery for the children. This will bring down the
business. She will have to start again. This means that her business
succeeds or thrives only after the children are settled at school.

Baba Ade is a welder. He fabricates hand-net, which is required by fish

farmers. This additional item opens another market opportunity for him.
This will result in the expansion of his business and profit; but he has no
money to buy iron rod, nets and the machine that he needs for the
business.

Tola is a trained Vulcaniser. He wants to work in order to earn a living

but he has no workshop although he has the required machine. He got a
location along Garki road, but was told to pay N350, 000.

Alabi runs a business center. He has IBM typewriter. The number of

customers that come to his shop has reduced to the level that he can no
longer earn enough money to cater for himself. This is because most of
his customers prefer to type their document on the computer. He went to
a computer training school but was told to pay N94, 000 before he could
be trained.

Adeoye is a computer repairer, but he got fed up with the job and
wanted to become a poultry farmer. He went to a Management
consultant who asked him to pay N25, 000 in order for him to acquire
the knowledge he would need to raise poultry birds.

The different stories indicate the need for micro credit. These are:

• The need for the fund to start a business. For example,

Abeni had no money, and as such her business scale was small so
also her profit.

• Need for machinery, inputs, tools and equipment. For example;

Baba Ade had no money to buy the machine and other inputs he
needs to make the hand net.

• Office space/location for business. For example Tola had no money

to rent a space to be used as his workshop.

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• Capacity building/Training. For example: Alabi a typist needs to be

trained to use the computer. He needs further training or retraining.

• Skill acquisition. For example: Adeoye needs to acquire a new skill

in order to be able to carry out the new business he wants to start.

3.6 Benefits of Loan to the Beneficiary and Others

The benefit depends on the need of the businessman:

• Expansion of business
Abeni was able to expand her business. She was able to educate
her children, build a house and her standard of living improved.
She was able to stay healthy because she has money to eat
balanced and adequate diet.

• Acquisition of machine, tools, and equipment

Baba Ade got assistance to buy the machine, tools and equipment
as well as the required inputs to make the hand net. The hand net
was formerly imported by the fish farmer.

• Savings of foreign exchange

The local production of the hand net that was formerly imported
resulted in the savings of foreign exchange.

• Employment generation and Income generation

Baba Ade could not cope with the level of production so he had
to employ more workers. He created employment and guaranteed
income which his workers need to maintain their families.

• Increased activities of other workers

The use of local product for the production of the hand net also
increased the activity of the net weaver in Jankara. So Baba
Ade’s activity has led to increased activity of other people
(multiplier effect).

• Additional skill acquisition

Adeoye acquired additional skill. He was able to raise birds.

SELF ASSIGNMENT EXERCISE

1) List the benefits of micro credits to the beneficiaries.

2) Define micro credit financing.
3) What are the features of micro financing?

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4.0 CONCLUSION

In conclusion, the micro credit is expected to extend to those in the

informal sector to enable them contribute their quota to the economy by
being actively involved in the productive and service sectors. The
benefit that accrues to them will further expand economic activity and
thereby accelerate growth.

5.0 SUMMARY

Micro credit is a form of assistance extended to those in the informal

sector that is, business men who run micro enterprises. It does not
require the beneficiary to present any detailed accounting records or
collateral. It is meant for the poor who do not have the accounting skills
or have the money to employ the services of an accountant. Some
benefits accrue to the beneficiaries and the economy at large.

The money can be used for various activities that will lead to the
expansion of the business improvement in the standard of living and
income/employment generation.

6.0 TUTOR-MARKED ASSIGNMENT

Write short notes on the following:

1. Why did Abeni need micro credit?

2. What did Baba Ade Need?
3. What are the benefits of micro credit to the beneficiaries?

7.0 REFERENCES/FURTHER READING

Ehigiamusoe, G (1998). Understanding NGOS. Benin City: LAPO

Development Center.

UNIT 2 TRADITIONAL MICRO FINANCE PRACTICE IN

NIGERIA

CONTENTS

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ENT 201 MICRO CREDIT POLICIES AND
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1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Traditional Micro Finance Practice in Nigeria
3.1.1 Characteristics of Traditional Micro Finance
Practice
3.1.2 Savings Components
3.1.3 Group Components
3.1.4 Informality
3.1.5 Low Rates of Interest
3.2 Operations of Esusu
3.3 Requirement to be a Beneficiary
3.4 Advantages of ‘Ajo’
3.5 Disadvantages of ‘Ajo’
3.6 Limitation of Traditional Micro Finance Practice
3.7 Advantages
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Micro credit of micro finance is not a new package of financial services

to the Nigeria people. There have been traditional groups or set who
work together for the members’ benefit. Some of these groups provide
credit or savings services to their members. They have different methods
of operating in different communities. It is known as ‘Adashe’ in the
North, ‘Esusu’ or ‘Ajo’ in the south. Another variant is ‘safe group’.

2.0 OBJECTIVES

The aim is to explain the existence of traditional microfinance in Nigeria

before the advent of the modern Micro Finance Loan Scheme (MFLS).
Specifically, the learner should be able to explain the characteristics of
the Traditional Micro Finance (TMF) and the advantages and
limitations.

In most cases, it is a daily or weekly collection and the collector is

iterant, that is, he moves about to collect the money from the members.

3.0 MAIN CONTENT

3.1 Traditional Micro Finance Practice in Nigeria

3.1.1 Characteristics of Traditional Micro Finance (TMF)

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3.1.2 Savings Component

Savings is a very important aspect of the scheme. In Esusu’, members

agree on a specific amount to be contributed or saved at specific period.
Members are given loans from the pool. The loan can be a multiple of
the amount saved by the member. The credit a member is entitled to,
that is, the credit limit is determined by the amount of money saved.
Interest charged on the loan is very low.

The ‘safe group’ is a bit different in the sense that each member collects
the amount of money saved at the end of a specified period usually a
year. The saved money would be refunded to individual members.

3.1.3 Group Methodology

Groups are formed by persons on the basis of family ties, occupation,

professions or residential area or market place, e.g. farmers’ association,
hair dressers’ group. Some of these groups are involved in other
activities apart from credit services. These activities include religious,
cultural, and social activities.

3.1.4 Informality

It is an informal group, in both its operations and organization. The

groups are usually not registered under any statutory instruments.
Leadership structure and function are not very clearly defined. Most of
the laws and transactions are based on unwritten code. There are no
written laws that are followed or that guide their activities or operation.
It is peer pressure and communal norms that are applied in order to
check fraudulent practices.

Loans are granted without formal operational procedures and the cost of
transaction is therefore reduced.

3.1.5 Low Rates of Interest

Indigenous savings and credit group charge lower rates of interest on

credit facilities. Money lenders charge as high as between 240% and
360%, while the credit group charges between 36 and 60% per annum.
The low interest rate is explained by the following reasons
• Savers are usually the borrowers – Fund for loan is sourced
from the savings of the members who are paid little or no interest.
There is therefore no cost tagged to the fund. This is because
interest paid on loan is seen as a cost.

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• Low cost of operation – The mode of operation which is

uniform and of limited scope leads to low cost of operation. The
officials perform their duties without being paid and no money is
paid for office space and staff as known.

3.2 Operations of Esusu

It is a contribution made by a person to an itinerancy collector or banker.

The contribution which is usually a fixed amount is made either on daily
or weekly basis depending on the agreement.

'Ajo' encourages the development of the habit of savings. The savings

made can be collected at the end of the month or at a mutually agreed
time. At times, the depositor can make an appeal to collect her money
earlier if an urgent need arises, sometimes, when additional money for
business is required, you can also borrow from the 'Ajo' collector. This is
also a source of money for business.

Please be warned: Some 'Ajo' collector can make away with the
contribution, so be careful how you contribute.

ESUSU

It is a system whereby every member contributes some money

periodically. It is common among women especially in the rural area; in
spite of the level of illiteracy among them. Each member must love or
share a common interest. They could belong to the same social and
economic group e.g. same age group, occupational group, wives of an
extended family.

They pay a certain amount of money which is collected by one member

of the meeting. A minimum amount of money is stipulated to be saved
by each member but a member can save more than the minimum. Three
main officials are involved in the organization ‘Olori-egbe’ (the
president) is elected by virtue of age, or because of his social status, or
ability to manage people or ability to carry people along (Charisma).
The success of the people depends on the charisma of the President.
The ‘Akapo’ (the treasurer) is the next official to the ‘Olori-egbe’. She
is elected on the basis of the opinion of the members. She’s considered
to be thrifty and trusted with money. Next to the ‘Akapo’ is the
‘Asipa’ (Secretary or organizer). Her function is to inform members of
any social function and remind them of the meeting days. She organises
visit to function and gift to be given to members on occasion such as
memorial ceremony, burial, wedding ceremony etc. It is rotational since
it involves so much time and dedication.

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3.3 Requirement to Be a Beneficiary

• You must register and get a card for a fee usually a small amount.
• Daily or weekly contribution must be made.
• You must agree on the modality for payment.

Once you are a member and your contribution is regular, you are
entitled to your savings and you can apply for a loan. The terms of
repayment are usually not too stringent. You would need a guarantor
who in most cases would be a member of the group.

3.4 Advantages of 'Ajo'

• Encourages savings
• It is a ready source of credit for business
• It is a ready source of monthly income for the contributors
• It is a source of money for sudden or unexpected expenses

3.5 Disadvantages of 'Ajo'

• The collector sometimes runs away with the contributors' money

3.6 Limitation of Traditional Micro Finance Practice

Lack of Proper Record Keeping - Informality is a key feature of

indigenous savings and credit schemes. Proper records are not usually
kept. Accounting procedures are not put in place. Even where records
are kept, there are no provisions for scrutiny. It is therefore difficult for
them to keep a good track of the loan and saving rate. The groups
therefore have short life span as the members scatter. As a result of lack
of proper record, mistrust and infighting ensue.

Limited Number of Membership - The expansion of members is

limited because of the informality of organisational structure, and
procedures. Services are limited to small number of contribution. They
have no plant to expand their scope.

Absence of Legal Recognition – Existing financial laws and regulation

do not accord indigenous credit groups any recognition. Largely due to
their limited scope of operations, these credit groups do not consider it
necessary to press for recognition. They hardly enter into contractual
agreements with other institutions. They are deprived of adequate funds
from the capital market. The disbursement of loans to borrowers is done
at contributor’s risk.

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3.7 Advantages

- Provision of fund for the rural women

- Development of savings habit in the rural area.
- Expansion of business activities among members.
- Development of organisational skills among members.

SELF ASSESSMENT EXERCISE

1) Explain the organisational structure of the traditional

microfinance group.
2) Define Cooperative Association
3) What are the benefits of ‘Ajo’

4.0 CONCLUSION

The savings and credit scheme has been existing before the advent of the
MFLS. They have leaders who organise how money is given out for
loan, for the benefits of the beneficiaries.

5.0 SUMMARY

The savings and credit scheme is an advantage leading to the expansion

of business activities among the beneficiaries. It is a simple and informal
organisation but it impact among the members is immense. It becomes
possible for these people to have access to fund for business expansion,
and social activities.

6.0 TUTOR-MARKED ASSIGNMENT

List the advantages of traditional microfinance scheme

7.0 REFERENCES/FURTHER READING

Ogunleye B (1991). Lend Me a Hand. Redd Burna.

Olatunbosun D (1975). Nigeria Neglected Rural Majority. London:

Oxford University Press.

UNIT 3 SOURCES OF FUNDS (PART 1)

CONTENTS

1.0 Introduction

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2.0 Objectives
3.0 Main Content
3.1 Sources of Funds
3.1.1 Different Sources of Funds
3.2 Personal Savings or Owner’s Equity
3.2.1 Benefits of Owner’s Equity
3.2.2 Disadvantages of Owner’s Equity
3.3 Loan from Family Members
3.4 Deposits from Customers
3.5 Hire Purchase Finance
3.5.1 Benefit of Hire Purchase
3.5.2 Disadvantages of Hire Purchase
3.6 Cash from the Business
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Adeyori has a very good plan. He wants his children to be educated in

the best secondary school in town and to attend one of the best
universities. He needs money to get this done.

He started a business which was not expanding because his capital base
is small. Would he be able to fulfill his dream? He needs financial
assistance from friends, family members, association, government etc to
be able to expand his business.

2.0 OBJECTIVES

The aim of the unit is to identify the different sources of funds for the
business. At the end of the course, student should be able to:

• Identify the different sources of fund

• Explain the different sources of fund

3.0 MAIN CONTENT

3.1 Sources of Funds

I wonder if you had ever borrowed money from a commercial bank. If
yes, did you find it easy, quick and inexpensive? Did you have to pay a

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high price called interest for borrowing the money? I’m also sure you
were expected to bring some security or collateral, something valuable
before you were considered for the loan. How long did it take? Did it
entail a long period of waiting, phoning and visiting the bank? How was
the repayment schedule? Was it favourable? Was the paying back not an
ordeal? The repayment schedule is not flexible and neither is the interest
rate constant. Isn’t it? Brighten up; there are other ways of sourcing
funds for the business. Let us take a look at the various options.

3.1.1 Different Sources of Funds

All business firms need money for the financing of their plans. Each
would own some combinations of cash, equipment, building and other
properties referred to as assets.

The businessman needs to have an estimate of his financial needs both

for buying assets and variable inputs before starting the business. He
would need to answer the following questions in order to arrive at a
realistic capital requirement.

i Why do I need this capital?

ii How much do I need to spend on the project?
iii When do I need the money?
iv How long do I need the money?
v Where can I obtain the money?
vi How can I repay the money?

When a firm starts business, it requires funds to buy assets. Such funds
could be from the owner, the business and loans.

There are several types and sources of capital available to the

businessmen. Some are

• Long-term capital
• Medium capital
• Short-term capital

When you are in business you need to know where and how to get the
required funds for operating the business. You must have the required
capital before you start running the business.

The most important sources of funds are:

• Grant or borrowing from the family members or friends
• Getting money from the business (if it is an existing business)
• Loans (borrowing from Cooperative Association- Ajo or daily
contribution/Esusu contributions

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• Banks such as:

Community banks
Commercial banks
Specialized banks
Government agencies such as National Directorate of
Employment (NDE)
State Ministry of Commerce & Industry
• Non governmental organisations
• Others
Deposits from customers
Profit of the business itself
Hire purchase finance
Personal savings

3.2 Personal Savings or Owner’s Equity

No king would go to war without adequate planning, so no businessman

would start a business without some personal savings no matter how
small it is. The savings may be inadequate for the proposed business, so
there may be the need for the business man to source for money. This is
because the cost of the fixed assets, labor as well as inputs may be larger
than the personal savings. The businessman may have to resort to
assistance from friends and relatives.

Personal savings can be referred to as equity or the private money you

put into your business. Owner’s equity is called risk capital because as
the owner, you risk your money on the business. If the business fails, the
owner will lose the money.

If you invest your money in your business, the business becomes less
risky because in case of a failure, you will not have to pay back any
loan. The loss is limited to the owner’s equity. There would be less
pressure on the business than if the money had been borrowed. If it were
borrowed you would have had to make repayment and pay interest.

Investing your own money in your business is a risk but it shows that
you believe in your own business idea and that you have been prudent
with what you have. This makes it easy for others to lend you money.
The equity is evidence that you have enough faith in your business to
risk your own savings on it. Very often, most lenders insist that you
invest some of your own money in the business before they make theirs
available. Therefore, to reduce the risk in your business, it is good to
have some money to invest in it as owner’s equity or personal
contribution.

3.2.1 Benefits of Owner's Equity

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It is advantageous to the business man to contribute to his business

• The business becomes less risky

• He is prudent with the use of the fund
• He follows the most cost effective method of running the
business. He tries to buy the raw material and other inputs from
very inexpensive sources and employs labour that is relatively
cheap but efficient.

3.3.2 Disadvantages of Owner's Equity

• He may not be able to start the business as quick as he would

have wanted
• The business would be too small because of lack of fund for a
large time
• The business would not be expanded as fast as possible because
of lack of fund

3.3Loan From Family Members

An adage says ‘Heaven helps those who help themselves’. Family

members would be willing to help a member that has saved some money
towards a project.

In most cases it could be a gift, even if it is not a gift, it does not attract
an interest. It could be in kind or cash. It could probably be a machine
that is required by the business man or provision of an office space or
some money or house or land for farming activities.

3.4Depositors From Customers

Some firms make it compulsory for those buying goods from them to
deposit some amount of money before they can collect goods from
them. Others charge registration fee. These monies can be used to run
the business.

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3.5 Hire Purchase Finance

This is a medium term finance where the buyer is given an asset after he
has paid a deposit; the balance is paid on installment at agreed date and
amounts. The asset could be an equipment, vehicle, and machine.

However, the supplier will hold on to the title of the asset while the
buyer will take possession of the asset. This position holds until the
buyer has completed his payment. If he defaults, that is, if he can not
pay the outstanding balance, the seller can take possession of the asset.

3.5.1 Benefit of Hire Purchase

• The business man will have equipment, machine and other assets
he can not save enough money to buy.
• He would be able to start his business without waiting until his
savings are enough to start the business or buy the assets.
• He would be able to expand his business faster than the sole
reliance on his savings would allow.

3.5.2 Disadvantages of Hire Purchase

• He would lose his money, that is, the money he had paid to the
seller if he cannot pay the outstanding balance
• The business will collapse when the asset is taken from him as a
result of a default.
• The business is risky; this is because he must pay back with
interest.
• There is a lot of pressure on the business. He wants to make
enough profit so that he can meet the repayment and interest
schedule.

3.6 Cash From The Business

The source of money for an existing business could be the business itself
cash could be taken from one use to the other. Machines or other assets
can be sold and the money used for an important project of the business.
Some of the items which are assets of the business that can be changed
to money are listed below:

• Stocks of materials
• Stocks of goods ready for sale
• Goods in the process of being made
• Equipment and tools
• Motor vehicles

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• Buildings

These assets can be converted into cash by:

Assets Conversion to Cash

Material stocks i Turn into goods and sell the goods

ii The estimated quantity of stock

required for production can be kept
while the excess is sold

Work in progress The job will be completed half way

and sold. No effort must be made to
collect the money of the sold item so
that the fund can be used as required

Finished stocks Finished product would be sold as a

source of fund, the price being
reduced if required.

Money owed by customer Effort should be made to collect the

cash from the customers. Credit can
be extended to customers, but there
must be a limit or a period of grace;
otherwise non-payment of fund will
affect cash flow. This will present
some problems to the business man.

Machine and equipment The business man can identify under-

used or obsolete machine and sell or
lease them out.

Building The office plan and space can be

revisited and space utilisation can be
maximised. The excess space can be
rented out; if possible it can be sold

Ploughed back profit Businesses make profit. This profit

can be retained in the business and
used for its expansion.

SELF ASSESSMENT EXERCISE

1) What is owner's equity?

2) What are the benefits of owner's equity?

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3) List the sources of funds

4.0 CONCLUSION

In conclusion, equity participation shows that a businessman has faith in

his business and that makes it easier for him to have financial assistance
from individuals and corporate organisations. This will enhance
commencement and expansion of business venture. The business man
can also source for fund from friends, the business itself

5.0 SUMMARY

There are many sources of funds available to the business man. He can
save, collect loan or grant from family members or buy the asset on hire
purchase.

6.0 TUTOR-MARKED ASSIGNMENT

What are the benefits of owner's equity?

7.0 REFERENCES/FURTHER READING

Lawal, A.A, et al, (2000). Entrepreneurship Development in Small

Scale Business. Labson Resource Nig. Ltd.

Robinson, SP (1982)..The Management of Human Resources.

Englewood H.J: Prentice-Hall

Werther, W.B and Davies K. (1989). Human Resources and Personnel

Management. New York: Mc Graw-Hall.

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UNIT 4 SOURCES OF FUNDS: PARTNERSHIP AND

COOPERATIVE SOCIETY

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Partnership
3.1.1 Advantages of Partnership
3.1.2 Disadvantages of Partnership
3.2 Loans from Cooperative Associations
3.3 Cooperative Association
3.3.1 Short History
3.3.2 Role of Cooperative Association
3.3.3 Cooperative Principles
3.4 Cooperatives in Nigeria
3.5 Requirement for Membership
3.6 Advantages of Cooperative Society
3.7 Disadvantages of Cooperative Society
3.8 Cooperatives Banks
3.8.1 Cooperative Banking in Nigeria
3.9 The National Association of Cooperative Credit Unions of
Nigeria (NACCUN)
3.10 Cooperative Financing
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

In the previous Unit, we explained how money can be sourced using

owner’s equity, grant or loan from friends and family members and hire
purchase.

In this unit, we will look at sourcing of fund for business from

Partnership, Cooperative Association and Non-governmental
Organisations.

2.0 OBJECTIVES

The aim of this unit is to expose the students to the other sources of fund
apart from those discussed in unit 2. Specifically, the objective is that at
the end of this unit student would be able to explain the advantages of

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sourcing for fund from Cooperative Associations and Non-governmental

Organisations.

3.0 MAIN CONTENT

3.1 Partnership

A businessman can source for fund by going into partnership with a

person who is interested in investing in his business, or from
Cooperative Association or from Non-governmental Organisations.

If you do not have enough money to invest in the business you can look
for a partner who is interested in investing in the business. He may not
be involved in the day to day running of the business. He would only
make his money available for use. The partner should not invest more
than 50% of the total money required; otherwise he would have the right
to decision making which you the originator of the business would lose

3.1.1 Advantages of Partnership

• More funds than would have been provided by the sole owner
would be available for business use.
• The scope of the business would be larger
• The expertise of the partner in terms of advice, skill, and
knowledge would be available to the business.
• The goodwill of the partner would be extended to the business.
The partner may know a lot of people or marketers that will make
the marketing of the product easy.
• In case of business failure, the risk will be shared.

3.1.2 Disadvantages of Partnership

• The sole owner will lose his right to make decisions

• If one of the owners dies, it may lead to the end of the business
• There may be rivalry, if the profit sharing formula is not well
spelt out.

3.2 Loans from Cooperative Association

To get a loan means that someone lends you money. This loan must be
paid back with interest, which is the cost of taking the loan. The loan
can be paid back either at once or on installments depending on the
agreement reached with the lender. If money is borrowed to start or run
a business, there is always a lot pressure on the business and the owner
than when the owner uses his money. This is because you must make

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enough profit to pay back the loan and the interest. It could be difficult
for a small business especially if the owner is not financially prudent.

You can get loans from several sources depending on what you want to
use the money for. The discussion will be centered on the Cooperative
Association and Non-governmental Organisation.

3.3 Cooperative Association

Cooperative principles and structures have been applied to create access

to affordable credit facilities for persons of limited means.

Cooperative Associations consist of people who have common

objectives. They are mostly people of limited means, who voluntarily
come together on the basis of equality and equity for the enhancement of
their well being.

3.3.1 Short History

Robert Owen and Dr. Williams King laid the foundation of modern
Cooperatives. They opposed the exploitation of workers and introduced
policies encouraging workers to own their factories.

Owen fought for better working conditions for workers and stopped
child labour.

In 1844, 28 artisans started a consumer shop of their own as a group in

Rockdale town in Lancashire, England. The success of the Rockdale
pioneer as they are called led to the spread of the movement.

3.3.2 Role of Cooperative Association

• They come together in order to eliminate middle man who exploit

buyers or sellers and money lenders who charge high interest
• They do not aim to maximize profit like the private business man
• They emphasize meeting the need of the members effectively and
efficiently.

3.3.3 Cooperative Principles

Six principles of Cooperative Enterprises were approved at the congress

of International Cooperative Alliance in Vienna in 1996. Several
reviews have taken place since then. These principles are important to
the Cooperative Enterprise.

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• Membership of a Cooperative Society shall be voluntary and

available to all without any form of restriction or any form of
social, political or religion discrimination
• Cooperative Societies are democratic organisations. Officials
must be elected or appointed in a manner acceptable to them.
Each member is entitled to rights of voting. Decision taking must
be participatory and administrative roles shall be conducted in a
democratic manner.
• Share capital shall only receive a strictly limited rate of interest,
if any
• The economic benefit that accrues to the society belongs to the
members and would be distributed in such a way that nobody is
made better off while the other loses.
This is achieved based on the agreement reached by the members
as follows
• Provision for the development of the business of the cooperative
• Provision of common services
• Distribution of the profit among the members in proportion to
their transactions with the society
• The society will educate their members on the principles and the
economic and democratic techniques of Cooperation.
• All Cooperative Organisations shall cooperate with all other
societies whether locally, nationally or internationally in order to
achieve the best interest of the members.

3.4 Cooperatives in Nigeria

The Cooperative movement was introduced to Nigeria in 1926 by the

colonial officials. This was to enhance agricultural production. This is
not strange to Nigeria because Ajo, Esusu or Adashi had been in
existence in most communities before then. The Cooperative Ordinance
(law) was enacted in July 1935. Ibadan Cooperative Produce and
Marketing Society Limited became the first Cooperative Society to be
registered in 1936. The number has increased immensely since then to
thousands of group.

There are several types: Thrift and Credit Society, Producers

Cooperative Society or Consumer Cooperative Society.

3.5 Requirement For Membership

Some of these requirements are:

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• Payment of share capital which qualifies one to become a

member. The amount and number of shares is set by the
Association
• Monthly, weekly or bi-weekly minimum contribution or savings
• Compulsory attendance at meetings
• Other payments for membership card, levies etc

After becoming a member of the Cooperative Society for a period of six

month and if the record of attendance and contribution is good, it is
possible to apply for a loan. Most Cooperative loans are in multiple of
two or three of the contribution of the member. If the member has saved
a total of N20, 000, he can apply for a loan worth between N40, 000 and
N60, 000 depending on the policy of the society. The interest rate is low,
mostly between 1% and 2% while the repayment period is usually
between six to twelve months.
A lot of business have benefited from the Society.

3.6 Advantages of Cooperative Society

• It makes money available for business ventures or micro business

ventures
• It leads to the increase in business activities in the country
especially in the rural sector or among the poor.
• It leads to increase in Gross National Product
• The interests of the poor or those within the poverty bracket are
taken care of.

3.7 Disadvantages of Cooperative Society

• There has been cases of financial mismanagement and outright

embezzlement of the fund
• Embezzlement of the funds leads to loss of contribution of the
members; thus further impoverishing the poor
• Undemocratic practices to the extent that some members are
cheated and the principles of Cooperation are not followed.
• Favoritism, tribalism make the officials to give loan to those that
do not deserve it and side track those that are qualified.

3.8 Cooperative Banks

A Cooperative bank is a central cooperative unit in the business of

financing. It provides opportunities for cooperators and cooperative
societies for savings mobilization and credit facilities. Their operational
procedures and requirements are expected to be sensitive to peculiar

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financial needs of cooperative societies. The capital for such banks are
sourced and managed by the cooperators and the cooperative societies.

