The Role Of Small And Medium Enterprises In Poverty Alleviation

The Role Of Small And Medium Enterprises In Poverty Alleviation

The Role Of Small And Medium Enterprises In Poverty Alleviation   It is widely accepted that, the micro, small, & medium enterprises (MSME) are able to alleviate poverty through their capacities in creating job opportunities and employment. It is also documented that MSMEs are able to stabilize the economic shocks in many of the countries during the recent economic crises. The new startups and the expansion of MSMEs can increase social wealth and income through their ability to create new markets, new industries, new technology, new jobs and net increases in real productivity and thus able to reduce the poverty level in one’s country. Hence, it is logical to state that if the number of entrepreneurs of any given country increases the poverty indicators will eventually decrease.and also bolster on the importance of entrepreneurship knowledge and entrepreneurial activities as  pathways to reduce poverty.  The Role Of Small And Medium Enterprises In Poverty Alleviation





Entrepreneurship is viewed as key driver of economic growth. For example, in Malaysia, it is recorded that the growth of MSMEs has surpassed the economic growth since 2004. Hence, Malaysia is very much focusing on the development of entrepreneurship to expedite the economic growth towards reaching high income nation by 2020.  A small rapidly growing firms started by entrepreneurially minded individuals able to create wealth and a significant number of jobs in particular economies, thereby impacting greatly on social and economic development

There are numerous numbers of researches on entrepreneurship development in various countries. Some try to relate entrepreneurship with economic development and growth, and poverty alleviation. The findings are inconclusive. Specifically, this study, therefore, aims to find out the linkage between micro, small, & medium enterprise development and poverty eradication.








This paper is divided into five sections. Section one provides a concise overview of the paper. Section

two describes the background of the study in order to provide insight into the concepts of eradicating poverty through micro, small, & medium enterprise developme

nt. Section three highlights the methods and materials used for the research with justification for its adoption. Section four presents the empirical findings and outcomes of the study. Section five concludes for effective utilization of micro, small, & medium enterprise development as tools for poverty reduction.

Poverty is a state of absolute economic deprivation in which the individual cannot independently have

access to the basic human life-sustaining essentials such as food, clothing, protection, and shelter. Poverty is the lack of income or shortage of assets; the lack of competence, confidence, disempowerment, etc.; has also deprivation of national currency; it is also common to speak of an poor understanding, or culture, or spirit. Poverty may arise from low productivity of the households and they face financial constraints and lack of other incentives of entrepreneurship. Alan E. Singer in 2006 said that the best cure for poverty alleviation in any region of the world lies in encouraging more on business activity and startup the new ventures through entrepreneurship development. Moreover, entrepreneurship provides a basis for economic change through new knowledge creation and application.






Eradication of Poverty merely emphasizes that addressing the root causes of world poverty still remains an ongoing urgent international concern. All authorities recognize the importance of raising the standard of living in the community by job creation. As the end of the 20th century greater focus was concentrated in the international arena on issues which could impact on eradicating poverty, or at least alleviating it through micro, small and medium enterprise development. Most of the poor in developing countries are not unemployed, but it is estimated that in 2006, 1.4 billion did not earn enough to lift theSMElves and their families above the poverty threshold. Seventy per cent of these people are men and women and the feminization of poverty is recognized today as a global phenomenon. Most importantly poverty is the main obstacles and problem of the people are facing particularly in developing countries. As of 2013, there were about 2.47 billion people in the world living in poverty with an income of USD 2 or less a day most of them from developing or under developing countries located in African and Asian continent. The population living under poverty only declined from 2.59 billion to 2.47 billion between 1981 and 2013. Hence the declines principally are seated mostly in developed countries. However, promotion of Micro, Small and Medium Enterprises (MSME’s) could be one step in the direction of eradicating poverty through entrepreneurship development.

Micro, Small & Medium Enterprises (MSMEs) has been played an important role for development of

the economic growth of a country as well as alleviating poverty through new jobs creation and provide income for the people. MSMEs not only help during the period of economic growth but also in economic recession.

The strong turbulence in the world economy in 1970s had made many large firms in developed

countries lay off their employees then MSMEs were regarded as the problem solver to these structural changes. The strategic importance of micro, small and medium-sized enterprises in national economic development is widely recognised by many countries, developed and developing countries alike







It is a matter of fact that there are a lot of things in which large companies are experts while the small firms can better do some things also. If both, small and large firms do their business in which they get advantage, the welfare of the economy can be maximized and the state of specialization can be attained. When we focus on the impact of small as well as medium firms on the whole economy, it is difficult rather impossible for us to segregate their impacts from the impact of large corporations.

This issue remained a hot topic for centuries. Economists were of the view that it is a large firm, which participates actively in the economy and also shares a large amount of foreign exchange earnings. But their point of view changes when the countries like Korea developed on their small and medium based business. It is the crystal clear that these economies developed through the grass root level as small and medium enterprises belong to grass root. Those who believe that the large firms are only responsible for economic growth should keep in mind that the small vendors and small suppliers contribute heavily in the production of large firms. The reality on ground is that small firms are held responsible for making large firms to attain their targets.

