Accounting Information Technology International Conference

ACCOUNTING INFORMATION TECHNOLOGY (AIT)
INTERNATIONAL CONFERENCE
2014
Organized by
International Centre for Information Technology & Development (ICITD),

Southern University, United States
&
The Association of Chartered System Accountants (ACSA), United States
3rd Accounting Information Technology International Conference Volume 1 No. 3 Southern University, USA 2014
BOOK OF PROCEEDINGS
VOL. 1, No.3
Accounting Information Technology (AIT) International Conference

17th to 21st November, 2014
Southern University, Baton Rouge, Louisiana USA
Acknowledgement
Ideas and opinions expressed in this proceedings are those of the authors and do
not reflect the view of the ACSA. We acknowledge with thanks institutions and
individuals who have contributed in so many ways to make sure that AIT 2014 is a
success. We look forward to more productive years of mutually benefitting
partnerships and collaborations as we advance AITs for Development and its impact
in the world.
Copyright and Reprint Policy
The papers in this book are the proceedings of the International Conference on AIT,
2014. They reflect the opinion of the authors and their inclusion in the Book of
Proceedings does not constitute the endorsement of the Conference Programme
Committee, the Organizers and the collaborating institution. Abstracting and content
usage within the limit of acceptable use standards are permitted with credit to the
source. Libraries may photocopy the articles in this proceeding for academic and
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obtained.
Additional copies may be ordered from

The Conference Chairman,
Ass. Prof. Mayoka Kituyi
ICITD, Southern University,
Baton Rouge, Louisiana-USA
ii
CONTENTS
Page
1 13
The Economy of Nigeria beyond Oil: Prospects and Challenges by

Professor Abimaje Akpa & Ahura Rita Yanang
14 - 29
Electronic Auditing by
Brittany Toriola
30 - 43
Government Accounting System in Africa: A Comparative Study of

Cash-Basis and Accrual-Basis of Reporting
Festus Jacob
44 - 58
Effects of Micro-Financing on Micro and Small Enterprises in Nigeria

Adejola Paul Adebayo, PhD
59 - 74
Financing Small and Medium Scale Enterprises in Nigeria for Economic

Development
Adebayo Paul Adejola, PhD & Emeka E. Ene, PhD
75 - 89
Benefits and Challenges of E-Commerce on Developing Nations with a

special reference to Nigeria
Alhaji Abiso Kabir
90 - 95
IPSAS as a Tool for Economic Growth and Development in Africa

Adimelechi Henry Chinedu
96 - 119
Effectiveness of ICT on the Operations of Banks

Ebenezer Ogunyinka, PhD.
iii
The Economy of Nigeria beyond Oil: Prospects and Challenges

Professor Abimaje Akpa
Benue State University, Makurdi
Tel: 08066654548
E-mail: abimajeakpa@gmail.com
Ahura Rita Yanang