Cooperative banking was initiated in Germany in the 19th century. It was

pioneered by Raiffeisen and Schulze – Delitzsch. Raiffeisen worked
with debt-ridden peasant farmers while Schulze – Delitzsch worked with
the urban poor who were mostly traders and artisans. The banks run by
Raiffeisen were rural based and most of the customers were rural based
organization. It provided credit facilities to farmers for productive
purposes. The success of these experiments led to the establishment of
several Peoples’ Banks and Agricultural Banks. Cooperative Banks
played significant roles in the acceleration of the development of the
German economy during the period of industrialization.

In France, Peoples’ bank (Banques Populaires ) have since 1878 been a

catalyst to economic growth by providing financial services to the
SMEs. It also plays such a vital role in Britain. India is a country that
has given a prominent role to the application of cooperative principles in
financing. She has several specialized Cooperative Banks which focus
on Small scale industrial development in all the sectors including
consumer financing.

3.8.1 Cooperative Banking in Nigeria

The first Cooperative bank in Nigeria was the Cooperative bank

Limited. It was registered in 1953 as a central financing society. This
was facilitated by a grant of N2million given to her by the government
of the then Western Region of Nigeria. It was the major source of
affordable loan to cooperators and their societies. It obtained the license
to operate as a commercial bank in 1962.The major consideration for
this shift in legal status was to enable the bank to have access to public
savings and a greater volume of business transactions.

The Cooperative Bank of Eastern Region was established through the

instrumentality of the Cooperative Union of Eastern Nigeria Limited.
The bank was a financing unit of the cooperative movement in the
region. The bank began operations with a capital of 590 pounds
augmented by a grant of £10,000 from the Eastern Region government.
It also obtained a license to go commercial in 1962. It was not until
1973 that a commercial bank was established in the Northern Region. It
was initially called North Central Cooperative Bank Limited but was
changed to Kaduna Cooperative Bank Limited. It was licensed to
operate commercial banking as well as provide services to cooperative
institutions. It later became the Universal Bank Limited while the
Cooperative Bank of Eastern Nigeria transformed into the Cooperative
and Commerce Bank Limited, which became distressed in the mid

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1990.The acquisition of commercial bank status by the Cooperative

Banks constrained their impact as channels of microfinance services in
Nigeria. They adopted traditional banking practices, which inhibit the
access of persons with limited funds and collateral to credit services.
They neglected the farmers and other informal sector practitioners.
Business with cooperative credit societies and unions especially in the
rural areas was regarded as unprofitable, as a result of which the credit
union lost a reliable source of loan-able funds. The Nigerian
Agricultural and Cooperative Bank were established in 1973 in order to
take care of these lapses.

3.9 The National Association of Cooperative Credit Unions

of Nigeria (NACCUN)

NACCUN is an offshoot of the Nigerian Cooperative League

established in 1970 as the apex for Cooperative Thrift and Credit
Societies and Unions in Nigeria. It was registered in 1978. It also
represents the Nigerian Thrift and Credit Cooperative units in
International Organizations such as Africa Cooperative Savings and
Credit Association (ACOSCA) and the World Council of Credit Union.

The objectives of the Union include the following:

• Mobilisation of funds for loans to its affiliates that are

Cooperative Thrift and Credit Societies in Nigeria
• Promotion of Cooperative Thrift and Credit Societies in Nigeria
• Provision of technical and operational support to Cooperative
Thrift and Credit Societies in Nigeria
• Training and personnel development services Cooperative Thrift
and Credit Societies in Nigeria
• Coordination of activities of State financing Cooperative apexes

3.10 Cooperative Financing: An Assessment

The establishment of the Peoples’ Bank, Community banks as well as

the increasing number of Non- Governmental Organisation who are into
micro financing is an indication that the Cooperators has lost faith in
the Cooperative movement as a viable microfinance structure. It is
actually regarded as a confirmation of the failure of cooperative
financing. Many Cooperators in rural areas claim that cooperative
financing both in volume of activities and impact has declined. Several
explanations have been put forward. These include the following:

• Officialdom: The introduction of Cooperative movement to Nigeria

was not people driven. It was not at the request of the people. The
socio-economic condition, which prompted the Rochdale Pioneers to

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act for themselves, was absent. The need for modern Cooperative
enterprises never came from the people. Farmer had already
organized themselves into associations such as Ibadan Agricultural
Society (1904) and Agege Planters’ Union (1907). The introduction
of the movement was solely the initiative of the Colonial masters.
The aim was to enhance efficiency in the production and their
exploitation of the producers. The Cooperative movement was
placed under the exclusive control of the Colonial officers in order to
achieve their aim.

The Cooperative Societies Ordinance (1935) and the Cooperative

Regulations (1936) gave wide ranging powers to the Registrar of
Cooperative Societies, who was a Colonial government official. He
had the power to promote Cooperatives societies, to register, inspect
arbitrate, elect officials, audit appropriation of operational surpluses
as well as the dissolution of cooperative societies. Most of the
business decisions were also taken by him.

It is interesting to note that the various present Cooperative

Societies’ laws in various States of Nigeria are not significantly
different from the Cooperative Societies Ordinance of 1935.
Cooperatives Societies are treated as appendages or parastatals of
government. The desire of the officials rather than those of the
Cooperators are carried out. This is against the Cooperative ethics of
democratic control and the policy of non- interference by
government. IT is a common practice for government officials to be
appointed as the Sole Administrators of Cooperative Apexes and
Central Financing Agencies. This resulted in the stifling of the
initiatives of the Cooperators. This is further compounded by the fact
that the Societies depend on government for financial support. Later,
the State and Regional governments capitalized the Cooperative
Banks and the Central Financing Agencies. It was therefore easy for
political leaders and government officials to alter the mandate and
status of these banks and agencies without recourse to the
Cooperators.

As the resources of governments decline especially in the 1980s, the

fortunes of the Cooperative movement also dwindled. The then
proposed Bendel State Bank project could not come to fruition
because the government could not finance.

However, the traditional banking practices of commercial banks are

not sensitive to the features and needs of small businesses of
Cooperators especially farmers. Periodic credit guidelines drawn up
by the Central Bank and which these transformed Cooperatives
banks must adhere to ignore the need of Cooperative Societies.

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These banks demanded for collateral and treated rural banking as

being unprofitable. Cooperators and Cooperative Societies can not
compete with the private sector for the services of these banks; the
government has evolved a rural based, poor people friendly bank in
the name of Nigerian Agricultural, Cooperative and Rural
Development Bank

SELF ASSIGNMENT EXERCISE

Define Cooperative Association

What are the benefits of ‘Ajo’

4.0 CONCLUSION

In conclusion, the economic capacity of the rural poor, the low income
earner can be enhanced by the activities of the Cooperative Societies.
The activities of this Society also lead to national economic growth and
a ready source of fund to the business man.

5.0 SUMMARY

Partnership and Cooperative Societies are other sources of getting

financial assistance for the purpose of establishing or expanding a
business venture. They both have advantages and disadvantages. Care
should be taken either to invite a partner or become a member of
Cooperative Societies.

6.0 TUTOR-MARKED ASSIGNMENT

1. Discuss the advantages of Cooperative Societies

2. Partnership is a dependable source of fund and it guarantees
permanence of business. Discuss

7.0 REFERENCES/FURTHER READING

lian Press

Oyedipe, F.P.A (1996).The Outstanding Success of Cooperative

Movement. Ilorin: Dabot Publication

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CONTENTS

1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Non-Governmental Organisation
3.1.1 Features of Non-Governmental Organisation
3.1.2 Peculiar Characteristics of their Beneficiaries
3.1.3 Smallness of the Loan or Credit Facility
3.1.4 Adoption of Credit plus Approach
3.1.5 Focus on Rural Women
3.1.6 Group Delivery Methodology
3.2 Advantages of Group Methodology
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Non-governmental Organisations (NGOs) are some of the Institutions

which are involved in Micro financing.

NGOS are corporate bodies that are concerned with addressing needs
and problems or are interested in promoting a cause or an ideal. They
provide solutions to problems of people in communities, or a group of
people in the community. The problems could range from poverty
alleviation, provision of credit and farming inputs to civic education,
sustainability and protection of the environment.

2.0 OBJECTIVES

The aim of the unit is to explain the role of the NGOs in micro credit
financing. Specifically at the end of the unit, the learner should be able
to:

• Define an NGO,
• Explain features and
• Role of micro credit financing

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3.0 MAIN CONTENT

3.1 Non-Governmental Organisation

3.1.1 Features of Non-governmental Organisation

NGOs have some features that are peculiar to them. They are discussed
below:

3.1.2 Peculiar Characteristic of their Beneficiaries

NGOs Venture into Micro Financing

NGOs venture into micro financing stems out of the desire to provide
credit to a large portion or percentage of economically active population
who are excluded from benefiting from the financial services of the
banks or financial institutions of the formal sector.

The beneficiaries are mostly small or micro business owners who are
mostly in the informal sector. They could be in businesses such as shoe
mending, retail selling, pepper/tomato selling, agro-allied food
production and farming. They are generally classified as the poor or
small business owners.

Most of the micro enterprises are owned and run by the sole proprietor
or entrepreneur. He provides the fund for the business.

Most of the beneficiaries have little or no education and lack modern

skills. They also have little knowledge about record keeping, planning,
cash management and other modern management techniques. Women
constitute a higher percentage of the beneficiaries. These women are the
vulnerable group who can not afford the collateral requested by the
formal banks.

They are mostly rural dwellers who have suffered the neglect of
government in terms of Infrastructural and financial services. Even
when credit facilities are made available to them, it is moistly diverted
by the smart and better educated urban dwellers. Most banks also
consider rural banking as unprofitable. The overall development
strategies give little attention to the rural areas and the rural dwellers.
The NGOs, therefore sought to redress this rural neglect.

3.1.3 Smallness of the Loan or Credit Facility

The financial need of the micro enterprise is very low. A loan of as

small as N10, 000 can change the business volume and profitability of a

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micro enterprise. In spite of the fact that the loan is small, each
beneficiary must have proper record with the NGO. This will make the
cost of processing the loan to be high. In order to solve this problem,
group delivery methodology is used for both the savings and loan
operation.

3.1.4 Adoption of Credit Plus Approach

NGOs look beyond credit provision. They also take care of the total
well being of the people. So they train them in the area of health care,
skill enhancement, technological transfer, reproductive health, skill
acquisition etc.

3.1.5 Focus on Rural Women

They concentrate on rural women who are mostly farmers, and petty
traders. Some of the NGOs have their head office in the urban centers
but maintain operational branches in the rural communities so as to be
close to their people.

3.2 Group Delivery Methodology

Beneficiaries are encouraged to form a group or a cooperative society.

Pre-loan training programmes are conducted for members. Training
such as book-keeping, cash management, marketing skills and
techniques would be organized for members. The usage of the loan,
monitoring of the savings and repayment of loan are done at group
meetings. However, the individual is held responsible for the utilization
and repayment of the loan. It is also possible for a group to take a loan
together for joint business.

3.2.1 Advantages of Group Methodology

Group delivery methodology has some advantages. These are:

• Reduction of the cost of landing. The repayment is done at the

meeting rather than with the individual loanee
• Aids credit discipline and high member of repayment - The group
exacts pressures on its members to pay up so that they would not
be disqualified from having access to further loan.
• Solidarity among borrowers – There will be cordial relationship
between members.
Absence of Collateral Requirement – The loanees are not
required to present any guarantee towards the loan. They are
given on trust.
• They develop the savings and thrift ability of the poor.

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Loanees are encouraged to make regular deposit with the

institution or credit group. Some groups expect them to make
some savings before credit can be collected. The amount of
money saved can be considered as a withdrawal security for the
loan. Members can borrow up to 3 times amount he has saved;
amount he can loan is referred to as the maximum credit limit.

He would be allowed until the loan is repaid. The excess money

deposited after the loan would have been repaid accrues to the depositor.

• Low Interest Rates

The charge interest on the loan of lent to the people. It is
expected that it will be below the price charged by the
commercial banks. They record a high rate of repayment.
• The activity of NGO increases the well-being of the poor.
Beneficiaries are able to expand their business as a result of the
credit facility afforded them by the group. This will increase their
profit level as well as the disposable income; thus increasing the
consumption level and the standard of living of both the women
and their children.
• They enhance capital accumulation and capital building among
the poor.
The poor are able and build capital for their own business through
the savings initiative of the NGO
• Improved self esteem of the poor
Income generation among the poor
They bridge the gap that is created by the demands of the formal
financial institutions that, cannot meet the credit need of the poor.

SELF ASSESSMENT EXERCISE

1. What are the characteristics of NGO?

2. List the benefits.

4.0 CONCLUSION

NGOs have contributed to the development of the vulnerable group.

Most rural dwellers have embarked on micro businesses as a result of
their activities

5.0 SUMMARY

The NGOs have been able to bridge the gap created by the inability of
the convectional banks to assist the vulnerable group. This has created
some jobs and led to the improvement of the standards of living of these
groups of people.

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6.0 TUTOR-MARKED ASSIGNMENT

1. Explain the characteristics of an NGO

2. Define an NGO

7.0 REFERENCES/FURTHER READING

Ehigiamusoe, G (1998). Understanding NGOs. Benin City: LAPO

Development Center.

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MODULE 2

Unit 1 Government Policies

Unit 2 Traditional Micro Finance Practice in Nigeria
Unit 3 Sources of Funds (Part 1)
Unit 4 Sources of Funds: Partnership and Cooperative Society
Unit 5 Non-Governmental Organization in Microfinance

UNIT 1 GOVERNMENT POLICIES

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Government Policies
3.1.1 Definition of Policy
3.1.2 Need for Micro Finance Policy
3.2 Different Government Policies
3.2.1 The First Effort to Promote Micro Enterprises
3.2.2 Small Scale Industries Credit Scheme (SSICS)
3.2.3 Small and Medium Enterprises Loan Scheme (SMELS)
3.2.4 Employment Creation Loan Schemes
3.2.5 Agricultural Sector Employment Programme
3.2.6 Mature People’s Scheme
3.2.7 Agricultural Credit Guarantee Fund Scheme (ACGS)
3.2.7.1 Feature of the Scheme
3.2.8 Entrepreneurship Development Programme (EDP)
3.2.9 Second National Fadama Development Project (NFDPII)
3.2.9.1 Pre-requisites for Participation
3.2.9.2 Benefits to Fadama Users
3.2.9.3 Project Implementation Strategy
3.2.10 Small and Medium Enterprises Development Agency of
Nigeria (SMEDAN)
3.2.11 Multi Partner Matching Funds Scheme (MPMF)
3.2.12 The Promise Keepers’ Scheme
3.3 Advantages of the Various Policies
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

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1.0 INTRODUCTION

As a father or a mother, you have set rules that you follow and also
expect your children to do likewise. Some people do not buy “aso-ebi”.
Some do not attend night parties or eat outside the home. These set of
actions can be referred to as policies. They have been well-articulated
and thought out by the individual, who is aware of the consequences. A
nation also has such plan of action geared towards achieving some
specific objectives.

2.0 OBJECTIVES

The objective of this unit is to explain the various policies that have
been put in place by the government in order to address the issue of non-
availability of credit to the informal sector or the SMEs. Specifically,
the learner is expected to be able to define policy and explain the
various policies put in place by the government.

3.0 MAIN CONTENT

3.1 Government Policies

3.1.1 Definition of Policy

A policy is a statement or plan of action put in place in order to achieve

specific objective. It could be target specific or a plan meant to benefit
the whole economy.

Government, having identified lack of capital as an important reason for

both the failure and low number of Micro or Small Scale Enterprises,
put in place several programmes and policies to address the situation.

3.1.2 Need for Micro Finance Policy

A robust economic growth can be achieved if a well focused poverty

alleviation programmes are put in place. These programmes must be
articulated in such a way that people would have access to factors of
production and credit. The latent capacity of the poor for
entrepreneurship could be enhanced by the provision of micro finance
services, which will enable them to engage in economic activities and be
self sufficient. It will also lead to increase in employment opportunities
in the economy.

Over 65% of the economically active population that are precluded from
formal financial services provided by the conventional banks could
benefit from the programme. Furthermore, the policy on microfinance

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will make it possible for the informal sector to be brought under the
supervision of the Central Bank of Nigeria (CBN), thus making it
possible for the achievement of monetary stability and the expansion of
financial infrastructure in the country to meet the financial requirement
of the Micro, Small and Medium Enterprises (MSMEs). A vibrant
microfinance sub- sector would evolve and it would be integrated into
the main stream of the national financial system and provide the
stimulus for growth and development. It would also harmonize
operating standards and provide a strategic platform for the evolution of
microfinance institution promote appropriate regulation, supervision and
adoption of best practice.

3.2 Different Government Policies

3.2.1 The First Effort to Promote Micro Enterprises

The first effort to promote micro enterprises started in the early 1950s
with the establishment of the Colonial Development Loans Board by the
Colonial Administration. This was later replaced by the Revolving
Loan Fund for Industry which came as space of the technical assistance
from U.K for the Small-Scale Industries Credit Scheme (SSICS). State
and Federal Governments also contribute to the purse of the SSICS for
on-lending to small entrepreneurs. The government first spilt out
policies that will enhance the development of Small Scale Enterprises
(SSE).

In the Second National Development Plan (1974), the government stated

some policies that will initiate credit scheme for the SSE. The States
incorporated the Small Scale Industries Credit Scheme (SCICS) in their
second National Development Plan (1975). In other to further enhance
the growth of SMES, government promulgated the Nigerian Enterprise
Promotion Act and later the Nigerian Enterprises Promotion Decree
(NEPD in 1977). This policy exclusively reserved indigenous equity
participation of between 40% and 60% for Nigerian. That is, Nigerians
should own up to between 40% and 60% of the share or capital in a
company.

In 1980, the Federal Government released a policy paper titled

“Nigerian Industrial Policy and Strategy Guidelines to Investors”. The
policy aims at opening up the rural areas in the country and creates
remunerative employment for the people. The Industrial Development
Centers (IDCs) are the major Institution (outlets) for the achievement of
the government survival. Several Polices have been put in place since
1980s. Some of them are discussed below.

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3.2.2 Small Scale Industries Credit Scheme (SSICS)

This scheme was initiated to provide financial support to viable Small-

Scale Enterprises (SSE). The main objective was to empower SSE to
produce or process inputs for larger industrial enterprises. The major
features of the SSICS are:

• Funds for the scheme were provided by both the state and federal
governments.
• The rates of interest were lower than the rates in the financial
market.
• The beneficiary would not start to pay back the loan until after
two years, that is, a moratorium period of two years.

3.2.3 Small and Medium Enterprises Loan Scheme (SMELS)

The objective of this scheme is expansion and productivity enhancement

as well as capital acquisition. It also aims at the sustainability of the
enterprise, that is, it provides fund to make the company produce at a
sustainable level.

The scheme had the following features:

• The fund was provided by the International Bank for Reconstruction

and Development. The fund was handled by the Federal
government.
• The Small and Medium Enterprise Unit of the Central Bank of
Nigeria handled the administrative procedure.
• The raw material for production should be locally sourced; that is, it
must not be an imported raw material.
• Beneficiaries must contribute 45% of the total cost of the project.
• The credit facility would last for 10 years.

3.2.4 Employment Creation Loan Schemes

This scheme was put in place in order to reduce the effect of the
Structural Adjustment Programme (SAP). The aim of the scheme was
to create jobs for a large army of the unemployed people especially the
youth. The beneficiaries were to access loans guaranteed by the federal
government from some banks. The amount of the loan is between N5,
000 and N50, 000. It was called Job Creation Loan Guarantee Scheme.
It was administered by the National Directorate of Employment (NDE).
The beneficiaries were requested to –

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• use as security, the original copy of their academic certificates.

This would be deposited with the HDE
• give the NDE a detailed feasibility study report in the project to
the bank for approval;
• present two acceptable guarantors;
• the interest rate is as low as 13%.

The NDE also have schemes such as National Open Apprenticeship

Scheme (NOAS) and the Basic Business Training Scheme under the
NOAS, interested youth apply to the NDE for the Apprenticeship
Scheme. The youth is assigned to a practicing artisan or technician to
acquire knowledge and expertise in the vocational skill of his choice.
He is paid some stipend and given some money and machine at the end
of the training.

3.2.5 Agricultural Sector Employment Programme

The aim of the programme is to provide employment for school leavers.

Those interested are given relevant training in their area of choice and
provided with land and loan to start the farming business. Each state has
an NDE Agricultural Programme Committee which is in charge of the
programme.

3.2.6 Mature People’s Scheme

This scheme is for retired persons or those about to retire. The aim of
this scheme is to provide employment for the retirees after they have
disengaged from regular work.

The features include:

• The beneficiaries submit proposals which are scrutinized for

viability.
• Beneficiaries are to present items such as landed property or any
other security to cover up to 50% of the loan size.
• Beneficiaries are to employ at least a graduate of higher
institution of learning.
• The interest rate is as low as 9% per annum.

3.2.7 Agricultural Credit Guarantee Fund Scheme (ACGS)

By 1977, government aimed at sufficiency in the production of food and

agricultural raw materials. In order to achieve this, it was important to
encourage the smallholder farmers. The farmers would need some

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money in order to accrue this. The government therefore established the

ACGS by decrees.

The aim of the government was to guarantee loans granted for

agricultural purposes by any bank. The guarantee covers both the
principal and the interest. The agricultural activities covered include
cultivation of food crops such as cereals, tubers, beans, groundnuts,
bananas, pineapples, plantain, vegetable and fruits of all kinds. Others
are cash crops such as cotton, rubber, palm oil, tea, coffee. Those who
are interested in animal husbandry such as poultry, piggery, cattle and
fish farming could also benefit.

3.2.7.1 Feature of the Scheme

• Beneficiaries apply to Conventional Banks. Prospective

Beneficiaries would apply in triplicate a loan under the scheme to
a conventional bank. The bank would forward a copy to the
Central Bank.
• Demand for security: The bank would request the prospective
beneficiary to provide security which could be any of the
following:
- A more able property of the people requesting for a loan
(he is referred to as a loanee)
- A life insurance policy, a promissory note
- Registered place of land, landed property
- Stocks and shares of the loanee
• Mode of Disbursement: The process period is to be a maximum
of sixty days. The fund for the purchase of items such as
livestock, plant, machinery and any other farming equipment
would be disbursed to the supplier.
• Sanction against Loan Diversion: It is a criminal offense to use
the loan for another project. The punishment is a repayment of
the amount of money got as loan and/or imprisonment for a
maximum period of five years.
• Regulated Interest Rate: The interest rate was fixed and
stipulated in the decree. It was 5% and 6% for individual farmer
and cooperative societies respectively.
• Extent of guarantee. In case of a default, the guarantor and the
security of the loanee would be reverted to in order to recover the
loan. The outstanding amount could be recovered from the Board
of the Fund. The Board could pay up to 100% of the outstanding
amount.
• Operational Structure: There is a Board which is made up of six
members, four would be appointed by the Federal government
and remaining two by the Central Bank.

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• Management of the Scheme: The Central Bank is responsible for

the day to day running of the scheme while the implementing
agents were the Commercial Agricultural Banks and Cooperative
Banks.

3.2.8 Enterpreneurship Development Programme (EDP)

This is another Scheme under Small Scale Industrial Programme. This

is organized by the NDE with the aim of developing enterpreneurial
skills among Nigeria. Those who apply for loan or any other service
under the Small Scale Industrial Scheme are exposed to intensive
training. The courses cover business identification, market research,
feasibility studies, record keeping, loan assessment, business
management, marketing etc.

3.2.9 Second National Fadama Development Project (NFDPII)

The NFDO.II was conceptualized by the World Bank/Federal

Government with the active involvement of the state and local
governments. The objective of the project is to accelerate the
development and growth of dry season farming and agro-allied
processing and marketing activities. The finance is sourced from a $100
million World Bank Credit with the three tier of governments paying
some counterpart funding which is a pre-condition set by the World
Bank for effective take-off of the project.

It is also aimed at increasing the incomes of those who depend directly

or indirectly on Fadama resources, that is, farmers, pasture men, fisher
folks, hunters, gatherers, and service producers, through empowering
communities to take charge of their own development agenda.

The group also includes the vulnerable groups like widows elderly,
ethnic minority, orphans. It is expected that at the end of the duration,
50% of the beneficiaries would have their real incomes increased by
20% of the baseline income.

3.2.9.1 Pre-requisites for Participation

- Most of the rural dwellers are potential Fadama Resource Users

(FRU)
- A potential Fadama user would be involved in farming activities,
agro-allied processing and agro service providers which includes
vulnerable groups like widows, elderly, and orphans.
- A potential Fadama User would belong to a Fadama User Group
(FUG) which would be a minimum of 5 members.

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- Five user groups would organize themselves into a Fadama

Community Association (FCA)
- Each member would be engaged in a project
- Each FCAs would articulate, plan and cost a project which is
called the Local Development Plans (LDPs).
- The FUG and FCA must be registered as Cooperative
Associations.
- Facilitators at SFDO will assist the FUG and FCA to develop the
LDPs.
- The FUG and FCA must be linked up with the State Fadama
Development Office (SFDO), which in most cases is resident in
the Agricultural Development Authority Complex (ADA)
- FUG and FCA would open an account and would save 40% of
the cost of the project; the remaining 60% would be given by the
World Bank through the SFDO.

3.2.9.2 Benefits to Fadama Users

• Financial Assistance
The Local Development Plan inoculated by the FCA, would be
financed by the fund in the pool.
• Provision of input, equipment
Vital production input and equipment would be provided by the
World Bank
• Training FUG members would be exposed to better training in the
handling and management of their assets
• Provision of processing and storage facilities
These facilities would be provided in order to minimize post
harvest losses and to create value added to outputs.
• Provision of Infrastructure
Infrastructure such as good access to farm roads, water supply
system including irrigation and power support system generator,
water pumps would be provided.
• Means of transportation
Transport vehicles would be provided for easy haulage of farm
produce to markets.

3.2.9.3 Project Implementation Strategy

The project has six years tenure effective from January 2004 to
December 2009. The NFDP.II is based on a Community Demand
Driven (CDD), approach whereby all users of FADAMA resources will
be encouraged to develop participatory and socially inclusive and
environmentally sustainable Local Development Plans (LDPs).

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A Local Development Desk (LDD) would be established at the

headquarters of the participating Local Government Council, Manned
by two trained Local Government Personnel: an Agricultural Officer
and a Monitoring and Evaluation Officer.

The LFD would be over-seen by a constituted local Fadama

Development Committee (LFDC) comprising of:

1. The Chairperson of the Local Government Council as Chairman

2. A Traditional Community person as Deputy Chairman
3. FCA representations
4. Others (Private Sector, NGO and Local Women’s Groups)

The LFDC is responsible for monitoring community mobilization offer

and making sure that the needs and priorities of FUG and FCA are
reflected in the Plans (LDPs)
Direct purchase of the required item is done through the SFDO. Cash is
rarely given to the beneficiaries.