The progress and prosperity, which take place from the lower level, benefit all the classes of the society. The spill over impacts of SMEs proves to be ever lasting on the world’s economy.







The situation differs in Nigeria. It is not more that 10 years that Govt. of Nigeria has established an institution named small and Medium Enterprise Authority (SMEDA) which is considered responsible to promote small and medium enterprises. SME sector is being neglected in Nigeria and so as the impacts of small and medium firms of Nigeria’s economy. Nigeria is very potential market for SMEs and if undertaken in systematic way can prosper economy within no time. Nigeria has a considerable advantage in some areas which needs to be explained quickly to reap the benefits of exports. Such benefits can increase foreign exchange rates very positively to develop a favorable framework in all areas of progress.










The awareness like fishing, education, fruit, crops, garments, cotton, sugar cane, dates ginning, wood, auto and many other areas are the basic startups for many people. This research explains the potentialities of some areas and knowledge of how these areas can contribute towards Nigeria’s economy by increasing the foreign exchange rates with reference to Sindh province. The high authorities and ministry of development and product should formulate some strategies to design practical policies with the cooperation of stakeholders, such policies will be flexible in enhancing the SMEDA plans and flourish SMEs activities at the larger scale. This will give a big boost to startup ideas and create cordial atmosphere of businesses. This will aid a lot more in understanding the export of Nigeria specially Sindh sector and improve our foreign exchange earnings.

The role of Small and Medium-Scale Enterprise (SMEs) in the national economy cannot be underestimated. These enterprises are being given increasing policy attention in recent years, particularly in third world countries partly because of growing disappointment with results of development strategies focusing on large scale capital intensive and high import dependent industrial plants. The impact of SMEs is felt in the following ways: Greater utilization of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilisation of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers. The vast majority of developed and developing countries rely on dynamism, resourcefulness and risk tasking of small and medium enterprises to trigger and sustain process of economic growth. In overall economic development, a critically important role is played by the small and medium enterprises. Small and medium enterprises advocates, firstly, it endurance competition and entrepreneurship and hence have external benefits on economy wide efficient, and productivity growth. At this level, perspectives are directed towards government support and involvement in exploiting countries social benefits from greater completion and entrepreneurship.








Secondly, proponents of SME support frequent claim that SMEs are generally more productive than large firms but financial market and other institutional improvements, direct government financial support to SMEs can boost economic growth and development.

Some argued that SMEs expansion boosts employment more than large firm growth because SMEs are more labour intensive thereby subsidizing SMEs may represent a poverty alleviation tools, by promoting SMEs and individual countries and the international community at large can make progress towards the main goal of halving poverty level by year 2020 i.e to reduce poverty by half and becoming among 20 largest World Economies (Nigeria Vision 20:2020). Entrepreneurial development is therefore important in the Nigeria economy which is characterized by the following heavy dependence on oil, low agricultural production, high unemployment, low utilization of industrial capacity, high inflation rate, and lack of industrial infrastructural base. These constraints limit the rate of growth of entrepreneurial activities in Nigeria. Hence, this paper seeks to investigate Small and Medium Enterprises as a veritable tool in Economic Growth and Development. This paper seeks to investigate Small and Medium Enterprises as a veritable tool in Economic Growth and Development in Nigeria.






1.2    Statement of Problem

Many scholars have written widely on entrepreneurship and its potency to generate employment, thus, underscoring the quintessence, significance and relevance of this sub-sector in the development of any given economy. The experiences of developed economies in relation to the roles played by entrepreneurship buttresses the fact that the importance of entrepreneurship cannot be overemphasized especially among the Developing Countries. In order to highlight its significance in relation to the growth and development of a given economy, entrepreneurship has been variously referred to as a “source of employment generation”. This is because Entrepreneurial activities have been found to be capable of making positive impacts on the economy of a nation and the quality of life of the people (Adejumo, 2000). Studies have established its positive relationship with stimulation of economic growth; employment generation; and empowerment of the disadvantaged segment of the population, which include men and women and the poor (Oluremi and Gbenga, 2011; Thomas and Mueller, 2000; Reynolds, 1987).

Given the importance of entrepreneurship in this regard, it is somewhat surprising that in recent times few researches are carried out about practical approaches in developing entrepreneurship in Nigeria inspite of the fact that entrepreneurship is the engine that entrepreneurship remains the main engine that will push Nigeria economy to it destination.

However, the challenge confronting entrepreneurship in the field of entrepreneurship is that of finding an appropriate and effective entrepreneurial approach that could produce and assist in the nurturing and achieving a called for change in the current approach in addressing the problems of entrepreneurial development in Obio-akporlga State, Nigeria.