University of Agriculture, Makurdi
Tel: 08060830595
E-mail: ritayanang@gmail.com
Abstract
This paper examines the actual revenue and expenditure of Nigeria from 2005 2012,
establishing the fact that there has been an over dependence on oil revenue. This is a setback
for Nigeria because oil and Gas are depleting and exhaustible in nature. There is a
compelling need to look away from oil and focus on non - oil sources of revenue which are
internally generated (IGR). Existing related literature was critically examined using the
historical approach as the platform for content analysis. The major findings are that there
has been an unfortunate favour of recurrent spending at the expense of capital expenditure.
This has generated wasteful consumption as opposed to saving for investment. Suggestions
on spending more on capital expenditure will no doubt address a lot of nagging issues in
Nigeria, especially the crucial infrastructural problems. Strategic initiatives such as the
development of agriculture and industrial entrepreneurship were proposed. This paper has
discussed the prospects and challenges of weaning Nigeria away from over depending on oil
revenue towards being financially independent. The way forward for Nigeria is to harness the
opportunities that we have pointed out, failure to heed to the calls in the plan is simply
disaster waiting to explode soonest with consequences ranging from generalized insecurity
(made manifest by the army of the unemployed youths) to increased decay in both physical
and social infrastructure.
Keywords: Oil revenue, Non-oil revenue, internally generated revenue (IGR), Expenditure,
Agriculture.
INTRODUCTION
Leaning on over 80 percent of its annual revenue from the oil sector, the Nigerian economy is
said to be dangerously over-dependent on oil. This over-dependence risk is an outcome of
two realities. The first is that oil and gas are depleting assets in the sense that the sources are
exhaustible, thus rendering permanent dependence on them most disastrous. The second risk
factor is that the market for oil and gas is highly volatile in terms of predictability of sales.
The existence of these risk factors beckons on a compelling need to look away from oil and
pay a more focused attention on non-oil sources of revenue, which are internally generated
revenue (IGR). If the entire national economy is said to be over dependent on oil revenues,
the same declaration applies ipso facto to all the federating components of the federal system.
TABLE 1:
REVENUE SOURCES OF NIGERIA (NAIRA MILLION) 2005-2012
For the avoidance of doubt, Table 1 below presents a graphic picture of this precarious state
of dependence.
EARS
Revenue
2005
2006
2007
2008
2009
2010
2011
2012
5,547,500.00
5,965,101.90
5,715,600.00
7,866,590.10
4,844,592.34
7,303,671.55
998,762.00
7,211,000.00
Oil revenue
4,762,400.00
5,287,566.00
4,462,910.00
6,530,630.10
3,191,937.98
5,396,091.05
884,865.00
5,288,000.00
As % of oil
85.85%
88.64%
78.08%
88.02%
65.89%
73.88%
88.60%
73.33%
758,100.00
67,535.00
1,200,800.00
1,335,960.00
1,652,654.37
1,907,580.00
113,904.00
1,923,000.00
14.15%
11.36%
21.01%
16.98%
34.11%
26.12%
11.40%
26.67%
source
Total
Revenue(TR)
revenue
Non-oil
revenue
As % of nonoil revenue
Source: Federal Ministry of Finance and Central Bank of Nigeria.
FIGURE 1: PERCENTAGES OF REVENUE SOURCES IN NIGERIA 2005-2012
14.15%
11.36%
21.01%
11.40%
16.98%
34.11%
85.85%
88.64%
78.08%
2005
2006
2007
2008
26.67%
88.60%
88.02%
65.89%
0
year
26.12%
2009
73.88%
2010
73.33%
2011
2012
As % of non-oil revenue
As % of oil revenue
As depicted in the table, the average dependence of Nigeria on revenue from oil during the
eight (8) years spanning 2005 and 2012 was 80 percent while only 19.30 percent of the total
revenue for the country on the average came from internal sources (i.e. non-oil).
The data in Table 1 draw our attention to two unhealthy fiscal realities. The first is a
confirmation of the over- dependence on oil syndrome earlier discussed. The second
unpalatable fiscal condition is that except for the 2009 fiscal year when Nigeria generated
34.11 percent of its total revenue needs from the internal sources during the eight year period
under study, the IGR efforts in the rest of the years were unstable.
Fortunately or unfortunately, revenues from the oil sectors have started dipping in recent
times due to a host of factors including stealing via bunkering, falsification of sales
transactions, pipeline vandalization, and loss of market, amongst others. The immediate
effect of the fluctuations in the oil revenue flowing into the federation account is that many
federating units in the federal arrangement are now experiencing difficulty in meeting their
recurrent spending obligations such as monthly salaries and overhead without recourse to
borrowing for supplementation.
In the light of the foregoing background, the paper discusses prospects and challenges of
managing the Nigerian economy without oil. In ministering to this objective, the rest of the
paper is structured around the following related issues:
The effect of oil curse on political governance in Nigeria
Prospects and opportunities for managing the Nigerian economy without oil.
Challenges and hurdles to overcome in managing the economy of Nigeria with minimal
dependence on oil.
REVIEW OF RELATED LITERATURE

Before the arrival of oil, the Nigerian economy was fairly diversified. For example, before
independence in 1960, agriculture has the mainstay of the economy accounting for over one
half of the countrys GDP. Up and until that point in time, agriculture was the main source of
public revenue as well as the main foreign exchange earner. The oil sector assumed the front
burner position as it now accounts for twenty percent of the nations GDP, ninety five percent
of foreign exchange earnings, and about 65 percent of budgetary revenues. The sweepstakes
between ethnic and regional groups for power and siege to the countrys oil wealth has been
at the root of politics in Nigeria.

The largely subsistence agricultural sector has not kept pace with the rapid population
growth. Nigeria, once a large net exporter, now imports food though the administration of
President Umaru Musa YarAdua introduced far-reaching policy initiatives to reverse this
trend and attain national food self-sufficiency. Economic growth since the early 1970's has
been erratic, driven primarily by the fluctuations of the global oil market. During the 1980's
and 1990's, Nigeria faced growing economic decline and falling living standards, a reflection
also of political instability, corruption, and poor macroeconomic management (most notably
the failure to diversify the economy). Fundamental economic reforms were introduced by the
administration of President Olusegun Obasanjo, which resulted in a stable macro-economic
environment, including debt relief. A major debt deal led to massive reduction in Nigeria's
debt from over US$36 billion in 2004 to a mere US$3.6 billion in 2008. President Umaru
Musa YarAdua intensified economic reforms on the basis of the foundation laid by his
predecessor. Between 2004 - 2008, the country's GDP grew two-fold to $209.5 billion and at
an impressive annual rate of seven percent. This was the best performance for many years,
above the regional average of six percent. The country's GDP recorded an average growth
rate of six percent between 2006 and 2008. This was largely fuelled by the growth of the nonoil sector, including the phenomenal increase in the price of crude oil before the sharp decline
of 2008, made worse by the global economic meltdown (Nigeria High Commission, London,
UK, 2014.)
Even with the decrease of the agricultural sector due to emergence of oil in the economy, the
sector still manages to account for 33 percent of GDP (2005) and provides employment, both
formal and informal, for a large majority of the population. No matter what effort has been
made to revive the sector, it always turns out unsuccessful due to the governments
dependency on the oil sector.
Although government has largely neglected the agricultural sector, it is still dominated by
traditional smallholders raising subsistence crops such as sorghum, maize, cassava, yams,
millet, rice and increasing quantities of wheat. As stated above, over 70 percent of these crops
are planted mainly for household consumption.
With global oil prices deteriorating to below $40 a barrel, Nigeria is suddenly in a fright. It
has taken the inescapable reduction in revenue to make us all realize that we have to look
beyond the Niger Delta for our daily bread as a result of which efforts are beginning to be
redirected to other sectors such as mining, agriculture and manufacturing.