3.2.10 Small and Medium Enterprises Development Agency of

Nigeria (SMEDAN)

3.2.11 Multi Partner Matching Funds Scheme (MPMF)

This scheme was instituted by the National Poverty Eradication

Programme (NAPEP). The fund available for loan is sourced from
banks and the purse of the state’s government. The monies collected
under MPFS are kept with the banks. The banks will pass the monies to
Micro Finance Institutions and Cooperative societies from which it will
be accessed by the potential beneficiaries. Once the beneficiaries are
identified and selected, the NAPEP partners with the National
Directorate of Employment and Small and Medium Enterprises
Development Agency (SMEDAN) train the beneficiaries on how to set
up their businesses, basic accounting procedures, record keeping etc.

Eight states are benefiting from this scheme. These are Bayelsa, Rivers,
Kaduna, Osun, Edo, Ogun, Kogi and Akwa Ibom. Other states will be
involved in due course. A total of N4.32 billion has been pooled and it
is expected that it will create about 113,000 jobs.

3.2.12 The Promise Keepers’ Scheme

This scheme was instituted by the National Poverty Eradication

Programme (NAPEP). It is executed in collaboration with religious
organizations. The various organizations are expected to identify the
poor ones among them. They are categorized according to their needs.

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The needs are monetized and members who are willing to sponsor the
needy are identified within the organization. The needs could vary from
skill acquisition to financial or managerial skill to technological skill
acquisition.

The groups are monitored by both the members of NAPEP and the
religious organization. This makes the beneficiary faithful to the use of
the fund. The repayment rate is expected to be high since the monitoring
is close.

3.3 Advantages of the Various Policies

Policies are geared to the achievement of specific macro economic

objectives. Government wants to achieve self sufficiency, mostly in
food production and a very low rate of unemployment as well as
inflation rate. In a developing economy like Nigeria, where savings, and
therefore, loanable fund and capital are scarce, there is the need for the
government to provide a means of sourcing credit for the majority of
the people who are mostly poor rural dwellers. This credit if truly
accessed and utilized by the poor would lead to economic growth as
well as development. The standard of living of the poor would improve.
This will have impact on the quality of life of the children and the
community at large.

SELF ASSESSMENT EXERCISE

List the Schemes under the NDE.

4.0 CONCLUSION

In conclusion, government has put in place several policies to enhance

the performance of the Small and Micro enterprises by making Micro
Credit as well as make other facilities and services available to them.
Some Institutions were empowered to manage the scheme. These will be
discussed in the next unit.

5.0 SUMMARY

The government, in an effort to achieve expansion and productivity

enhancement has put in place some policies, which focused on the
provision of micro credit to the poor, training in basic business skills,
and the provision of tools, equipment and machinery. The beneficiaries
are however expected to contribute a certain percentage of the loan
applied for. They are also expected to present guarantors or collateral of
some sort. These schemes are designed to be poor- centered; those who
have been side tracked by the conventional banks.

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6.0 TUTOR-MARKED ASSIGNMENT

1. Why did government set up Micro Credit Scheme?

2. What are the factors of Agricultural credit Guarantee Fund
Scheme (ACGS).

7.0 REFERENCES/FURTHER READING

Loucks, K. (1990) Training Entrepreneurs for Small Business

Creation. Geneva: International Labor Office.

Rudelius W, Erickson W.B and Bokula W.J (1976). An

Introduction to Contemporary Business. New York: Karcourt
Jovanovith.

Handerson C, (1986). The Successful Entrepreneur Strategies

New York: Mac Graw Hill Inc.

Pearse II, J.A and Robinson R.B, (1986). Entrepreneur Behavior.

Academy of Management Proceedings.

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UNIT 2 MICRO FINANCE INSTITUTIONS (PART 1)

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Micro Finance Institutions
3.1.1 Industrial development Centers (IDCs)
3.1.2 National Directorate of Employment (NDE)
3.1.3 The Federal Institute of Industrial Research
(FIIRO)
3.1.4 The Nigeria Association of Small Scale
Industrialist (NASSI)
3.1.5 Nigeria Association of Chambers of Commerce
Industry, Mines and Agriculture (NACCIMA)
3.1.6 Nigeria Opportunities Industrialist Centre (NOIC)
3.1.7 The Nigeria Export-Import Bank (NEXIM)
3.18 THE Natural Development and Conversation
Scheme (NRDCS)
3.19 The Nigerian Association of Women
Entrepreneurships (NAWE)
3.1.10 The Nigeria Store Products research institute
3.1.11 Standard organization of Nigeria (SON)
3.2 Advantages of these Institutions
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Some institutions are not particularly involved in micro credit financing.

Some of them provide counseling, training and consultancy services for
entrepreneurs. Some of these agencies which are spread throughout the
country are discussed below.

2.0 OBJECTIVE

The objective of this unit is to discuss some agencies that provide

professional advice to the SMEs. At the end of the study, the student
should be able to list the agencies and explain their activitie.

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3.0 MAIN CONTENT

3.1 Micro Finance Institutions

3.1.1 Industrial Development Centers (IDCs)

The IDCs was set up in 1980 with the aim of providing technical
support for industrialists. The services are performed free of charge. The
activities are as follows:

• Technical appraisal of loan application and preparation of feasibility

studies
• Training of entrepreneurs and staff including managerial training
• Application of the output of industrial research in the design of
products for small-scale industries
• Provision of extension services to owners and managers of Small
Scale Enterprises (SSEs)
• To help SSEs in bulk purchases of raw materials
• To assist the SSEs in plant installation and servicing

The IDC in order to achieve the above renders the following services for
the rapid development of SMEs

• Selection of viable small scale industries for prospective

entrepreneurs
• Selection of proper manufacturing process along with machinery and
equipment for the product lines
• Installation of machinery and equipment
• Quality control and improvement of the end-product
• Repairs and maintenance of machinery and equipment
• Manufacturing of spare parts and components
• Training of small industry technician and artisans in the use of the
new technology
• Improvement of product design and manufacture of prototypes
• Adaptation of technology and process that will improve production
for the SMEs
• Appraisal of loan application of small scale industrialists for grant of
loan under the Small-Scale Industries Scheme (SSIS)
• Assist in training of SMEs in book-keeping, accounting and cost
analysis, production planning and control
• Counselling for credit arrangement

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3.1.2 National Directorate Of Employment (NDE)

The NDE is set up to perform the following functions

• To help the participant translate his business ideas into viable

commercial ventures
• Organization of pre-loan courses for prospective loanees
• Development of business for SMEs
• Creation of enabling environment and opportunities for beneficiaries
and those wishing to start their businesses
• Provision of funds for emerging entrepreneurs to start their
businesses
• Reorientation of graduates/school leavers to be self-employed
• Introduction of information technology to the fresh school leavers
• Creation of different schemes – National Open Apprenticeship and
Basic Business Training Schemes to enable the NDE achieve its
objectives

3.1.3 The Federal Institute of Industrial Research (FIIRO)

FIIRO was established in 1956 with the aim of quickening the pace of
industrial development. It is to carry out the following:

• Research and development into the usefulness of local raw materials

for industrial purposes
• Improve on local technology and adaptation of imported ones
• Routine technical and consultancy services to industries, government
establishments, and private organization and individuals.
• Design and development of production processes and the fabrication
of equipment for mechanizing the production processes

3.1.4 The Nigeria Association of Small Scale Industrialists

(NASSI)

The NASSI is established to carry out the following activities:

• To establish and maintain an association for the exchange of ideas

and techniques on issues relevant to the development of SMEs.
• To promote technical and management training programmes by
organizing seminars, workshops, trade fairs and other public
enlightenment programmes.
• To source and facilitate credits for SMEs
• To source and provide information on relevant technologies for
increased and improved quality among the SMEs.
• To organize for the export of products for members

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• To establish contact with government and governmental institutions

and other non-or governmental organization for the advancement and
promotion of SMEs.
• To contact, consult, confer and cooperate foreign agencies, Institute
and organisations.

3.1.5 Nigeria Association of Chambers of Commerce,

Industry, Mines and Agriculture (NACCIMA)

Undertakes the:

• Collection and dissemination of vital business information;

• Monitoring the performance of the economy and making
representation to Government and its agencies with regard to the
effects of various economic, fiscal monetary measures;
• Identification of obstacle to the establishment and profitable
operation of commercial industrial and other enterprises, especially,
those arising from government policies or the administration of such
policies and the exertion for the removal of such obstacle;
• Organizing seminars and workshops on various aspects of the
economy, business and management;
• Promoting commercial, industrial and, in general, economic
operation between Nigeria and other countries;
• Assisting to protect Nigeria’s image and business interest abroad by
meditating in commercial disputes

3.1.6 Nigeria Opportunities Industrialist Centre (NOIC)

Nigeria Opportunities Industrialist Centre (NOIC) Gbagada, Lagos was

established:

• To contribute to National effort in transforming unemployed youths

into productive members of Nigeria labour force.
• To provide vocational and agricultural skills, training for school
leavers especially those without certificate who usually fall outside
formal educational institutions and who are consequently
unemployed
• To train in shorter time than the traditional institutions do, with
emphasis on 70% practical and 30% theory.
• To provide training, job placement and follow up at cost and time
effective manner.
• To adapt the training programmes to meet the challenges of changing
technological advance and current need.
• To develop in the trainee a positive attitude to self and work.

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• To provide a regular source of dependable highly motivated skilled

workers for industry and business; and
• To encourage entrepreneurship and self-employment among youths
by providing them with the skills necessary to start small business

Apart from those primary objectives, the centre also has specific
objectives for Small Scale Enterprise Development (SED) like:

• To encourage self employment among young school leavers

(unemployed graduates and unemployed people).
• To encourage setting up of cottage industries in the rural areas and
reduce urban drift.
• To support the effort of government to alleviate poverty among the
Nigerian populace.
• To satisfy the yearning of aspiration of unemployed and
underemployed people of different educational background
• To provide means of life sustenance for maximum number of people
at the least possible cost.
• To reduce the youth restiveness in the urban cities and oil-producing
areas of the country.

3.1.7 The Nigeria Export-Import Bank (NEXIM)

NIGERIA EXPORT-IMPORT BANK (NEXIM) was established:

• To encourage exporters to diversify their export markets without fear

or risk inherent in dealing with new buyers;
• To attract new enterprises into business; and,
• To encourage exporters to extend credit terms to the buyers in order
to enhance their competitiveness in the international markets

These it does by:

• Providing credit in local currency to its clients in support of exports.

• Maintaining foreign exchange revolving fund for lending to
exporters who need to import foreign input to facilitate export
production.
• Providing export credit guarantee and export credit insurance
facilities to its clients etc.
3.1.8 The Natural Development and Conservation Scheme
(NRDCS)

This deals with the harnessing of the agricultural, water, solid mineral
resources, conservation of land space (beaches, reclaimed land etc)

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particularly for the convenient and effective utilization by small-scale

operators and the immediate community.

3.1.9 The Nigerian Association of Women Entrepreneurs

(NAWE)

An economic, governmental organization, established to:

• Serve as a centre for Nigerian women entrepreneurs for the

promotion of their interests;
• Serve as a forum where Nigerian Women Entrepreneurs exchange
ideas, discuss their problems, design and form strategies regarding
their business.
• Initiates, encourages and promotes training for the members to
enable the development of individual talents which will also
contribute to overall economic development of the country.
• Assist Nigerian rural traditional women entrepreneur to organize
themselves and improve their working methods
• Organize and participate in local and international trade fairs to
promote an export oriented economy.
• Co-ordinates their activities with Government initiative on resources
creation and capital formation

3.1.10 The Nigerian Store Product Research Institute

The Nigerian Store Product Research Institute was established and

mandated to carry out research into bulk storage problem of export
commodities and local food crops and in particular conduct research
into:

• Improvement and maintenance of the quality of bulk commodity

crops including cocoa, groundnuts, palm produce (kernel and oil);
• Improvement and maintenance of the quality of local food crops
including cereals, grains pulses, tubers and any other commodity
under bulk storage;
• Special studies such as product pest fumigation and residue and
mycotoxin surveys;
• Provision of advice and training of extension workers in problems
associated with stored products and materials in storage structures,
new insecticides, new items of equipment and techniques; and,
• Any other related matters as may be determined from time to time by
the Institute.

3.1.11 Standard Organization of Nigeria (SON)

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SON is resolved to be a reference point in matters of standardization,

quality and technological competence required for the launching of
Nigerian products:

• To provide industries with up-to-date information on standardization,

its benefits and encourage participation of the organized private
sector in standardization and review.
• To ensure improved competitiveness of Nigerian goods at home and
abroad encouraging quality assurance practices.
• Provide information, advice and assistance to industries on quality
management for improved cost effectiveness.
• To ensure adequate technical support required for competitiveness in
global trade and proper economic growth.
• To motivate workforce through steady investment in human
resources development for acquisition of skills in tune with
technological advancement.
• To collaborate with regional and international organizations in the
areas of meteorology, Standards, Testing and Quality Assurance
(MSTQ) for enhancement of skills and encouragement of free trade
building of capabilities.

3.2 Advantages of these Institutions to the SMEs

The beneficiaries derive a lot of benefits by patronizing these

organizations:

• Information - They have ready opportunities for information,

which would have cost them a lot of money to source from the
private sector. The information guides them in the course of
planning and preparing the feasibility for the project of choice.
They get information on the market situation and potential
customers outside the country.

• Skill Acquisition - Some of these Institutions offer skill

acquisition at very cheap rates. Some organize seminars and
workshops for would-be investors free of charge in order to
acquaint them with new technological training and
information.

• Training and Capacity Building - Some of the Organizations

organize training for the SMEs practioners. This will enhance
their performance.

• Exhibition and Trade Fair Shows - Some of the organizations

organize trade fairs and exhibition both within and outside the
country and encourage the SMEs to participate. This will lead

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to the expansion of their market share and creation of

awareness of their products

• Sourcing of Credit - Most of the organizations assist the

members in sourcing for credits. They act as guarantors where
required and in some cases provide the required collateral.

SELF ASSESSMENT EXERCISE

1) What are the advantages of the Institutions?

2) List some of the functions of SON

4.0 CONCLUSION

Government has put in several Institutions to service the SMEs and as a

medium for the implementation of her policies. These Institutions
impact positive effect on the performance of the SMEs.

5.0 SUMMARY

There are various organizations set up by government to service the

SMEs. The main objective of the government is to empower the
informal sector practitioners. This will effect positively on the economy
leading to economic growth. The Institutions provided both financial
and none financial services.

6.0 TUTOR-MARKED ASSIGNMENT

Explain the advantages of the Institutions to the SMEs.

7.0 REFERENCES/FURTHER READING

Loucks, K. (1990). Training Entrepreneurs for Small Business

Creation Geneva: International Labor Office.

Rudelius W, Erickson W.B and Bokula W.J (1976). An

Introduction to Contemporary Business. New York: Karcourt
Jovanovith.

Handerson C, (1986). The Successful Entrepreneur Strategies

New York: Mac Graw Hill Inc.

Pearse II, J.A and Robinson R.B, (1986). Entrepreneur Behavior.

Academy of Management Proceedings.

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UNIT 3 MICRO FINANCE INSTITUTIONS PART II

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Micro Finance Institutions
3.1.1 Family Economic Advancement Programme
(FEAP)
3.1.2 Features of FEAP
3.1.3 Bias for Production Funding
3.1.4 Policy Formulation
3.1.5 Use of Cooperative Societies
3.1.6 Loans Tied to Projects
3.1.7 Collaboration with Banks
3.1.8 Savings Requirement
3.1.9 Subsidized Interest Rates
3.1.10 Multi Authority Segment
3.1.11 Technical Advisory Committee
3.1.12 State Coordinating Committee
3.1.13 Local Government Area Coordinating Committee
3.1.14 Ward Coordinating Committee
3.2 People’s Bank of Nigeria Limited (PBN)
3.3 Features of People’s Bank of Nigeria Limited
3.4 Reasons for the Bank Failure
3.4.1 Improper Targeting Mechanism
3.4.2 Centralization of Operations
3.4.3 Lack of Expertise
3.5 Community Bank (CBs)
3.6 Nigerian Agricultural Cooperative and Rural Development
Bank (NACRDB)
3.7 Community Banks (CBs)
3.8 Objectives of the Community Banking System
3.9 Factors for the Decline
3.10 Micro Finance Banks (MFB)
3.10.1 The Objectives of the MFBs
3.10.2 Advantages of MFBs
3.10.3 Other Supporting Institutional Arrangements
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

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1.0 INTRODUCTION

Financial Institutions are bodies set up by the government to oversee the

implementation of some policies. There are many institutions that are
saddled with the responsibility of seeing that the objectives of the
government are executed. Some institutions are set up to achieve the
micro financing of the small scale industries.

2.0 OBJECTIVES

The objectives of this unit are to explain the activities of the different
institutions set up to see to the implementation of the micro finance
policies of government. At the end of the study, the student should be
able to list the different institutions that are involved in micro financing.
The student should also be able to explain the functions of the
institutions.

3.0 MAIN CONTENT

3.1 Micro Finance Institutions

Government involvement in micro financing in Nigeria began with

agricultural financing. The Nigerian Agricultural and Cooperative Bank
(NACB) was the former Nigerian Agricultural Bank. It was established
to give credit to small farm owners and the informal sector that do not
have access to credit and Government, by providing affordable credit
that was considered desirable. Some other institutions like the Peoples
Banks of Nigeria, Community Banks, the ambitious Family Economic
Advancement Programme (FEAP) and other government and quasi-
government were established in order to achieve poverty reduction
among the poor.

However, for maximum impact, the various government-led micro

finance institutions were restructured and merged which resulted in the
formation of Nigerian Agricultural Cooperative and Rural Development
Bank, Small and Medium Enterprise Industry Development Agency.

3.1.1 Family Economic Advancement Programme (FEAP)

Other Institutions such as Family Economic Advancement Produce

(FEAP), the People’s Bank of Nigeria Limited and Community Bank
were established to achieve a change in the transformation of the socio-
economic status of the poor through the provision of micro-credit
services.

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The FEAP was established in August 12, 1997 by the late General Sani
Abacha Administration.

The objectives of FEAP were:

• Provision of micro credit for the establishment of cottage enterprises.

• Training of the business operators
• Encouragement of the design and manufacture of plants, machinery.
• Formation of cooperative societies
• Utilization of local resources through improved production, storage,
preservation, packaging and marketing
• Involvement of private sector, states and local government
participation in both the funding and implementation.
• Reduction of rural-urban migration

3.1.2 Features of FEAP

FEAP has its features, structure and process of operation.

3.1.3 Bias for Production Funding

The programme recognised the fact that SMEs form the bedrock of
economic progress in most economies. The promotion of cottage
industries was therefore central to the operation of the FEAP. Farming
and processing of agricultural products and mineral raw materials were
given priority. It was envisaged at the inception that between 40 and 60
percent of the loanable fund would be devoted to farming and agro-
processing activities.

3.1.4 Policy Formulation

FEAP was also mandated to formulate policies in line with the

following in order to boost agricultural production:

• Land acquisition, utilization and social equity

• Mobilization of women for agricultural development
• Appropriate farming tools, inputs and techniques.

3.1.5Use of Cooperative Societies

FEAP adopted the group methodology. Intended beneficiaries were

expected to belong to a Cooperative group registered with the State
Cooperative Department and recognized by the FEAP. The regulations
and laws guiding the establishment of Cooperative societies were not
adhered to.

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3.1.6Loans Tied to Projects

Projects financing was central to FEAP activities. The loans advanced to

the groups were tied to projects, even the machinery was provided by
nominated fabricators or suppliers. This is to prevent diversion of funds.

3.1.7 Collaboration with Banks

FEAP used conventional banks as the channel of disbursement of loans

and its collection.

The banks were also expected to contribute counterpart funding as the

project progress. The banks were chosen based on the following criteria

• Adequate capital base

• Competent management
• Sound asset quality
• Availability of expertise in the areas of micro finance
• Adequate bank network

The banks were to appraise the feasibility report and give advice on the
status for approval, although the National Board of FEAP has the final
authority to approve projects.

3.1.8 Savings Requirement

Beneficiaries were expected to make a deposit of 10% of the requested

amount in the bank

3.1.9Subsidised Interest Rates

The interest rate was 10%, which was lower than the market rate of
over 100%.

3.1.10 Multi Authority Segment

The structure of FAEP was a multi authority system. The grand patron
was at the apex. This was followed by the Board of nineteen member
from various government departments, institutions and associations

3.1.11 Technical Advisory Committee

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This committee was chaired by the representative of the Ministry of

Science and Technology. The other members were made up of
representatives from Government institutions which have expertise in
the areas of interest of FEAP.

3.1.12 State Coordinating Committee

This Committee was made up of nineteen members, which included

officials of the participating banks. The chairman was appointed by the
State Governor. The wife of the State Governor was the State
coordinator. The State Coordinating Committee was responsible for the
co-ordination of FEAP activities at the State Level.

3.1.13 Local Government Area Coordinating Committee

The Local government Area Coordinating Committee was headed by the

Local Government Chairman. The members were made up of the
Supervisory Councilors, wife of the Chairman, all district and
community leaders, two representatives of relevant Non-governmental
Organisations and the representative of the participating bank.

3.1.14 Ward Coordinating Committee

The ward Coordinating Committee consisted of village heads in the

ward with the Councilor representing the ward Chairman.

3.2 Peoples’ Bank of Nigeria Limited (PBN)

The PBN was established in 1986 as an economic strategy for

sustainable growth as an aftermath of the increased poverty level that
arose as a result of the Structural Adjustment Programme (SAP).

The goal of the PBN was to create easy access to affordable credit for
the poor, that is, those that are economically active but could not take
part in business activity because they can not take loan from formal
financial sector. The targets are petty traders, farmers, and artisans. The
initial maximum loan was N5, 000.

The beneficiaries were to form credit groups. They were to meet

regularly and loan repayments were made at the group meetings. The
repayments were in small amount. These loans were guaranteed by the
community leaders. The PBN has been merged with the Nigerian
Agricultural Cooperative Bank to form Nigeria Agricultural Rural
Development Bank.

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In 1986, the Federal Government adopted the Structural Adjustment

Programme (SAP), as an economic strategy for sustainable growth. The
effect on the people, especially, the poor, was instant and harsh. The
level of poverty rose sharply. The then federal government realized the
need to stimulate the potentials of the people. It was reasoned that
putting affordable credit in the hands of the poor was a proper strategy.
It can therefore be said that the remote prompting factor for the
establishment of the People’s Bank of Nigeria Limited was the
introduction of the Structural Adjustment Programme. The bank was to
a large extent, perceived by the people as a component of SAP relief
package.

However, the immediate factor for the setting up of the bank was the
action of Mrs. Maria Sokenu, the founding National project Coordinator
and later Managing director. Prior to the establishment of the bank, Mrs.
Sokenu who had a distinguished career in formal banking visited the
famous Grameen Bank of Bangladesh. The outcome of that visit was the
idea of a bank fashioned along the structure and operational strategy of
Grameen Bank.

The goal of the People’s Bank of Nigeria was to create easy and
affordable credit for the poor, for a large segment of economically active
Nigerians excluded from the services of formal financial sector. The
bank was established in 1989 under a special decree as a financing
institution for the very poor. During the pilot stage, which lasted for
twelve months, a National Project Coordinator, assisted by Zonal
Coordinators coordinated the activities of the bank. Until its current
restructuring, a board of Directors determined the policy direction of the
bank and was under the supervision of the Federal Ministry of Finance.

3.3 Features of People’s Bank of Nigeria Limited

Peoples’ Bank of Nigeria Limited derived its features in respect of

structure and operations from the Grameen bank Approach. However,
the extent to which the bank has achieved replication of Grameen Bank
Approach (GBA) is a subject of contention.

First was its exclusive focus on the poor. The bank was essentially a
poverty alleviation institution. The target of her services consisted of
petty traders, farmers and artisans. Initially, the maximum loan size was
N5, 000. Poor people were encouraged to borrow from the bank. Again,
the bank adopted the group-based lending methodology. Intending
beneficiaries were required to form credit groups, which in the tradition
of Grameen Bank Approach were called centres. The groups were
required to meet regularly. Disbursement and repayment of loans were
supposed to be made at group meetings.

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Another feature of the Peoples’ Bank of Nigeria was the repayment

schedule by installments. Borrowers were required to make small
repayments at regular intervals. Amount per installment and frequency
of payment were to be sensitive to the cash flow patterns of borrowers.
Involvement of the community at inception was encouraged by
community leaders who supported loan applications, as guarantors.
Later, local Credit committees were formed to facilitate proper loan
utilization and high repayment performance.

The invitation of the people to avail themselves of the opportunity of

credit facilities from Peoples’ Bank of Nigeria was met initially with
skepticism. The intention of government was viewed with suspect, while
the viability of a government-led micro lending project was doubted.
However, patronage gradually improved.

By 1993, the fortune of the bank greatly declined. The bank found it
difficult to meet its obligations to both borrowers and depositors.
Repayment performance was so low, that radical restructuring became
imperative in late 1996. This hindered the bank from the path of growth
and good performance.

3.4 Reasons for the Bank Failure

It should be noted that most microfinance institutions established in the

1980’s experienced what can be referred to as “first shock”. “First
Shock” is a performance crisis often experienced after a promising take
off. Several factors have been presented as responsible for PBN’s first
shock.

First is the inadequate preparation prior to take-off of the bank. It was

probably assumed that if the idea of poverty lending worked well in
Bangladesh, it could as well perform satisfactorily in Nigeria. Pressure
to reach as many Nigerians as possible underscored the need for careful
feasibility study and analysis. The pilot implementation period was
twelve months before the project was expanded to PGN.

3.4.1 Improper Targeting Mechanism

Another flaw which affected the entire country was the improper
targeting mechanism. The requirement for exclusive focus on the poor is
the existence of systematic targeting mechanisms. Eligibility criteria
were not properly identified and applied. No specific socio-economic
indicators were used. It was simply a case of “come all ye that are poor
and take loans”. In practice, the non-poor accessed credit facilities in
the name of the poor, which they hardly repaid.

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3.4.2 Centralisation of Operations

Centralisation of operations was another contributing factor. For the

purpose of control, decision- making process and operations were highly
centralised. Vital decisions and actions on savings mobilisation were
taken at the Bank’s Head Office. This did not only slow down
operations, it constrained effective monitoring.

3.4.3 Lack of Expertise

Micro-lending requires experience and expertise. These were in short

supply in Nigeria at the time of formation of the bank. Admittedly, the
pioneer staff of the bank demonstrated high level of commitment to the
goal of the bank. However, mere zeal was not enough.

3.5 Nigerian Agricultural Cooperative and Rural

Development Bank (NACRDB)

This is the outcome of the merging of the Nigerian Agricultural and

Cooperative Bank Limited (NACB) and the Peoples’ Bank of Nigeria
Limited (PBN).

