EFFECT OF SMALL AND MEDIUM ENTERPRISES FINANCING ON

POVERTY REDUCTION (A CASE STUDY OF SELECTED PRIVATE

ORGANIZATION IN ADO-EKITI, EKITI STATE)

BY

SAMUEL ADAEZE CATHERINE

FPA/BA/22/3-0103

BEING A PROJECT SUBMITTED TO THE DEPARTMENT OF

BUSINESS ADMINISTRATION, SCHOOL OF BUSINESS STUDIES
THE FEDERAL POLYTECHNIC, ADO-EKITI, EKITI STATE.
IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE
AWARD OF HIGHER NATIONAL DIPLOMA IN BUSINESS
ADMINISTRATION

SUPERVISED BY:

MR. OLANIPEKUN K.A.

April, 2024.

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 CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Small and medium enterprises have made great contributions in reducing poverty in

Nigeria. SMEs are regarded as the engine of economic growth to any nation’s development.

The main advantage of the sector is its ability to employ at low capital cost. The labour

intensity of the SMEs is much higher than that of the large enterprises. SMEs as a nursery of

entrepreneurship are often driven by individual’s creativity and innovation. Besides the

growth potentials and its critical role in the manufacturing and value chains, there wide

spread in Nigeria and the multiple effects they have on the rest of the economy enable them

to be the engine of economic progress. SMEs are main drivers of innovation, job creation,

poverty reduction, wealth creation, income distribution and reduction in income disparities.

After the economic reform on 1986, the small and medium scale Enterprises are seen as a key

to Nigeria’s growth and poverty alleviation and unemployment in the country. Therefore,

there is need to promote such enterprises in developing economies like Nigeria because since

it brings about a great distribution of income and wealth, economic self-dependence,

Entrepreneurial development employment and a host of other positive economic uplifting

factors. In Nigeria where adverse Balance of payment situation is low, the growing activities

of the small scale industries sector in its export portfolio goes a long way in generating

foreign exchange and smoothening out the adverse balance of payment situation.

Small and Medium Scale Enterprises have risen in popularity since the last three

decades. They have consistently enjoyed the support of a broad range of stakeholders such as

governments, scholars, practitioners as well as international organizations. The reason for this

is as a result of their potentials to satisfy ostensibly employment, emerging economy, through

stimulating innovation, revenue challenges of developing and emerging economies which can

be annexed by stimulating innovations, as well as the creation of jobs for the teeming youths
2
and women which will result to the achievement of sustainable development goals (World

Bank, 2010; Musamali & Tarus, 2013).

In the developing world, the importance of SME's is also acknowledged. According to

Ojo (2017), the activities and operations of small scale enterprises are the drivers for Asia's

economic success as the sub-sector plays an integral part in the economic development by

employing more than 60% of the workforce more importantly in rural areas. It stands as

sources for generating income and its redistribution enhances the acquisition of capital,

alleviate poverty, empowers people particularly women and the youths (Addaney, Akudugu

& Asare, 2018). Not only that, but SME's also facilitates the forming of a new group of small

and medium scale entrepreneurs, that is, expanding the middle class, as well as broader

income distribution, have the potential to increase and diversify household incomes as well as

minimize household poverty. It could be that SMEs possess the capacity to promote

economic growth and also to advance socio-economic development at both the national and

local levels (Anane Cobbinah & Manu, 2013). Despite all these, it is worrisome to know that;

small scale enterprises still form the lesser part of industries as it only employs just tiny

proportion of the population in Africa (Yusuf & Dansu, 2018; Adeloye, 2017).

SMEs are regarded as the most effective instrument of poverty alleviation due to the

fact that they are the emerging private sector in poor countries which constitutes large share

of firms and employment (Dowers & Masci, 2018). Mostly, micro, small and medium

enterprises serve as the only opportunity for the poor; owners and workers of small

businesses are ranked in the lower half of the income distribution; hence, their growth

generates more equitable distribution of income.