Given that about ninety five percent of Nigeria's export earnings come from oil, for instance
if the country were earning US$60bn from exports and there was a drastic fall to US$30bn,
that will be disastrous. To make matters worse, oil actually contributes very little to our local
economy in terms of employment rate, the growth of ancillary industries, out-sourcing to
secondary producers and the stimulating of a local supply sector. (Akinfe, 2014)
At the moment, most of our leaders are looking at agriculture as a respectable contribution to
our foreign export earnings. Katsina State is a good case in point where neem or dogonyaro
cultivation is currently being stepped up to serve the twin purposes of being a foreign
exchange earner and vital tool in the battle against desertification.
Neem is used as a raw material in the production of fertilizer, soap, waxes, cosmetics,
pharmaceuticals, insecticides and lubricants, among others. If cultivation is pervasive and is
backed up with the establishment of processing facilities, this would create employment for
vast rural communities.
Another great example is Yobe State Government which has recently embarked on the largescale production of castor oil seeds as part of a project to engage about 100,000 farmers to
cultivate more than 10,000 hectares of land. Castor oil can be used for pharmaceuticals and
aviation fuel, among other things. Due to the ability of the crop to stunt the emission of
carbon dioxide into the atmosphere, the European Union is crediting the Yobe State
government with a carbon credit of N2bn as part of its global warming initiative.
In an effort to promote and encourage agriculture, Kano State has assured its farmers a 40
percent subsidy towards the purchase of all agricultural appliances. Alhaji Musa Suleiman
Shanono, the state commissioner for agriculture, said the government is doing this as part of a
drive to put more effort towards revamping the agricultural sector.
Casual observation will easily depict how little we produce, export and earn from agriculture.
In contrast, cash crops are major revenue earners for countries such as Canada, Australia,
Brazil, Argentina, China, USA, India, Malaysia, Pakistan, Vietnam, Bangladesh and Mexico,
just to mention a few. There is simply no reason why Nigeria cannot join their ranks.
If Malaysia can generate U$10bn a year in palm oil exports alone, there is no reason why
Nigeria cannot earn U$15bn from the sale of the same crop, given that we have 10 times
more land suited to the crop than them. We are currently generating about $60bn from the
sale of crude oil exports a year but this is blinding us to the fact that we could be generating
5
$100bn from the sale of agricultural produce. (Nigeria Village Square, 2013)
After all said and done, the agricultural sector that has been long replaced by the oil sector
would be the saviour that will deliver the nation once again.
For the foreseeable future, the welfare of rural populations in Nigeria will be tied to
agriculture. Agriculture is the backbone of the rural economy, generating about 30 percent of
gross domestic product (GDP) and providing by far the largest source of rural employment.
Growth in Nigerias agricultural sector, while better than the growth achieved in many other
African countries, has fallen short of expectations? Value added per capita in agriculture has
risen by less than 1 percent per year for the past 20 years, and food production gains have not
kept pace with population growth, resulting in rising food imports and declining levels of
national food self-sufficiency. (Marinos and Simeon, 2006)
The ineffectiveness of agricultural policies has been documented due to the misguided
principles, or because their impacts have been swamped by macro policies affecting inflation,
exchange rates and the cost of capital. The rapid expansion of the oil sector has also played a
role in corroding the competitiveness of agriculture, because successive governments have
chosen the easy path of relying heavily on earnings from oil exports rather than making the
investments needed to diversify the economy by maintaining productivity growth in
agriculture and other non-oil sectors.
These challenges have long been recognized and as such the federal government under the
administration of president Obasanjo identified the rejuvenation of the agricultural sector as a
major priority. He had a goal of investing 10 percent of the national budget in agriculture and
related activities. (Marinos and Simeon, 2006)
The National Economic Empowerment and Development Strategy (NEEDS) also explicitly
recognizes the strategic importance of the agricultural sector and lists a number of special
ingenuities that the Federal Government intends to pursue in promoting increased food and
agricultural production. The NEEDS sets out a series of quantitative performance targets to
be achieved by 2007, including 6 percent annual growth in agricultural GDP, US $3 billion
per year in agricultural exports, and 95 percent national food self-sufficiency, (Marinos and
Simeon,2006).
While there is interest in streamlining agriculture, there is insufficient knowledge about the
growth potential of the agricultural sector in Nigeria. Some still ask if it is appropriate to
focus on agriculture as a source of growth in Nigeria. Marinos and Simeon applied the global
trade assistance and production (GTAP) framework, an applied general equilibrium model, to
estimate the growth potential of agriculture in Nigeria. They found out that in Nigeria, the oil
sector accounts for over a quarter of the economy. Thus, 1 percent technological progress in
the oil sector gives a large welfare benefits in huge dollar terms. And to address the issue of
size of sector, they divided welfare gains by the value of the sectors output and magnitude
which results shows that for Nigeria, several food and agricultural sectors have a value that is
higher than that of the oil sector, (Marinos and Simeon, 2006).
THE EFFECT OF OIL CURSE

