Risk Management and Insurance of Small and Medium Scale Enterprises (Smes) in Nigeria

Abstract

This study assesses the financing options available to Small and Medium Scale Enterprises (SMEs) in Nigeria to identify the one that is most patronized by them, using Benue and Nasarawa States as case study. Mean scores and standard deviation were used to present and analyze the primary data obtained via questionnaires. Correlation was used to substantiate whether there is similarity in the inherent identified problems of each financing option. Simple percentages combined with mean scores were used to test hypothesis one while Chi-square was used to test hypothesis two. The result shows that SMEs are significantly financed by informal sources of finance than the formal sources of finance. The formal financing options are more organized and as such avoid SMEs because of their risky nature. Predominant SMEs are lacking in good risk management strategies and insurance cover which is why their funding problem still subsists. The major recommendation is that Capacity building and sensitization programmes for all registered SMEs should be put in place by government to enlighten them on the benefits of good risk management and insurance of their businesses. Both the government and the banking sector should mutually agree on a credit guaranteed scheme strategy that will incorporate a risk-sharing arrangement as a way of encouraging the banks to channel funds to the SMEs sub sector for their growth and development which would translate into the national economic growth and sustainable economic development of Nigeria.