In addition to the comparative lack of attention given to entrepreneurship in emerging economics, particularly those in Sub-Saharan Africa, there is also a relative lack of diversity. In theoretical and practical approach to African entrepreneurship previous research that has explored the variation in entrepreneurial activities in Nigeria has focus on the standard economic and infrastructural factor as Gross Domestic Product and Direct Fund Investment  and education. These are meaningful variable and provide scholars with a baseline knowledge about entrepreneurship. However, this factors fail to adequately take non-economic factors into consideration. Hence, the need to study practical approaches that would help in addressing challenges of unemployment and economic development.


1.3    Objectives of the Study

The central objective of the study is to examine the impact of small and medium scale enterprises on economic development of Nigeria..  The specific objectives are to:

  1. Assess how small and medium scale enterprises development affect employment generation, and poverty alleviation in Obio-akporlga?
  2. Investigate the forms of targeted government support rendered to small and medium scale enterprise in Obio-akporlga?
  • Analyze the efficacy of government capacity building programmes and support to promote the development of SMEs, and poverty alleviation in Obio-akporlga?
  1. Evaluate the sufficiency of empowerment through SMEs development initiatives in Obio-akporlga and recommend possible policy adjustments.







1.4    Research Questions

In order to affectively investigate the problem of this research, the researcher formulated the following research questions:

  1. What are the effects of small and medium scale enterprises     development on employment generation and poverty alleviation in Obio-akporlga?
  2. What kind of support does the government render to small and medium scale enterprise in Obio-akporlga?
  • How effective is government capacity building programmes and support in promoting the development of SMEs, and poverty alleviation among youths in Obio-akporlga Metropolis?
  1. How sufficient is empowerment through SMEs development initiative in Obio-akporlga?

1.5    Statement of Hypothesis

In order to confirm the greatest drawback for SMEs in Nigeria and fully appreciate their respective relevant significance, we had postulated the following hypotheses:

H0:    There is no significance relationship between SMEs, poverty alleviation  and Economic Growth and Development.

H1:    There is significant relationship between SMEs, poverty alleviation and economic growth and development.

H0: The activities of SMEs have no impact on job creation, and employment

H1: The activities of SMEs have an impact on job creation,poverty alleviation and employment













1.6    Significance of the Study

The study will be beneficial to entrepreneurship development; as such Obio-akporlga state government can utilize the findings of the research as a basis for policy formulation as regard entrepreneurship development. The study will also contribute to the existing knowledge on entrepreneurship development.

It is also worthy to note that the study can be use as a basis for further research, as the research can be use as a spring board for further research as well as a good reference material to students undertaking similar research.

1.7     Scope of the Study

The study covers an empirical examination of the effect of small and medium scale development on youth empowerment and poverty alleviation in Obio-akporlga metropolis. The study also identifies the practical approaches use in developing entrepreneurship as well as the problems militating against entrepreneurship development. The study is limited to Obio-akporlga metropolis.

The study covers a time from 2006 – 2011.

1.8    Definition of Terms

–        Entrepreneurship: is an innovative act, which includes endowing existing resources for new wealth – producing capacity (Afonja, B. 1999).

–        Entrepreneur: An individual that identifies develops and brings vision to life under – condition of risk and a considerable uncertainty (Bashar, O. 2005)

–        Entrepreneurial Characteristic: These are traits that make an individual an entrepreneur (Tonga, R. 2009).

–        Business Performance: The success or failure of an enterprise (Tonga, R. 2009).

–        SME; Acronym for Small Scale Enterprise

–        Communication: Medium use to inform employees about organizational change.

–        Change Management: This are strategies formulated minimize change resistance and foster effective reengineering of workflow.

–        Organizational Change: These are adjustment made in work process or reengineering of an organizational change.

–        Customer Satisfaction: These are effort put in place through efficient serving delivery that would delight such customer.

–        Customer Retention: These are strategy put in place to retain existing customers.

–        Marketing Strategy: These are policy design to attract customer’s patronage.

–        Customer Value: Giving priority to customers in terms of service delivery “treating customer like Kings”.

–        Customer Loyalty: Customers who stay with an organization for a long time




















Literature review

Poverty reduction of any country can contribute grossly to the improvement of people‟s life and economic growth of the country (Tefera, 2013). This requires industrialization where micro and small enterprise comes into the focus as one of the packages and instruments to help accelerate economic growth, socio-economic progress and then the overall reduction of poverty of the nation. They make a huge contribution to employment in many developing countries where there is a challenge of high unemployment and poverty exists (Diriba, 2013).   Globally, the small-scale industries are wellknown for their immense contributions to poverty reduction, development process and as engines of economic growth, critical segment of the manufacturing sub-sector, effective strategy for tackling unemployment, diversifying output, achieving trade and balance of payment (Umogbaiet al., 2016).