Watts (2008) never made a mistake when he referred to the discovery of oil in the developing
world as The Curse of the Black Gold. Today in Nigeria, the enormity of that observation
stares us unblinkingly in the face. The greatest of the effect of the oil curse on the Nigerian
economic system is the development of the rentier mentality in the political office bearers. To
wit, most of the 36 states plus FCT Abuja depend almost entirely on monthly allocations
from the federation account, a habit that has rendered them lazy and lacking in creativity and
innovation in public governance. From month to month, the oil revenue allocations once
shared out, they wait for the next round of sharing. The truth outside this rentier mentality is
that the states have the capacity to generate the required funds to develop and deliver services
to the people. Most of the politicians in office are simply not working sufficiently hard
enough to effectively harness the available revenue yielding opportunities in their domains. If
you ask them how come certain goods and services are not delivered to the people, their
simple excuse invariably is that shortage of funds is to blame. However, it is difficult to find
a governance situation anywhere in the world in which money needed is adequate. To
therefore get things done in the face of scarcity, the way out is strategic thinking and
visioning rather than spend an ample lot of time quarrelling over the sharing of the excess
crude account money.
PROSPECTS AND OPPORTUNITIES

Since the attention of the country has now been drawn to the need to start talking about
Nigeria without oil, it is imperative for all the federating units including the 36 states to also
begin to draw up a plan B for the country beyond oil. For example, USA (United States of
America) that used to be the greatest importer of Nigerias crude oil has stopped because they
now have an alternative. The plan B referred to in the foregoing should be conceptualized as
a comprehensive economic development agenda designed to invest in the other sectors of
Nigerias economy. The idea here is not only to be proactive but fundamentally to
supplement the current oil revenue with alternative income sources. The long run objective of
such an agenda is that with or without oil, the country can survive.
In developing the required economic development agenda that can migrate the country away
from high dependence on oil, the first step is to engage in serious environmental scanning or
self-audit whose outcome will include mapping out windows of opportunities waiting to be
harnessed. Such opportunities will include essentially areas of comparative advantage to
leverage upon in fast tracking economic growth via investment. Indeed, all the states in
Nigeria are endowed with one economic resource or another of comparative advantage which
can be economically developed.
We like to acknowledge at this juncture that the Transformation Agenda, the economic
development blueprint of President Goodluck Jonathans administration, is deep and robust.
However, it was crafted with oil revenue in mind. The envisaged plan B will be unique in the
extent it anticipates an economy without oil. It requires a serious review of the development
blueprint with a view to reclassifying the strategic initiatives driven by the concept of
comparative advantage. In this context, we now examine the structure/content of the
proposed economic development plan that can move Nigeria away from total reliance on oil.
PROPOSED STRATEGIC INITIATIVES

It must be stated emphatically here that the new economic development frame work is
derived from the ideology of managing under scarcity which always calls for strategic
approach to management. The moving philosophy constrains the leaders to think strategically
in a manner that weans them away from the existing rentier mentality which relies almost
completely on the monthly federal allocations and begin to think creatively and innovatively
about how to fund development programmes and projects from non-oil revenue sources. To
migrate to high dependence on IGR, there is need to leverage on agribusiness which hub is
agricultural development, industrialization and commerce.
The rest of the discussion is on this strategic initiative which takes on board Nigerias
comparative advantage and strategic opportunities or strengths. In other words, Nigeria
should leverage on its following opportunities:
1. The flock in of investors that are indicating their interest

2. Abundant agrarian land with sufficient bodies of water,
3. Enterprising and serious minded citizenry with deep appetite to grow economically.
4. The management philosophy here is that of strategic husbanding of agriculture,
industrialization and commerce using the value chain management model. With the
strategic goal established as one of agric-industrial-commercial value chain, we next
briefly discuss the components of this chain.
AGRICULTURE
The new economic development focus requires modernization and upgrading agriculture
production in Nigeria via mechanization. The value chain ideology consists of food
sufficiency first and balance channelled to economic/industrial processing. In other words the
chain is the farmer processing packaging. No product should be allowed to be shipped
out of the Nigeria in its raw form. The unique nature of agriculture is that it can employ
massively while it ensures that we dont go hungry knowing that hunger breeds violence and
insurgency.
INDUSTRIAL AND COMMERCIAL ENTREPRENEURSHIP

Industrial and commercial entrepreneurship must be provided through funding of micro-level
entrepreneurs to grow into small and medium scale commercial and manufacturing
enterprises via a micro-credit scheme properly managed.
To implement this type of Marshal Plan for the Nigerian economy will, of course, require the
existence of an enabling environment. It is in this context that we next examine the
challenges and hurdles to overcome in managing the economy of Nigeria with minimal
dependence on oil, thus laying today the foundation of industrial revolution in Nigeria aimed
at guaranteeing jobs for the teeming youths.
CHALLENGES AND HURDLES

All Marshal Plans are crafted in a constrained environment, meaning that for such a plan to
succeed, the envisaged obstacles being success risk factors must be removed or minimized. In
this regard, we consider the following challenges or threats to successful implementation of

the transformation agenda for the Nigerian economy.
CREATION OF ENABLING ENVIRONMENT