The PBN was fashioned to operate like the Grammen Bank of

Bangladesh. The bank was to make it easy for the poor to have access
to money. The bank was established in 1989 under a special decree.
The NACB was to grant loan to individual farmers, cooperative
societies provided the bank approved the project as being viable and that
there is adequate security or collateral to cover the loans. The bank
began lending in 1973. Like the PBN, it was owned by the Federal
government and the Central Bank.

The bank focused on agricultural financing for activities such as food

crops, plantation development, livestock, storage, and marketing
facilities.

The Bank required securities such as bond, shares, insurance policies

and fixed asset which include landed property.

However, the two banks have been merged to form the NACRDB which
is concerned with the development of micro enterprise, especially the
informal sector. It allows the informal sector practitioners access to loan
without collateral. However, such a loan is based at below N250, 000.

Payment for loan assessment:

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• Potential loanee must be a customer of the bank

• He must run an account for a minimum period of 2 months before he
can be allowed to apply for a loan
• He would obtain a form, and comply with the instruction
• He can apply for up to N100,000, if he has saved up to N10,000 and
more than N100,000 but less than N250,000, if he has up to N50,000
in the account.
• There is no collateral required but must show the bank his business
outfit.
• He must be a person of high integrity within the community, that is,
an evidence of reliability that he would pay back the loan.
• He must keep proper records
• The bank also gives loans that are up to millions of Naira, which is
above the micro credit level and different pre-requisite are required.
• Inspection of the business location will be carried out in order to
access its viability and give necessary advice.

3.6 Community Banks (CBs)

The introduction of CBs in 1990 was another step in the efforts of the
government to meet the credits needs of the rural dwellers as well as the
micro and medium scale enterprises.

The CBs are owned by the Community where they are located. They
provide banking facilities in rural areas to improve the business and
economic status of the rural people and rural areas. It is a place where
you can save and borrow money to operate your business. When you
open and operate an account with the bank for sometime, you can apply
for a loan.

To get a loan from a Community Bank, you must:

• Open an account and operate it for at least 6 months

• Submit an application for loan
• Complete the loan application form
• Pay back the loan within one year
• Provide two guarantors who must be
(a) Community leaders
(b) Member of your trade or occupation association

3.7 Objectives of the Community Banking System

It was set up to achieve the following among others:

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• The promotion of rural development by providing credit and

deposit services to community members.
• Increase and enhance the development of economic activities
of the informal sector, that is, the small or micro producers in
the economy.
• Development of banking habit among the rural dwellers’.
• The promotion of rural development by providing financial
and banking services (credit and deposit services), as well as
other facilities to communities who hitherto were inadequately
supplied with such facilities.
• The rapid enhancement of the development of productive
activities in both rural and urban areas, and hence the
improvement of the economic status of small producers in the
informal sector of the national economy.
• The promotion of the emergence of an effective and integrated
national financial system that responds to the needs of the
whole economy, especially at the grass root community level.
• The inculcation of discipline in banking habits among the
masses of low-income workers in Nigeria, especially those in
the rural areas.
• The fostering of the spirit of the community ownership and use
of economic assets and the maintenance of such facilities and
organizations on a suitable basis.

The enthusiasm over community banks among Nigerians was very high
at the inception of the ideas. The urban elites took the lead in mobilizing
their people to form community banks. Barely seven months after the
opening of the first community bank, there were 1,055 applications for
the establishment of community banks processed while 10 banks had
their doors opened for business operations.

The responsibility for registration and coordination of the activities of

the community bank was given to the national Board for Community
Banks. The ray of hope offered by the rapid growth in the number and
volume of business of community banks suffered some set back within
the first six years of operation. Several of the banks were laden with
large non-performing loan portfolios, while others were unable to meet
their obligations to depositors and savers by October 30, 1997. Licences
of 282 out of 1368 existing community banks were then withdrawn on
the order of the Central Banks of Nigeria

3.8 Factors Responsible for the Decline

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The unsatisfactory performances of some community banks have been

attributed to several factors. These factors are both internal and external.

First, was the inadequate involvement of the local communities. The

urban elites who facilitated the establishment of the banks, failed in
most cases to involve the local communities. The elites saw the idea of
community banking as an opportunity to own financial institutions.
Contrary to the fundamental concept of community banking, few elites
capitalized these banks, and seized control. Obviously, the local people
did not see these community banks as theirs, but rather as belonging to
few of their prominent sons and daughters residing in far way cities. The
stakes of the local people in the banks were low, and they equally did
not bother about the success or failure of the financial institutions.

In addition, the absentee owners did not fully appreciate the peculiar
features of community banking system; the features which set them
apart from conventional financial institutions. In some cases, savings
mobilized by these banks were placed in deposit accounts with urban-
based banks, rather than financing profitable local productive activities.
The glamour and exclusionary features of conventional banks soon
found their ways into the operations of the community banks. The banks
became increasingly irrelevant to their immediate local environment.

The most devastating factor was the distress which swept through the
banking sector in the mid 1990’s. Several millions of naira the
community banks placed with urban distressed banks were lost. The
people lost confidence in the banking sector and community banks were
affected because of their lean capital base.

Another factor was lack of appropriately trained manpower in

microfinance. The bulk of the pioneer staff of the community banks was
drawn from the formal banking sectors. There was a dearth of workers
knowledgeable in the art of micro-lending. Community banking was
carried out with the mind-set of conventional banking. Innovation,
which is the hallmark of micro-lending, was largely ignored. In some
cases, retrenched and dismissed staff of commercial banks, were
entrusted with the management of some community banks. Loss of
earlier better paid jobs adversely affected the morale of managers.
Added was the fact that most board members saw the banks as mere
extension of their personal estates. Most tended to be meddling with the
management process to the frustration of the managers.

The rapid growth in number and spread of community banks across the
country tasked the monitoring facilities and system. Unethical practices
were not promptly uncovered and addressed by the supervisory
authorities.

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Inadequate capital base was another limiting factor. The initial

authorized start-up capital was N250, 000. This was inadequate. Calls
on community banks to shove up their capital base were not
enthusiastically implemented.

3.9 Micro Finance Banks (MFBs)

The MFB is set up in order to make financial services available on a

sustainable basis to the economically active poor, low income earners
and the Micro, Small and Medium Enterprises (MSMEs) through
privately owned banks. This is to create a vibrant microfinance sub-
sector that provides the necessary stimulus for rational growth and
economic development.

The MFBs are institutions that are established to provide financial

services to the poor.

There are two categories of the bank:

• MFBs licensed to operate as unit banks and within a Local

Government area. They are to deposit N20 million in the central
Bank of Nigeria as capital requirement.
• MFBs licensed to operate state-wide. They are to provide N1 billion
as capital requirement.

These banks can be established by individuals, groups of individuals,

community development associations, private companies or foreign
investors.

3.10 The Objective of the MFBs

The objectives of the MFBs are to:

• provide diversified, dependable and timely financial services to

the economically active poor
• mobilize savings for financial intermediation
• create employment opportunities
• involve the poor in the socio-economic development of the country
• provide veritable avenues for the administration of the micro-credit
programmes of government and high rate worth individuals
• render payment services such as salaries, gratuities and pension on
behalf of various tiers of government.

3.11 Advantages of MFBs

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The following advantages can be derived as a result of the establishment

of MFBs:

• Individuals can buy shares and own a MFB

• Individuals can save money and other valuables in the bank
• Individuals can borrow from MFB to invest in the micro, small or
medium enterprises
• MFB can render cash transfer services.

3.11.1 Other Supporting Institutional Arrangements

These supporting institutional arrangements would ensure that MFBs

succeed in its operations:

• Independently managed Micro finance Development Fund would be

put in place to provide wholesale funds, refinancing facilities and
other services to support the financial activities of MFBs and
microfinance institutions.
• Certification Programme for Staff and Management of MFBs, to
provide adequate knowledge on microfinance practice, enhance
operational activities and ensure that right persons manage the MFB.
• Rating agencies to provide institutional assessment of MFBs and
other institutions.
• Credit bureau to provide credit information on microfinance clients
in support of the credit and other decision making processes of the
MFBs.
• Creation of Apex Association of the MFBs to ensure compliance
with standards and best practices.

SELF ASSESSMENT EXERCISE

1) What are the advantages of MFBs

2) What are the objectives of Community bank?

4.0 CONCLUSION

The government set up different types of institutions, which aim at

alleviating the level and depth of poverty. Some of these institutions are
to assist the poor and SMES in accessing micro credit.

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5.0 SUMMARY

Micro financing has been found to be a sure source of finance to the

SMEs. This is because they cannot provide the collateral or / and the
rigorous paperwork demanded by the convectional banks, Government
has therefore put in place several relevant financial and non- financial
institutions to address the issue.

6.0 TUTOR-MARKED ASSIGNMENT

What reasons led to the failure of FEAP?

7.0 REFERENCES/FURTHER READING

Godwin, E. (2000). Poverty and Microfinance in Nigeria. Ob-zed

Printers Nigeria.

Neck, P.A & Nelson, R.E., (1987). Small Enterprise Development

Policies and Programmes. Geneva: ILO.

Onuoha, E. (1986). Principles of Cooperative Enterprise. Express

Publishing Company Ltd

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UNIT 4 HOW TO KEEP AND USE BUSINESS

RECORDS

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Record Keeping
3.2 Good Record
3.3 Advantages of Record Keeping
3.3.1 Cash and Credit Sales Availability
3.3.2 Your Record Shows You How Your Business is
Doing
3.3.3 Your Records Help You to Plan for the Future
3.3.4 Who Keeps the Records?
3.4 Types of Records to be kept
3.4.1 Receipt Book
3.4.2 Invoice
3.4.3 Waybill or Delivery Note
3.4.4 Daily Cash Record
3.4.5 Customers Account
3.4.5.1 Advantages
3.4.6 Unpaid Suppliers Invoice
3.4.7 Record Book
3.5 How to Fill the Record Book
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

It may be a fact the MFBs and the Non–governmental Organisations do

not request for collateral and rigorous paper work before loans are
granted to members. However, they do have some records in order to
keep track of their costs and revenue.

2.0OBJECTIVES

The objective of this unit is to explain how records are kept and the
various uses of the records.

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3.0 MAIN CONTENT

3.1 Record Keeping

Record Keeping means you have to write down:

• how much money your business receives, and

• how much money your business Spends.

When you Sell your products or provide service, money comes in to

your business.

When you pay for goods or service such as raw materials, labour,
electricity, rent, telephone etc, money goes out of your business.

To keep good records, you need to write down all your business
transactions in an organized way.

You need something to show that you received or paid out money such
as:

• Invoices, receipts, way bill etc. you get from your customers
when you buy raw materials, pay rent, salary or wages, electricity
and so on.
• Copies of receipts, invoices, and way bill you give to your
customers when they buy from you.

It is therefore important for you to write down in a small exercise book

the information you need such as:

• when the transaction happened.

• who was involved in the transaction.
• details of the transaction.
• the amount of money involved in the transaction.

3.2 Good Record

The main requirements for a good record keeping are that:

• It must be accurate
• It must be consistent
• It must be reliable
• It must be easy to understand

3.3 Advantages of Record Keeping

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By keeping good and accurate business records you can easily solve
problems in your business such as:

3.3.1 Cash and Credit Sales Availability

• The records show you how much money your business should
have.
• It helps you to make sure your money is not stolen.
• It shows you who owes you money and how much.
• The record tells you how much cash you have on hand and in the
bank.

3.3.2 Your Record Shows You How Your Business Is Doing.

• It helps you to find out problems before it is too late

You can use the records to know your

• Income and expenses

• The profit or loss you are making
• Your monthly payroll (wage and salaries)

You can also use the records to know if:

• Costs are too high

• Sales are falling

The records you keep show others how your business is doing.

• It shows them whether your sales and profits are increasing.

• You and others will know whether your costs and expenses are
decreasing.
• You need proper records when you pay your taxes or apply for a
loan.
• It shows others that everything is in order and that you are in
Control of your business.

3.3.3 Your Records Help You to Plan for the Future

• Records show you how well your business did in the past and
how well it is doing now.
• When you know your business strength and weaknesses, you
can properly plan for the future.
3.3.4 Who Keeps the Records?

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Once you start your business, you have to decide who will keep and
maintain the records.

• If you have the time and interest, you can keep the records
yourself.
• When the volume of your business increases, you can employ a
clerk to keep the records.
• Sometimes your wife or children can assist you to keep the
records and do simple calculations.

3.4 Types of Records to Be Kept

The records you keep depend on the type of business and the volume of
activities. However, for our purpose, the following records are
adequate.

3.4.1 Receipt Book

If your business produces and sells a few expensive products such as

furniture or provide services such as vehicle repairs, use a Receipt
Book.

An example of a Receipt Book is given below:

TOLA ENTERPRISES
(Manufacturer of Quality Furniture)
Office/Workshop: No. 30, Adio Street, Idiaba,
Ogun State

CASH RECEIPT

No. 0001
Date: ______________19_______
Received
From_______________________________________________________
the sum of__________________________________________________________
_____________________________________ Naira ____________________Kobo
Being payment for ___________________________________________________
___________________________________________________________________

Cash payment =N= ________________________ Cheque No. __________

=N= : K __________________
Manager’s signature

3.4.2 Invoice

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The customer may sometimes request for an Invoice before or after

purchasing the product or service.

The invoice shows the Quantity of good sold the Description of what
is sold and the Price of each product. However, it is not a substitute for
the receipt. It is issued together with the receipt to show the type and
price of products sold.

The following is an example of An Invoice.

TOLA ENTERPRISES
(Manufacturer of Quality Furniture)
Office/Workshop: No. 30, Adio Street, Idiaba,
Ogun State

Invoice No: 0001

________________________________ Date: ________ 19 _____

________________________________
________________________________

Quantity Description of Goods Rate Amount

N K N K

THANK YOU
GOODS BOUGHT ARE NOT RETURNABLE

Total N ___________________

Amount in words ________________________________________________

_______________________________________________________________

3.4.3 Waybill or Delivery Note

The Waybill or Delivery note is issued to the buyer when he wants to

collect the products he has purchased such as furniture or when you
want to deliver the products to him.
An example of a waybill or delivery note is given below. It also
contains information such as Customers Name, Delivery Address,

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Vehicle No, Quantity paid for, dispatched and delivered and the
condition of the goods when they were received.

TOLA ENTERPRISES
(Manufacturer of Quality Furniture)
Office/Workshop: No. 30, Adio Street, Idiaba,
Ogun State

Invoice No: 0001

WAYBILL/DELIVERY NOTE Date: ________ 19 ___

____________________________________________ ORDER
INVOICE
No. _______ Customers Name ___________________________

Date ___________ Delivery Address___________________________

No. & Date ______ Vehicle No. _______________________________

ITEM No. QUANTITY DESCRIPTION QUANTITY

Total

Received Goods in Good Condition

______________ _______________________________________
DELIVERED BY RECEIVED & CHECKED BY CUSTOMER

3.4.4 Daily Cash Record

Whether you use a receipt book or daily cash record you must keep the
RECEIPTS you get for all the cash that comes in or goes out of your
business such as:
• receipts issued for sale of products or service
• receipts for buying raw materials or good to resell
• receipt or invoices for rent, payment for services, electricity,
water, telephone and all other costs to your business.

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DAILY CASH RECORD

No Details Quantity Rate Total

N
1. Starting Money 100.00
2. Brake fluid 1 120.00 120.00
3. Oil filter 3 180.00 540.00
4. Washers 15 3.00 45.00
5. Oil 1 210.00 210.00
6. Fuel filter 1 45.00 45.00
7. Clutch Kit 1 70.00 70.00
8. Door handle (super) 4 65.00 260.00
9. Bolts & Nuts 10 15.00 150.00
10 504 1 480.00 480.00
Total - - 2020.00

3.4.5 Customers Account

If you sell or provide service on credit, you must write it down in a

customers account book.

It is not advisable to sell on credit. Some customers do not pay on time.

Some customers do not pay at all. However, credit can also increase
your sales because good customers will continue to buy from you.
Therefore, you may give credit to reliable customers.

When you want to keep the customers record, you can use:
• a book with a page for each customer; or
• a separate book for each customer if they buy a lot from you; or
• separate cards for each customer.

A written record enables you to avoid arguments with your customer

and to follow up those who do not pay their money on time.

3.4.5.1 Advantages

The record helps you know:

• how much each customer owes
• which customers pay their accounts on time
• which customers owe money to your business

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An example of Customers Account Record

CUSTOMERS ACCOUNT RECORD

Name:
Address:
Telephone No:

Date Details Quantity Credit Amount Balance

Sales Paid
N N N

9/1/96 Oil filter at 2 360.00 360.00

N180 each

3/4/96 504 Head 2 220.00 220.00

lamp at
N110 each

6/6/96 10 washers 10 150.00 450.00

at N15
15 bolts

21/10/96 Payment 15 300.00 1030.00 0.00

3.4.6 Unpaid Suppliers Invoice

When you owe other businesses some money, always keep the receipts,
invoices or delivery note of everything you buy on credit. It is a good
idea to keep them in a file for easy reference.

3.4.7 Record Book

The Record Book is the heart of your record – keeping. When the
business is closed at the end of the day, fill in the Record Book by using:
• the copies of the receipts you write (from receipt book or sales
invoice); or
• the summary of the Daily Cash record
• the receipts, invoices and other vouchers you get from your
customers.

In summary, you should write down in the RECORD BOOK all:

• Money that you receive from sales and other sources and where it
came from. Get the information from the receipt book or Daily
Cash Record.

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• Money that you paid out of your business and what it was used
for. You get the information from the receipts when you pay for
something.

3.5 How to Fill the Record Book

You can buy a big note book and draw the same columns as in the
example below:

CASH BOOK
Date Details Receipt Cash Sales Costs
Voucher In Out Bal
No.
¼ Brought 0281 1000
Forward
11/4 Bought Nails 0282 50 950 50
11/4 Sales 0283 2000 2950 2000
11/4 Sales 0284 250 3200 250
12/4 Bought Plywood 0285 1200 2000 1200
12/4 Bought Foam 0286 500 1500 500
18/4 Sales 0287 275 1775 275
19/4 Sales 0288 545 2320 545
19/4 Bought Timber 320 2000 320
23/4 Paid Wages 250 1750 250
27/4 Paid Owner 500 1250 500
Salary
Total 3070 2820 1250 3070 2820

Date: Write the date of the transaction

Details: Describe the transaction
Receipt/Voucher No: Write a receipt or voucher no for each
transaction
Cash: Write the cash that came in or goes out. The Balance is the
amount you should have on hand.
Sales: Write all your sales in this column
Costs:Write all your costs in this column

SELF ASSESSMENT EXERCISE

1) Draw a cash receipt

2) Why is it not advisable to sell on credit?

4.0 CONCLUSION

In conclusion, it is necessary to keep proper records in order to keep

track of business activities so as to be able to detect when the business is

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sick, know the sales, debts and the costs involved as well as render
necessary financial information.

5.0 SUMMARY

At the end of the month, you should summarize your record book by
adding the totals for cash that came in, cash that goes out and cash
balance. This will tell you the cash you have on hand. By adding the
Sale and Costs column, you will know how you have spent your money
and what you have spent it for.

The record book can be used to control your business by:

• knowing your sales

• knowing your cash balance
• analyzing your costs.

All these will enable you to know how your business is doing and to
plan for the future.

6.0 TUTOR-MARKED ASSIGNMENT

1. Write a short note on customers account

2. List the different types of record that can be kept by a
businessman

7.0 REFERENCES/FURTHER READING

Siebert, J.C, {1989). Concept of Marketing Management. New York.

Englewood Cliffs Publication.

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UNIT 5: MARKETING– HOW TO SELL YOUR PRODUCTS

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definition of Marketing
3.1.1 Getting to know the Customers
3.2 Know your Market
3.3 Who the Competitors Are
3.4 Satisfaction of your Customers
3.4.1 Product
3.4.2 Price
3.4.3 Costs
3.4.4 Know your Competitors Prices
3.4.5 Make your Prices Attractive
3.4.6 Discount
3.4.7 Place
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

It is good and profitable to venture into production, but the exercise is

not complete if the products are not sold. It is therefore important for
the businessman to locate the appropriate market for his products.
Mr. Adio produced Tuwo but he kept it in the pot expecting that people
will come looking for him without making any effort to sensitise the
people about the availability of the product. Tuwo, being a perishable
good, turned soar before the following day. He had to throw away the
product. He lost as a result of his inaction. He failed to let people know
that he had prepared a meal that could satisfy their need.

2.0 OBJECTIVES

The objective of this unit is to explain the meaning of marketing and its
importance to business activities.

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3.0 MAIN CONTENT

3.1 Definition of Marketing

Marketing is everything you do to find out who your Customers are and
what they need and want. It is how to satisfy them while you are
making profit by:

• providing the products or service they need

• setting the prices they are willing to pay
• getting your products or service to them
• informing and attracting them to buy your products or services.

Marketing is the difficult but most important part of managing a

business. It does not matter how good your product or service is. If you
do not market it in the right way, no one will buy it.

Your market is the customers, people or other businesses, who want

your products or services and are able and willing to pay for them.
Therefore the word market means a place or opportunity or medium
where people meet to buy and sell goods or services. It could be via the
internet, in the aeroplane, on the telephone or in a physical place.

It also means:

• the customers you have now

• the customers you hope to get in the future
• the customers you have lost but hope to get back

3.1.1 Getting to know the Customers

It is important to know your customers and what they need and want.
When you understand their needs, you decide what products to make or
service to render to satisfy their needs.
By following the steps below, you will understand your market and
increase your sales

3.2 Know Your Market

In order to know your market you must know:

• who the customers are

• the products or services they want
• Why they want them
• where the customers are located?
• when do they buy?

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• how often and how much do they buy?

• what prices are they willing to pay?

3. 3 Who the Competitors Are

The Competitors are businesses selling products and services similar to

your own. Ask yourself the following questions:

• who are my competitors?

• How many are they?
• where are they located?
• how good are my competitors?

If you can find good answers to the above questions, then you will
know:

• what products or services to sell.

• how to get your products to your customer
• how to inform customers and make them to buy
• what price to charge for your product and service

You can also find out more about your market by:

• Talking to your customers and asking them:

- why they buy from you
- If they are satisfied with your products and the way you
treat them
- If there are other things they would like to buy from you
• Listening to what other people say about your business
• Finding out why some customers do not buy from you
• Finding out what your competitors are doing about their:
- products or service i.e. quality, design, packaging etc.
- what prices they charge
- why customers buy from your competitors.

• Reading newspapers and magazines about new products or

services

• Listening to radio and watching television to get information

about new products and services.

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3.4 Satisfaction of your Customers

The customer is the most important person for your business. Satisfied
customers will always come back and buy more from your business.
The more satisfied customers you have, the more your sales and profit
you make.

To satisfy your customers, improve your sale and make a profit, you
need to understand the four P’s of marketing:

Product

• What product or service your customers want

Price

• What price your customers are willing and able to pay

Place

• What place your business should be located so that you can

reach your customers

Promotion

• What promotion you can use to inform and attract them to

buy your products or services.

All the four P’s are very important. You must use each of them to
satisfy your customers and increase your sales and profit. When your
customers are satisfied, they will always come back to buy more from
you. They will tell other people to buy from you.

3.4.1 Product

To be successful in business, you must have the products or services

your customers want. To do this, you should know that:

• Customers buy goods and services to satisfy different needs.

Therefore, you should find out what customers need and then
provide the products or services to satisfy those needs.

• Customers need change. When their needs change, do your

market research to change your product.

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• Provide what your customers want.

- Do not just sell the same products as other businesses.
- Try to improve on the products you already make and sell.
• Keep your eyes and ears open for new ideas.

3.4.2 Price

WHAT PRICES DO I CHARGE?

Your business may have very good products or services, but if your
prices are wrong, you will not sell much.

In general, your prices must be:

• Low enough to attract customers to buy

• High enough to give your business a profit

1. Know your costs

2. Know how much customers are willing to pay
3. Know your competitors prices
4. Know how to make your prices attractive.

3.4.3 Costs

You must know how much it costs you for things such as material,
labour, rent, and electricity to make a product or service. To make a
profit, your price must be higher than your total costs for the product.

Examples

(a) Profit
Price - Cost = Profit/Loss
N30 - N25 = + N5 (Profit)
• A price higher than the total cost gives you a profit
• + N5 means a N5 profit
(b) Loss
Price - Cost = Profit/Loss
N25 - N30 = - N5 (Loss)
• A price lower than the total cost gives you a loss
• - N5 means a loss.
(c) No Profit
Price - Cost = Profit/Loss
N30 - N30 = N0
• A price which is the same as total cost gives no profit
• =N=0 means no profit, no loss.

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Willingness of Customers to Pay

Customers must be able and willing to pay your prices. If your price is
too high you will sell very little or nothing at all. If the price your
customers are willing to pay is lower than your costs, try to cut your
costs.

3.4.4 Know your Competitors Prices

Find out how much your competitors charge for the same or similar
products or services as your own.

• If your prices are lower than your competitors own prices, you
may attract more customers to buy from you.
• If your prices are higher than your competitors prices, your
customers may buy from your competitors.
• You may charge a lower price if:
- your product or service is new and people do not yet know
about it.
- If you want to attract new customers
• You may charge a higher price if:
- your customers feel your product or service is better than
that of your competitors.
- If you provide extra and better services.
• Always remember that to make a profit, your prices must always
be higher than your costs.

3.4.5 Make your Prices Attractive

There are many ways to make your prices more attractive to your
customers.

When you begin to sell a new product or service, you want to attract
customers to buy it. You can set a low introductory price that gives
you only a small profit for the first time you sell the product.
If your customers like the product, you can slowly increase the price so
that it gives you a higher profit.

3.4.6 Discount

A discount means a lower price.

• You can get a discount from a supplier.

• You can give a discount to a customer
• If a customer buys a large quantity you can give a quantity
discount.

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• If a customer pays cash, you can give a cash discount.

3.4.7 Place
Place means the location where your business is. Location is important
for retailers and service operators who need to be where their customers
are.
Your business may have good products at prices that customers are
willing to pay, but sales may still be low. The reason may be that your
customers do not know where you are and where to buy your products
or services.
• Location is where your business is.
• Distribution means different ways of getting your products or
services to your customers. It is very important for
manufacturers such as furniture making, foundry/metalwork etc.
• For manufacturers, it is not important to be near their
customers.
• What is important is:
• Cheap rent or land
• Good and easy supply of raw materials
• Good roads, electricity etc.
• Cheap labour availability
• Retailers and service operators need to be where their customers
are.
• The best places are where many people pass by and where many
people live.
• Direct distribution is most useful for your business if you make
fairly expensive products such as furniture and have a few
customers.
• Wholesale and Retail Distribution are useful if you make a
large quantity of standard, low priced products and have many
customers in your area.

Before you change your distribution channel, think about:

• Your products
• Your customers
• Your business
• Your sales, costs and profit

SELF ASSESMENT EXERCISE

1) Define marketing
2) Who are the competitors?

