CHAPTER 4

Small businesses contribute substantially to two fundamentals of poverty reduction – job creation and economic growth (The World Bank Group). In the previous chapter we examined a complete picture of M&A in the theory of banking and at offering economic evaluation and strategic analyses of the process, also high lighting the performance of commercial banks in post consolidation period in Nigeria. It then viewed the benefits, consequences and limitations of M&A and concluded with recent estimates of the effects of bank consolidation on Small Business Lending.

In this chapter we shall be looking at the roles of SMEs, its benefits and impacts on the economic development. We shall also be looking at how SME get funded and the main sources of cash. Finally we will compare this credit availability to SMEs before consolidation and after consolidation in the Nigerian banking sector

4.0 Introduction

Small enterprises are the seeds of the private sector, and also the source of innovation and diversification. They supply larger companies and develop their own activities and product lines. When they grow, they provide employment and tax revenues. Small and medium-sized enterprises can be the motors of economic growth. In most African countries, however, the business environment is not conducive to enterprise development ( Bercy, 2005 ).

Small and Medium scale Enterprises (SMEs) are important for successful economic growth and social development. SMEs, properly supported, foster Entrepreneurship – a proven pre-requisite for national economic success. Public and private policy support of SMEs is most effective when SMEs are part of the formal sector. One key objective therefore is to encourage migration of SMEs from informal to formal sector (Oyekanmi, 2006)

Nigerian SMEs in informal sector are beyond the reach/help of public or private policy

Policies do not provide sufficient support

Difficult access to finance

To use SMEs to stimulate economic growth and encourage businesses requires SMEs to move from informal sector to formal sector.