AN EMPIRICAL EVALUATION OF SMALL AND MEDIUM ENTERPRISES EQUITY INVESTMENT SCHEME IN NIGERIA Paper ID: 10093 Kabiru Dandago Isa, PhD, ACA, ACTI, MNES, MNIM Professor of Accounting and Chair, Bayero Consultancy Services Unit, Bayero University, Kano-Nigeria kidandago@gmail.com, +2348023360386 Azende Terungwa, BSc, MSc, MBA Lecturer in Accounting and Finance, Department of Accounting, Benue State University, Makurdi-Nigeria tazende@yahoo.com, +2347037719881 Abstract—This study empirically evaluates the performance of the Small and Medium Scale Enterprises (SMEs) Equity Investment Scheme in Nigeria (SMEEIS), using Benue and Nassarawa States as case study. Secondary data of total credit to SMEs as percentage of banks total credit for a period from 1993–2008 were made available. Paired sample t-test was used as a technique to test the significance of bank loans before and after the introduction of SMEEIS. Mean scores and standard deviation was used to present and analyze the primary data obtained via questionnaires. The result shows that there was no significance difference between the loans disbursed by banks to SMEs before and after the introduction of SMEEIS and the conditions for accessing SMEEIS funds was beyond the reach of the predominant SMEs in Nigeria. This shows that SMEEIS, as a formal financing option, has not made any significant impact towards SMEs growth in Nigeria. The major recommendation is that 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. Key words: Small and Medium Enterprises, Equity Investment Scheme, Formal Financing, Risk-sharing, Sustainable Economic Development I. INTRODUCTION SMEEIS is a Bankers Committee Financing Initiative that started in 2001 to finance SMEs in form of equity participation. Some of the works concerning financing of SMEs were done before SMEEIS came into existence while some were in the early operational years of SMEEIS, which some of the researchers felt was too early to assess the initiative objectively. Presently, it is over nine years since the inception of the scheme, which is a reasonable period to critically assess its performance. SMEEIS is the current sector driven economic policy thrust of government involving banks. It is an equity financing initiated by the Federal Government aimed at formalizing SMEs source of financing. There is a noticeable steady decrease in the percentage of banks loans to SMEs from 1992 throughout the period of the operation of SMEEIS. What then is responsible for this unchallenged decrease of bank loans to SMEs and to what extent has SMEEIS been of help to SMEs? The need to assess the operational effectiveness of SMEEIS in Nigeria is, therefore, pertinent. The aim of this paper is to assess the impact of SMEEIS on SMEs and to examine the factors militating against accessing the SMEEIS funds by SMEs in Nigeria. The hypotheses tested in the study are stated in the null form as follows: HO 1: There is no significant difference in the loans to SMEs before and after SMEEIS by Nigerian banks. HO 2 : Conditions for accessing SMEEIS funds are beyond the reach of most SMEs in Nigeria. II. LITERATURE REVIEW In Nigeria, the formal financial institutions have been organised to finance SMEs through venture capital financing in the form of a SMIEIS fund. This was in response to the Federal government’s desire to promote SMEs as vehicles for rapid industrialisation, sustainable economic development, poverty alleviation and employment generation. Venture capital financing supplements or takes the place of credit facilities that the conventional banks are unwilling to give. The provider of the funds may initially part with the funds as a loan, but specifically with the idea of converting the debt capital into equity at some future period in the enterprise. The return from such investment should be high to compensate for the high risk. Venture capital may be regarded as an equity investment where investors expect significant capital gains in return for accepting the risk that they may lose all their equity (Golis, 1998). 406 2011 International Conference on Economics and Finance Research IPEDR vol.4 (2011) © (2011) IACSIT Press, Singapore