According to United Nations, report (2011), Nigeria stands 174th of 187 countries in the global poverty index indicating that it is one of the poorest countries in the world. This is the reason for most developing countries are facing multi-dimensional problems like unemployment, low per capita income, unequal income distribution, lack of access to credit, poor farming practices and soil unproductiveness, deforestation and soil erosion, the willingness of the people to make SMEs, low agricultural productivity(Epherem, 2010 and Gebrechristos and Jafri, 2014).

Micro and small scale business enterprises are seen as the most important alternative sector in fostering socio-economic developments and reduction of poverty in both developed and developing

countries. It is the chief sector to achieve the goal through creating employment, improve saving and wealth and improvement of living standards. Since poverty and unemployment rate are considerably higher in these countries than developed countries so SMEs is very important (Siyum, 2015). In addition to this  SMEs  can play a role in improving the socio-economic condition of the poor by enable them through generate their income access for socio-economic merits such as education, better health condition, good housing and nutrition (Ephrem, 2010).

A study conducted by FDRE, (2013), for example, report that Small and medium scale enterprisesare major derivers of both employment and economic growth contributing to more than 50 % to GDP and 60 % to employment in developed economies, constitute less than 30% of employment and 17% of GDP in developing countries.SMEs in Nigeria are the second largest employment generating sector next to agriculture (Habtamu et al., 2013).

SMEs are long recognized as important vehicles of economic diversification, income generation and distribution, and accelerating the economy of a country (Munira, 2012). They can also help to achieve a more equitable distribution of the benefits of economic growth and thereby help alleviate some of the problems associated with uneven income distribution, employment creation, industrial development, rural development, poverty alleviation, job creation, to identify and exploit market opportunities, and export growth to provide the basis for medium and large scale enterprises (Zemenu and Mohamed, 2014).

According to Addis Ababa 2016 report, due to limited growth in employment prospects in the public sector and declining absorptive capacity of the agricultural sector, the numbers of new job seekers are turning to Small and medium scale enterprises(SMEs). The Nigeria government is focusing on the Small and medium scale enterprisesbasically because of their contribution in reducing poverty and unemployment becomes better than other sectors. Even he emphasizes more on Small and medium scale enterprisesthan medium and large enterprises. The government have been supporting their SMEs extensively through many different programs, with subsidized credit schemes, financial support, creating marketing link, providing free showing area, free production and operation area, promotion and so on (Amare and Raghurama, 2017).

Based on the report obtained from National Bank of Nigeria from 2008/09-2014/15, it is revealed that the new SMEs establishments is important for poverty reduction, for employments generated. SMEs establishment has grown from 73,775 in 2008/09 to 271,519 in 20014/15.When we see the employment creation of newly established SMEs on employment creation is increasing from 530,417 people in 2008/09 to 2,800,000 people in 2014/15. According to World Bank report 2013/14 revealed that the poverty level in Nigeria had declined from 44% in 2000 to 30% in 2011 and have further went down to 26 % in 2013(Amare and Raghurama, 2017).

SMEs are known by their greater utilization of local raw materials, employment generation, take part in rural and urban development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers (, 2012).

There are researchers which study on challenges which hinder on the expansion of micro and small scale enterprises for poverty alleviation, employment creation and socio economic growth of the country. Due to those constraints, the SMEs development is not diversified as of their roles in the country. So it is vital to review on these problems which face the creation and set-up of SMEs and the contribution of Small and medium scale enterprisesin the economy to reduce poverty.








There is no universal definition of SMEs, which may vary from country to country, year to year, from period to period because of the classification of businesses into large scale, medium scale or small scale is highly subjective. (Ekpeyong and Nyong 1992, Egbuogu 2003, Rajan 2013). Sometimes it is defined in terms of number of workers employed and on the use of electric power and also in terms of investment made. For example, we can define SMEs differently by Ministry of Trade and Industry (MTI) and Central Statistical Agency (CSA). The former uses capital investment as a yardstick and the later one uses employment favors capital intensive technologies as a yardstick. According to the MTI, Micro enterprises are those businesses enterprises, in the formal and informal sector, with a paid up capital not exceeding Birr 20,000 and small enterprises are those business enterprises with a paid up capital of above Birr 20,000 and not exceeding Birr 500,000. On the other hand, CSA categorizes enterprises into different scales of operation on the size of employment and the nature of equipment and employing less than ten persons as small scale manufacturing enterprises (Tesfaye, 2014).

SMEs can also defined by qualitative and quantitative approach. The Qualitative Approaches look in to the operation styles, degrees of specialization, over all aims and objectives or the relationship with community. This approach is inherently subjective, broad based, offers conceptual flexibility and less precise than quantitative approach. It is better when one is focusing more on the development of SMEs such as creations of employment, income distribution, poverty reduction etc. rather than size of SMEs. In contrast to the qualitative approach, the Quantitative Approach relies on clearly defined parameters like number of other members of the enterprises, sales turn over, asset, capital, net worth and the like. The approach is essential to identify specific target groups for inclusion or exclusion of certain preferred treatments (Andualem, 1997).