To move the agric-industrial-commercial value chain forward in Nigeria, the following
challenges are adequately addressed:
Infrastructure: This includes:
i.
Investment-attracting infrastructure such as power, transportation, roads, functional

airport, rail road, ICT, industrial parks, urbanization, et cetera,
ii.
Social infrastructure such as education, water, public transportation, quality health

service centers (capable of discouraging medical tourism abroad), et cetera,
iii.
Security of life and property.
NEED TO CHANGE CERTAIN FISCAL MANAGEMENT PRACTICES

Managing strategically under scarcity without a rentier mentality requires a new approach to
fiscal management in the following areas:
1. Medium term expenditure framework (MTEF) should be the basis for formulating the
annual budget in Nigeria. (The details are in the fiscal responsibility act, 2007.),
2. The budget must be tilted away from the existing unfortunate favour of recurrent
spending at the expense of capital expenditure as seen in Table 2 and Figure 2. This
attitude at best has generated wasteful consumption as opposed to saving for
investment. The reversal that favours capital expenditure will no doubt address a lot
of nagging issues in Nigeria, especially the crucial infrastructural problems and other
legacy-ensuring dividends,
3. Need to change the ratio of recurrent expenditure to non-oil revenues (i.e. IGR),
4. Need to strengthen Monitoring and Evaluation (M&E) processes in the MDAs
(Ministries, departments and agencies).
10
TABLE: 2: PUBLIC EXPENDITURE PATTERNS IN NIGERIA (NAIRA MILLION)

2005-2012
Years
2005
2006
2007
2008
2009
2010
2011
2012
Total Expenditure
1,822,100
1,938,002
2,450,896
3,240,820
3,452 ,990
4,194 ,217
4,299,155
4,605,000
Total recurrent
1,223 ,700
1,290,201
1,589,270
2,117,362
2,300,194
3,310,343
3,054,333
3,325,000
67.16%
66.57%
64.84%
65.33%
66.61%
78.93%
71.04%
72.20%
Total capital expenditure
519,500
552,385
759,323
1,123,458
1,152,796
883,874
918,548
1,301,000
As % capital
28.51%
28.50%
30.98%
34.67%
33.39%
21.07%
31.37%
28.25%
expenditure
As % recurrent
expenditure
expenditure
Source: Federal Ministry of Finance and Central Bank of Nigeria.
FIGURE 2: PERCENTAGES OF PUBLIC EXPENDITURE PATTERNS IN NIGERIA

2005-2012
28.51% 28.50% 30.98% 34.67% 33.39%
67.16% 66.57% 64.84% 65.33% 66.61%
0
year
2005
2006
2007
2008
2009
21.07%
78.93%
2010
31.37% 28.25%
71.04% 72.20%
2011
2012
As % of Capital expenditure
As % of recurrent expenditure
NEED TO TACKLE THE RAVAGING EFFECT OF OFFICIAL CORRUPTION

Corruption has been identified as the greatest enemy of development in Nigeria. It causes
some projects to be either delayed or completely abandoned, thus bringing to waste monies
so far expended on them. The way out here is the creation of robust and strengthened M&E
teams that can judiciously track project implementation. When this is in place and working,
11
the existing dismal budget performance that is below 50 percent (national average) will be
addressed.
FISCAL DISCIPLINE
In a regime with widespread fiscal indiscipline as is the case in Nigeria today, what happens
is that no matter how much is available to the federation, if it is not well administered, it will
not deliver the desired impact on peoples lives. In managing under scarcity, leaders must
strive to:
i.
Match revenue to expenditure by not allowing unbridled multiplication of structures

and processes, and
ii.
Check current spending plan of government by paying attention to reducing recurrent

items and reducing the number of government agencies.
OTHER STRATEGIC INITIATIVES

Closely related to the overarching strategic economic initiatives discussed in the preceding
are the following platforms:
1. Developing of selected markets in Nigeria,
2. Partner international development agencies and eminent Nigerian indigenes in the
Diaspora with technical expertise and web of contacts,
3. Development of tourism and hospitality sector.
DIVIDENDS OF PROPOSED AGRIC-INDUSTRIAL-COMMERCIAL MODEL