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4.0 CONCLUSION

The role of marketing in a business venture cannot be over emphasised.

Having a thorough understanding of the marketing terrain would help a
business grow.

5.0 SUMMARY

A good businessman would not only be interested in his venture but

would understand his competitors as well as his customers and would do
all they can to satisfy them and outwit his competitors.

6.0 TUTOR-MARKED ASSIGNMENT

What factors must be considered before prices are fixed?

7.0 REFERENCES/FURTHER READING

Siebert, J.C, {1989). Concept of Marketing Management. Englewood,

New York: Cliffs Publication.

MODULE 3

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Unit 1 Marketing: Promotion Part II

Unit 2 Management Cash
Unit 3 Entrepreneur and Entrepreneurship
Unit 4 Definitions of Business Types -
Unit 5 General Management Practices in Small
Scale Business

UNIT 1 MARKETING: PROMOTION PART II

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Promotion
3.2 Advertising
3.3 Photographs
3.4 Rubber Stamp
3.5 Radio, Newspapers Advertisement
3.6 Sales Promotion
3.6.1 Display
3.7 Demonstration
3.8 Publicity
3.9 Be a Successful Salesperson
3.10 Packaging
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

We learnt about the definition of marketing, satisfaction of customers,

the need to know our competitors and the pricing system in the past
units. In this unit, we are going to discuss how to promote our products
in order to expand the market share and make more profit.

There are a lot of promotional sales currently going on in the country.

Some companies promise to finance projects to the tune of N15million,
some promise to give cars and other items. Their aim is to expand their
market share thereby increasing their profits.

2.0 OBJECTIVES

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The objective of this unit is to explain the various ways of promoting a

business venture in order to increase the market share and profit.

3.0 MAIN CONTENT

3.1 Promotion

Promotion means informing and attracting customers to buy your

product or services.

• Your business may be in a good place. You may have good

products that customers are willing to pay for.
• Your sales may still be low. Why?
May be people do not know about your business. This is called
promotion.
• Do not sit down and wait for customers to come to you. Do
promotion, sell more and increase your profit by:

Advertising – make customers interested in your products or services.

Sales promotion – getting customers to buy more from you.

Publicity - doing promotional activities

Improving your own skill as a salesperson.

3.2 Advertising

You can use advertising to make customers more interested in buying

your products or services.

Some useful ways to do advertising are

• Signs Boards
• Business cards, letter heads etc.
• Posters and hand outs
• Photograph
• Newspaper
• Radio
• Announcement in Mosques or Church
• Masquerade, Dancers etc.

Below are some ways of advertising your products without spending a

lot of money.
• Sign Board

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SUPREME
FURNITURE GOOD YEAR TULA
- SALOON METAL WORK
SPECIALISTS *** ****
IN
HOUSEHOLD HAIR CUT PRICE LIST
FURNITURE ONLY -
Frames N………
N20.00 Doors N…….
Iron Gate N……

Use sign boards, posters and hand outs to advertise your products. You
can use cheap paper or Chalk and a Chalk board. Write on the boards
yourself or tell someone to do it for you. Make the sign boards big
enough so that people can see it.

Give handbills to people who may be interested in your products or

service. You can distribute it in your area, in your association, your
mosque, your church and schools through your children and their
friends.

Business Cards, Letter heads etc.

TOLA ENTERPRISES
(Manufacturer of Quality Furniture)

Mr. S.A. ADIO

Chairman/Managing Director

Office/Workshop Home Address

________________ _______________
30, Sapon Street 36, Idiaba Road
Matori, Ogun State Ifo, Ogun State.

Use a business card and letterhead to tell your customers

• the name of your business

• the type of business you do
• who you are
• where they can reach you i.e., your office/workshop and home
address.

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3.3 Photographs

Keep a small book of photographs to show customers the products you

can make but which do not have in stock.

3.4 Rubber Stamp

You can use a rubber stamp to make your own business cards and
letterheads.

3.5 Radio and Newspaper Advertisement

When you advertise on Radio, or Newspapers etc, remember that your

customers want to know among other things:

• the name of your business

• the location of your business
• what products or services you provide
• how good your products or services are
• your prices
• where they can buy your products
• why they should buy your products
• when your business is open.

3.6 Sales Promotion

Use sales promotion to make customers buy more when they come to
your business. This can be done by having good displays, giving
demonstrations to show how the product works and selling products that
goes together.

3.6.1 Display

This is the way you arrange your products. Display is important for all
businesses. Good display makes it easy for customers to see your
products. You should therefore keep your business:

• well organised
• clear, well lit and good looking
• attractive, with your products well displayed
• show the prices clearly
3.7 Demonstration

This is the way you show your customers how the products works. If
you demonstrate very well, they may like to buy from you.

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3.8 Publicity

This is free promotion usually by word of mouth. It means that your

satisfied customers will tell other people what they think about you,
your business and what you sell.

The word travels from one person to another. Make sure it is a good
word so it gives your business a very good reputation.

3.9 Be a Successfully Salesperson

To improve your skills as a salesperson and increase your sales and

profit, you need to:

• know your customers and their need

• Some customers can never make up their mind
• Some customers are always in a hurry
• Some customers never have enough money
• Know how to treat your customers
• Greet your customers well
• Be polite and friendly
• Dress well. Look neat and clean
• Offer to help customers
• Do not talk too much
• Listen to what your customers say and ask questions to know
what they need
• Be patient
• Always be honest and trustworthy
• Never argue with your customer
• Thank your customers for buying from you.
• Know your products and how to sell them because your
customers may ask many questions about your products or
service.
• Be sure you know the answer.

3.10 Packaging

From the marketing point of view, the package is part of the product. It
is therefore an important part of product planning. There are many
reasons why packaging is very important. Some of these reasons are:

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• To meet the social and cultural needs of the people in your

community by adapting the products to meet social trends and
fashion.
• To make the appearance of the product more attractive.
• To make the product more convenient to use.

Indeed, it has become a rule that the package you use for your product
should meet the convenience of your customers. You must ensure that
the package makes the product easier to use, that it is easy to open, that
it is strong enough, that it is of practical size and that the instructions
can be easily understood.
Bad packaging causes dissatisfied customers.

The following six P’s will assist you to remember how to package your
products. These are:

Presentation

Presentation is concerned with the appearance of the product. The

general rule is that the product should be eye–catching and very
attractive to your customers.

Preservation

Preservation means how you package your product in order to prolong

its life. Some preservation methods used include canning, plastic nylon
– wrappers, chemical preservatives, deep – freezing. This applies
particularly to food products.

Promotion

Promotion means that the package should help to sell the product. The
package must be such that the customer can easily identify your product
from that of your competitors.

Proportion

Proportion concerns the size of the package. In determining this, you

will consider the quantity and the price you want to sell the product.
Protection

Protection means that the package will be strong enough to protect its
contents or last for a very long time.

Portability

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Portability means that the product must be very compact, easy to

transport from one place to another and be easy to stack.

SELF ASSESSMENT EXERCISE

Define promotion

4.0 CONCLUSION

When you are planning to make or introduce a new product to the

market, think of whether you have technical and marketing experience
for the product. If your answer is YES, then consider the kind of
packaging to use. If No, you may have to seek advice from a competent
person.

5.0 SUMMARY

It is important to promote a product in order to attract as many

consumers as possible. This may involve some expenses but it is a
necessary venture.

6.0 TUTOR-MARKED ASSIGNMENT

List all the Ps of promotion. Discuss any two.

7.0 REFERENCES/FURTHER READING

Lawal A.A. et al [1998]. Entrepreneurship Development in Small Scale

Business. Adeola Printing Press Nigeria.

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UNIT 2 MANAGEMENT OF CASH

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Management of Cash
3.1.1 Definition of Cash
3.1.2 Cash Operating Cycle
3.1.3 A Cash Flow Plan
3.4.1 How to Make a Cash Flow Plan
3.2 Step to Follow in Marketing the Plan
3.3 Business and Family
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Mr. Adio made a lot of money as a result of the sales promotion exercise
he did. Unfortunately for him, he squandered the money on night
parties, ‘spraying’ money as if it was rain water. He bought ‘aso-ebi’
for his wives and new set of cars for his girl friends. He ended up poorer
than he was before the sales promotion because he lacked the
knowledge about cash management. He should have separated the
money meant for business from the one for pleasure and other
obligations. But regrettably, he never did.

2.0 OBJECTIVES

The objective of this unit is to explain how a cash flow plan is drawn
and to acquire the understanding of separating the family from the
business.

3.0 MAIN CONTENT

3.1 Management of Cash

3.1.1 Definition of Cash

Cash is the life blood of any organisation. It is the money that is made
available for business use. Lack of cash or money can ruin a business so
also is the mismanagement of fund.

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For the maximum use of cash, you have to determine when cash is
needed and how much is needed. Even when you are making a profit, it
does not mean that you will be able to pay your debts when it falls due.
Therefore, you must always make sure that you have enough cash to pay
your suppliers, creditors, workers etc.

The way to do this is to understand the cash operating cycle and the
cash flow plan.

3.1.2 Cash Operating Cycle

The management of cash involves an understanding of the cash

operating cycle shown below:

CASH OPERATING CYCLE

CASH ----- RAW MATERIALS ---- WORK IN PROGRESS ----

FINISHED ---- GOOD SALES

• Cash

The operating cycle starts with cash which your business generates from
the sale of products or services.

• Raw materials

Cash is used for the purchase of raw materials and other inputs that are
necessary for production. For example a furniture maker spends cash
for the purchase of timber, nails, vanishes, foam, rubber etc. which he
uses for production.

• Work-in-progress

These are products that are being produced in the workshop and the
production is not yet completed.

• Finished Goods

This refers to finished products which are still in your workshop but are
ready for sale.

• Sales

This is the final stage in the cycle when you sell to your customer either
for cash or credit. When you collect the cash you again use it to
purchase raw material and to pay other creditors.

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It is important for you to reduce the amount of time it takes you to use
your raw materials to produce finished products or service and to sell it
so as to reduce the time it takes you to tie your money down.

The shorter the cash cycle, the better for your business. Another way
of controlling your cash is through a cash flow plan.

3.1.3 A Cash Flow Plan

A cash flow plan is forecast which shows you how much cash you
expect to come in to your business and how much cash you expect to go
out of your business every month.

A cash flow plan helps you make sure that your business does not run
out of cash at any time.

You should therefore use your cash flow plan to make sure that your
business always has enough cash to pay for your costs. You can make a
good profit in a year but still run out of cash during the year.

There are many reasons why your business may run out of cash.

• Sometimes you may have to buy raw materials or pay your

suppliers before money comes in. This means that cash goes
out before cash comes in to your business.
• When you give credit to your customers and they do not pay in
time whereas you need money to buy materials, pay your staff,
electricity, rent and so on.
• You have to buy equipments, tools etc which is needed for
production. Usually, you have to pay cash for the equipments
now before you start making a profit.

However, all of these problems can be solved by planning your cash

flow.

When you plan your cash flow:

• You have more control over the flow of cash

• You are in a better position to solve any problems before they
happen
• You are warned in advance about future cash shortages
• You can have cash ready when you need it

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3.1.4 How to Make a Cash Flow Plan

You can make a cash flow plan by thinking of

• How much cash will come in to your business every month

• How much cash will go out of your business every month.
To make a cash flow plan for your business, follow the example
below.

TOLA ENTERPRISES
CASH FLOW PLAN

CASH FLOW PLAN JAN.

FEB MARCH
CASH IN

1. Cash at the beginning of the

Month
1000
1100 1450
2. Cash from Sales
4000 4000
2500
3. Cash from other sources - -
CASH OUT

-
4. TOTAL CASH IN
5000 5100 5950
5. Cash out for Materials Costs 2500 2500
2800
6. Cash out for labour costs 450 450
450
7. Cash out for other costs 600
600 600
8. Cash out for buying equipments
Tools etc.
250
- -
9. Any other cash out 100
100 100
10 TOTAL CASH OUT 3900
3650 3950
11. CASH MONTH END 1100
1450 2000

3.2 Steps to Follow in Marketing the Plan

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From the above example, you can see that steps 1 – 4 are for CASH IN
while steps 5 – 11 are for CASH OUT

STEP 1. Cash at the beginning of the month

This is the amount of actual cash you have on hand and your bank
account at the beginning of January.

STEP 2. Cash from sales

This is the sales you expect to make in the month of January. This
amount also includes the money you expect to collect from the previous
credit sales you have made to your customers.

STEP 3. Cash from other sources

This includes the money you expect from other sources such as loan
from Cooperative, ‘esusu; or contribution, bank loan or interest paid
on your savings account. If you get financial assistance from a family or
friend, write it in this column.

STEP 4. Total Cash in

Add up all the cash in from steps 1, 2 & 3. This gives you the total cash
you expect to come into your business in January, February and March.

STEP 5. Cash out for material costs

This is the amount you expect to pay out in January to buy goods and
raw materials.

STEP 6. Cash out for labour costs

This is the amount of wages you expect to pay for your employees
working in production.

STEP 7. Cash out for other costs

This is the amount of cash your business will pay in January for costs
such as rent, electricity, transport, salaries, and stationeries and so on.

STEP 8. Cash out for buying equipment etc.

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If you plan to buy any tools or equipment, go to the supplier, find out
the price and write the costs in this column.

STEP 9. Any other cash out

This is the amount of any other cash you think your business will pay
out during the month. These may include loan repayment, interest on
money borrowed etc.

STEP 10. Total cash out

Add up all the cash out from step 5 to 9. This is the total cash amount
you expect to go out of your business in January and subsequent
months.

STEP 11. Cash at the End of the Month

You should subtract the total Cash Out from the total Cash in to get the
amount of cash you will have at the end of the month.

The cash flow plan for TOLA Enterprises shows that at the end of
January, they expect to have:

Total Cash In Total Cash Out Balance Cash

N5000.00 - N3900.00 = N1100.00

• If your Cash Flow Plan shows that your business is likely to run
out of cash during the month, think about the following
questions:
• If you buy on credit, can your supplier give you more time to
pay?
• Can your supplier give you raw material on credit?
• If you sell on credit, do your credit customers pay on time?
• Can you give less credit or give credit for a shorter period?
• Do you have to give credit at all?
• Can you increase cash from sales during the month?
• Can you reduce any of your costs?
• Can you get a short term loan from your cooperative, friends,
family or your bank?
• Is it a must for you to buy the new tools or equipment? If yes,
do you have to pay for everything in cash? Can you buy it on
credit or take a loan?

3.3 Business and Family

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Another crucial aspect of cash management is how to separate your

family affairs from that of your business.

Very often, most entrepreneurs mix up their personal and family

matters with that of their business. This has led to the collapse of many
businesses. To avoid this common but ugly situation, make sure that:

• You keep your business and family affairs separate.

• Do not take away cash or products from your business as a gift
for family or friends.
• Pay cash for any goods you take away from your business either
for yourself, family or friends.
• Pay yourself and members of your family who work for you
fixed salaries or wages.

Employ only family members you can trust, who will be hard working
and be a good example to other employees.

SELF ASSESSMENT EXERCISE

1) Define cash
2) Explain the cash operating cycle

4.0 CONCLUSION

You should also bear the following points in mind:

You can make your Cash Flow Plan for a shorter or longer period
depending on what is suitable for your business

Always make a new cash flow plan before the old one runs out. This is
the only way in which you can see how much cash will come in and go
out.

5.0 SUMMARY

Always use your cash flow plan to make sure your business has enough
cash all the time. If your plan shows that there is no cash at the end of
the month, it means you are likely to run out of cash that month. Look
at the amount you expect to come in and, pay and think of how you can
solve the problem.

6.0 TUTOR-MARKED ASSIGNMENT

Write out the steps for Cash Flow Plan.

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7.0 REFERENCES/FURTHER READING

Ekong, E.E. [1977]. Evaluating Development: The case of Western

Nigeria. Ilesha: Ilesanmi Press

Rutherford, S. [1999]. The Poor and Their Money. Manchester:

University of Manchester.

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UNIT 3 ENTREPRENEUR AND ENTREPRENEURSHIP

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Entrepreneur and Entrepreneurship
3.1.1 Definition
3.2 Risks Borne by the Entrepreneur
3.3 The Role of the Entrepreneur
3.4 Inducement for Entrepreneurship
3.5 Business Environment
3.5.1 Political Environment
3.5.2 Technological Environment
3.5.3 Social Environment
3.5.4 Competition
3.5.5 Physical Environment
3.5.6 Economic Environment
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

In the first twelve units, we discussed the various policies formulated

and the Institutions put in place by the government in order to achieve
economic growth via the development of the SMEs, as well as the
importance of record keeping. The policies formulated and the
Institutions established are of no use if the people do not take advantage
of the system by starting their individual projects and following proven
guidelines in the management of the projects. The next five units will
therefore be devoted to the studying of topics that will explain who an
Entrepreneur is and how businesses can be managed to optimal
utilization of resources and profit maximization.

Many authors have defined Entrepreneurship in many different ways,

yet there is no single universally accepted definition. Some of these
definitions given are looked into in this Unit.

2.0 OBJECTIVES

The objective of this unit is to explain the definition of Entrepreneur as

well as the functions. At the end of the study, the leaner would be able

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to define Entrepreneur and explain his role in the economy as well as the
environment within which he operates.

3.0 MAIN CONTENT

3.1 Entrepreneur and Entrepreneurship

Entrepreneurship involves the creation of values, the process of starting

of growing a new profit-making business, the process of providing a
new product or service, and the intentional creation of value through
organization by an individual contributor or small group of partners
(Hisrich, 1986).

3.1.1 Definition

Oslon (1987), leaning on the classical theory of the Capitalists, see

entrepreneurship as risk taking. The entrepreneur is an innovative
individual who establishes and manages a business for the purpose of
profit and growth. He says that the critical trait of the entrepreneur
ranges from a keen sense for innovation, knowledge of what is
important and what needs to be done to a high tolerance for
ambiguously unstructured situation. This serves as attitudinal mode for a
moderate risk taker.

Entrepreneurship involves the harnessing of individual dreams and

imaginations to produce values in form of products and services.

Entrepreneurs are, therefore, agents of change and growth as they act to

accelerate the economic growth, dissemination and application of
innovative ideas. In doing so, they not only ensure efficient use of
resources but also expand the boundaries of economic activities. In the
developed economies, entrepreneurs generate two-thirds of all new jobs;
account for at least two-thirds of all technological innovations; and
influence more than two-thirds of the differences in economic growth.
In these days of globalisation and digital economy, small firms play a
crucial role in experimentation and innovation that lead to technological
change and employment growth.

An entrepreneur is one who discovers and decides what opportunities he

wants to pursue and the risks he is willing and able to accept.

The entrepreneur somehow decides between time and money, between

building his own and buying, whichever the opportunity is in order to
attain its goals.

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An entrepreneur is creative and this is the willingness to look beyond

products to ideas. Products and processes are only the vehicle through
which an idea becomes effective.

3.2 Risks Borne by the Entrepreneur

A good entrepreneur or business operator must identify four essential

kinds of risks:

1. The risk one must accept i.e. the risk that is built into the nature
of the business.
2. The risk one can afford to take.
3. The risk one cannot afford to take.
4. The risk one cannot afford not to take.

An entrepreneur is an initiator of a business. The initiator bears the

financial risks, designs the operations and management of the business
Schumpter (1934) says for example, that the entrepreneur’s goal is to
develop new ideas, goods and services as well as new methods of
production, identifying new markets, discovering new sources of supply
and developing new organizational forms.

3.3 The Role of the Entrepreneur

The role of the entrepreneur may be seen as follows:

• The entrepreneur initiates an idea which if successful creates a

new industry and not just a new product. For example, the story
of the Xerox Corporation – one of the spectacular recent growth
companies in the United States is a breakthrough story. The
process was developed to overcome a major restraint on office
reproduction technology. The Haploid Corporation (as Xerox
was then called) was a pigmy when it picked up the process. Yet
it spent $40 million of borrowed money until it had a process that
worked; but the rewards are extraordinary.

• The entrepreneur diversifies the economy.

• The entrepreneur converts every opportunity into something that

will meet the need of the consumer.

• Through research and development, the entrepreneur explores

ways of developing local resources and encourages their uses.

• Entrepreneur helps in recognizing business opportunities,

mobilizing resources and persisting to exploit these opportunities
that are a necessary ingredient for self-employment.

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• The entrepreneur is the agent who maximizes opportunities for

capital investment.

• The entrepreneur is a pacesetter. He introduces the springboard

on which business developers lift up.

• The entrepreneur initiates new technology. For example, new

technology is being discovered in computer. This has now
globalized the world.

• The Information technology entrepreneurs have through

globalization removed distance following the popular saying that
“with Internet, there is no distance”.

3.4 Inducement for Entrepreneurship

Hisrich and Bush (1986) identified nine (9) factors in the order of
importance as being significant for the inducement for entering into
business:

1. Achievement
2. Opportunity
3. Job satisfaction
4. Independent
5. Economic necessity
6. Wealth
7. Career/Security
8. Power; and
9. Status/Prestige

Stevenson (1986), in addition, observed that displacement from one’s

job, dissatisfaction, inability to find a suitable alternative, and financial
independence are motives for venturing into businesses.

Gilad and Lavin address the issue of entrepreneurship from the

behavioural perspective. Their postulations are premised on the
contingency school of thought, which assumes that the environment
emits signals of “push” and “pull” variables. For example, people are
pushed into business through dissatisfaction with existing employment,
class of employment and career set back.

On the other hand, they are pulled by the existence of potentially

profitable opportunities and by the influence of parents, role models and
background.

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In relation to the environmental factors which push entrepreneurs into

business, Gilad and Lavin identified increase in unemployment rate,
higher quit rates, higher frequency of factory shut down, decline in
income, shrinking labor market, high labour turnover, increase in
savings which is a potential source of self financing, skill acquisition
through training programmes and provision of basic infrastructure that
would enable entrepreneurs exhibit their business acumen.

One may therefore be justified to say that entrepreneurship arises as a

result of:

• Availability of opportunities: - This may be an opportunity one

may or may not have been looking for. It may be financial
opportunity, power opportunity, career opportunity, skill
opportunity, technological opportunity, etc.

• Skill acquisition: - This is in terms of basic skills related to the

job one wants to venture into, for example, a worker who has
acquired sufficient skills in a given trade may be intoxicated into
entrepreneurship because of it.

• The presence of basic infrastructure: - The availability of good

water, good road networks, electricity and other social amenities
encourages the growth of entrepreneurship and other small scale
businesses.

• Inability to find suitable alternative employment: - The

inability to find a suitable alternative employment can lead to
entrepreneurship. For example, a person who was in a senior
management position in, say, an international organization, will
find it difficult to condescend for a lower employment. Instead of
taking up another employment with lower pay and status, he/she
prefers to be self-employed. This may be in form of innovating
an existing product or service or creating a completely new one.

• Job dissatisfaction: - As a result of frustration, humiliation,

dehumanization, poor pay, poor working conditions and
workplace, demotion, dearth of growth, etc. job dissatisfaction
may set in and this propels individuals into finding alternatives.

• Job satisfaction and skill development: - On the other hand job

satisfaction can result in entrepreneurship. This is so because an
employee, who is satisfied, may be as a result of skills acquired,
savings accumulated, information networks, power and wealth of
experience may not want these to waste. He rather ploughs them
into some ventures.

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• Status/ Class of employment: - Since there are different grades

of employment and different people have their status to maintain,
it will therefore be unacceptable to a production manager if he’s
demoted to a factory worker he may resign to start his own
business.

• Increase in employment rate: - The increasing job insecurity act

as a catalyst in the creation of entrepreneurship. The team of
graduates produced yearly is therefore encouraged by the
National Youths Service Corps (NYSC) and the National
Directorate of Employment (NDE) to develop their skills for
entrepreneurship.

• High frequency of Retrenchment: - Some factories and

government Ministries retrench workers. When this happens all
the laid-off workers must find alternatives.

• Increase in savings and wealth: - Entrepreneurship may arise as

a result of appreciable savings and wealth. Savings and wealth
here may include finance, skills, knowledge, land and building,
education, information, etc.

• Recognition and power: - The quest for recognition and power

may lead to entrepreneurship. For example, ‘I want to be the
inventor of…’ ‘I want to be the first person to…’ etc. In other
words, people want to show off e.g. ‘I can do it’ and so on. This
results in creativity.

• Independence: - The quest for people to be independent will

make them to resign their appointment and start a business on
their own. This will lead to financial independence, social
independence, class independence etc.

• Training: - Drawing from the information world, all

entrepreneurs are able to explore and optimize available
opportunities for healthy competition. Universities, polytechnics,
research institutes and other special training institutions,
including vocational training centers, ensure thorough conduct of
practical sessions of their courses in order to propel the
entrepreneurship in the students.

• Other factors may include:-High rate of labour turnover,

decline in income, and lack of job opportunities.

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3.5 Environment of Business

The environment may be defined as the set of all objects, which are
influenced by and/or influence the system of interest. The environment
is characterized by complexity, turbulence, uncertainty and risk; hence
the need for the entrepreneur to identify and recognize his/her own
relevant and negotiable environment from the cascading environment.
Purposeful business systems influence and are influenced by their
environment principally because the business system inputs are derived
from the environment and the outputs are consumed by the environment.
The entrepreneur therefore, needs to analyze the environment on a
continuous basis because it offers both opportunities and threats.

The environments of business can be internal (micro) or external

(macro) and these are inspired and maintained by the entrepreneur (a
person or investor who organizes or manages a commercial undertaking)
after he/she has determined ‘what to do’, ‘how to do it’ ‘when to do it’
and ‘Where to do it’. The micro business environment may include the
management structure and element such as labour, machine and place
which interacts within the work setting. It is necessary to have an
effective mix of the elements to be able to maximize productivity and
profit.

The macro business environment may be classified as physical, socio-

cultural, political, moral, technological, economical, legal, religious etc.

3.5.1 Political Environment

The political environment is very important for the performance of the

business. It has been discovered that the poorest nations are those that
are politically unstable. The entrepreneur should have idea of the
following:

• General political climate of where the business operates: He

should know and avoid illegal goods/services. For instance,
the Federal Government has sanctioned the importation of
textiles, men’s shoes, toothpicks etc. Unless an entrepreneur
knows this he will not make a success in that area of business.

• Trend towards general regulation of the industry: This means

that entrepreneurs should be conversant with all regulations
governing the business of their choice and interest.

• Prices and income: Government makes regulations on

minimum wages and price control board. The latter is

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however not very effective because of current currency

deregulation.

• Industrial relations: The entrepreneur should be aware of the

regulations on labour relations, regulation on localization of
industries, registration of patent and trade marks/franchise,
regulation with respect to business practices e.g. minimum,
wages, hours of work, quality of products, health and safety
procedures.