Theories on Micro and Small Enterprises: There are two theories which are developed on the development of SMEs at different times (Tambunan, 2006). These are the classical and the modern theories.

Classical theory- states that poverty and the importance of SMEs development correlate positively. In the course of   rapid economic development, the economic share of SMEs declined; while those of large and medium enterprises dominate the economy.  In   other words, the higher the proportion of people living in poverty, the more will be the contribution of SMEs in reducing poverty (Tambunan, 2006). This theory only focused on the relationship between levels of income and the growth of SMEs. Because of these short coming of the theory, the modern view was developed in 1980s.

Modern Theory- postulates that the major reason for the emergence of the notion of flexible specialization was the long debate of how to interpret the new global pattern of production caused by globalization forces and industrial restructuring. Hence according to (Tambunan, 2006), in the modern theory have three characteristics; flexible and specialization, high level of competitive innovation and high level of cooperation. The flexible specialization means SMEs grow faster than large enterprises with the process and are important source of invention, efficiency and innovation. Hence in the courses of development, the economic share of SMEs becomes increases and contribute a lot for poverty alleviation; while, it declines in the classical theories (Tesfaye, 2010).

2.2.   Definitions of Poverty

The word poverty comes from old French poverté (Modern French: pauvreté), from Latin paupertās

from pauper (poor) (Walter, 2005).        There are several definitions of poverty depending on the context

of the situation it is placed in. According to United nation, fundamentally, poverty is the inability of

having choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society. It means not having enough to feed and clothe a family, not having a school or clinic to go to; not having the land on which to grow one’s food or a job to earn one’s living, not having access to credit (Gordon, 2005). According to World Bank, Poverty is pronounced deprivation in well-being, and comprises many dimensions. It includes low incomes and the inability to acquire the basic goods and services necessary for survival with dignity. Poverty also encompasses low levels of health and education, poor access to clean water and sanitation, inadequate physical security, lack of voice, and insufficient capacity and opportunity to better one’s life (Tesfaye, 20104).

Poverty is usually measured as either absolute or relative:

Absolute poverty: Absolute poverty measures poverty in relation to the amount of money necessary to meet basic needs such as food, clothing, and shelter. Absolute poverty or extreme poverty or abject poverty is “a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information (Gordon, 2005). It is a condition so limited by malnutrition, illiteracy, disease, squalid surroundings, high infant mortality, and low life expectancy as to be beneath any reasonable definition of human decency. Is a set condition, which is the same in every country, and does not change over a period of time (Sachs, 2005).

Relative poverty: it is being actually an index of income inequality. Relative poverty views poverty as socially defined and dependent on social context, hence relative poverty is a measure of income inequality. This income inequality is measured by Gini coefficient. The value of Gini coefficient lies between 0–1.0 would mean there is no inequality. In other words every citizen would earn the same. 1 would mean there would be severe inequality. Usually, relative poverty is measured as the percentage of the population with income less than some fixed proportion of median income (Raphae, 2009). Relative poverty reflects better the cost of social inclusion and equality of opportunity in a specific time and space. Relative poverty, on the other hand, refers to conditions which are subjective to the society in which the person lives, and therefore, does vary between countries, and can change over time (Sachs, 2005).

In general, Poverty is a condition in which people lack satisfactory material resources (food, shelter, clothing, housing), are unable to access basic services (health, education, water, sanitation), and are constrained in their ability to exercise rights, share power and lend their voices to the institutions and processes which affect the social, economic and political environments in which they live and work (Siyum, 2015). According to Ukwu (2002), suggests that poverty is a living condition in which an entity or individual is faced with economic, social, political, cultural and environmental deprivations. These deprivations are captured as lack of food, poor expectancy rate, poor environmental conditions, low educational opportunity, poor health services, general lack of economic infrastructure and lack of active participation in decision making either as it affects the individual or a nation.

2.3.   Empirical Review on SMEs Activities and Poverty

2.3.1.          Contribution of SMEs for Poverty Reduction

According to Federal Democratic Republic of Nigeria (1997-2025), there are three strategies for the development of SMEs for poverty reduction. The first strategies are Small and medium scale enterprises

Development Strategy of Nigeria (1997-2010); the fundamental principles of this strategy are “Agricultural Development Leads to Industrialization” (ADLI) and market economy principles. This strategies have facing problems: lack of access to finance, say nothing whether these enterprises are grown to the next higher level or not, cannot define SMEs. The second one is SMEs Development Strategy, Provision Framework and Methods of Implementation (2011-2015); the main aim of this strategy is to alleviate the implementation gap of the first SMEs Development strategy, to shift Agricultural Development Leads Industrialization strategy to “industry” and to alleviate the financial constraint by means of giving the state government to give the credit to SMEs. The third one is Industrial Development Strategic Plan (2013-2025); it emphasis on the economic level of the country should be reaching in the middle level income by 2015 by focusing on manufacturing sector. The main focus of this strategies is for job creation, promotion of industry and employment creation which gives less emphasis for the economic contribution because of difficulty of knowing the exact contribution of Small and medium scale enterprisesto the GDP.