It is both possible and inevitable to get away from the rentier mentality ushered in the land by
the curse of oil on the following ground. Most countries across the globe generate their
governance funds from taxation. So they try to plant and run efficient tax systems whose
dragnets bring as many people and entities as possible into their catch. In Nigeria today, it is
a fact that many wealthy individuals and businesses evade tax. There are however two things
that should be done. The first is to justify tax payment by using tax monies to develop and
upgrade the peoples standard of living. The second step is that Nigeria should as a matter of
policy boost the revenue base of the citizens and tax payment capacity by investing and
supporting the development of SMEs. In other words, although it is easy to point to taxation
12
as an enormous source of IGR, the citizens shouldnt be over-taxed since doing so can be
counter-productive. This indeed calls for diversification of the revenue base including
borrowing from the capital market and financial institutions.
CONCLUSION
This paper has discussed the prospects and challenges of weaning Nigeria away from over
depending on oil revenue towards being financially independent. In addressing this overall
mission, we have shed light on the effect of the oil curse on public governance. Furthermore,
we have pointed the way to the prospects and opportunities waiting to be harnessed. The
converse of not heeding to the calls in the plan is simply a disaster waiting to explode soonest
with consequences ranging from generalized insecurity (made manifest by the army of the
unemployed youths) to increased decay in both physical and social infrastructure.
Considering that this appears to be the way to the future of Nigeria because of many
redeeming dividends of the proposal, we think it should be given a focused attention.
REFERENCES
Akinfe, A. (2009), Agriculture Offers A Brighter Future Than Crude Oil. Nigeria Village Square,
Retrieved 5th September 2014 from:
http://www.nigeriavillagesquare.com/articles/ayoakinfe/agriculture-offers-a-brighter-future-thancrude-oil.html
Akpa, A. (2008), Public Finance and Budgeting: Issues, Imperatives and Challenges from Nigerian
Perspective. Ibadan: Spectrum Books.
Editorial (2012), Beyond Uduaghans Delta without Oil. The punch, March 19 International Monetary
Fund (2003), Nigeria: Selected Issues and Statistical Appendix, IMF Country Report No. 03/60.
Ekpo, A .H & Umoh, 0. J. (2014), An Overview of The Nigerian Economic Growth and Development.
Retrieved 5th September 2014 from: http://www.onlinenigeria.com/economics/#ixzz3CNZGqY7d
Marinos, T and Simeon, E. (2006), The Role of Agriculture in Nigerias Economic Growth Abuja,
Nigeria.
Nigeria High Commission (2013), Economy. London, UK. Retrieved 4th September 2014 from:
http//www.nigeriahc.org.uk/economy.
Udeh, J. (2002), Petroleum Revenue Management: The Nigerian Perspective, Paper presented at the
World Bank Petroleum Revenue Management Workshop, October 24-25, 2002, Washington D.C.
Watts, M. (2008), The Niger Delta: The Curse of the Black Gold. Retrieved 10th September 2014
from: www.independent.co.uk/the-niger-delta
13
Electronic Auditing
Brittany Toriola
Info-Tech Business School,
Illinois, Chicago-USA
brittytori@gmail.com
Abstract
The recent advancement in technology has modernised the way we live and conduct our
business. One major example of this advancement in the accounting and auditing profession
is the use of computers in preparing and auditing financial statements. Auditors are
constantly challenged by the application of computers in carrying out their auditing
engagements. The use of computers is no longer a thing of choice but of necessity as data is
collected, stored, processed, transmitted and reported with computers (Okereke, 2000). This
paper looks at how information technology (computer systems) impacts auditing processes
and procedures.
Keywords: Auditing, Computer, Computer Based Accounting System, Computer Information
System, Computerised Environment, Data Processing System, Electronic Data Processing
System.
INTRODUCTION
The recent advancements in technology have had a great impact on our way of life, especially
in the area of mechanisation of our day to day operations. This impact has also been felt in
the various professions from laser eye surgeries in the medical profession to mechanised
manufacturing in the manufacturing industry. The Accounting and Auditing professions have
also not been left out as there has been an increase in accounting software packages for
preparing financial statements and audit software packages for gathering sufficient and
appropriate audit evidence during an audit. Computer technology has become an integral part
of most organisations today as it affects information storage, data processing, retrieval and
communication.
With the pervasiveness of computer technology and the complex nature of the current
database systems, the auditor can no longer apply the traditional techniques in auditing
controls (Akpa, 2014). He therefore has to adapt himself to this revolution whilst bearing in
mind that the basic requirement of his duty has not changed.
This paper explores the different ways in which the use of computers impacts on the external
audit process, the benefits and the challenges or risks this might present.
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DEFINITIONS
A Computer is an electronic device which accepts data as input and processes it by following
a set of instructions to produce accurate and efficient results known as output (Onochie,
2005).
A Computer Accounting System exists when a computer of any kind or size is involved in the
processing by an entity of financial information of significance to the audit whether that
computer is operated by the entity or by a third party (Onochie, 2005).
Audit Automation is the general term given to the use of IT in the audit process, the basic
idea being that it frees up staff to carry out judgemental work rather than being engaged in
repetitive activities (Get Through Guides, 2013).
WHAT IS AUDITING?
According to Anderson (1977), the practice of auditing commenced on the day that one
individual assumed stewardship over anothers property. In reporting on his stewardship, the
accuracy and reliability of that information would have been subjected to some sort of critical
review. The review referred to in his definition is auditing.
THE PURPOSE OF AN AUDIT
Porter, Simon & Hatherly (2008) explain that the purpose of an audit is to express an opinion
on whether or not the financial statements provide a true and fair view of the entitys
financial performance and financial position, and comply with relevant statutory and/or other
regulatory requirements. The primary objective of an audit is to provide credibility to an
auditees financial statements (which are prepared by the auditees management), by the
auditor expressing an opinion on the truth and fairness (or otherwise) of the financial
statements.
The fundamental objectives of an audit do not depend on whether the accounting system is
manual or computerised. As mentioned earlier, it is embodied in the fundamental concept of
true and fair view. Therefore, it does not change whether the accounts of the company are
computerised or not (Okereke, 2000).
THE TRADITIONAL/CONVENTIONAL ROLE OF AN AUDITOR
The practice of auditing goes beyond a mere mechanical application of standard procedures.
An auditor in carrying out an audit is required to employ considerable skill and judgement,
15
for instance, in determining the audit approach to adopt, in evaluating internal control
systems and audit evidence, etc.
Some other important roles performed by the auditor includes: ensuring that organisational
policies are properly implemented and adhered to, assist management in improving the
quality of reporting systems and reporting weaknesses or deficiencies in internal control to
management.
Generally, external auditors report on the accounts prepared by management. They assess the
value of assets and liabilities on the basis of audit examination and reliability of accounting
records (Okereke, 2000).
THE CHANGING ENVIRONMENT AND AUDITORS

