The Contribution of Insurance Companies to the Growth of Small and Medium-Scale Businesses
Chapter One
OBJECTIVE OF THE STUDY
The main objective of the study was to investigate the contribution of insurance companies the growth of SMEs in Nigeria. Other objectives the study sought to achieve are:
- To examine major factors that affect the growth of SMEs.
- To assess the contribution of insurance companies to the growth of SMEs.
- To investigate the factors inhibiting the purchase of insurance cover by SME operators.
- To determine the strength of the relationship between insurance companies and growth of SMEs.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
This chapter reviews the literature on the contribution of insurance companies to the growth of small and medium scale businesses. It discusses issues inadequate utilisation of insurance resources by SMEs from different perspectives and with the view of giving a theoretical and empirical foundation to the study.
DEFINITION OF SMES
SMEs are considered to be the engine for the growth in both developed and developing countries. They have the potential to play a crucial role in supporting balanced growth across the economy (Bannock and Albach, 2000). The benefits of a vibrant SMEs sector include; the creation of employment opportunities, the strengthening of industrial linkage, the promotion of flexibility and innovation (Harvie and Lee, 2001). To sustain an economy needs to be supported by its SMEs because large scale enterprises might have negative as well as positive effects on the stability of the country (Moy and Lee, 2002).
However it is difficult to give a precise and universally acceptable definition of SMEs because various countries and scholars use yardsticks such as employment levels, capital outlay and energy to define SMEs. They include a wide variety of firms ranging from village handcrafts makers, small machine shops to restaurants and computer software firms. They require a wide range of skills and operate in very different markets and social environment (Hallberg, 2000).
Statistically, SMEs are defined basing on the number of employees and or the value of assets. The lower limit for small scale enterprises is set at five-ten workers and upper limit at fifty –one hundred workers. The upper limit for medium scale enterprises is set at one hundred to two hundred fifty workers (Hallberg 2000). These statistics however vary from country to country depending on the level of development and prevailing economic conditions.
The sustainable growth of the Nigerian economy is directly related to the rate of enterprise creation and development. This is in turn depending on ease with which SMEs can be started and financed given their large contribution to the national economy (UNCTAD, 2002). Nigeria is one of the many countries in Africa whose economy is predominantly covered with SMEs. Kasakende and Opondo, (2003) stated that a small scale enterprise in Nigeria employ less than 5 but a maximum of 50 employees with the value of asset (excluding land, building), working capital of less than 50 million and a turnover of between 10-50 million. On the other hand, a medium sized enterprise is considered to be a firm that employs between 50-100 workers.
Hatega (2007) reveals that there are approximately 1,069,848 SMEs currently in operation and they comprise over 90% of the private sector. Their Gross Domestic Product (GDP) contribution to the economy is 75% and they employ about 2,500,000 nationals. He also states that SMEs are mostly in urban areas with 80% of the total located therein and have an annual growth rate of 15% to 20%. They operate business like restaurants, accountants, hairdressers, conveniences stores and guesthouses. The government has also tried to promote SMEs in the country by linking them to big corporation organization that provides market and employment.
FACTORS AFFECTING THE GROWTH OF SMEs
The business sector has expanded in recent decades stimulated by changes in the industrial structure and government commitment to encourage new forms of economic enterprises. Throughout, SMEs have also increased in number and are now regarded as a vital element in the attempt to increase the rate of job creation, improve competitiveness and exploit new technologies. This growth is attributed by some factors which include:
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to a critical analysis of the contribution of insurance companies to the growth of small and medium scale businesses.
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information a critical analysis of the contribution of insurance companies to the growth of small and medium scale businesses. 200 staff of NICON were selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain a critical analysis of the contributions of insurance companies to the growth of small and medium scale business.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of poor utilisation of the available resources and programs of Insurance companies due to ignorance.
Summary
This study aimed at having a critical analysis of the contribution of insurance companies to the growth of small and medium scale businesses. Five objectives were raised which included: To examine major factors that affects the growth of Sees, to assess the contribution of insurance companies to the growth of Sees, to investigate the factors inhibiting the purchase of insurance cover by SME operators, to determine the strength of the relationship between insurance companies and growth of SMEs.
Conclusion
Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The study reveals that the success of SMEs sector depends upon the establishment of a relationship between SMEs and insurance companies. In the event that SMEs faces a catastrophe like fire, strike or that employees are injured at work, they need to have insurance to cover such eventualities as such disaster may leave them vulnerable if they don’t have insurance
The emergency of globalization however seems to be changing the status quo as insurance companies are now going back to the drawing board and designing packages that are tailored for low income businesses especially Africa where SMEs are the majority. Globalization and structural adjustment by the government has greatly woken up the insurance sector. Once, government owned enterprises like NICON have been divested and are now at the fore front of innovation in the insurance world in Nigeria.
Recommendation
- Management of NICON needs to lower the premium rates to SMEs in order to improve on their performance.
- There is need for NICON to build a relationship with SMEs as their customers in order to develop and grow in trust among them.
- NICON needs to have a fresh look at the scope and spectrum of services provided to SMEs and has a better understanding on the scale of the enterprise sector and its role to the national development.
- NICON needs to take a centre stage in the facilitation of SMEs growth through various contributions to enhance its growth.
REFERENCES
- Afolabi, B (2007), small medium scale and micro enterprises going global-international experiences, opportunities and exposures being a presentation. Unpublished conference report, East London, South Africa
- African Development Bank and OECD Development Centre, (2003), Africa Economic Outlook
- [Online] Available: http: //www.oecd.org/dev/publications [accessed: 1 April 2008]
- Bannock, D & Albach, R (2000), The characteristics and strategies of high growth SMEs. International journal of entrepreneurial behavior and research, 1(3)
- Bennins, J (2000), Industrial enterprenuership in Madras state, Stanford institute, Britain
- Berger, A & G.Udell (2002), small business credit availability and relationship lending: the importance of organizational structure. Economics journal, forth coming