Due to the weakness of the first edition of Growth and Transformation plan (GTP I) which do not consider the Medium and Large enterprises, the second edition of Growth and Transformation Plan (GTP II) (2015/162019/20) was formulated. From this projection the share of Micro and Small

Enterprises in GDP under base scenario in percent is stated as 1.1 in 2014/15 to 1.8 in 2019/20 and for Medium and Large scale enterprises as 3.7 in 2014/15 to 5.9 in 2019/20. The plan has tried to project the contribution of Micro and Small; and Medium and Large enterprises to GDP. The entire projection is made only for manufacturing that overlooked the service sector (Amare and Raghurama, 2017).


(Akugriet al., 2015) conduct a study on the contributions of small and medium scale enterprises to economic growth in Zebilla, They conclude that 85% of the respondent confirmed that SMEs is important for infrastructural development, 60% respondents ranked the enterprise is more profitable, 25% indicated moderate while 15% less profitable, 78% of respondent set SMEs is important for poverty reduction and 69% respondent set SMEs is vital to empowering citizens. In addition to this SMEs constitute a vital element for the economic growth, improved living standards, achieve high levels of productivity and to increase the availability of scarce resource for use. (Addi, 2014)explained that SMEs is a role for poverty alleviation, accelerate the achievement of economic independence, potential to utilize idle labor force and generate income to the incumbents including owners, employees and laborers. As his result, the developments of Small and medium scale enterpriseshelp to reduce the proportion of foreign capital and skills by indigenous ones, improve efficiency by using his/her fund and skill, best use of his time, equipment, materials and labor.

(Tefera, 2013) demonstrated that a dynamic and growing sector of SMEs can contribute to the realization of a wide range of development objectives such as the attainment of income distribution and poverty reduction, employment generation, mobilization of savings and production of goods and services that satisfy the basic needs of the poor. The micro enterprises sector has been instrumental in bringing about economic transition by providing goods and services that are of adequate quality and affordable cost to a large number of people in rural areas, and by effectively using the skills and talents of these people, without requiring high-level training, large sums of capital or sophisticated technology. The importance of SMEs in general and new businesses in particular makes a significant contributions in addressing socio economic problems such as unemployment, poverty, income inequalities, political stability and economic growth among others (Musara&Gwaindepi, 2014).

(Epherem, 2010) conduct a study on the role of Small and medium scale enterprisesin poverty alleviation in Gulele sub city, the role of SMEs is important for improving the living conditions, saving habit and income of the members. Their saving becomes 91.84% from the income gained from their respective enterprises, food intake becomes 69.7%, 62.12% for clothing, 92.4% for schooling expense, and 72.73% for health care, 78.09% housing facilities due to increment in income. (Agyapong, 2010) study on the role of micro, small and medium enterprises (MSMEs) in poverty alleviation in Ghana. The author is of the view that MSMEs help to create jobs and increase income of the people. This increased income helps the people to obtain better schooling, health facilities and empowers them to get rid of vicious circle of poverty. Furthermore, growths in small and medium enterprises (SMEs) also contribute to human capital through on job training and also contribute to increase tax revenue of the government.

(Kang‟ori, 2014) reported that the role of micro and small nonfarm enterprises in poverty reduction in Morang county, SMEs increases the household income and welfare, skill development, access to more rewarding economic opportunities, providing employment opportunities, contribution to selfconfidence empowerments of the individuals, ability to acquire assets creating institutional structure, people‟s needs and objectives, providing new opportunities for the poor and men and women, ability to acquire loan to expand business, enhanced standard of living, saving and profit and ability to provide basic needs (food, education, clothing, health, and shelter). Muturi (2015) also emphasis on the role of Small and medium scale enterprisesin achieving kenya vision 2030, according to his study, SMEs is important for to generate job opportunities, improve living standards, adoption of appropriate technology, development of a pool of skilled and unskilled labor, macroeconomic stability, technology and innovation, capital and wealth creation, increasing revenues and promotion of gender empowerment.

(Diriba, 2013) bearing that socio-economic contributions of micro and small enterprises: the case of Jimma city, he were tested using Chi techniques; His finding shows that SMEs is important for employment creation, powerful instrument in economic growth, poverty reduction, quick production response, saving and income generation, Saving increase, Profit increased, realizing equitable income distribution, quality of life of the participants improved, developing entrepreneur‟s skills and knowledge, and gender empowering, changing many peoples‟ social issues and also ways of acquiring businesses, linking different levels of enterprises to facilitate its development and Transformed into medium and large enterprises.