The events of the last two decades have necessitated the utilisation of computer facilities in
our environment as large volumes of data are being processed at very high speed for the
purpose of prompt decision making (Bhaskar, 1982/1983). Accounting staff, computer
operators and other company staff are fast discovering ways and techniques of playing tricks
with computer in order to defraud their organisations. This emergence of computer fraud has
thrown many organisations into untold hardship and some into heavy losses.
Auditors must therefore be prepared to acquire and develop the necessary skills for the
handling of computerised audit assignments, because more reliance on the statements of
specialist cannot absolve them of liabilities. The basic approach of auditors to their
professional work still remains the same except that in a computerised accounting system,
audit procedures are adjusted to reflect the peculiar nature and complexity of such an
application system (Okereke, 2000).
ADVANTAGES OF A COMPUTERISED EDP SYSTEM

According to Onochie (2005), once an auditor accepts the task of auditing a computerised
environment and acquires the skills commensurate with the task, he will find that the
computers presence entails a number of distinct advantages. Generally, the amount of
detailed audit work is always governed by the degree of confidence which the auditor has in
the controls operated by his client.
In many ways, the data processing system help expedite the audit work on the final accounts
through their ability to provide for more immediate and effective recording control over
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assets and liabilities. For example, reconciliation between various accounts can easily be
achieved.
By use of exception reporting, debts of doubtful value are highlighted without delay for
prompt action. Similar controls may be exercised over slow-moving and obsolete stocks and
regular reconciliation carried out between physical and book records of stock. With most
manual systems, these controls and tests are not easily carried out.
DISADVANTAGES OF A COMPUTERISED (EDP) SYSTEM
According to Onochie (2005), computer systems record and process transactions in a manner
that is significantly different from manual systems thereby giving rise to various possibilities
or problems. Some of these problems according to Okereke (2000) and Onochie (2005)
include:
Computerised systems take a longer time to install especially when they are customised. Any
improper or inefficient installation can cause problems including inability of an auditor to
form proper audit opinion or even corporate failure.
Computerised systems can be complicated and therefore the auditor requires special EDP
knowledge to carry out a successful audit which might require more time.
In some cases, a larger part of the data processing operations become centralised in the
computer room contrary to the usual decentralisation of accounting units. Too much
centralisation may facilitate errors and fraud which may be difficult to discover.
Data processed in an EDP system is not visible unless it is printed out. This leads to loss of
audit trail (the ability to trace individual transactions through a system from source,
processing to completion or vice versa). Other reasons for loss of audit trail include: frequent
absence of the customary source documents, the storage of information on magnetic files
which is constantly being reviewed, the authorisation of transactions being executed through
programs and limiting human intervention (automatic initiation and execution of
transactions), the reduction in permanently kept data and print-outs, the deleting of old data
files to create space for more recent transactions.
In a manual system, clerical staff may be able to detect errors and fraud early for appropriate
action. Machines (computer) generally do not make mistakes. However, machines cannot be
relied upon to recognise improper or incorrect data input and this will also lead to improper
output (garbage-in garbage-out).
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Millichamp (2002) said there is a lack of segregation of duties. Commonly in the past every
transaction would probably be reviewed and processed by several people. This no longer
happens and frauds may proliferate as a result. He also said that there is potential for fraud
and error as a result of system or programme faults.
Considering the above problems, there should be appropriate application of computer audit
programs and audit tests data to the system under consideration (Bhaskar &Williams, 1986).
More important is the need for a closer liaison between auditors and clients at the design and
installation stages of audit computer systems.
IMPLICATION OF COMPUTERS FOR THE AUDITOR/AUDIT FIRM

