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4.3 Role of SMEs to Economy

Small and Medium Enterprises (SMEs) occupy a place of pride in virtually every country or state. Because of their significant roles in the development and growth of various economies, they have been referred to as the engine of growth and the vehicle for socio- economic change of any country. SMEs are seen as an authentic medium for the realization of national economic objectives of poverty alleviation and employment generation at low investment cost. Another benefit of SMEs includes access to the infrastructural facilities made available by the very existence on these enterprises. Also the spur of economic activities through supplies of items produced, distribution process stemming from rural to urban centre, enhances the standard of living of the employees and their families as well as those who directly and indirectly related with them ( Onuorah, 2010). The benefits of SMEs are innumerable and cannot be exaggerated. These benefits are summarized below.

Economy contribution in the provision of outputs in form of goods and services.

Generation of employment involves creation of jobs at relatively low capital cost. And the employment opportunities provided reduces village to city (rural-urban) migration and allows for even development

Utilization of local resources: This promotes the use of local raw materials requiring simple technology

SMEs help to reduce income disparity by developing a group of both skilled and semi-skilled workers as a basis for expansion

Income generation: SMEs constitute major avenues for income generation and participation in economic activities in the lower income and rural brackets of developing societies especially in agriculture, trading and services.

Stiglitz and Weis (1981) observe that small and medium scale firms with opportunities to invest in positive net present value projects may be blocked from doing so because of adverse selection and moral hazard problems. This selection problem occurs when providers of funds cannot validate the firms’ access to quality projects. While the hazard problems is related with the possibility of SMEs diverting funds to alternative projects or taking more risks than they can afford to. (Ogujiuba, Ohuche, & Adenuga, 2004).

Since SMEs ordinarily do not have access to public funds through the capital market, they obviously have to depend on banks for funding. The reliance on banks makes them even more vulnerable for the simple reason that crisis in the financial system can have a great impact to credit supply to SMEs, thus, SMEs are subject to funding proble本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。