2.3.2.          Major Challenges and Problems that Faces the Expansion of Micro and Small Scale Enterprise

Small and medium scale enterprisesface a number of challenges in the process of performing their activities. A study conducted by (Abdissa, 2016)factors affecting performance of Small and medium scale enterprisesin South West Nigeria: Using descriptive and Pearson correlation analysis, his results show that there is a significant relationship for political, social factor, land available, technological factor, infrastructural factor, marketing factors, financial factor and Management factor with the performance of SMEs. All the selected independent variables were significantly explaining the variations in the dependent variable at 5% level of significance. Diriba (2013) reported that there are many constraints facing micro and small scale enterprises which affect to operate to the business. These are: Unfavorable legal and regulatory environment discriminatory regulatory practices; Lack of access to markets, business information; Low ability to acquire skills and managerial expertise; Low access to appropriate technology; Poor access to quality business infrastructure; Lack of access to raw materials, lack of working capital and intermediate inputs and the like.

(Tesfaye, 2014) conduct a study on the role of Small and medium scale enterprisesin reducing youth unemployment, he was analyzed the collected data by using frequency and percentage. From his study, negative social and cultural attitude towards self-employment, lack of access to start up finance, lack of business assistance and support, mismatch between jobs available and larger number of new graduates, low economic capacity of the country to absorb the graduates, lack of guidance and counseling service, unfavorable conditions from SME facilitators, weak tie among TVET, micro finance institutions and SME development head office were indicated as the major problems. Cetindamar et al., (2012) also stated that the chance of individuals to start their own business and get involved in entrepreneurial activities is highly affected by access to vital resources such as financial, human, social forms of capital. However, resources are not fairly distributed among societies.

A study conducted by  (FEDR, 2013) survey on Small and medium scale enterprises(SMEs) in selected major cities of Nigeria, using frequency and percentage identified a number of challenges and constraints hindering the growth of SMEs. The constraints are shortage of finance (42%), followed by lack of working premise (28.3%), lack of access to land (18.4%) and lack of access to market or absence of linkage to market 12% were among the strong factors inhibiting the growth of these enterprises. Kankuse (2014) conduct a study on the opportunities and challenges of micro enterprise in empowering men and women: the case of Adami Tulu JidoKombolcha district, using percentage factors which hinder on the expansion of SMEs in descending order are lack of financial resource, increasing cost of raw material, lack of initial capital, skilled manpower, tax rate, lack of business know how and attitude of society towards SMEs. Weldegbriel (2012) also conduct on problems of Small and medium scale enterprisesin Addis Ababa, by using logistic regression model; lack business plan, lack of formal and informal association, lack of favorable business environment, high cost and shortage of raw materials, lack of proper institutional support, lack of proper marketing practice and inflexible competition are the major problems facing SMEs.

A study conduct by Epherem (2010) on the role of Small and medium scale enterprisesin poverty alleviation in Gulele sub city, he use frequencies and percent  and his result shows that out of the total (105) respondents, Shortage of startup capital (72.38%), high interest rates for borrowing (71.77%), skilled personnel (69.39%), lack of production place (68.57%),  unaffordable tax (67.05%), inadequate support from Government (66.67%), lack of working capital or lack of credit facilities (63.81%), lack of access for training (62.77%) and lack of market (59.05%) are the major constraints which affect the operation of SMEs.

(Kadiri, 2012) conduct a study on the contributions of small and medium scale enterprises (SMEs) to poverty alleviation in Nigeria. The Binomial Logistic Regression Analysis was employed as the tool for statistical analysis. The study found that the sector was unable to achieve this goal due to its inability to obtain adequate business finance and due to corruption. 300 SMEs representing 75 percent of the total respondents were of the opinion that finance is the greatest challenge and the remaining 25 percent of the total respondents were of the opinion that corruption is the greatest challenge facing SMEs in the country. According to (Alemayehu and Agarwal, 2015) study on the performance determinants of Small and medium scale enterprisesinNigeria: a study conducted in Sodo and Boditi towns in Wolaita zone, by using multiple linear regression model, the major factors affecting the performance of SMEs were financial, marketing, working premise, infrastructural, government support and legal and internal management factors. This variables spell out 77.7% for affecting SMEs performance and the remaining 22.3% was not explained by this study variables Among six identified factors except public infrastructural factor all other factors were statistically significant and among significant factors financial constraint contribute very high impact (56.1%) on SMEs performance when other factors held constant and followed by marketing and management problems constraint.