However, as Hallberg (2016) observes, government assistance strategies in both

developed and developing countries often try to achieve a combination of equity objectives

(alleviating poverty and addressing social, ethnic and gender inequalities) and efficiency

3
objectives (raising the productivity and profitability of firms). Likewise, Ojo (2013) argues

that all these SME assistance programmes have failed to promote the development of SMEs.

This was echoed by Tumkella (2013) who observes that all these programmes could not

achieve expected desires due largely to abuses, poor project evaluation and monitoring as

well as moral hazards involved in using public funds for the purpose of promoting private

sector enterprises. It is on the basis of these bottlenecks in financing SMEs that this study is

undertaken to analyze the effects of Small and Medium Enterprises financing on poverty

reduction in Nigeria.

1.2 Statement of the Problem

The role of small and medium enterprises in reducing poverty cannot be over

emphasized. When you look at Nigerian economy it shows that greater consideration and

encouragement should be given to small and medium enterprises. However, little attention or

none is given to SMEs as they are left purely in the hands of individuals to initiate and run

them. The essence of this study therefore is to find out why the government has not cared to

give the same level of attention to small and medium enterprises. When this is known, it will

be of paramount importance to point out all the benefits of small and medium enterprises in

reducing poverty. Against this back drop therefore, the study tends to find out the lack of

appropriate and adequate managerial and entrepreneurial skills with the lack of strategic plan,

business plan succession plan, adequate organizational set up, transparent operational system

etc on the part of many founders and managers of small and medium enterprise. This study is

highly important to the extent that the results will be beneficial to policy makers both in the

private and government circles. Findings revealed that there is a significant relationship

between small and medium enterprises financing and poverty reduction in Nigeria In

addition, the study will assist and lead to the expansion of SMEs and hence reduce

unemployment due to the fact that these enterprises are labor intensive and use relatively light

4
technologies. It will bring about even and balance development of the country and Ekiti State

in particular. The SMEs are easy to operate and can be operated from remote and rural areas.

In other proffer solution to this great challenge, there has been an advocate for the growth of

SME's in terms of channeling of funds from the available financial institutions, government

interventions and availability of technical knowhow that would enhance and motivate people

to embrace skill acquisition which would translate to the growth of small and medium scale

enterprises and consequently, proffer solution to poverty and unemployment rate in Nigeria.

1.3 Objectives of the study

The objective of this study is to determine the effects of small and medium enterprises

financing on poverty reduction in Nigeria. Specifically, the study objectives are as follows;

i. To determine the relationship between small and medium enterprises financing and

poverty reduction in Nigeria.

ii. To investigate the significant relationship between unemployment rate and poverty

reduction in Nigeria

iii. To examine the problems of financing small and medium enterprises.

1.4 Research Questions

The following research question guided this research;

Ho1: To what extent can small and medium enterprise be an instrument for poverty

reduction?

Ho2: What is the major challenge encountered by small and medium enterprises in

eradicating poverty.

Ho3: What is the significant relationship between unemployment rate and poverty

reduction in Nigeria?

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1.5 Hypothesis of the Study

In order to answer the research questions posed for the study, the following hypotheses were

formulated in a null form:

Ho1: Small and medium enterprise is not a good strategy for eradicating poverty.

Ho2: The major difficulty encountered by small and medium enterprises in eradicating

poverty is not lack of funds to finance their business and how to obtain funds for their

operation.

Ho3: There is a significant relationship between unemployment rate and poverty

reduction in Nigeria.

1.6 Significance of the Study

This study would be of immense interest and benefit to large scale industries if they would

adopt whatever viable recommendation that comes out of this research assiduously in order to

maximize their productivity and make a more positive impact. Entrepreneurs and business

individuals shall benefit from findings of the study particularly as it affects legal and other

operational frameworks and benefits accruable to investor. Information derived from this

study will be valuable to small and medium enterprises in the area of obtaining loans and

credit facilities since these pose the greatest problems to the industrialists. It will also be

beneficial to government and the policy makers in Nigeria in policy formulation especially on

those policies that are meant to promote the performance of small and medium enterprises.