3.5.2 Technological Environment

The more technological developed a community is, the better it is for

businesses to spring up. For example, businesses emanate faster in
cities where there are facilities for growth than in the rural areas. It is
easier and almost cheaper to start a cyber café in Lagos than in a hut in
Delta State because of the technology already in Lagos which is not at
Agbor.

3.5.3 Social Environment

The social environment comprises of the structure of the population,

regional location of target population, changes in class structures, new
values and attitude to work, type of authority, leisure and changes in
labour as well its mobility etc.

3.5.4 Competition

Every entrepreneur should know as well as take the competitors’

activities into consideration when planning her activities. Competition
may be stronger as a result of merging and acquisition, product changes
and process changes. For example, if your competitors discover better
and cheaper processes of production and distribution, they will outwit
you.

3.5.5 Physical Environment

As a result of the favorable physical environment in our country, the

following principal raw materials are available and provide
opportunities for the establishment of industries e.g. for:

i) Agro-allied: cassava, yam, rice, maize, soybean, sorghum, beans,

groundnuts, vegetable oil, citrus and other fruits. Melon, tea
leaves, cocoa, malt, sugar cane, ginger, garlic and other spices.

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ii) Building and road construction: bitumen, timber and wood, sand,
clay materials, limestone, ceramics, sanitary ware, iron
reinforcements, etc.

research findings, technical

partners

The product; National economic policies

3.5.6 Economic Environment

The entrepreneur should be familiar with

• The general state of the economy e.g. Structural Adjustment

Programme (SAP) to salvage the economy and reset it on a
healthy course of reconstruction, growth and development;
foreign exchange market (FEM) for buying and selling forex at
market determined rates.

• National economic policies especially those relating to small

and medium enterprises.

• Sources of finance and prevailing terms.

• Banking regulations and special concessions to small

enterprises.

• Roles of Development and Commercial Banks.

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• Economic intelligence – information on economic activities

both current and future.

• Level of employment system and distribution of purchasing

power-income.

SELF ASSESSMENT EXERCISE

1) Give two definitions of an Entrepreneur

2) What are the roles of an Entrepreneur?

4.0 CONCLUSION

The Entrepreneur is needed to accelerate economic growth in any

economy. Both positive and negative reasons can spur an individual to
abandon his work and become an Entrepreneur within a business
environment.

5.0 SUMMARY

The Entrepreneur is a risk taker who brings about innovation in an

economy. The reward of his action is the profit that accrues to him. This
will further lead to growth within the system.

6.0 TUTOR-MARKED ASSIGNMENT

1. List the factors that induce entrepreneurship. Discuss two of

them.
2. List the different business environment. Discuss two.

7.0 REFERENCES/FURTHER READING

Charles, O.U (2004). Becoming a Successful Entrepreneur. Lagos

Hedrix Production.

Siebert, J.C, (1989). Concept of Marketing Management. New York:

Englewood Cliffs Publication.

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UNIT 4 DEFINITIONS OF BUSINESS TYPES

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Definitions of Business Types
3.1.1 Definitions of Small Scale Enterprises
3.1.2 Cottage/Micro Industry
3.1.3 Small Scale Industry
3.1.4 Medium Scale Industry
3.2 Nature and Characteristics of Small Scale Enterprises
(SSES)
3.3 The Importance of Small and Medium Scale Enterprises
3.4 Overview of Performance of the SME in Nigeria
3.5 The Role of SMEs in the Nigeria Economy
3.6 Advantages of SSEs
3.7 Disadvantages of SSBs
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings

1.0 INTRODUCTION

An understanding of the definitions reveals that it is difficult to discuss

micro financing without a thorough explanation of what a business is.
The entrepreneurs’ ideas develop not just into products but industries,
which could be classified into Small, Medium or Large scale
Enterprises.

2.0 OBJECTIVES

The objective of this unit is to explain the different definitions of

businesses. At the end of the study, the leaner should be able to
differentiate between the different types of businesses

3.0 MAIN CONTENT

3.1 Definitions of Business Types

Peter Drucker asserted that: “to know what a business is, we have to
start with its purpose. Its purpose must lie outside the business itself. In
fact, it must lie in the society since business enterprise is an organ of the
society”. The purpose of the business is to create a customer. It is the

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customer who determines whether a business will continue or not. The

business is sustained by the customer’s willingness to pay for a good or
for a service that is produced.

Generally, a business may be defined as any or all legal

activity/activities that are performed in order to earn a living and make
profit.

It maybe a commercial venture out of which the owners earn their living
by either producing or buying goods for sale.

It may also be defined as economic activity involving production,

distribution, and or the exchange of goods and services. This may be in
the form of socio-economic activities whose output cannot be easily
quantified in organizations such as Christian centers, humanitarian
societies or voluntary organizations.

It can also be regarded as the activity an individual or a group of

individuals engage in with the hope of earning revenue and profit.

A business (or enterprise), whether small or big, simple or complex,

private or public is created to provide goods/services at competitive
prices.

A business may also be classified as a system which is a linkage of input

flows (energy, materials, or information), from a source in the external
or internal environment, a transforming mechanism or process (a
machine or a technical or human organization), and flows of output or
outcomes, which are provided to end or intermediate users.

Business can be broadly defined as the act of production, distribution

and exchange of goods and or services. The word business can also be
used interchangeably with a firm or enterprise in the sense that a firm is
an enterprise or organization formed for the purpose of carrying on
some kind of economic activity/activities.

In total, business is the sum of organised efforts by which individuals

and organisations engage in commerce and industry to provide goods
and services needed to maintain and improve the standard of living and
quality of the society’s needs, wants and desires. It performs the
primary function of efficient and effective allocation of resources within
the economy. It is developed and managed by people to produce goods
and services that the society wants.

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3.1.1 Definition of Small Scale Enterprises

There is no universally accepted definition of Small-Scale Enterprise

(SSE). The classification of businesses into small, medium or large scale
is a subjective and qualitative judgment. The definition is country
specific and it is based on the peculiar needs as well as the public
policies of the country.

Defining a Small-Scale business is a difficult thing because of the

divergent views people have concerning the term. For example, the
United States provided, The Small Business Act (SBA) of 1953 and
defined the term ‘Small Business’ as ‘one whose average annual number
of employees ranges between two hundred and fifty to one thousand five
hundred (250-1500) people. Also, qualitative standards are sometimes
used in defining small businesses. The Act provided an outline for
qualitative standards. According to the Committee for Economic
Development (CED), a business can be defined as small business if it
has at least two or more of the following key features.

1. Management is independent. Usually the managers are the sole

owners.
2. Capital is supplied and an individual or small group holds
ownership.
3. The area of operation is mainly local.
4. The business is small when compared with the biggest units in its
field.
5. Small share of the market that cannot influence the activity in
most levels of the firms.
6. The Chief Executive generally participates actively in most level
of decision-making process and day-to-day operation of the
firms.
7. The Chief Executive can be known by all employees of the firms.

The common indicators as defined are: the size of capital invested (fixed
assets), value of annual turnover (gross output), and number of paid
employees, the popularity of the three indicators derives largely from
their ease of measurement.

In Britain, for instance, a small scale business is defined as that industry

with an annual turnover of two million pounds or less with fewer than
200 paid employees.

The United Nations Economic Commission for Asia and the Far East
(ECAFE) defined ‘a cottage industry’ as an enterprise carried on wholly
or partly with the help of members of the family either as a whole or as a
part time occupation. The commission therefore defined Small-Scale

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Industry as one operated mainly with hired labour usually not exceeding
fifty (50) workers if locomotive power was not used or twenty (20)
workers if locomotive was used.

In Nigeria, the definition of SMEs varies from time to time and

according to institutions. For instance, the Central Bank of Nigeria
(CBN), Monetary Policy Circular 22 of 1988 defined small-scale
enterprises (excluding general commerce) as an enterprise whose capital
does not exceed N500, 000 and or the annual turnover does not exceed
N5m. However, since 1990, due to the persistent depreciation in the
exchange rate of the naira, the maximum size of capital investment has
been raised to N5million and the turnover to N25million.

In the 1990 budget for instance, the Federal Government of Nigeria

defined small-scale enterprises for the purpose of commercial bank
loans, as those enterprises with annual turnover not exceeding N500.000
and for merchant bank loans, those enterprises with capital investments
not exceeding N2million (excluding cost of land) or a maximum of
N5million.

The National Economic Reconstruction Fund (NERFUND) puts the

ceiling for small-scale industries at N10million.

Section 376(2) of the Companies and Allied Matters Decree of 1990

defines a small scale company as one with:

a) Annual turnover of not more than N2m.

b) Net assets value of not more than N1m.

Thus we can say from the foregoing that a small-scale enterprise may be
seen as an enterprise whose total cost, excluding cost of land but
including working capital, is above N1m but not exceeding N10m.

The European Commission (EC) coined the term ‘Small and Medium
Enterprises (SMEs)’. The three components of the SMEs are:

i) Firms with 0-9 employees are micro enterprises

ii) Firms with 10-99 employees are small enterprises
iii) Firms with 100-499 employees are medium enterprises.

The EC definitions are based solely on employment rather than

multiplicity of criteria and restricted to enterprise, which employs less
than 500 workers.

In 1992, the National Council on Industry streamlined the various

definitions in order to ensure uniformity and provided for its review

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every four years. The definition adopted used a combination of capital

investment and employment for categorization of industry.

The definitions were first revised in 1996 and then in 2001 as follows:

3.1.2 Cottage/Micro Industry

Cottage/ Micro industry is an industry whose total project cost,

(excluding cost of land and working capital) is not more than
N1.5million and labour size of not more than 10 employees.

3.1.3 Small Scale Industry

Small Scale industry is an industry whose total project cost, (excluding

land and working capital) is above N1.5million but does not exceed
N50million and a labour size of not more than 100 employees.

3.1.4 Medium Scale Industry

Medium Scale Industry is an industry whose total projects; costs of land

and working capital is above N50 million but does not exceed N200
million and a labour size of not more than 300 workers.

SMEs in ordinary parlance are business organizations that have lower

capital base, turnover employment size and non sophisticated
management style, in relation to large enterprises. SMEs deserve
support from governments, organized sectors and indeed, the civil
society.

The specific objectives of the scheme are:

• To facilitate the flow of funds for the establishment of new SME

projects, reactivation, expansion and modernization of
restructuring on going projects.

• To stimulate economic growth, develop local technology and

generate employment.

3.2 Nature and Characteristics of the Small Scale

Enterprises (SSES)

Every organization that is profit oriented has the following broad-based

features: location, management, organization structure, legality, capital
base, marketing, management and product or service profitability.
However, there are some characteristics that are common to the Small-
scale businesses.

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• Small equity base

The equity base is small. This low capital does not give them any
advantageous position to enjoy economics of scale in buying, selling or
even production.

• Restricted Scope of Ownership: Most small-scale businesses

are run on the basis of one-man ownership except for few
occasions where there are partnerships, limited liability
companies and co-operatives. They are highly family
centered.

• There is lack of credit and marketing facilities.

• There is over-dependence on imported technology hence the

general low output per head as a result of use of local
equipment where applicable.

• They stimulate rural development.

• There is less sharing in decision making. Decisions are mostly

ownership based.

• There is greater concern for financial matters hence the

difficulty in expansion.

• There is the inability to separate private funds from company’s

funds. This is a hindrance in the efficient running of SSEs.

• Operators are reluctant in taking risks. This is mostly because

of the origin of most firms which may militate against the
taking of risks in new ventures.

• SSEs are more closely attached to the products that launched

them thus they find it difficult to shift from what they produce
presently to other businesses this may be regarded as the
problem of diversification.

• SSEs are product intensive i.e. they tie objectives closely to

the line than to other matters such as the use of capital (Capital
here refers to money, machine and man).

• Low Literacy Level: Management is non-specialized with sole

control of business functions like accounting, production,

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personnel and marketing responsibilities rested on individual

owner – managers. This is equally true of any co-operation
but small firms do not apply this well.

• There is lower turnover and higher labour investment ratio.

Although, there is no legislation stipulating how much a small
company should earn in a year, experience has shown that the
annual earning of most small scale firms range from very little
to amount mostly not exceeding 5million naira per annum.

• The employer-employee relationship tends to be more difficult

especially when it comes to recognizing and correcting
inefficiencies.

• Performance standards are almost impossible to establish and

enforce under the kind of informality that prevails in SSEs. In
other words, the large poverty level in technological and socio-
political arena results into low standard of living.

• SSEs have special problem with respect to growth in corporate

size. This is mostly due to the limited resources and financial
vulnerability of SSEs which usually increases rather than
diminishes the risks.

• Limited Number of Employees: In Nigeria, firms with staff

strength of one to fifty persons are categorized as small scale
unlike in the United States of America where companies with
500 persons are still taken as small firms.

• Very Narrow Market Sphere: Small-scale enterprises because

of their small capital base often concentrate on very small
markets, which they can effectively service. Some of them
deal on convenient goods like soap, detergent, books, foods,
beverages, home appliances, etc.

• High Rate of Failure/Mortality: Due to the absence of checks

and balances, accurate accounting records, in some cases, the
owner’s inability to account accurately, he disburses funds
from his purse as he wills without proper records. These types
of firms are especially ripped with fraud hence failure.

• They remain small because they are sometimes unaware of the

sources of funds made available by government.

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3.3 The Importance of Small and Medium Scale Enterprises

The small and medium scale enterprises (SMEs) are accorded a great
importance in both developing and developed nations of the world. The
United Nations agencies have for long realized the importance and
potentials of the SMEs all over the world and have taken positive steps
to enhance the sector through agencies like United Nations
Development Programme (UNDP) and United Nations Industrial
Development Organisations (UNIDO).

In Japan, for example, small business firms have been identified as the
foundation of Japan’s industrial strength. The sector employs 81.4% of
the total labour force and accounts for 56.1% of the total manufacturing
value added. They offer great support to the Japanese industrial giant.

In China, this sector provides 60% of total output of fertilizers, 57% of

the country’s cement output, 28% of big iron and 13% of crude steel and
67% of agricultural machineries.

In India, between 1984 and 1985, the sector provided 50% of total
industrial output, 80% of total industrial sector employment and 40% of
total export.

In USA, the importance of the sector cannot be over emphasized. The

sector provided 40 million jobs between 1984 and 1994.

In the United Kingdom a study revealed that small business provided

between 800,000 to one million new jobs or businesses between 1982
and 1986.

In Canada, the sector employs 50% of the labour force. To demonstrate

the importance attached to this sector, Canada has a minister who is in
charge of the formulation and review of policies and programmes
related to this sector. The same applies in Italy, South Korea and
Indonesia.

3.4 Overview of Performance of the SME in Nigeria

An appraisal of the performance of the SMEs in Nigeria shows that past

governments have made some positive efforts on the sector. For
example, it is estimated that SMEs account for about 70 percent of the
total manufacturing output. Specifically, the agricultural sector, which
largely consists of SMEs, employs over 60 percent of the gross domestic
product (GDP). Furthermore, SMEs are known to be very active in
promoting increased use of local inputs into either intermediate or final
outputs. Similarly, many SMEs have successfully adapted imported

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machinery for local usage, thus positioning themselves as veritable tools

for promoting technical know-how and developing indigenous
technology. Finally, owing to the fact that SMEs are mostly resource-
based and therefore, well dispersed throughout the country, they have,
to a large extent facilitated the opening up of the rural areas and have
assisted to mitigate rural urban drift. The key to all these is
entrepreneurship development which translates ideas into business. The
economy would have faired better in these areas if there are more
entrepreneurs and more efficient SMEs.

The importance of small business sector in Nigeria could be summarized

and includes the following:

• Employment generation: It brings about industrial expansion

and creates employment opportunities which make for a better
economy due to high employment rate in the country. For
example, the establishment of an enterprise will lead to the
demand of human efforts in different areas.

• Development of local technology i.e. new technology:

Nigerians are making new approaches to the provision of
machines that can fabricate equipment for oil drilling and
compressors, block molders, bakery and soap making
equipment, farm tools e.g. hoes, cutlasses, knives etc.

• Encourages the development and application of local raw

materials: This sector has attracted small businessmen into
investing in the processing of farm products and minerals.

• The sector encourages infrastructural development i.e. the

localization of a small project can challenge the government to
extend the construction and maintenance of roads, electricity,
water and other necessities as an encouragement in that
direction.

• The sector promotes indigenous enterprises: This is a very

vital role in the area of growth and development. For instance,
a pure water company will lead to the need for printers who
will print the company’s name, address, NAFDAC and batch
numbers, nylon bags production, sign writing etc. All these are
likely to be from the neighborhood of the enterprise.

• The sector encourages the growth and training of local skills

and workers: There are young school leavers trained to serve
these businesses in their communities who could rise to serve
bigger organisations. Technology clusters, for instance,

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focuses on the acquisition and development of the skills

necessary for efficient entrepreneurship. Such skills include:
a. Entrepreneurship spirit, characteristics and personality.
b. Ability to initiate ones own business.
c. Technical and other professional competence needed for productive
work and employment.
d. Managerial ability to run the business successfully.
• This sector specializes in manufacturing products which the
bigger firms or companies use for their productions. In other
words the sector supplies intermediate goods and raw
materials to the large scale industries.

• This sector brings about the diversification of the economy i.e.

all sectors of the economy are represented as the little ones that
are neglected are taken up by the small investors.

• The SMEs help to control rural/urban migration i.e. with the

establishment of businesses in local places; the drive for
employment outside that environment is reduced as the
companies in that environment will employ some of the people
there.

• They bring about the improvement of the standard of living of

the people and the quality of life generally i.e. the presence of
the small businesses attracts the infrastructures that bring
about these developments. For example the development in the
telecommunication sector in Nigeria has not only created
employment but also enhanced business operations and
improved the quality of life of both rural and urban dwellers.

• This sector encourages the utilization and development of

available local resources through improved production,
storage, reservation or conservation, processing, recycling,
packaging, marketing, etc.

• Promotion of production and development of consciousness:

SMEs serve as major facilitators for industrial spread and rural
development. Any entrepreneur who wants to succeed must
think of how to improve already existing products/services or
produce new ones that will be acceptable by the target market
consumers.

• Apart from skill acquisition, entrepreneurship helps to invent

and develop better technologies which the entrepreneur uses
instead of rudimentary technologies production which usually
yield low outputs. The better and efficient technologies

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developed at the cluster enhance the output of the entrepreneur

and increase his profit margin. Hence, the enterprises grow,
expand and create more room for employment.

• SMEs provide excellent opportunity for developing young

talents into great entrepreneurs and managers which are
necessary for economic development. For example, this can be
better illustrated looking at the activities of the Nigerian
Opportunities Industrialists Centre (NOIC).

• It develops better and more efficient technologies for increased

and optimal outputs of goods and services.

• SMEs support industrialization policies for a rural-urban

economic balance in a country.

• Through research and development, it helps in developing

local resources and encourages their uses. This reduces
importation and saves foreign exchange which transcends to a
better economy.

• It discovers and develops better and optimal ways of using

economy resources for economic growth. There are some
small scale entrepreneurs who are into recycling. The end
products of these thus become the raw materials of others.

• Foreign exchange is also earned by exporting the technologies

developed in the “technology cluster” of a country e.g. the
Silicon Valley Technology in America and New York Banking
Clusters are springboards for Nigeria’s information
technological and banking growth.

• A well managed enterprise is the mother of many other

companies.

3.5 The Role of SMEs in the Nigeria Economy

The role of SMEs is based mainly on the belief that such enterprises are
likely to:

• Facilitate the development of a broader base indigenous

entrepreneurial culture for the country and a higher value-
added to domestic industrial production i.e. basis of the
national economy.
• Boost employment as they employ a larger number of people
per unit of investment capital-intensive enterprises.

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• Enhance regional economic balance through industrial

dispersal, including rural areas.
• Moderate rural-urban migration.
• Promotion of effective domestic resource utilization.
• Facilitate managerial training for the unskilled and semi-
skilled labour.
• Produce intermediate goods for use in the large enterprises.
• Stimulate and develop local technology and hence higher
quality parts.
• Mobilize and utilize domestic savings.
• Increase efficiency by reducing costs and improving
flexibility.
• Expand export possibilities and substitute imports effectively.
• Produce import substituting machinery and equipment
(copying and duplicating multiplication of prototype
machinery and equipment) for possible leasing.

3.6 Advantages of SSEs

• SSEs are relatively less capital intensive and therefore ideal as

a channel of faster growth in developing economies;

• They are relatively more flexible and can react quickly and
easily to changes and special requirements and are therefore
better suited for launching new products, where scale of
operation can be made very small at the outset and allowed to
expand in case of success, thereby keeping risks under greater
control than larger enterprises;

• The sizes of these enterprises enable greater flexibility in their

management and are therefore viable testing grounds for new
techniques of production;

• SSEs can easily adapt to the local market and local sources of
raw materials and may thus achieve savings in transport costs,
and are therefore more suited for promoting industrial
dispersal or decentralization of industries in rural areas;

• They are suited for mobilising small savings for proactive

purposes, which would not be readily forth coming or at least
not in industrial capital formation within the context of large-
scale projects;

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• SSEs are more efficient than the large-scale plans in utilising

and training a small number of skilled labour that can be
readily and effectively utilised;

• They are likely to provide linkages between the larger

enterprises and local producers of basic raw materials through
the production for semi-skilled entrepreneurs.

• They are within the financial reach of many entrepreneurs as

the demand of the sponsors for the contribution of equity is
less tasking.

3.7 Disadvantages of SSEs

• Under-capitalisation – The major source of financing small-

scale enterprises worldwide is owner’s capital. Most
proprietors do not allow outsiders participation. This owner’s
fund is usually not enough for the funding of the business.

• Small size of SSEs – This often gives neither encouragement

to nor attracts the attention of outside interest. Investors are
more interested in bigger and established companies than the
very young ones.

• High risk rating – Nearly all SSEs are usually classified as

‘high-risk’ ventures by most lending institutions. They are
consequently accorded very low priority rating in credit
institutions’ lending schemes. This problem is also often
associated with high degree of loan diversion to unscheduled
activities and high rate of default in loan repayment.

• Low productivity among the SSEs – As a result of poor

financial base and smallness of their market share, the
productivity of these enterprises is generally very low.
Competition becomes very difficult in both factor and product
markets.

• High mortality rate – SSEs fold up during their first year of

registration or operation. The high rate of business failure
among the SSEs is ascribed to poor knowledge of project
conceptualization and implementation, and lack of managerial
and technical skills.

• Dearth of tangible assets – SSEs and their owners lack

adequate tangible assets that could serve as collateral to secure
loans from private credit institutions.

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• Inadequate quantitative data for decision making and strategic

planning. Even where these are available, the entrepreneurs
may not use them.
• Vulnerability to economic downturn and recessions. They
suffer inability to cope with the demands of opportunities
arising from rapid economy.

SELF ASSESSMENT EXERCISE

1) List three advantages of SMEs

2) What are the roles of SMEs?

4.0 CONCLUSION

The contribution of SMEs to economic growth cannot be over

emphasised. It is therefore necessary for the government to put in place
concrete strategy to forestall their failure.

5.0 SUMMARY

The advantages of the SMEs are many but it requires that the
practitioner be dogged to be able to enjoy benefits. Effort must also be
made by the SMEs practitioners to overcome the disadvantages;
otherwise he may fold up the business.

6.0 TUTOR-MARKED ASSIGNMENT

1 List the disadvantages of SMEs.

2. What are the characteristics of the SMEs?

7.0 REFERENCES/FURTHER READING

Edwin, F (1979). Management. Massachusetts: Allyn and Bacon Inc.

Harold, koontz, (1983). Management. Tokyo: McGraw – Hill Co.

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UNIT 5 GENERAL MANAGEMENT PRACTICES IN

SMALL SCALE BUSINESS

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 General Management Practices in Small Scale Business
3.1.1 Definition
3.2 Planning in Small & Medium Enterprises
3.2.1 Planning Process
3.2.2 Components of Planning Process
3.2.3 Business Strategies and Policies
3.3 Organisation in Small Scale Enterprises
3.3.1 Work Analysis and Departmentalisation
3.4 Coordinating
3.5 Staffing
3.6 Directing
3.7 Control
3.8 Decision-Making
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

In the first twelve units, we discussed the various policies formulated

and the Institutions put in place by the government in order to achieve
economic growth via the development of the SMEs. The policies
formulated are of no use if the people do not take advantage of the
system by starting their individual projects and following proven
guidelines in the management of the projects. The next five units will
therefore be devoted to the studying of topics that will explain how
businesses can be managed as well as the optimal utilization of
resources.

Mrs. Abeni employed her husband as the Managing Director of her

Company as well as three of her children as Managers of different
departments. The husband rarely comes to the office. He is always in the
drinking bar. The children on the other hand, invite their friends to the
office and spend a substantial number of the office hours watching the
television.

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Mr. Chucks employed his brothers and sisters on a farm project worth
over N3million. After two years of practice he had to sell the farm since
the brothers mismanaged the funds. He acquired another farmland and
started a fish farm project which is very buoyant and successful. He did
not employ any member of his family. He has some personnel with
defined roles and they all report to the Manager, who is a well-trained
Acquaculturist.

It is therefore pertinent to put in place well-managed team to be able to

achieve in spite of the non- human resources available.

1.0 OBJECTIVES

The objective of this unit is to explain the efficient management

procedure that will benefit the SMEs, such as planning, staffing and
directing. The leaner should be able to explain the different management
procedures and apply them when necessary.

3.0 MAIN CONTENT

3.1 General Management Practices in Small Scale Business

3.1.1 Definition

Business Management refers to the efficient allocation and utilization of

available resources to achieve the predetermined goals of a business.
Successful management of small-scale business may be described as the
profitable use of those factors that are necessary to conduct a business
successfully.

All business organisations irrespective of their size and nature apply the
same general management practices. Management principles and
functions of large corporations are also applicable to small-scale
business. This does not mean that the principles and practices should be
rigidly adopted in all cases, but should be adapted to the particular needs
of the firm

Meanwhile, effective management of any business enterprises will

require careful and systematic planning, organising, staffing, directing
coordinating and controlling of the enterprises activities.

3.2 Planning in Small & Medium Enterprises

Planning is the most basic of management functions. It is a decision-

making process that addresses the specific features the entrepreneur
desires for his business.

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3.2.1 Planning Process

Planning Process involves:

1. Determining objectives
2. Examining the environment and forecasting changes
3. Developing methods (policies and strategies) that will be used to
achieve the objectives.

Benefits of Planning

Planning is important in view of the benefits offered.

Such benefits include:

• Provision of rational, efficient and timely data

• Coordination of the objectives / purpose of the firm
• Setting of objectives / purpose for the firm purpose
• Effective Control
• Prompt and Improved decision-making timing
• Optimal acquisition, maintenance, utilization, disposal, and
replacement of physical and human resource.

