Contribution of Insurance Companies to the Growth of Small and Medium Business in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
The major objective of this study is to examine the contributions of insurance companies to the growth of small and medium scale business in Nigeria. While other specific objectives are:
- To examine the extent to which insurance companies support the growth of small and medium scale businesses in Nigeria
- To determine the relationship between micro-insurance scheme and entrepreneurship development in the SMEs sector.
- To assess the roles of insurance companies in managing risk in the SMEs sector
- To find out the contribution of the insurance industry in financing SMEs in Nigeria
Chapter Two
Literature review
Concept of Small and Medium Enterprises (SMEs)
There is no universally accepted definition of SMEs, it varies from country to country, from agency to agency, and from author to author. For instance, In China, SME is defined as having up has up to 2,000 employees; while a medium-sized business has between 301 and 2,000 employees; and a small business has less than 300. European Union defines small and medium business as an enterprise that has not exceeded two hundred and fifty employees and a total turnover of not more than €50 million. It also maintained that the share of the enterprise in another enterprise(s) should not exceed 25 percent (Auckey, 2019). According to World Bank (2015), a medium enterprise is an enterprise that employs a maximum of 300 employees with a maximum of 15 million dollars annual turnover. World Bank went further to say that small enterprise consists of less than fifty employees with an annual turnover of not more than $3 million. Therefore, it referred to small-enterprises as firms that employed a maximum of 10 persons with an annual turnover of $100,000 dollars. In Cambodia, firms that employ between 11 and 50 employees and have fixed assets of $50,000 to $250,000 are categorized as small. Firms with 51- 200 employees and fixed assets of $250,000 to $500,000 are medium-sized.in Indonesia, firms that employ fewer than 100 employees. In Lao People’s Democratic Republic, Small enterprises are those having an annual average number of employees not exceeding 19 persons or total assets not exceeding two hundred and fifty million kip or annual turnover not exceeding four hundred million kips. In Viet Nam, SMEs are independent production and business establishments that are duly registered according to the current law provisions, each with registered capital not exceeding VND 10 billion or annual labour not exceeding 300 people (OECD, 2005). According to the World Bank (2006), SMEs are conceived as enterprises that have at most 300 employees and an annual turnover not exceeding 15 million US dollars. In the UK, sections 382 and 465 of the Companies Act, 2006 define SMEs as one with a turnover of not more than £22.8 million, a balance sheet total of not more than £11.4 million, and not more than 250 employees. The definition of SMEs in Kosovo is regulated by Law no. 02/L-5 for small and medium enterprise support. Article 4, paragraphs 2 and 3, determine that: a small enterprise is an enterprise that employs up to nine (9) employees during the previous 12 months and had a total turnover of EUR 500,000 or less, while a medium enterprise is an enterprise which employs between (ten) to 10 (forty-nine) and 49 employees during the previous 12 months had a total turnover of 2.4 million Euros or less (Akingunola, 2011). In Nigeria, SMEs as entities with asset-based on N5 million and not more than N500 million excluding land and buildings with employees between 11 and 200 (World Bank, 2015).
CHAPTER THREE
METHODOLOGY
Area of Study: The study was carried out in Lagos State, Nigeria. This location has been chosen to be a state that has the highest number of SMEs in Nigeria (SMEDAN, 2015). The chosen state was created on May 27, 1967, by virtue of State (Creation and Transitional Provisions) Decree No. 14 of 1967, which restructured Nigeria’s Federation into 12 states. Prior to this, Lagos Municipality had been administered by the Federal Government through the Federal Ministry of Lagos Affairs as the regional authority, while the Lagos City Council (LCC) governed the City of Lagos. Lagos is the center of commerce for the country. According to the 1991 national census, Lagos State had a population of 5,725,116 out of a national total of 88,992,220 (Census, 2006).