Entrepreneurs will gain valuable information regarding those numerous problems and

solutions in line with skilled management and administration and growth of small and

medium enterprises. This research work will equally portray the usefulness of small and

medium enterprises to the rural community in terms of employment. Finally by going through

this research work one can enter into SME easily as no law stops anyone from choosing to be

his/her own boss.

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1.7 Scope of the study
This research study was limited to the impact of small and medium enterprises financing on

poverty reduction in Nigeria to selected organization in Ado-Ekiti, Ekiti State Nigeria which

includes Ajimoko Motors, AB Investment Plc, Lastborn Digital Concept, Alfa Tech Limited,

Marvelous Block Industry, Oluwaseyi Laundry & Cleaning Services, Oluwaseyifunmi

Phones & Accessories and Jolac Hotel and Suites. It will also focus on how small and

medium enterprises financing has/can aid poverty reduction in Nigeria.

1.8 Limitation of study

Finance, inadequate materials and time constraint were the challenges the researchers

encountered during the course of this research.

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 CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
The performance of small and medium enterprises (SMEs) is of interest to all

countries. The enterprises have a big potential to bring about social and economic

development, by contributing significantly in employment generation, income generation,

poverty reduction and catalyzing development in urban and rural areas, Hallberg (2011),

Williams (2016). In many of the newly industrialized nations, more than 98% of all industrial

enterprises belong to the SMEs sector and account for the bulk of the labour force, Sanusi

(2013). It is estimated that SMEs employ 22% of the adult population in developing

countries, Kayanula and Quartey (2010) and provide more employment per unit of capital

investment than large-scale enterprises, Inang and Ukpong (2012).

In Nigeria, the SMEs account for about 70% of industrial employment, Adebusuyi

(2017) and well over 50% of the Gross Domestic Product, Odeyemi (2013). The ability to

find out the factors which improve the profitability of SMEs so that they are successful and

grow into conglomerates is of considerable concern to the entrepreneurs and the Nigerian

government. Recognizing the importance of SMEs in poverty reduction, government in

Nigeria has set up various programmes and institutions aimed at developing the SME sector,

Olutunla and Obamuyi (2018). A new approach to small and medium-scale enterprise (SME)

development began to emerge due to a number of factors. First, there was growing concern

over low employment elasticity of modern, large-scale production. It was claimed that even

with more optimal, policies, this form of industrial organizations was unable to absorb a

significant labour force, Chenery (2014). Second, there was wide spread recognition that the

use of large-scale, capital-intensive techniques was partly to blame, (Chenery, 2014). Third,

empirical diagnosis showed that the causes of poverty were not confined to unemployment,

and that most of the poor were employed in a large variety of small-scale, low-productivity
8
activities. Thus, it was thought that one way to alleviate poverty could be increase the

productivity of those engaged in small-scale production, (Aftab and Rahim, 2019).

2.1 The definitions of Small and Medium Enterprises

While Okonkwo (1996) believes that the definitions of Small and Medium Enterprises is a

heterogeneous and relative concept, Osoba (2017) accepts numerous definitions of small

scale enterprises exist and they vary from country to country, within and between continents.

