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In: Accounting

Critically appraise the reasons behind the failure of small and medium enterprise equality investment scheme (SMEEIS)...

Critically appraise the reasons behind the failure of small and medium enterprise equality investment scheme (SMEEIS) as a means of financing small businesses.

Solutions

Expert Solution

The following reasons can be seen as behind the failure of small and medium enterprise equality investment scheme (SMEEIS) as a means of financing small businesses:-

a. Lack of Information and Awareness:- There is lack of information and awareness on the part of proprietors of SMEs about schemes that are meant to reduce their administrative and production costs of operation at the initial stage of operation.

b. Improper Program Design and Implementation:- SMEs development programs are often not properly implemented due to inconsistency in guidelines on application and lack of information on the needs and operational difficulties of SMEs. Most programs are often designed without putting into consideration the peculiar nature and level of education of entrepreneurs that are supposed to benefit from the program. Some of the programs are designed by World Bank experts who also are not familiar with the peculiar problems faced by SMEs.

c. Lack of Infrastructures:- The lack of infrastructural facilities such as steady power supply, good access roads, telecommunication, especially in the rural areas, and constant water supply has hindered the attainment of SMEs development objectives. The operating cost of most SMEs is very high because they now spend a lot of money to generate their own electricity.

d. Weaknesses in the Legal and Regulatory Framework:- The legal and regulatory framework does not protect creditors (Banks) against loan default from SMEs and the enforcement process through the courts is often slow. This and collateral security requirements combine to constitute barriers to SMEs access to finance.

e. Lack of Support Services:- There is also the lack of support service such as consultancy advice from professionals. SMEs cannot afford the services of these professionals due to their meager resources. Most SMEs venture into businesses by accident of which they do not have the idea of the cost implication or as a means of survival without carrying out feasibility study.

f. Lack of transparency from coordinators of programs:- Most of the respondents pointed out that some officials are not transparent in the disbursement of loans and also in the selection process of skill acquisition program designed for young and potential entrepreneurs.

g. Lack of Subsidies Especially to Farmers: With liberalization, government removed all forms of subsidy on petroleum products and fertilizer which indirectly increased the cost of SMEs that are into primary production. It was noted that farmers in industrialized countries are subsidized. Government should also help SMEs that produce industrial inputs. The above reasons of why government programs for SMEs have failed to achieve their objectives are not exhaustive. It should be noted that if the structural framework upon which a well-designed program is lacking, the program no matter the amount of resources put into the design will definitely fail.


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