3.2.2 Components of Planning Process

The main components of the process include:

• Objective:

The objective of the firm is to convert the mission and the vision of a
business into designated performance outcome. Objectives are
predetermined statements that commit the entrepreneur to produce
specified results within a specific time. Performance objectives must be
stated in quantifiable levels and must contain deadline for
accomplishment

Objective may be set in areas such as market share, innovation,

productivity, financial and physical resources, management performance
and development. Others are profitability, work performance and social
responsibility.

Good objectives of a business must be

• Clearly defined
• Challenging

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• Understood
• Flexible
• Related to broad goals
• Attainable
• Acceptable
• Environment

It is important for the planning process to recognize the need for

establishment of a formal linkage between the internal and external
environment. Environmental analysis requires a business to predict
among others the competency of the business over competitors in
absolute and relative terms.

• Market analysis
• Changes in socio-economic environment
• Reaction of the owners, suppliers, competitor, government etc
to successful implementation of the planning.
• Changes in technological environment and its impact on the
business.

Environmental analysis will single out critical development within and

outside a business and relate them to business plans or strategies.

3.2.3 Business Strategies and Policies

Business strategies are the actions that the entrepreneur and

management take in order to achieve the strategic and financial
objective as well as the mission of a business. Strategies such as market
concentration, market development, product development, innovation,
horizontal integration, vertical integration, product development,
turnaround, divesture and liquidation are principal grand strategies,
which could be used to achieve long-term objective.

Policies: Formulation of policies is an important aspect of planning.

Policies are standing plans that guide actions and decisions in an
organization.

Formulation of definite, stable and flexible policies will provide

continuous framework for the conduct of individuals in a business,
ensure consistency of actions, provide direction for the business, enable
a business to conserve its resources, foster favourable behavioural
climate and assist in delegation of authority.

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Policies may deal with strategic issues such as production, marketing,

personnel, purchasing and financial. Less strategic issues such as
dressing, appearance etc may also be implemented through policies.
Many business policies are written policies i.e. they are stated in writing.
These policies are more definite and prevent conflict and confusion.
Policies may also be unwritten. Unwritten policies are not stated but
based on the particular actions undertaken by the operator of the
business.

For policies to be effective they must be realistic, attainable flexible,

consistent with objectives, strictly followed communicated, understood
and motivating.

Policies can be stated in general terms i.e. broad policies. Such policies
relate to the business as a whole and express its overall purpose. For
example, the policies of Total Quality Management

Policies may also be expressed in specific term i.e. specific policies.

Specific policies are usually affecting the operation of departments.
Examples are:

4. Marketing Policies: Market segmentation, product line, product

differentiation, customer and channels of distribution, selling,
pricing and promotion policies.

5. Research and Development: stages in R & D target for

improvement, depth of research, offensive or defensive make or
buy research, limits on total commitment.

6. Production Policies: Extent of integration production system,

technology, and capacity etc policies.

7. Purchasing Policies: Make and buy, vendor, coordination policy.

8. Personnel Policies: Manpower planning, Recruitment, selection,

Training and development, remuneration, and Industrial relations
policy etc.

9. Financial Policies: Sources of finance, financial structure,

investment and dividend policies.

3.3 Organisation in Small Scale Enterprises

Strategy and policy execution depends on good internal organisation and

competent personnel. To organise is to differentiate and integrate work

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activities. Managers take five fundamental decisions when they

organize.

These decisions include:

• Working Analysis: Analyse the total workload into tasks that
can be logically performed by groups or individuals

• Departmentalisation: Grouping of employees and tasks in a

logical and efficient manner

• Assignment of work to members of the firm according to their

capabilities and interest. In a small business, one often finds
absence of specialisation, in fairly large organisation, it may be
impossible to assign many functions to an individual; there
may be need for specialization.

• Delegation of Authority: This is the assignment of authority

and operating responsibility by the superior officer to the
subordinates. Decisions must be made by small scale
entrepreneur in respect of the extent of delegation. One of the
problems faced by small-scale entrepreneurs is stress resulting
from lack of delegation. Delegation will create for effective
management.

• Setting up mechanisms for integrating departmental activities

into a coherent whole and monitoring the effectiveness of that
integration. This process is known as coordination.

3.3.1 Work Analysis and Departmentalisation

The work analysis is the linking of business strategy (plan) and

organisation design in order to achieve the organisational goal. The
activities that must be performed for the achievement of the business
plan objectives would be listed. This grouping together of these
activities into manageable divisions is referred to as departmentalisation.
Examples of which are:

(a) Functional Structure: This is common in small business; it

involves division of the business into functional units such as
production, marketing, finance, personnel etc

(b) Geographical Structure: Organising the business on the basis

of geographical areas or territories covered.

(c) Product Structure, Grouping activities along business and product

line.

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(d) Process Structure: Grouping activities on the basis of specific

production processes undertaken.

(e) Customer Structure: Establishing units on the basis of

customers service

In small business organisations, employees are likely to undertake

variety of jobs however, business owner should avoid work overload. In
addition, the principles of organising must be strictly followed in
designing organizational structure. Such principles include:

• Hierarchy of Authority
• Unity of Command
• Clearly defined authority and responsibility
• Clearly defined chain of Command
• Appropriate span of control

Usually, the entrepreneur in small business will exercise line authority

on all the workers within a company. This is the ultimate authority to
decide, act, approve, command or disapprove directly or indirectly all
activities, performed by individuals in an organisation (see figure 1).

As the business grows, this line authority may be complimented by staff

authority. This is the authority to advice, recommend or service the line
authority. E.g. Personnel, Corporate Planning, Data Processing are
examples of staff authority, (see figure 11)

Entrepreneur

Workers

Figure 1 (Small Organisation)

Entrepreneur

Production Marketing Personal Data

Officer Officer Officer Processing
Officer
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Figure 2 (Growing Organisation)

Irrespective of how authority is centralised by the entrepreneur at the

top, authority and operating responsibility must be delegated.

Delegation of authority is the passing of authority, duties and operating

responsibility by the superior officer (entrepreneur) to the subordinate.
The delegation of authority is necessary for the effective functioning of
a business; no entrepreneur can personally or completely supervise all of
what happens in a business.

Decisions must be made on:

(a) What to delegate

(b) When to delegate
(c) How to delegate
(d) Whom to delegate
(e) The extent of delegation

One of the fundamental principles of delegation is the parity of authority

and responsibility. No person should be held responsible for a job unless
he is given sufficient authority to execute it and no one should be given
authority more than his responsibility.

Most small-scale entrepreneurs are faced with problems of inadequate

delegation. By delegating sufficient authority, entrepreneurs will relief
themselves from operating tasks and concentrate on more important and
strategic functions, profitable decision making, allow for flexibility,
motivate employees, create opportunity for training employees, etc.

3.4 Coordinating

This can be regarded as a management function as well as an essential

component of an organisation. Coordination ensures that the different
activities of a business are systematically integrated. It is required
because there are different specialised units and the functions are
interrelated as well as the difference in human beings.

In achieving effective coordination, there is need for a clearly defined

authority and responsibility. Rules and regulations must be spelt out and
strictly followed. In addition, effective coordination can be achieved
through:

• Group meetings, committees etc

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• Participative management Style

• Effective Communication
• Discipline
• Informal Communication

3.5 Staffing

Organising is regarded as the first step towards implementation of plan.

This management function will create organisation positions that must
be filled by qualified personnel

The existence, survival, growth and profitability of a business depend on

the role played by human resources, hence proper staffing will
contribute to the overall success of a business staffing in the process of
filling organisational positions with the right person at the right time and
incurring the minimum possible costs. Staffing may be regarded as part
of organising or separate function of management, which requires
ensuring that the personnel needs are constantly and appropriately
fulfilled.

3.6 Directing

This is the function of supervising activities of subordinate, and

individuals. It entails issuing instructions using the tools of leading,
motivating and communication

The formula for good management of small business is simple enough:

to develop a sound plan, design appropriate organisational structure, to
implement the plans and monitoring the performance of the business.
Good leadership is a pre-requisite for effective accomplishment of these
tasks. An entrepreneur has different leadership roles to play; he is the
chief risk bearer, chief administrator and strategy implementer, and
crises solver etc.

Motivational strategies should take into consideration, the following:

(i) Motivation should reward good performance

(ii) Entrepreneurs must always recognize good performance

(iii) Employees must know what they should do to be rewarded

(iv) Employees must be informed what they are doing wrong that
withholds their rewards.

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(v) Reprimanding a subordinate should not be open, it should seen as

corrective measure rather than humiliating the subordinate.

(vi) The entrepreneur must be fair in dealing with subordinates.

Motivation for example, enables business firms to retain and attract

qualified manpower. In addition, productivity of employees can be
achieved through effective motivation. Strategies for motivating
employees include monetary Incentives: salaries and wages, bonus,
profit sharing incentive, commission as well as Welfare Schemes for
Staff.

COMMUNICATION: This is the transmission of ideas, messages and

instructions between the receivers and the senders. An entrepreneur
directing a business must communicate with both internal and external
groups. Communication is the lifeline of every organisation, it is the
lubricant of any organisation. Any organisation that fails to
communicate properly must be prepared to face the consequences of
ineffective communication

An entrepreneur must instruct, explain, train, inform and sometimes

demonstrate what the workers must do.

3.7 Control

Organisation consists of people interacting collectively to achieve

specific goals. By joining an organisation, individuals subject
themselves to control in order to make the collective effort feasible

The word control refers to the process of measuring, comparing and

correcting actions of subordinates to ensure that plans for the business
are fulfilled. It is dynamic process entailing:

(i) Setting of Standards

(ii) Maintaining current operating records for comparison with
standards and
(iii) Taking corrective measures when and where necessary.

Control differs not only in the activity being controlled but also in the
character of control used. Hence, control should be adapted to suit each
specific situation. Control of sales, inventory control, control of
expenditure, strategy control, control of executive development are
examples of control systems and each requiring distinct application.

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3.8 Decision-Making

People of all levels in an organisation must constantly make decisions

and solve problems. An entrepreneur is a decision-maker. Decision-
making is an important activity at all levels of management and for all
aspects of management. Managers must make decisions in planning,
organising, staffing, coordinating, directing and controlling of
organisational activities. Decision-making involves:

(i) Investigation of business situations. That is, problem definition,

diagnosis of the problem and identification of objective.

(ii) Development of alternatives. Generating sufficient alternative

courses of action.

(iii) Evaluation of alternatives to determine whether they are feasible

and the extent to which satisfactory solution could be obtained.
In addition, the possible consequence of these alternatives for the
rest of the business must be evaluated.

(iv) Choice making. This involves the selection of one best alternative
from available courses of action.

(v) Choice implementation. Once the best available alternative has

been selected, managers must implement the chosen alternatives.

(vi) Decision Monitoring. After decisions have been made, the

decision maker must attempt to monitor the implementation of
decisions to ensure that things are working according to plans.

SELF ASSESSMENT EXERCISE

1) Outline and discuss the steps in planning in a small scale

business.
2) Management principles of large corporations can be adopted in
small scale enterprises. Do you agree? Why?

4.0 CONCLUSION

It is very important for the Entrepreneur to have a well-spelt out

objective, line of communicating with the staff, interacting with them
and rewarding them. This will enhance productivity and objective
achievement.

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5.0 SUMMARY

The use of the management practices explained above helps the small
scale practitioner to achieve the set objectives. He must interact with his
workers and see them as valuable assets to the organisation rather than
objects that he can discard and hire at will.

6.0 TUTOR-MARKED ASSIGNMENT

1 Discuss the major methods of achieving effective coordination in

small scale business.
2. Briefly describe the leadership roles of an entrepreneur in a small
scale business.
3. How can a small scale business operator achieve effective
motivation of employees?

7.0 REFERENCES/FURTHER READING

Baumback, M. C. (1992). Basic Small Business Management: New

York: Prentice Hall Inc.

Lawal, A. A. (1993). Management in Focus Nigeria.

Abdul Industrial Enterprises.

Stoner, J. Freeman, R.E. and Gilbert, D. (1995). Management. U.S.A:

Prentice-Hall Incorporation.

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MODULE 4

Unit 1 Contemporary Management Practices in Small Business I

Unit 2 Contemporary Management Practices in Small Business II
Unit 3 Causes of Failure of Small Scale Business
Unit 4 Possible Projects

UNIT 1 CONTEMPORARY MANAGEMENT

PRACTICES IN SMALL BUSINESS I

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Management Practices: Time and Stress Management
3.1.1 Time and Stress Management
3.1.2 Benefit of Time Management
3.1.3 Causes of Time Management
3.1.4 Management of Time
3.1.5 Achieving Effective Time Management
3.1.6 Stress Management
3.2 Stress Management
3.2.1 Management of Stress
3.2.2 Symptoms of Stress
3.3 Social Responsibility in Small Scale Business
Management
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

The management of business organisations is transitory. Many of the

traditional management practices are being substituted with new ones, it
is therefore crucial to small business operators to clearly understand
some contemporary management practices that are challenging to
business operators. The main contemporary practices that are addressed
in this unit include:

• Time and stress management

• Social responsibility and ethics

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2.0 OBJECTIVES

At the end of this unit, the learner should be able to allocate time and
manage stress effectively.

3.0 MAIN CONTENT

3.1 Management Practices: Time and Stress Management

3.1.1 Time and Stress Management

Time management can be defined as the art and science of using

valuable hours prudently and effectively to achieve personal,
professional and organisational objective. It involves, taking time to
save time. Time management requires systematic approach to managing
programmes, projects, activities and schedules.

Time is very important like many other resources such as money,

materials, men, machines and information. In fact, it is more valuable
than other resources. Unlike other resources only time has an absolute
and finite limit. Everyone has 60 seconds in any given day. Hence,
time is inelastic, perishable and cannot be stored and converted to
another source.

Recognising the impact of time in attainment of productivity, managers

do not only plan their work but also their time. Modern techniques such
as organisation and methods, motion study, work measurement are used
to reduce unproductive time of employees.

3.1.2 Benefits of Time Management

Proper time management will yield benefits such as:

• Efficiency of work
• Development of employees
• Elimination of productivity bottlenecks
• Increase job satisfaction
• Result in higher return on investment.

3.1.3 Causes of Time Management

The major factors leading to time management can be listed below:

• Unclear job goals and requirements

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• Constant interruptions e.g. A parade of visitors, and lots of

telephone calls
• Excessive meetings
• Inadequate staffing
• Lack of planning and organisation
• Misplaced priorities
• Failure to delegate
• Procrastination
• Inability to say ‘no’
• Excessive socialising
• Lack of concentration and, distractions

3.1.4 Management of Time

To manage time requires recognising the symptoms of time

mismanagement and adopting appropriate management style capable of
achieving effective time management.

The main symptoms of time mismanagement include:

• Missed deadline. Being late with important commitment.

• Excessive stress resulting from work overload and work
pressures
• Self doubt, pressure and tension on the job
• Sleepless night
• Exhaustion i.e. to be tired unnecessarily
• Working for longer hours
• Numerous crises
• Low productivity
• Negligence or perfunctory tendencies
• Poor quality of output

3.1.5 Achieving Effective Time Management

The only way to achieve effective management is to change the

management style in such a way that effective time management will be
achieved. Here are some ideas:
• Planning for your best work hours i.e. a time you are at best.
• Maintain adequate staffing to avoid work overload.
• Redesign work place to facilitate efficiency. The office should
be made conducive for concentration and favourable to
interaction e.g. sit where distractions will be minimal; keep
reference material at close range.
• Limit your interruption by reducing unexpected visitors and
phone calls, set aside some hours for meeting the visitors.

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• Control meeting. Invite only people who will contribute,

publish agenda in advance, establish time limit and adhere
strictly to them
• Improve your reading and scanning skills
• Overcome procrastination and paralysis by setting limit for
completion of tasks.
• Delegate authority to avoid work overload
• Insist on completed staff work
• Simplify your day by avoiding work overload and over-tasking
your capabilities
• Develop record keeping for jobs. At the end of a day, develop
a list of activities for the next day and assign a priority ranking
to each
• Training and development of employee, on productivity
improvement and time management
• Insist on the completion of each day’s task
• Use productivity tools and equipment, if available.

3.2 Stress Management

Stress is a state of physical or mental tension resulting from factors that

affect the body’s equilibrium or the body’s reaction to either pleasant or
complement simulation (Barry man Fink, 1989).

At personal level, stress can have variety effects ranging from mild
irritability to total disability. Medically, stress may lead to hypertension,
cancer, diabetes, diarrhea, excessive heart-beat, headaches, insomnia,
sexual impotence etc.

Stress can also affect people’s relationship and life style. It can also lead
to irritable feeling, alienation, conflict, emotional outbursts, family
problems, divorce, etc.

At organisational level, stress can lead to accidents, higher workers

compensation, disability, higher medical and insurance costs, higher rate
of absenteeism and turnover, lower group morale, labour unrest and
losses in productivity.

3.2.1 Management of Stress

Like time management, effective management of stress requires

understanding the symptoms and causes of stress. If the symptoms are
identified, corrective actions should be taken to minimise the stress.

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3.2.2 Symptom of Stress

The non-typical behaviour of staff that clearly indicates stress include

lack of appetite, inability to sleep, constant irritable feeling, inability to
sit and relax, anger, bursting into tears, impatience, drug abuse,
headache, excessive smoking and drinking, low concentration, frequent
self doubt, feeling of dread, feeling of tiredness, uneasy feeling, high
blood pressure, frustration, nightmare, absenteeism, aggressiveness etc.

3.2.3 Causes of Stress

The main causes of stress can be discussed under three main headings:

• Personal Sources: Problem such as family problems and the

style of individuals may lead to stress. For instance, highly
emotional, aggressive, impatient individuals are more prone to
stress than others.

• Organizational Factors: These may arise from the nature of

the work, i.e. insufficient time, monotonous jobs, highly risky
jobs, lack of trust, role conflict and ambiguity, poor
management style, work overload, lack of training, lack of
promotion, poor planning, poor communication, etc. are
examples of organisational stress producing factors.

• Environmental Factors: Business firms operate within an

environment. Events that occur within the environment may
result to stress. Such events include noise, crowded condition,
uncomfortable temperature, inappropriate lightening, air
pollution, uncomfortable furniture, competition.

• Reducing Stress: The negative effects of stress can be

minimised by means of the following categorised practices.

i) Individuals. Coping with stress by means of

• Non competitive physical exercise.
• Socialise with people other than co-workers.
• Open up to others by discussing freely your problems, fears
and frustrations with those who care about you.
• Restrict the number of meetings you hold.
• Delegate responsibilities to reduce work overload and allow
some measures of flexibility in the use of time.
• Develop a network of social support system through positive
thinking, trust and have confidence in people.
• Moderate your life changes. Too much unexpected changes
produce stress.

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• Protect your idle leisure time by making hobbies your social

life, not talking.
• Avoid setting unrealistic goals and use of drugs to check
stressful events.
• Pace yourself and allow for certain amount of flexibility in
your day’s schedule.
• Practice good nutrition by feeding appropriately with balanced
diet.
• Practice the style of time management.
• Train yourself on objective setting and adhere strictly to your
plans.

ii) Organisations: Organisational sources of stress can be

minimised by means of
• Proper selection and placement to screen out individuals who
are prone to stress and match individuals with their
capabilities.
• Train employees on how to minimise stress.
• Improve organisational internal communication to reduce
anxiety and uncertainty.
• Develop people oriented management style.
• Clarify role expectation.
• Implement employee’s assistance programme.

iii) Environment: Environmental sources can be minimised by:

• Anticipating stressful period and planning for proper
arrangement of the work environment in order to provide a
safe and comfortable working environment.
• Redesigning jobs where necessary to motivate workers and
reduce work overload.

3.3 Social Responsibility in Small Scale Business

Management

Social responsibility and business ethics are concepts that are

fundamental to the survival of any business in the contemporary
business environment. Social responsibility and ethical issues form daily
component of business activities. They are involved in all facets of a
business: decision-making, arbitration, marketing, finance, sales,
performance appraisal, leadership, etc.

Social Responsibility: Business social responsibility focuses on what an

organisation does that affect the society in which it exists. The term,
“social responsibility” can be described as the intelligent and objective
concern which restrains individual or corporate behaviour from

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ultimately destructive activities no matter how immediately profitable,

and leads in the direction of the positive contribution to human
betterment (Andrew, 1977).

The theory of social responsibility holds that a business should be

socially responsible to a number of groups such as:

• Owners, by maintaining a high level of efficiency and

effectiveness leading to growth in investment and returns.
• Employees by making the work environment a better place to
achieve the personal goals.
• Customers, by producing the required product at affordable
prices, refraining from unfair trading practices, exaggeration, and
misrepresentation in advertisement.
• Government, by contributing to government revenue,
accelerating economic growth and complying with the legal
environment requirements.
• Creditors and suppliers settlement of claims at the appropriate
time.
• Larger Society; contributing to development of the society and
observing ethical ideas.

Investment in social responsibility will bring about the following

benefits.

• Long run profit maximisation

• Enhanced public image
• Long run viability
• Prevention of government restrictive measures.
• Possibility of increasing profit in future.

Some of the social issues confronting entrepreneurs in Nigeria include:

• Ecological issues: Business firms must reduce or eliminate

problems resulting from technological breakthroughs. Such
problems include pollution, solid waste or refuse pollution,
water pollution and noise pollution.

• Consumerism: The reaction of consumers to business

injustices and their effort to have those perceived injustices
remedied. Such injustices include lack of production
information.

• Minorities and the poor: Discrimination of the minorities and

the poor considered disadvantaged must be avoided. Examples

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are discrimination in hiring, training and development

opportunities.

• Business Ethics: Engaging in good, right, and moral business

practices.

Small business can respond to these social issues by:

• Ensuring minority hiring and equality in treatment of women in

employment.
• Taking specific steps of combat pollution such as treating of
stream water by installing pollution-control.
• Providing more consumer information and improving product
safety.

Finally, in planning and evolving social responsibility programmes, the

following phases of activities may be suggested:

• Awareness within the organisation on the need for and

importance of social responsibility in small business
management.

• The entrepreneur involvement in social responsibility through

specific charitable contributions, actions and decisions.

• The entrepreneur may appoint an officer to coordinate social

responsibility.

• Social responsibility is incorporated into the objective of the

business.

• Periodic appraisal of social responsibility performance and

• Utilizing the report for reward system.

SELF ASSESSMENT EXERCISE

What is time management?

4.0 CONCLUSION

The implication of this theory is that a business should not seek profit
maximisation only but should maintain an equitable working balance
among some interest groups. Part of the profits made by a business
should be diverted towards betterment of the society. Contribution of a

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business to the betterment of the society will make it easier for the
business to grow, survive, and make everlasting profit.

5.0 SUMMARY

Time is very important like many other resources such as money,

materials, men, machines and information. In fact, it is more valuable
than other resources. Planning includes social responsibility
programmes as well.

6.0 TUTOR-MARKED ASSIGNMENT

1. Discuss social obligation of organisation.

2. What is stress management?

7.0 REFERENCES/FURTHER READING

Baumback, M. C. (1992). Basic Small Business Management. New

York: Prentice Hall Inc.

Lawal, A. A. (1993). Management in Focus. Nigeria: Abdul Industrial

Enterprises.

Stoner, J. Freeman, R.E. and Gilbert, D. (1995). Management. U.S.A:

Prentice-Hall Incorporation.

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UNIT 2 CONTEMPORARY MANAGEMENT PRACTICES

IN SMALL BUSINESS II

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Management Practices in Small Business
3.1.1 Business Ethics in Small Business Management
3.2 Quality of Work Life
3.3 Total Quality Management
3.4 TQM Implementation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Mr. Ade sent a boy to spy the activities of his competitor so that he can
outwit him. Mrs. Adio on the other hand, bought the blade produced by
her competitor and soaked them in water for some days before
repacking them for sale as the original product of her competitor. The
firm lost all its customers.

TOLANI Company got loan from friends and the bank. The money was
squandered by the management. They declared the company bankrupt.
Mr Adio produces paint. He let his waste products into the stream that
runs behind the factory, which is also the source of drinking water for
the neighbours. He felt unconcerned.

2.0 OBJECTIVES

The leaner should be able to explain the responsibility of a Small and

Medium Enterprise to the people and the environment it is located.

3.0 MAIN CONTENT

3.1 Management Practices in Small Business

3.1.1 Business Ethics in Small Business Management

A strong organisational culture founded on ethical principles and sound

values is a necessary foundation for organisational success. Business
ethics is the study of people’s rights and duties, the moral rules that

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people apply in making decisions, and the nature of the relationships

among people (Stoner, Freeman and Gilbert, 1996).

In business, ethical issues can fall into four main categories:

• Societal: At societal level, ethical issues determine the extent to

which the social system, economic system and political system of a
country have been based on sound ethical principles.

• Stakeholder: Every company has an ethical duty to its

stakeholders – owners, employees, customers, suppliers and
the community.

• Internal Policy: This relates basically to the company’s

relation with its employees. Here, issues relating to the ethics
of employment practices of the company will be addressed.

• Personal: Individuals deal with one another. Most of these

interactions have ethical implications, individuals
conscientiously or unconscientiously follow ethical guidance.

Meanwhile it should be noted that business with ethical standards is

active rather than reactive. Such business will have three primary
advantages:
• General greater drive and efficiency
• Attract high caliber of people and
• Develop profitable relations with its constituencies.

In view of the above mentioned benefits of sound ethical practices,

entrepreneurs must be able to see ethical issues in the choice they face,
make decisions within an ethical framework, build and maintain an
ethical work environment.

The following are some guidelines for sound ethical practices:

• Maintaining good, moral and right relationship with

employees e.g. clarity of communication, enforcement of
corporate policies, good faith, bargaining, adequate
compensation of employees and affirmative action of the right
employees to be treated equally without discrimination.

• Ethical financial reporting i.e. avoiding fraudulent accounting

reporting.

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• Ethical Advertisement Preventing deceptive and unfair

advertisements, such as making false claims about the product
or service.

• Maintaining confidentiality of individual and corporate

records.

• Avoiding unethical actions and decisions in dealing with

customers.

• Discouraging gratification and kickbacks, i.e. collection of

bribes, gratification and kickbacks within and outside the
business.

Finally, to build an ethical work environment in small-scale industries,

the following may be suggested:

• The entrepreneur must lead in maintaining and observing

ethical business practices by setting good, moral and right
business practices for organizational members to follow.

• Ethical codes and standard of the business must be properly

documented in writing and dissemination. A good way of
informing employees of ethical standards is the employee
handbooks.

• Entrepreneur must design a system of monitoring or

controlling ethical behaviour in his organisation. This may
include:

• Careful screening and selection to ensure that employees with

moral ideals are employed.

• Maintaining fair and equitable treatment of employees, to

guarantee their loyalty.

• Helping employees emotionally to overcome temptation to

behave unethically.

• Physical security, i.e. limiting employees’ access to valuable

documents and business secrets.

• Designing effective internal accounting and administrative

control systems.

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• Formalisation of agreement between the entrepreneur and

employees to protect business secrets.

• Education and training of employees on ethical ideals and

practices.

• Periodic monitoring of organisational practices.