On the other whole, Oshagbemi (2012) highlights some major criteria used in the definitions

of Small Scale Enterprises (SSEs) to include:

i. Number of employees

ii. Financial strength

iii. Sales value

iv. Initial capital outlay

v. Relative size

vi. Independent ownership

vii. The type of industry

The above criteria have been used (at various times) to define some of these SME in

Nigeria. It is therefore pertinent to state some of these definitions. The Federal Ministry of

Industries in 1973 defined a small scale manufacturing outfit as one that had a total capital

investment (land, building, machinery/equipment and working capital) of up to N60,000 and

employee up to 50 persons. This was later revised to include any manufacturing or service

industry with a capital not exceeding N150,000 in machinery and equipment. In 1978, the

Industrial Research and Development Unit of the University of Ife (now Obafemi Awolowo

University, Ile-Ife), defined a small scale industry as one with total assets of less than

N50,000 and that employed less than fifty full-time persons while a medium scale industry

was defined as a factory industry that operated with motive power and invested between

9
N50,000 and N500,000, which employed between 50 and 250 persons. The NBCI defined

small-scale enterprises in terms of total capital investment but excludes cost of land in the

computation of a ceiling of N300,000 in total capital investment (including land) and that of

N500,000 in annual sales turnover. For the purpose of lending to small scale enterprises, the

Central Bank of Nigeria (CBN) defined small-scale enterprises as those enterprises with

turnover of up to N500,000 only.

The National Council of Industry in 2001 defined SMEs in accordance with their

scale of operation: Micro/Cottage: enterprises with capital investment of not more than

N1.5m, excluding land but including working capital and maximum of 10 workers. Small-

scale: enterprises with capital investment of over N1.5m but not more than N50m, excluding

land but including working capital with work force that ranges from11-100. Medium scale:

enterprises with capital investment of over N50m but including working capital, work force

ranges from 101-300. Considering other definitions given by some international financial

bodies, the World Bank in 1988 classified SMEs as enterprises with fixed assets, excluding

land and working capital which do not exceed N10million. The European Economic

Commission in 2000, defined an SME as a small scale business with the exclusion of

agriculture, forestry and fishing with employment capacity of not more than 500 workers.

Not minding the various definitions and the lack of consensus in these definitions, there is the

need to point out that the definitions correspond to parameters considered adequate for policy

formulation and the promotion of the sub-sector in the country For the purpose of the Small

and Medium Industries Equity Investment Scheme (SMIEIS), set up in 1999 by the federal

government, a small or medium industry is defined as any enterprise with a maximum asset

base of N200million, excluding land and working capital.

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2.2 Classification of Small and Medium Enterprises

A business organization is any economic unit which utilizes the basic economic resources to

create utility in order to achieve certain objectives. Human wants are numerous and

conflicting and the satisfaction of such want and demand is a suitable arrangement of man’s

business activities. The main types of business organization are:

a. Sole proprietorship

b. Partnership

C. Private Limited Liability Company

d. Co-operative societies.

2.2.1 Sole Proprietorship

Sole proprietorship is a business set up, owned and managed by just one man. This type of

business organization that is associated closely with individual initiative, self-reliance and

handwork. Sole proprietorship is the oldest form or business organization. This kind of

business is many in developing countries due to their low per capita income.

2.2.2 Partnership

Partnership is a form of business organization where two or more persons engage in a

business as co-owners. In some cases it is usually ten partners. A partnership may be based

on a written contract or simply or oral arrangement which by laws is binding on all partners.

It is an association of two or more persons who jointly establish a business for profit making.

The minimum number of member’s ranges from two persons while the maximum number is

fifty

2.2.3 Private Limited Liability Company

Private companies are often being operated by family members or close associates. Private

limited company are numerous in Nigeria and cheaper and simpler to form. The maximum

number for formation of a private company is fifty (50) for its members excluding workers. It

11
is required by law to register with the Corporate Affairs Commission in order to acquire a

legal personality and its shares are not transferable.

2.2.4 Co-Operative Societies

This is a business organization formed by people with low income who pool their resources

together to satisfy the interest of their members in particular and sometimes the general

public. The first co-operative movement started at Rockdale, England in 1884. Its aim was to

counter the consumer’s exploitation by the owners. They pooled their resources together in

order to benefit from the economies of scale in purchasing and sale. This type of business

organization is formed by salary earners, subsistence farmers, petty traders and artisans.

