Roles of SMEs on Poverty Alleviation

poverty stricken children

A cursory glance at the structure of SMEs in Nigeria reveals that 50% are engaged in distributive trade, 10% in manufacturing, 30% in agriculture and the remaining 10% in services. A special feature of Nigerian SMEs is that distributive trade component is generally considered more commercially viable than the manufacturing component hence they attract more funding from banks and other financial institutions (Ibru, 2004).


Obitayo (2000) Stated that globally, the small and medium scale enterprises are noted for their immense contributions to development process and as engine of poverty alleviation, they promote as a critical segment of the manufacturing sub sector, effective strategy for tackling unemployment, diversifying output and achieving trade and balance of payment, given their nature and characteristics with respect to quick adaptation of technologies, manageable number of workers and reduced capital intensiveness on the other hand for us to known poverty alleviation. Poverty is a complex and multi-dimensional. It is a dynamic process of socioeconomic and political deprivation which affects individuals, households or communities viewed in the lack of access to basic necessities of life. In other words, poverty is a condition of severe deprivation resulting from lack of access to economic empowerment to acquire the fundamental necessities of life including food, clothing, shelter and basic education health care.

According to Horowitz (2000), poverty is a concentration of disadvantaged circumstance which can swamp development negatively. He maintained that these disadvantaged circumstances are better understood within the deprivation exclusion and vulnerability (DEV) framework. In essence, people are poor because they are either deprived or excluded from having access to the resources to make a decent living.

In Nigeria, poverty is one of the main challenges facing the policy makers and it is now one of the macroeconomic goals and objectives of the government of President Goodluck Jonathan.

The problem with Nigeria is lack of consistency and non-implementation of government policies to the letter different administrations in Nigeria have adopted their own poverty alleviation program.

Meanwhile, due to its complexity and its corrosive effects on humanity, many journal articles and books have tackled the issues of poverty (Schiller June 6, 2000; Sen. 1999; Harrison and Huntington 2000). Poverty destroys aspirations, hope and happiness.

Furthermore, in Nigeria this is poverty one can feel poverty affects support of civil liberties and openness towards foreigners, it affects positive relationships with subordinates, self-esteem and sense of personal competence, it also affects one’s disposition to participate in community affairs, interpersonal trust self-satisfaction and above all affect tolerance of others (Inglehart 1997, fair banks 2000, p. 271). The latest effects of poverty are most worrisome in Nigeria. A Recent report by the committee set up by President to look into the causes of the recent uprising in the Northeast by the Boko Haram (Islamic sect) revealed that poverty is one of the causes of the formation of the group.

Finally, in Nigeria poverty has resulted to human trafficking, prostitution and spread of HIV/AIDS, child labour and abuse of human and civil rights (Guardian online, June 24, 2002). Poverty also leads to corruption, disruption of family relations and social life, rising crime rate, among other.

Roles of SMEs in Poverty Alleviation include:

Employment generation

SMEs have continued to be a steady avenue for employment generation. There are indications that the SMEs account for about 70% of industrial employment in Nigeria. For illustration, the projects approved under the national economic reconstruction fund scheme between 1989 and 1993 estimated for about 13,227 jobs. Similarly, the beneficiaries of the SMEs II loan scheme have created about 40,000 jobs. The total employment generation capacity of the SMEs can only be appreciated in terms of its multiplicative effects on other sectors of the economy (Okonkwo, 2000).

Due to its small nature and its spread throughout the country mostly in the local area, it has the potential of creating a ready job for the subsistence of rural population. Osobor in 1983 acknowledged that the population of industrial labour that is engaged in small industries in Nigeria has been estimated to be far greater than the global average. According to her, it was estimated in 1972 that over 70% of the industrial labour in Nigeria was employed in the SMEs.

The implications of the employment generation on the poverty alleviation are based on the fact that the SMEs will create jobs to the unemployed people thereby reducing poverty. Serve as the training ground for a number of professionals and other categories of staff that are employed by the multinational cooperation. The skill and experience gained by such people go a long way to promote the economy in the country.

Income generation to the poor

The encouragement of small-scale industry has been considered important for income generations. This no longer seems justifiable, but there is still a potential in low-cost schemes for the provision of credit and other assistance to ‘micro’ enterprises from which poor people can derive more incomes.

Economic development

Achieving macroeconomic stability which shapes the overall investment climate is crucial to the role of SMEs in economic development and ensuring the survival of SMEs. Monetary and fiscal policies designed to achieve macroeconomic stability, especially such as key cost variable as the interest and exchange rates have exerted significant influence on aggregate demand, general price level, saving and investment. A judicious mix of these policies is crucial for the macro-economic environment. To achieve macroeconomic stability, there is a need for the implementation of appropriate macroeconomic strategies such as low inflation, more stable and competitive exchange rate, maintenance of suitable fiscal policies, competitive tax rates, strengthens the structural reform including pro-savings policies, to achieve relative high domestic savings and rapid corrective responses to the macro-economic problem. Thereby, reducing the poverty Government should give some incentives to SMEs.

The government should continue to use open market operation (OMO) complemented with increased cash reserve ratio (CRR) and minimum discount rate which is interest in the sale of treasury bills and CBN’s certificate and tightening of government fiscal operation. The high-interest rate and wide gap between lending and deposit rates should be reduced should be reduced through the judicious use of the monetary and fiscal policy instruments including moral persuasion. Concentrations of production in the domestic market to the exclusion of the export market underlie the clamour for the subsidized interest rate. Countries experience in lending to SMEs show that small industries are capable of borrowing at the market if the economic environment is conducive and export of manufactured products expanded.

Support services should be targeted at the exported oriented small-scale value added to growing industries such as clothing/ garments, shoes, food processing, chemicals etc.

Rural Development

One of the coordination activities of national poverty alleviation programme is village economic development solutions. This programme is community-based poverty eradication strategy aimed at economically empowering the poor using (SMEs). In the programming engines of growth are being created village by village through the establishment of “Anchor” economic activities especially agro allied processing facilities. For extremely poor families the cash provided emergency assistance, while the conditionality promotes long-term investment in human capital for breaking inter generational poverty.

Increased Productivity

small and medium enterprises equity investment is another way by which (SMEs) will help in alleviating poverty by increasing productivity.Small and medium enterprises equity investment scheme (SMEES) it is an initiative of the banker’s committee. The initiative was in response to the federal government’s concerns and policy measures for the promotion of small and medium enterprises (SMEs) as vehicles for rapid industrialization, and increase productivity thereby enhancing (SMEs) and reducing poverty.

The scheme requires all banks in Nigeria to set aside 10% of their Profit After Tax (PAT) for equity investment and promotion of small and medium enterprises, funding to be provided under the scheme shall be in the form of loans of equity investment or combination of both in eligible enterprises fund invested by participating banks shall be in the form of loans or equality investment or combination of both in eligible enterprises. Interest on the loan shall be single digit subject to a maximum of 9%.

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