• Prompt reporting of violation of company official ethical

ideals and giving guarantee of anonymity and immunity from
retaliatory acts.

• Recognition and reward for ethical behaviour may be

incorporated into the management practices.

3.2 Quality of Work Life (QWL)

QWL means a set of objectives or organisational conditions and

practices that make employees to perceive that they are safe, relatively
well satisfied and able to grow and develop as human beings.

QWL holds that every individual has the right to a job that satisfies his
or her personal needs. The main components of QWL include:

• Adequate and fair compensation

• Safe, healthy working conditions
• Alternative work schedule
• Reduction in job stress
• Development and growth of human capabilities
• Social integration of people
• Participation in decision making
• Democracy in work place
• Pension rights
• Profit sharing
• Company programmes designed to enhance workers welfare etc.

The application of QWL in business management has led to

improvement in productivity of a number of organisations. The
Japanese firms’ experiences are a clear example of QWL success. Most
Japanese firms focus on human resources more than financial resources
for their long run success. This is achieved through job rotation,
complete appraisal system, emphasis on work groups, open and free
communication, consultative decision making and managerial concern
for the employees.

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For attainment of QWL in small-scale business, the following practices

may be suggested:

• Flexible work schedules

• Improvement in health and safety of employees
• Job design and redesign to motivate employees
• Participative management style
• Employee counseling
• Autonomous Work Group
• Career management

3.3 Total Quality Management (TQM)

Success in contemporary business environment requires proper quality

management. One of the most quality improvement practices that gain
momentum in recent years is a renewed attention to “total quality
management”.

The growing concern for total quality management can be attributed to

the fact that mature quality movement is capable of:

i) eliciting employees cooperation for enhanced customer

satisfaction.
ii) adding to product and service quality while not only reducing
costs but increasing revenue and
iii) providing long term approach to enhancing shareholders value by
achieving corporate success.

The implication of the foregoing statement is that a mature quality

movement, otherwise known as Total Quality Management (TQM) is
the key to the success of high performance firms like U.A.C., DUNLOP
PLC, NIGERITE, ELF PLC., etc. Hence, small business organisations,
irrespective of their sizes must cultivate and incorporate Total Quality
Management in their organisational practices in order to survive, grow
and achieve a position of the pre-eminence in the competitive
environment.

Total Quality Management (TQM) is an organisation’s cultural

commitment to satisfying customer through the use of an integrated
system of tools, techniques, and training. TQM involves the continuous
improvement of organizational processes resulting in high-quality
products and services (Stoner, Freeman and Gilbert Jr., 1996. p.211).

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3.4 TQM Implementation (TQM)

There are no universal methods of designing and implementing TQM in

organisations. However, the framework developed by Kano (1993) will
be useful for small or large-scale industries.

Kano (1993) developed what he termed “The House of TQM” which

shows the structure of TQM as the touchstone for identifying the
evolution of TQM implementation in the United States. The proposed
framework is presented below:

House of TQM by Kano (1993)

The TQM structure implies that the base of a TQM programme is the
“intrinsic technology”, which refers to the driving technology specific to
an industry. For example, petroleum engineering is the technology
intrinsic to ELF PLC.

Given the existence of intrinsic technology, it is still necessary to carry

out motivational programmes aimed at improving the level of
organisational members’ commitment to successful implementation of
TQM. The problem is how to create the condition that will impel
management and employees to develop positive attitude towards the
proposed TQM programme.

The portion from the floor up to the roof is the TQM shown in form of
pillars. These pillars include:

Concepts: These consist of both a theory of quality satisfaction of

consumers and a theory of management. The main concepts required for
implementing TQM include:

• Customer satisfaction, putting quality first

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• The plan, do, check and action cycle i.e. PDCA cycle, process
oriented production and do it right the first time.
• Emphasis on the use of data.
• Ensuring employees commitment.

Techniques: The most popular techniques are parieto diagram, cause-

effect diagram etc.

Promotional Vehicles e.g. Deciding on who shall ultimately be

responsible for promoting the company wide quality, what training and
educational programmes to use in order to promote quality management
philosophies. Management tools and statistical methods are examples.

• Promotional vehicles also include the use of quality circles and team
activity. Quality circle involves a voluntary problem-solving group
of workers who meet periodically to explore ways of improving
quality and productivity. After completing one assigned job, the
same team will work on the next one in an on-going activity.

• Finally, the roof of the house of TQM shows customer satisfaction

and quality assurance.

• In fact, the objectives of TQM include provisions of customer

satisfaction and quality assurance. These are based on the premise
that realisation of continual improvement in quality company-wide
can achieve growth, improve company reputation and increase
economic performance. Business firms exist to create customers and
the need to ensure that a product or service provides the required
level of satisfaction to the user. Hence implementation of TQM in
small scale business firm is a necessity.

SELF ASSESSMENT EXERCISE

Discuss total quality management (TQM)

4.0 CONCLUSION

There are many management practice options. Proper use of resources

such as time, labour and other input will lead to an increased level of
production.

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5.0 SUMMARY

The SMEs can not work in isolation. It is therefore important for

accurate, timely and efficient data; hence adequate records must be
maintained by small scale industrialists as well as proper motivation of
employees to achieve company-wide commitment to the quality
programme.

Systematic integration of quality into organizational system by training

and having quality awareness programs, group interaction, and avoiding
bureaucratization of organizational practices is also important.

6.0 TUTOR-MARKED ASSIGNMENT

Discuss the implementation of TQM.

7.0 REFERENCES/FURTHER READING

Baumback, M. C. (1992). Basic Small Business Management. New

York: Prentice Hall Inc.

Lawal, A. A. (1993). Management in Focus Nigeria. Abdul Industrial

Enterprises.

Stoner, J. Freeman, R.E. and Gilbert, D. (1995). Management. U.S.A:

Prentice-Hall Incorporation.

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UNIT 3 CAUSES OF FAILURE OF SMALL SCALE

BUSINESS

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Business Failure
3.1.1 Causes of Failure in Small Scale Business
3.2 Symptoms of Business Failures
3.3 How to Avoid Failure among SMEs
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Ade’s friend, Tope is a millionaire. He is a fashion designer. Ade did

not consider his interest but went ahead to acquire the necessary
machines. After six years of practice he was frustrated out of the project
since he never had any skill or the required natural gift for the business.

Tola wanted to embark on a project. He approached Ben who is an

Economist. She wanted the Economist to carry out a feasibility study for
her, but changed her mind and got the services of a quack who charged
her lower than the fee of the professional. Unfortunately, the quack
painted a glossy picture for her. She went ahead based on the report.
This led to her failure.

2.0 OBJECTIVES

The leaner should, at the end of the unit, be able to identify the different
causes of business failure and how to avoid them.

3.0 MAIN CONTENT

3.1 Business Failure

3.1.1 Causes of Failure of Small Scale Business

The causes of failure in the small scale and medium enterprises are
multi- faceted and numerous ranging from personal or micro to extended
or macro. Some of these are:

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Poor management: This has remained the major single factor that has
crippled many SMEs especially the developing economy. This is as a
result of poor record keeping, lack of technical and managerial skills.

Planning: This connotes a future-oriented process by which

organisational goals are designed and logical steps and actions are
outlined in other to facilitate the achievement of set objectives. Most
small businesses fail because of lack of planning and sometimes where
and when there is plan the process or execution of those plans, are
inappropriate. It is quite true of many SMEs that he who fails to plan
plans to fail. Many SMEs operate without plans.

Training: Trainings, seminars, workshops, symposiums are very

important for every body. Since this will acquaint the worker or owner-
worker with the most recent market information. It becomes crucial for
them to attend. Most small business owners however look down on this
aspect because of the costs involved. The effect of this is the loss of
new technology and business. Information whether positive or negative,
helps the organisations in doing better or corrects their blunders.
Information is very vital for organisational survival because it is like
thermostat of the refrigerator or electric iron that regulates temperature.

Lack of entrepreneurial vision and ready market for the products of

SMEs: Entrepreneurs should embark on products and services that are
needed by the target customers. Failure to do this results to product
failure which may be because of no or insufficient research.

Too rapid expansion: This is very common in Nigeria. Businessmen

want to show-off that they are managing group of companies thereby
overstretching the meagre resources that are inadequate for one
company. This therefore results to business failure.

Lack of requisite experience: The lack of experience and knowledge

about the particular business on the part of the operator of the firm
always leads to the rapid collapse of businesses in developing countries.

Succession procedure: Most Nigerian businessmen are polygamists

with many children and even where they are not, there is usually no
succession procedure which results to power tussle at the demise of the
founder. Power tussle is no fuel for survival.

Lack of consensus among owners: For any firm, be it small or big to

succeed, there should be fair and equitable dealing among the owners.
Where there is lack of consensus among the owners based on unfair and
equitable dealings, such development will lead to the demise of the
business. Therefore, the success of any business firm will depend on the

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co-operation of the owners. Such lack of consensus can also lead to

laziness, indiscipline, negligence, and immorality among the owners and
even workers. But where there is good rapport among the owners, surely
it will bring about success and increase in the profitability level of the
firm.

Inability to generate fund: Existing fund could be tied to stock which

is not moving or the cost of stock replacement might have increased. If
there is no avenue for the injection of new fund, the firm goes into
liquidation. Inability to generate fund may be as a result of product
failure, no sales, poor customer relationship, incorrect product etc.

Fund diversion: This is very common with sole proprietors. Money

meant for a given business could be diverted into title taking, marrying
more wives or doing incessant travels and entertainment, and building
costly residential houses. This has wrecked many businesses in Nigeria.

Operating on loose credit policy: Firms operating in this way usually

build bad loans. The firm could survive such situation if there is avenue
for refinancing the receivables. A firm with large receivables will end
up being cash trapped and will find it difficult to replenish stocks and
meet the demand of creditors. The result is liquidation.

Employing beyond optimum level: Excessive employment of the

factors of production, leads to immediate or eventual diminishing
returns. A Company which employs one hundred persons instead of
forty will only end up paying excess wages and salaries for sixty
workers hence liquidation. The same is true of idle funds which either
attracts interest or generates losses in terms of opportunity cost.

Large scale looting by rioters: This is very rampant in Nigerian cities.

Where looting is not very possible, the premises of an enterprise may be
set on fire which may mark the total collapse of the business.

Shortage of skills: The owners of SMEs are people with little

specialized skills or expertise; neither do they have finances to hire the
services of specialists on part-time or full time basis. The result is that
they usually produce faulty and inadequate products.

Lack of advice and counsels: The proprietors of SMEs do not share

their problems with one another; neither do they seek the professional
advice to find solution to the problems. In some cases the proprietors
may have been counselled but they won’t adhere. This is very true of
some companies that employed experienced workers and literates but
never sought their experience and knowledge. Where the employees
were given the opportunity to suggest, they were seen as bias.

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Level of competition: If the level of competition from other firms

becomes too high, a marginal firm always easily liquidates. It has
happened and is still happening to most organisations.

Fraud: When there is laxity in supervision, fraud could easily occur. It

is well known that fraud is the greatest killer disease of Nigerian
businesses. Here, fraud ranges from outright embezzlement of funds to
diversion of funds meant for given transactions for the maintenance and
organization of paraphernalia. For example, money that is supposed to
be paid officially may be spent as gratification.

Lack of research and development programmes: Research and

development programmes need to be adequately pursued by small
business entrepreneurs so as to ensure their long term survival. Sooner
than later, the SMEs run out of ideas and become obsolete. Lack of
research and development results in lack of current information
concerning the product line or service. The end result is failure.

Inadequate compensation for employees: Employees of small

business firms ought to be compensated adequately. A good number of
instances exist in Nigeria where employees were instead, grossly
exploited. This however depends on the cash flow and sympathetic
attitude of the originator of the business. An unreliable, greedy and
unsympathetic director is not likely to care much about the yearnings of
his employees whether or not cash is flowing adequately. This will
result to employees being disenchanted and demoralized then
contributing negatively to the growth of the business. The business will
eventually end up in liquidation.

Laziness: This may be from the entrepreneur himself, the management

staff and or other employees. Procrastination is said to be the thief of
time, the same applies to the slothful man who will say ‘there is a lion in
the streets I will be slain’. This is a lazy man’s excuse which is a killer
disease in our world of competitions.

Indiscipline: The Bible makes it clear that “understanding is a

wellspring board of life unto him that has it and he that has no rule over
his own spirit is like a city that is broken down and without walls”. This
is true of any entrepreneur that is not disciplined because his business
will be like the city without walls. Discipline here may be in spending
both time and money.

Conflict of objective: An entrepreneur has his personal objectives in

life and just as he intends to accomplish them, it is therefore, not
expected that these personal goals should in way interfere with business

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goals. Thus, the businessman’s goal of building more houses and

acquiring more wives should not be the immediate areas where the
entire profit of a business should go to or else, the business cannot grow.
Absence of growth means extinction for that business.

Government policies: Inconsistent and ad-hoc characteristic of policies

and measures is another very big problem of small business enterprises
in Nigeria. Most policies of government have been very inconsistent.
Such policies have not stood the test of time. Consequently, they hardly
achieve the intended objectives and focus of such policies and measures.

Inequity: This is a situation where all staff of the same skill,

qualification, and experience are employed in the same organisation but
are differently paid. (For instance one is paid higher than the others
because of the employee’s sponsor or guarantor or bargaining power).

Inability to forecast future economic tends: This is quite true

especially in countries where there are no price control measures. In
Nigeria for example, prices are difficult to anticipate because of the
macro economic instability.

Immorality: This is a cankerworm. An immoral male entrepreneur will

always be attracted by every lady. In order to attract concubines he
becomes prodigious and lavishes business fund. He becomes an
unnatural tuff, party-crazy and spends his business time and funds on
women.

Other causes of small business failure are negligence, general recession

in the economy, improper motivation of employees, insincere appraisal
of staff and remuneration, war and violence, ostentation, death of key
staff, sudden emigration of known customers; improper accounting
records, over-borrowing, currency devaluation upward swing in
production cost, etc.

3.2 Symptoms of Business Failure

Business failure in any country, developed or developing, does not just

occur in one day. As the business failure does not occur accidentally
some signals show a good entrepreneur that he should replace his/her
courses of action. Owualah (1999) identifies some of the signals as
persisting negative cash flow; decline in market share due to decline in
sales and profits. These are serious symptoms, which if not properly
handled can lead to business failure.

Other indicators are:

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• uncompetitive products or services;

• declining working capital;
• deteriorating physical facilities;
• high debt ratio;
• sale of goods or services below cost price;
• stocking of stock or inventories;
• large scale retrenchment of staff;
• persisting difficulty in securing new funds from banks and other
creditors;
• importantly, mismanagement of both human and financial
resources can easily lead to business failure.

Kambia (1999) identifies the following as signals and symptoms of

business failure:

1. Perpetual borrowing because business is neither expanding nor

realising profit from previous investment(s);
2. Dwindling profit margin;
3. Delay or staggering payment or even reduction of workers
salaries and wages;
4. Merging or collapse of branches or departments;
5. Reduction of staff strength through resignation and lay off;
6. Unnecessary delay in staff promotion;
7. Persistent shortage of stocks;
8. Frequent and unnecessary diversification;
9. High level of outstanding receivables;
10. Declining response from major suppliers or distributors;
11. Withdrawal of distributors and request for the refund of
distributors deposits.

3.3 How to Avoid Business Failure among SMEs

Having identified the reasons for business failures, steps are needed to
be taken to avoid the incidence of distress, failure or liquidation among
SMEs. These steps may be:

• Start with an authentic feasibility report: Every business that

aims at staying, as a going concern must be started with an
authentic feasibility report. A spurious report always leads to
failure because it cannot be religiously implemented or followed.
• Continuous research and planning: For a company to stand
competition it must operate on the basis of continuous research
and planning. A firm which does not operate along the line of
good planning will find itself in liquidation. Efforts should
always be made to ensure that plans and budgets are duly

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implemented. When a plan becomes ineffective it should be

quickly reversed.

• Effective manpower management: Tasks should be assigned on

basis of skills, requisite knowledge and experience. Staff should
be adequately motivated. Here we think of Fredrick Herzberg’s
stick and carrot theory of motivation. While emphasising good
salary structure and working conditions, one should not lose sight
of discipline. The labour force should be kept within optimum
level in order to avoid diminishing returns to scale of operations.

• Fund diversion should be avoided: Money meant for the firm’s

operation should not be utilized for something else. The
operators of such companies should avoid wasteful dispensing
and undue ostentation.

• Checking of fraud: Through constant and thorough supervision,

fraud can be prevented. There should be proper accounting
records and periodic stock-taking. Enough care should be taken
about bank statements, cheques, cash disbursement and all
documents relating to cash receipts and payments. These items
should be kept in very safe custody. The degree of honesty,
sincerity and personal integrity of staff handling money, loose
stock and repairs should not be in doubt.

• Having innovation as a guide: To neglect innovation is to ask

for failure. Immediately a firm stops to innovate, competitors will
have it overtaken. This will lead to failure. People are where they
are because they are not convinced to change. Entrepreneurs
should see innovations as important force for moving forward.

• Operating within the law: Owners of firms should monitor the

various company laws, edicts, decrees and policies and ensure
that the business is being operated in line with the requirements
of the government. Firms must also operate according to customs,
tradition and norms of the society of its location in particular.

• Avoidance of excessive borrowing: When a firm over-borrows,

it exposes itself to excessive payment of interests. Interests on
payments are a fixed obligation. A slack in business fortune will
lead to a situation where such firm cannot service its loans. This
automatically results in failure. Hence it is better to as much as
possibly avoid unprofitable borrowings.

• Avoidance of undue expansion: A businessman should ensure

that there is adequate consolidation of a given line of activities

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before expanding into other areas. Expanding too rapidly could

lead to a situation where the resource which cannot satisfy
company is being over-stretched to service more companies.
When this happens the business will fail so it should be avoided.

• Avoidance of loose credit policies: A firm that gives out goods

on credit indiscriminately will surely fold up due to accumulation
of bad debts. Before allowing credit the credit worthiness of the
customer should be taken into consideration.

• Optimum use of resources: The level of manpower and other

resources employed should not be in excess of the tasks available.
Management should disengage all unwanted and redundant
workers in order to keep the business on a sound footing. Idle
capital should be discouraged. All resources should be
optimised.

• Partnership and mergers: Based on certain challenges, a

businessman should allow his firm to merge with other
companies in order to avoid failure and for him to reap the gains
of business synergy. Merging is better than total failure.

• Rapport among partners: Constant squabble among partners or

directors of any business concern should be avoided. The
operators of any given firm should always try to reach consensus
without resorting to quarrels and long term disagreement.

• Emphasise knowledge and skills: A businessman should not go

into any venture where he has very limited knowledge. Over
dependence on hired workers may instill pride on the workers
thereby turning the owner of business into mere supplier of fund
without skill. There must be reliance on continuous staff training
and merit.

• Consideration of location: This can make all the difference

between the growth of two companies. A firm that is
disadvantageously located in terms of marketing should try to
relocate to a more suitable area.

• Capital adequacy: There must be enough capital for the pursuit

of a given line of business. Apart from the initial owner’s fund,
there should be opportunity for borrowing and a proportion of the
company’s profit should always be ploughed back.

• Personal Discipline: This is very important since the success and

failure depend on the attitude of the entrepreneur. Discipline may

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be in different aspects such as financial discipline, time

discipline, behaviour and use of language. Any person who is
not time conscious most times ever meets up with appointments.
Ability to keep appointments religiously is a plus and if for any
reason one may not be opportune to meet up, the other party
should be informed early enough.

• Delegation of Authority: The entrepreneur cannot do all the

work even if he knows them. Teach the God-fearing, truthful,
honest, and able-bodied employees the job and show them the
way wherein they must walk and the work they must do “then
you will have peace and live longer in prosperity”. You can do
this without losing control of anything.

• Keeping of Proper Accounting Records: This is relevant

because it helps to check income and expenditure and fraud it is
also important for reference purpose, for reporting purpose e.g. to
stakeholders, investors, government etc and for generating
information from source document so as to be able to prepare
financial reports.

• Other factors which may help to ensure the success of SMEs are
dedication to duties, effective cost control mechanism,
installation of safety provisions, avoidance of fire and other
natural disasters by taking some degree of care, effective
personnel management, ostentatious spending should be avoided
while maintaining frugality.

SELF ASSESSMENT EXERCISE

What leads to business failure?

4.0 CONCLUSION

A well articulated plan and strategies as well as proper mix of resources

will prevent business failure.

5.0 SUMMARY

Dedication to duty, the use of appropriate infrastructure and resources

will lead to business success

6.0 TUTOR-MARKED ASSIGNMENT

How can a businessman avoid business failure?

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7.0 REFERENCES/FURTHER READING

Lawal, A. A. (1993). Management in Focus Nigeria. Abdul Industrial

Enterprises.

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UNIT 4 POSSIBLE PROJECTS

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 List of Possible Projects
3.2 Some Exportable Items and Where They are needed
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

This unit is just an additional piece of information which will appeal to

those who are interested in embarking on some business ventures. The
list is inexhaustible. This does not serve as a feasibility report. I do hope
you will find it useful.

2.0 OBJECTIVES

The objective is to enable the learner to have insight into some of the
projects that he can venture into.

3.0 MAIN CONTENT

3.1 List of Possible Projects

Some examples of SMEs in Nigeria that you can start:

fruit juices e.g. orange, pineapple, apple, lemon cashew, coconut, etc.
rice milling,
cotton seed oil,
bakery and confectionary,
melon seed oil,
starch from cassava,
sanitary wares,
animal feeds,
soyabeans cultivation,
food processing,
palm oil trade,

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interior decorations,
grain processing,
fish farming,
maize flour,
wooden toys making,
canned tomatoes,
biscuit bakery,
vegetable oil processing,
yam flour,
coconut processing,
craft bag,
oil mills,
smoked fish factory,
paper bags making,
rice flour,
soap and detergents,
baskets & cane chairs,
bone crushing,
leather (footwear) production,
leather tanning,
chip board and glass nails,
laminated photo frames,
radio cabinets,
honey extraction,
cassava farming,
cushion cover production,
table napkins production,
vegetable farming,
furniture making,
textiles production,
glue manufacturing,
hair brushes,
tooth brushes,
tooth picks,
matches,
thread,
crayon manufacturing,
fumigation and pest control,
shoe polish,
ruler manufacturing,
production of tissue and serviette,
corrugated, card-board boxes, etc.
mat making,
planting and selling flowers,
bolts, nuts and screws production,
ceramic blocks,

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concrete blocks,
chalk manufacturing,
pomade making,
concrete poles and pipes,
foundry,
red bricks,
pencil making,
optical glasses,
crown cork manufacturing,
production of insecticides,
paint manufacturing,
staple pins,
poultry wire net,
barbed wire,
steel rope,
polythene bags,
plastic toys,
fasteners,
tiles (floor and wall),
wire mesh,
production of chemicals,
oil and gas servicing,
table water production,
panel beating,
gem clips and safety pins production,
bicycle spokes making,
plant and hangers (steel wire)
forging and machining plants to manufacture basic spare parts for the
automobile industry,
hinges and door locks,
net and fencing wire,
advertising specially,
art gallery,
auto driving school,
marketing,
recruitment centre,
auto-mechanic service,
bay-sitting services,
beach concession,
leisure centre,
rental service,
travel agency,
transportation: passenger, haulage:- air, water or land,
freight handling and management: air, water or land,
estate agency,
birthday, wedding and ceremonial cakes,

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INSTITUTIONS

booking agency,
building contractor,
computer retail agency,
GSM retail agency,
health centre,
cleaning services,
cold room services,
consultancy services,
financial brokerage,
stock brokerage,
convenience shop,
dancing school,
day care and nursery centre,
debt collection agency,
duplicating,
executive hair cut centre,
fast food and snacks shop,
magazine stand,
laundering,
scavenging,
book binding,
vulcanizing,
refuse collection,
hair dressing,
music school,
rubbish clearing,
party organizing,
secretarial school,
remedial teaching,
party equipment rentals,
broom making
bead making,
raffia making,
candle,
plumbing,
spraying,
printing,
videography,
rabbitry,
piggery,
sheep and goat rearing,
battery conditioning,
iron founding,
restaurant management,
baby diapers production,
t-shirt making

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ice-block making
nails manufacturing
button manufacturing
cornflakes
welding electrodes
black board dusters
office files making
carbon papers production
hoses
cotton wool production
sale of machines tools
production of industrial yeast from molasses
production of adhesives
party catering
home delivery services
newspaper vendring
motor cycle transportation fleet
production of printing ink
advertising,
broadcasting
manufacturing and financing consultancy
real estate consultancy
building consultancy
dredging and related engineering services electrical engineering,
telecommunications,
auditing, hotel development management
travel agency
courier services
sale of agricultural equipment
manufacturing of electrical and electronic domestic appliances,
receivership and services,
special corporate services,
company secretarial services,
manufacturing fabrication of aluminum windows and doors,
installation of aluminum roofing sheets
installation of aluminum doors and windows
fabrication of suspended ceiling,
partitioning system services,
curtain walling marketing of plastic products,
medical equipment,
scientific equipment,
manufacture and sale of crown caps,
metal containers,
screw caps,
roll-on pilfer-roof caps,
trinklets,

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INSTITUTIONS

cotton buds,
production of disinfectants
manufacturing of fuel filters,
warehousing,
photography,
production of fishing net,
short term financing
radio/television repairs and maintenance
generator repairs and maintenance
beauty saloons
shoe repairing / cobbling
watch repairing
boutique-men’s, ladies, children’s or general
Masonry

3.2 Some Exportable Items and Where They Are Needed

Cocoa based beverages - Netherlands, UK, Holland,

Republic of South Africa
Gum Arabic - Tunisia; Cairo, Yugoslavia
Napkins and Towels Guinea, Senegal
(W. African Countries)
Honey Germany, Italy, France, UK
Cassava Kenya, Sweden, Germany USA
Onions U.K. Germany, Italy, France
Cosmetics - ECOWAS market
Matches - ECOWAS market
Handicrafts USA, UK.
Foam Products Chad, and Niger Republics
Vegetables Europe
Snails U.K.
Mangoes USA, Germany, France
Millet Saudi Arabia, U.K, Kuwait, Dubai
Sweet potatoes Sweden
Soya beans Germany, France, Italy, UK, Belgium
Groundnuts Saudi Arabia
Fruit juice Burkina Faso
Cashew Netherlands
Cement Chad, Niger Republic
Animal feeds ECOWAS market, Sweden
Ceramics and Tiles ECOWAS market
Furniture Burkina Faso, Togo
Insecticides Republic of Benin, Congo, Cameroun
Carrot Saudi Arabia, Niger Republic
Leather India, Korea, Poland, Sweden,
Netherlands

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Cow horns USA, Europe

Ginger Germany, Finland, Holland, Sweden,
Tunisia
Cotton seed and lint U.K, Taiwan, Belgium, Yugoslavia

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