2.3 Sources of Finance to Small and Medium Enterprises

Small scale business could be financed through the following ways: Saving: Individuals save

money for various motives. Individuals can directly set aside unexpended earning and save

indirectly when they pay life assurance premiums or purchase amenities.

2.3.1 External Borrowing

An individual who wishes to start a business can borrow money from people or external

sources to expand his business. A sole proprietor or partnership may obtain funds by

borrowing from a private individual or from micro credit institution.

2.3.2 Trade Credit

The basic trade credit transaction involves the supplies handling over goods or performing a

service without receiving immediate payment in exchange. The customer is expected to pay

by some agreed issues.

a. The seller would be unwise to part with goods or perform the service, unless he is

satisfied that the customer will indeed pay.

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 b. The terms of the transaction will include some credit period which is accepted to both

parties and to which it would be to the customer advantage to adhere.

c. There must be some sanction, which the supplier can impose on the customer if he

fails to meet the agreed terms. There are three reasons for the existence of trade credit.

They are convenience, cost, and loyalty. Trade credit service as a permanent source of

loans to worth customers.

2.4 The importance of Small and Medium Enterprises in the development of a Nation
The general characteristics of less developed regions indicate the nature of the needs

and these include: unemployed and underemployed labor, a small or negative rate of growth

of real per capital income, grossly unequal income distribution, low investment rates and

scarce capital and political and economic instability (Lebell et al, 2014). This gives a vivid

picture of Nigeria‘s industrial landscape which like any less developed country, is littered

with many micro, small and medium enterprises. They are expected to provide the driving

force for the industrialization and overall development of the Nigerian economy. This

explains the increasing policy attention accorded the SMEs in addition to the fact that they

play significant roles in meeting some basic economic and industrial developmental

objectives. Few among the significant roles played by the SMEs are as follows: First, the

SMEs provide the training ground for the development and growth of indigenous

entrepreneurs (Kilby, 2018). Casson (2012) opines that by acting as a seedbed or nursery,

usually for the indigenous population, they serve as vehicles for the propagation and diffusion

of innovative ideas for far reaching dimensions. They are more flexible and can easily adapt

to changes in the external environment.

A second social contribution of SMEs according to Owualah (2017) is the

transformation of traditional industry. In both developed and developing countries, the

traditional sector has served and continues to serve as the springboard for launching into a

13
vibrant modern sector. Thus a fledging SMEs sector can be a means of achieving a smooth

transition from the traditional to the modern industrial sector (United Nations, 2014). Third,

SMEs due to their labor intensively and usage of low-level technology are able to garner and

use the widely available local labor supply. This is consistent with the nation‘s income

distribution objectives (Steel and Takigi, 2013). Also, it is opined that SMEs create more jobs

per unit of energy consumed than large scale ones (Vankataraman, 2014). Fourth, SMEs

assist in the dispersal of economic activities through encouraging the development and

modernization of these activities outside the major metropolitan areas. Thus, they are able to

stem the tide of rural-urban drift. Another economic role of the SMEs is their ability to

mobilize financial resources, which would otherwise be idle or untapped by the formal

financial sector (Central Bank of Nigeria, 2015).

Fifth, SMEs facilitate the conservation of foreign exchange and the development of

the scarce resources of management in developing countries. This is mainly due to their size

or scale of operations and unsophisticated management structure. A high percentage of the

profit of SMEs, most of which are locally owned is known to be ploughed back to ensure a

higher rate of future growth (Committee of Inquiry on Small Firms, 2021) Also, Kamaluddin

(2022) opined that the SMEs provide the desired linkage effects, especially agro-industrial

linkages. It is pertinent to highlight the contributions of SMEs to the economic of some

countries and also, that of Nigeria.