(Belayet al., 2015) conduct a study on factors affecting developments of micro and small enterprises. Using descriptive statistics researchers found as: lack of market linkage; lack of awareness of credit; providing institution; lack of professional assistance; lack of knowledge; poor infrastructures; access to capital; lack of experience, promotion, networking in ascending order covers 69.78 %. The remaining 30.23% is caused by negative attitude towards SME, lack of integration among government sectors and others. Fikadu (2015) study on determinants of Small and medium scale enterprisesGrowth in Nigeria: The Case of Nekemte, by using multiple linear regression (OLS) analysis the result shows that sources of finance for SME operators, loan term (duration of loan period) of MFI, previous business experience, marketing skill of the entrepreneurs‟, source of raw materials for SME, and customers of SME product or services affects positively the growth of profitability of the SMEs business significantly at 1% level of significance in regression analysis. Managerial skill of the entrepreneurs and location of the business positively affect the growth of SME in terms of the profitability of SME business significantly at 5% level of significance but the educational status of SME operator affects negatively the growth of SME significantly at 5% level of significance









Summary and conclusion


5.1 Summary

Micro and Small scale enterprises are generally regarded as the engine of economic growth, poverty reduction and equitable income distribution in developing economies like Nigeria. It is the second largest employment generating sector next to agriculture in Nigeria. It have been playing an important role for achieving its development goals, to achieve the country plan of both GTP I and GTP II, to increase income and domestic saving, equitable distribution of income, better utilization of local resource, growth of large industries, achievement of economic independence, improve efficiency and production of goods and services that satisfy the basic needs of the poor.

It has also important for their greater utilization of local raw materials, increase tax revenue of the government, adoption of appropriate technology, increasing revenues, increase saving or income to the individual, promotion of gender empowerment, increasing socio-economic growth, enhanced standard of living, macroeconomic stability, quick production response, innovation, lowering costs, take part in rural and urban development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers. Due to these significance the Nigeria government is basically focusing on this enterprises better than other sectors.

Even if SMEs are contributing a lot for poverty alleviation, there are problems which hinder for the expansion of micro and small enterprise. These are: lack of access to start up finance, lack of working capital, lack of availability of input on time or lack of raw material, lack of experience, lack of experience, inadequate support from Government, lack of access for training, problem of skilled man power, inadequate credit assistance, lack of production/market place, lack of adequate infrastructure, lack of access for training, lack of appropriate information, lack of proper institutional support, multiple tax and levis or unaffordable tax, corruptions, mismatch between jobs available and larger number of new graduates, inadequate managerial skill, policy inconsistency and government bureaucracy, high interest rates for borrowing, unfavorable conditions from SME facilitators and lack of access to appropriate technology.

Generally, now a day SMEs are widely recognized as the most reliable economic development and growth, poverty reduction, income generation and employment creation. SMEs occupy prominent position in order to achieve the above objective in Nigeria. So without SMEs no nation can achieve a viable economic growth and reduction of poverty. Inadequate credit assistance, lack of access to start up finance, problem of skilled man power, high interest for borrowing and lack of production/market place are the major factor which hinder for the expansion of micro and small enterprises. So attention should be given to these problems in order to improve the establishment and role of SMEs for poverty alleviation



From the review this study acknowledged that promoting small scale enterprises is one means of

eradicating poverty and is a joint effort of local, national and international organizations with the collaboration of university, government & industry. It has to be part of a comprehensive plan for raising the standard of living of the population. In a world where poverty alleviation still remains one of the greatest global challenges, the linkage between training and increasing income generating opportunities is generally acknowledged. Sustainable development in a self-employed entrepreneurial capacity and involving the grassroots population remains an ongoing, pertinent and vital part of the international cooperation policy. Entrepreneurial processes were important in the success of micro, small & medium enterprises development from an extremely unpromising and constrained environment. The impact of culture is considerable matter for MSMEs development. On the other hand, the level of innovation was related to the educational level of the entrepreneur; moreover, the firm size and involvement were positively related to innovation. The entrepreneurs have introduced innovations in a range of products, services, production processes, work practices, and marketing which have brought benefits to their firm. Entrepreneurship and human resource management were shown to be the most significant drivers of innovation and customer value. Interaction of entrepreneurship and integrated market orientation as well as human resource practices has significant impact on customer value and innovation respectively.

This study also institutes that the direct collaboration among the government-university-enterprises are needed for developments of the economic growth and reducing poverty. Government policies have no significant effect on the development of entrepreneurial activities in the country and mostly the beneficiaries do not derive maximum satisfaction from government programs and policies. The training in entrepreneurship and the provision of other facilities could give poor owners of micro and small enterprise opportunities to grow their businesses and get theSMElves and others out of poverty. Most importantly, micro, small & medium enterprise development are a key tool for poverty reduction; stimulating employment as well as fast-tracking realization of universal primary education and men and women entrepreneurs played a major role in poverty reduction in the Globe. Finally, it has been recommended that the development of micro, small, & medium enterprises is depending on individual or a group of peoples certain factors these are innovativeness, family background, government support program, men and women’s participation, entrepreneurship training & education, individual entrepreneurial characteristics, youth empowerment. On the other hand, the collaboration of government-university-industry play a major role in developing entrepreneurship, which is stimulating employment is eventually alleviating poverty from the globe.



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