CHAPTER FOUR
RESULTS AND DISCUSSION
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
The study examines the impact of micro-insurance on the development of small and medium enterprises amid covid-19. The study was carried out in Lagos State, Nigeria. This location has been chosen to be a state that has the highest number of SMEs in Nigeria. .A descriptive design was used to determine and describe the factors affecting risk management by SMEs and the related insurance policies to mitigate risk. A simple random sampling technique was employed to select 252 SMEs as a sample size out of 2,890 SMEs registered with SMEDAN as of 2015 in Lagos State. Data were analyzed with the aid of descriptive and inferential statistics. The study establishes that most of the SMEs do not have insurance policies for their businesses, and the level of information on insurance is very low. Furthermore, the study confirms that COVID-19 is a major risk SMEs are battling with, while non-response, non- payment of claims and delay claim payment are the major factors preventing SMEs from adopting insurance as a risk management strategy. The study concludes that there is a strong relationship between the adoption of insurance policies and SMEs’ growth.
Subsequently, the study recommends that the insurance industry should organize seminars, workshops, and conferences on insurance literacy in conjunction with SMEDAN and MAN, in all local governments for SME operators/ managers. Also, insurance providers should eager to insure SMEs and the regulatory authority should enforce prompt payment of claims.
The insurance industry is a service industry on which the activities of other industries depend for security and protection insurance. Therefore, is a device which is set up to handle risks and risks involve uncertainly insurance involve pooling together of resources by money in order to alleviate to the losses of a few. The insurance industry in Nigeria came with the British during the colonial Era the fact that most insurance companies in Nigeria have British origin is a testimony to this. Before the advent of the colonialist, Nigeria were engaged in various trading activities but without any form of formal insurance scheme. What was obtainable then was a mutual and social form of insurance, which might be found in the expected family structures age grade association and some other unions. The present day insurance came with the British traders in the west Africa coast. They set up agency offices in Nigeria.
These offices developed into branch offices and subsequently and of 1966 there were one hundred and forty six (146) insurance firms in Nigeria. The insurance firms in Nigeria were collecting a huge amount as premium into the pool. The insurance industry has been performing various functions. The aim of this study is on how well they have been able to accomplishing this task, the insurance industry provides different types of product in the insurance market.
This research study has on the impact on insurance industry on the economic development of Nigeria. In this course of study, it was discovered that the function of insurance industry are numerous with spiral effect on the other sector of the economy. This insurance industry is seen to be positively affecting the development of Nigeria economy due to its cohesion in bridging the gap of financial miss- management faced by business individuals who before the emergence of modern insurance in the country were stranded in term of financial management as a result of many losses encountered.
This insurance creates an intangible psychological relief and builds confidence which helps business individual to plan to the future.
From the foregoing insurance plays a general role in the generation and conservation of funds. In line with this view, it can be said that no modern insurance and economy can function effectively without adequate re-insurance activities.
Moreover, as the practice of insurance develops and indeed the awareness grows, it is Important to reiterate Irukwu ( 1991) observation that insurance as an economic institutions has come to stay and as long as the money and free market economy remains with us insurance will continue to be visual feature of modern economic system.
References
- Adeyele, J.S and Osemene, O.O. (2018). Small and medium enterprises’ risk exposures and mitigationapproaches in The Journal of Entrepreneurial Finance (JEF),20(1), 21-42.
- Aduko, J., (2011). General insurance, a tool for managing business risks: A case study of SMEs in theTamale Masters Dissertation: Kwame Nkrumah University of science and Technology, Ghana. Retrieved from http://www.lib.umi.com.
- Agbaje, R. (2005). Accounting for specialized transactions, First Edition. Ibadan: Akins Prints
- Akingunola,O (2011). Small and Medium Scale Enterprises and Economic Growth in Nigeria: An Assessment of Financing Options. Pakistan Journal of Business and Economic Review 2( 1); 78-98.
- Anudu,, & Okojie, J (2023). SMEs closures seen after Covid-19 pandemic. Available at https://businessday.ng/enterpreneur/article/smes-closures-seen-after-covid-19-pandemic/
- Auckey, (2019) SMEs as the Backbone of Southeast Asia’s Growing Economy. Available at https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/smes-backbone- southeast-asia-s-growing-economy
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