2.5 Problems of Small and Medium enterprises

Problems associated with SMEs and reasons for their failure have been widely

identified. Some of these include: lack of planning, inimical government rules and

regulations, poor marketing strategy, lack of technical knowhow and higher interest rates,

Aftab and Rahim (2017) Ekpenyong (2013). Entrepreneurial deficiencies often pose more

problems than is usually appreciated. The underlying attitudes and dispositions of

14
entrepreneurs, which have deep roots in the traditional socio-cultural system can seriously

impede development of the entrepreneurial characteristics necessary for good performance of

Nigerian SMEs. The availability of and accessibility to credit is also crucial to the

effectiveness of SMEs in Nigeria.

For local people to generate income from productive activities requires credit,

especially to stimulate traditional heavily under-capitalized local enterprises. Availability of

credit, more than any other service, awakens the aspirations of potential entrepreneurs.

Government policies seem to have constituted a serious problem area for SMEs. The

beginning of harsh government policies toward SMEs can be traced back to 1982 with the

introduction of “stabilization measures” which resulted in import controls and drastic budget

cuts. These, in turn, adversely affected the subvention to the financial institutions established

to provide financial assistance to the SMEs. For example, in 1983, out of a total of 8,380

applications for loans received from the SMEs for a total of 559.13 million naira only 18

percent (1,470 projects) for a total of 46.66 million naira was disbursed. As the economic

situation deteriorated, the government introduced the Structural Adjustment Programme

(SAP) in 2016).

Since the strategy of liberalization and deregulation of interest rates was implemented,

interest rates have continued to increase. The SMEs which prior to the SAP had been granted

concessionary rates of interest (particularly for agricultural and housing loans), have had

great difficulties obtaining credit. The frequent changes, and sometimes conflicting

government monetary policies, have also tended to hurt the SMEs. For example, while the

government increased total credit allocation to SMEs from 16 to 20 percent, the same

government removed excess liquidity in the banking industry through increase in the

Minimum Rediscount Rate (MRR), transfer of government and parastatal accounts to the

15
Central Bank of and the creation of a Stabilization Securities Account (SSA) whereby the

banks were debited with excess liquidity in their accounts with the Central Bank.

2.6 Theoretical link between SMEs Financing and poverty in Nigeria

With a population of about 250 million and GDP/capita of $890, census (2020), two-

thirds of Nigeria people are poor Nigeria has the third highest number of poor people in the

world. Most of these poor people are dependent on small and medium scale enterprises for

their livelihood. As such, their entrepreneurial contributions are strategic to the Nigerian

economic development and their growth has great potential to contribute to income

generation and poverty alleviation. Various interventions have been made in different

countries to cater for the peculiar needs of SMEs. These interventions include: institutional

support, training in the relevant skills, tax concessions, technological acquisition and

liberalized access to credit and innovation schemes, Obadan and Agba (2016).

Attempts made to address the problem of SMEs in Nigeria include direct lending by

various financial institutions, see table 1. Similarly, specification of credit guidelines by the

Central Bank of Nigeria to banks’ lending to SMEs at concessionary rates through

participating banks, Inang and Ukpong (2012), Inegbenebor (2016).

Other schemes include the establishment of the second tier security market, the

merger of the Nigerian Bank for commerce and industry, the Nigerian Industrial

Development Banks and the National Economic Reconstruction Fund into the bank of

industry to provide cheap financial and business support services to SMEs. All these have not

been as successful as anticipated. The poor attitude of Nigerians to loan repayment led to

unwillingness of the banks to lend to the real sector in preference for the trade sector, Feese

(2014), Inegbenebor (2016).

The latest attempt by the Central Bank of Nigeria and the banker’s committee to

tackle the financial problems of SMEs is the establishment of Small and Medium Enterprises

16
Equity Investment Scheme (SMEEIS). The scheme requires all banks in Nigeria to set aside

10% of their profit before tax annually for equity investment in small and medium enterprises

operating in the productive sector of the economy. The scheme commenced and is aimed at:

facilitating the flow of funds from banks for the establishment of new viable small medium

industry projects, stimulating economic growth, developing local technology, promoting

indigenous entrepreneurship, generating employment, UME (2011).

