CHAPTER ONE

INTRODUCTION

Background of the Study

The advent of Small and Medium scale Enterprises (SMEs) throughout the

world is noticeable and has received international attention. This is partly because

SMEs play a critical role in employment creation, innovation, advancement and

sustainable development.

SMEs play a key role in transition and developing countries. These firms

typically account for more than 90% of all firms outside the agricultural sector,

constitute a major source of employment and generate significant domestic and

export earnings. As such, SME development emerges as a key instrument in poverty

reduction efforts.

The importance of small and medium-sized enterprises (SMEs) in national

economic development cannot be overstated, particularly in terms of income

generation and distribution, capital accumulation, job creation, poverty reduction, and

women's empowerment (Lisa, 2009). SMEs contribute to the formation of a new

class of small entrepreneurs, resulting in the expansion of the middle class and a

more equitable distribution of income. Small businesses can thrive in rural areas of

the country because of their location flexibility, lower infrastructure requirements,

proclivity to serve small geographic markets, and firm commitment to local

development (Lisa, 2009).

The issue of finance has been central in the operations of rural SMEs because such

services enable entrepreneurs to start, grow and sustain business without which

most rural SMEs will begin small and eventually die small, without ever having to see
any expansion in terms of output and profits in these rural communities that mostly

lack the finances to start these enterprises. Financial products have therefore

become a centre stage issue because with such products one can have access to

the other resources that will kick the business started. By virtue of their nature and

what they offer, rural SMEs do not employ high levels of technology and

sophisticated infrastructure; hence the little financial assistance they receive can be

the beginning of a vibrant venture in the future. Financial assistance has therefore

been noted as a fulcrum about which rural SMEs revolve to grow sustainably.

Statement of the Problem

Research Objectives

This study will evaluate the effect of financial institutions in the growth of

small-scale businesses in Mati City.

The study will be guided by the following specific objectives;

i. To establish the effects of trustee services by financial institutions on the growth of

SMEs;

ii. To determine the effect of credit facilities by financial institutions on the growth of

SMEs;

iii. To find out the effect of investment advice by financial institutions on the growth of

SMEs.
Research Questions

The study will be guided by the following research questions;

I. What are the effects of trustee services by financial institutions on the growth

of SMEs;

II. What are the effects of credit facilities by financial institutions on the growth of

SMEs;

III. What are the effect of investment advice by financial institutions on the growth

of SMEs

Significance of the Study