2.5 Empirical Review

Oregu and Chima (2013) researched on small scale enterprises roles in reducing

poverty in Nigeria between 2001 and 2011. Secondary data were sourced from CBN Annual

reports statement of account of various editions. Two models were estimated of which the

first model says that employment level proxies by poverty is a function of SME's gross

domestic product, agriculture gross domestic product and manufacturing gross domestic

product, on the other hand, the second model says that, SME's GDP is a function of

commercial bank loans, government fund to SME's and interest rate. These models were

estimated using regression analysis. The earnings of SMEs captured by their contributions to

GDP were statistically significant to explain the level of employment and, therefore, the

reduction of poverty.

Furthermore, SME financing and the level of government participation are not

significant for the growth of SMEs, measured by their level of income (SGDP). Ogbuabor

Malaolu and Tuluma (2013) assessed the usefulness of providing the double economic

problems of poverty and unemployment in Nigeria through small businesses, commonly

known as burnt walls. He also examined the socio-economic characteristics of the bricklayers

and also the main problems that threaten their growth and performance. The variables used

were household socio-economic characteristics such as annual income from burnt

bricklaying, the quantity of bricks laid, number of meals taken per day house type, access to

17
improved medical service, access to clothing, children/family members education, level of

education of the respondents and family size. The results show that burnt bricklaying has a

significant positive effect on poverty alleviation, income generation job creation in Nigeria.

Tersoo (2013) focused on national poverty eradication programme on wealth creation

in Benue State by examining the current strategies adopted by the Federal Government of

Nigeria through National Poverty Eradication Programme (NAPEP) and the effect on the

beneficiaries in Benue State. The explanatory survey method was utilized for the collection of

data through questionnaire administered on one hundred and nine (109) respondents selected

from beneficiaries and key officials of NAPEP in six (6) local government areas of Benue

State. The study suggested that the strategies employed by NAPEP had not made a significant

impact in improving the lives of beneficiaries in implementation strategies adopted by

NAPEP. More so, poor funding, corruption, as well as the untimely release of funds, inability

to effectively monitor and impact assessment plans, with bad governance were seen as most

important major constrains in the successful implementation of poverty reduction

programmes in Nigeria.

Hussain, Bhuiyan and Said (2015) accessed the role of micro, small and medium

enterprises in eradicating poverty in Malaysia. The study used a content approach by

reviewing extensively on the existing studies on the subject matter, and it was found that the

development of micro, small, & medium enterprises depends on individuals or a group of

peoples that have certain factors such as innovativeness, family background, government

support programs, and training or education. As a result, individual entrepreneurial

characteristics, like an increase in youth empowerment and women participation in

entrepreneurship. A significant role played in the development of entrepreneurship is the

robust collaboration between government-university-industry resulted in stimulating

employment and create job opportunities which will lead to alleviating poverty

18
 Ayodeji and Ajala (2017) examined micro-financing and poverty reduction in

Nigeria, covering a time scope from 2000 to 2016. The study sourced secondary data on

microfinance credit, a number of microfinance banks registered, and interest rate whole

autoregressive distributed lag was used as the estimation technique. It was found, that there

exists a long-run relationship between micro-financing and rural-poverty reduction. Also,

microfinance credit was found to be significantly negatively related to rural poverty index,

such that the higher the microfinance credits available to the rural dwellers, the lower the

rural poverty index, though the numbers of microfinance banks is insignificantly positively

related to rural poverty index in Nigeria

John-Akamelu and Muogbo (2018) evaluated the contribution of small and medium

scale enterprises in poverty eradication in Nigeria. Primary data were sourced from the

population size of 150 through the administration of a questionnaire to employees of some

selected SME' S in Anambra state, and the sourced data were analyzed using the Chi-square

method. Findings revealed, that small and medium enterprises provided employment

opportunities, training ground, and harness utilization of local resources, thereby helping in

reducing the poverty rate in Nigeria.

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 CHAPTER THREE
RESEARCH METHODOLOGY
3.0 Introduction
This chapter is discussed under the following headlines research design, population of the

study, sample and sampling technique, sources of data, method of data collection,

questionnaire design and method of data analysis.

3.1 Research Design

The design adopted for the study was descriptive survey design because it concerned with

collecting data and describing systematically the characteristics of small and medium

enterprises financing in eradicating poverty and to what extent has SMEs in Ado-Ekiti, Ekiti

State has helped in poverty reduction.

3.2 Population of the Study

The population for this study comprised of eight selected Small and Medium Scale

organization in Ado Ekiti namely; Ajimoko Motors, AB Investment Plc, Lastborn Digital

Concept, Alfa Tech Limited, Marvelous Block Industry, Oluwaseyi Laundry & Cleaning

Services, Oluwaseyifunmi Phones & Accessories and Jolac Hotel and Suites all in Ado-Ekiti,

Ekiti States. This study was carried to examine the effect of small and medium enterprises

financing on poverty reduction in Nigeria. Selected SMEs in Ado-Ekiti state form the

population of the study.

3.3 Sample and Sampling Techniques

Sample and sampling techniques is defined by Nnamdi (2016), as a limited number of

elements selected from a population which represents the population. The sample was drawn

from some of the population by the researcher, as it is difficult to reach everyone. A sample

size of 100 respondents is randomly selected.

20
3.4 Sources of Data

This study made use of primary and secondary data.

a. Primary Data

This study used a structured questionnaire in getting information from the respondents. The

rest were obtained from oral interview. The question was designed and administered in small

scale industrialist and the employee. Oral interview were used also as a follow up to the

questionnaire on both the industrialist and the employees of small and medium enterprises.

This is in other to elicit more information which was otherwise not included in the

questionnaire distributed to small and medium enterprises and their employees.

b. Secondary Data

The study collected Published or printed information from small and medium enterprises

textbooks, periodicals, article, journals, seminar papers, magazines, newspapers and previous

works of graduated students of other higher institution of learning to provide further

information on the research area.

3.5 Method of data collection

In this research both primary and secondary data were used. The primary in analyzing the

data Collected, the descriptive and statistical methods were used. In testing the various

hypotheses, the chi-square was used. A measure of discrepancy existing between observed

and expected frequencies. It is usually supplied by the statistics symbolized as X 2 and it is

given by:

X2 = Σ (Di – Ci)2

ei

Where X2= calculated value of chi-square

Di - observed frequency

Ci — expected frequency

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 Ei - number of cells

3.6 Questionnaire Design

To ensure proper execution of the study, sets of questionnaire were prepared and

administered. The questionnaire was divided into two major parts. Part one was based on the

respondent’s socio-demographic characteristics while the part two dealt on the entire research

work or on general information. Furthermore, the study made extensive use of open ended

questions, close ended questions, multiple choice questions. All these efforts were made in

order to cover greater scope of the people and areas as well as provide a wider variety of

questions to the respondent, thereby enhancing the simplicity of the question for elicitation of

wide and better information from them.

3.7 Method of data analysis

In order to arrive at the decision on whether to accept or reject the null hypothesis,

comparison will be made between the computed chi-square and [able value at the same

degree of freedom at D.05 level of confidence based on the following;

The null hypotheses would be rejected if the computed X 2 value is less than the table or

theoretical value. The null hypothesis would be accepted if the computed value is than the

table of the chi-square (X2). In order words, the decision rule will be compared with the

computed chi-square value with critical value. If the computed X2 value exceeds the critical

value determine at a given confidence level and degree or freedom, the null hypothesis would

not rejected and alternatively hypothesis will be accepted.

The degree of freedom: (r- i) (c-1)

Where: R = number of rows

C = Number of columns

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