The Get through Guides (2013) states the following implications of using computers in
auditing:
Knowledge and experience: Auditors are required to have technical knowledge and practical
experience since they are essential to the planning and execution of all audit procedures. This
can only be obtained from appropriate theoretical and practical training sessions.
Expensive procedure: Automating audit techniques can be expensive as it necessitates the use
of specialist software which is costly. Also the audit firm has to spend on the training of its
employees in the application of such software. Therefore, automation of audit techniques
cannot be afforded by small audit firms. Usage of automated techniques is mostly found to be
employed by the Big Four.
High Audit Fees: Since automating audit techniques is expensive, the audit fees charged to
clients will increase. This may not be acceptable to the clients as automating audit techniques
only helps the auditors in their work. The client may not be ready to bear the burden of such
increased costs. As a result, he audit firm may lose some clients.
Results are not guaranteed: The results of automated techniques are not guaranteed. As
automated audit tools are operated by technology, the possibility that the technology might
not give the desired results cannot be avoided. The auditor will have to test the effectiveness
of such auditing tools before relying on them.
Client Resistance: The clients management may not appreciate the use of automated audit
techniques as it gives the auditor wide access to the clients data and information systems. In
such a case, the auditor will either have to use traditional audit techniques or discontinue the
auditor-client relationship.
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General application may not be possible: It may not be possible to use one single type of
auditing software for all types (e.g. manufacturing and service companies) of businesses or
clients. Specialist audit tools will then be required for different types of businesses resulting
in a further increase in the costs to the audit firm.
Continuous Upgrading: As automated auditing tools are based on technology which upgrades
at a very fast pace, the auditor may also have to upgrade his auditing tools every time in order
to achieve the desired results. This would mean additional costs.
Separate IT Teams: The audit form will have to employ a special IT team to maintain the
auditing tools in order to ensure that they are operated effectively and also to address the
problems faced by the accountants in applying these tools.
IMPACT OF COMPUTER-BASED SYSTEMS ON THE AUDIT APPROACH

According to Byrne (2009), the fact that systems are computer-based does not alter the key
stages of the audit process; this explains why references to the audit of computer based
systems have been subsumed into the International Standards on Auditing (ISAs) 300, 315
and 330.
(i) Planning
The Appendix to ISA 300 (Redrafted) states the effect of information technology on the
audit procedures, including the availability of data and the expected use of computer assisted
audit techniques as one of the characteristics of the audit that needs to be considered in
developing the overall audit strategy.
(ii) Risk assessment
The auditor shall obtain an understanding of the internal control relevant to the audit. (ISA
315 (Redrafted)). The application notes to ISA 315 identify the information system as one of
the five components of internal control. It requires the auditor to obtain an understanding of
the information system, including the procedures within both IT and manual systems. In other
words, if the auditor relies on internal control in assessing risk at an assertion level, s/he
needs to understand and test the controls, whether they are manual or automated. Auditors
often use internal control evaluation (ICE) questions to identify strengths and weaknesses in
internal control. These questions remain the same but in answering them, the auditor
considers both manual and automated controls.
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For instance, when answering the ICE question, Can liabilities be incurred but not
recorded?, the auditor needs to consider manual controls, such as matching goods received
notes to purchase invoices but will also consider application controls, such as programmed
sequence checks on purchase invoices. The operation of batch control totals, whether
programmed or performed manually, would also be relevant to this question.
(iii) Testing
The auditor shall design and perform further audit procedures whose nature, timing and
extent are based on and are responsive to the assessed risks of material misstatement at the
assertion level. (ISA 330 (Redrafted)). This statement holds true irrespective of the
accounting system, and the auditor will design compliance and substantive tests that reflect
the strengths and weaknesses of the system. When testing a computer information system, the
auditor is likely to use a mix of manual and computer-assisted audit tests. This means that the
auditor reconciles input to output and hopes that the processing of transactions was error-free.
The reason for the popularity of this approach used to be the lack of audit software that was
suitable for use on smaller computers. However, this is no longer true, and audit software is
available that enables the auditor to interrogate copies of client files that have been
downloaded on to a PC or laptop. However, cost considerations still appear to be a stumbling
block. In the through the machine approach, the auditor uses CAATs to ensure that
computer based application controls are operating satisfactorily.
AUDIT PROCEDURES
In a computerised accounting system, the records need an appropriate audit approach to
ascertain whether the results represent a true and fair view of the financial position of the
company (Okereke, 2000). Below are the two approaches that can be used in a computer
audit:
Auditing Round the Computer: This implies that the auditor ensures that transactions are
inspected (for validity, proper authorisation, clerical control and coding, etc) before they are
processed by computers and that the corresponding computer-generated outputs are
completely and correctly/accurately processed i.e. it concentrates on initial input and final
output.
The benefit of this approach is that it saves time. The justification is largely that the computer
is 100% accurate in processing and material processing errors simply do not occur
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(Millichamp, 2002). The problem with this approach is that it may not detect malpractices
which are perpetrated within the computers themselves or within the computer centres since
the auditor depends highly on computer print-outs. The auditor audits the records, some of
which are maintained on computer memory devices but without using the computer to
perform audit test. (Okereke, 2000)
This approach is suitable for small businesses but it can also be said that it is easier to
understand a smaller system than the immense complexities of CISs in large-scale enterprises
(Millichamp, 2002).
Auditing Through the Computer: Under this approach, the auditor trace transactions through
the computer by using specially prepared audit program to interrogate the files; The auditor
audits the records, some of which are maintained on computer memory devices by using the
computer itself to perform audit test. (Okereke, 2000). According to Oladipupo (2003), it
involves a thorough examination of the computers own processing to ensure that: all input
finds its way into the computer, unusual conditions in the input cannot cause processing
errors, and controls with the computer programs are as effective in practice as they may
appear to be in theory.
COMPUTER ASSISTED AUDIT TECHNIQUES (CAATS)

The overall objective and scope of an audit do not change when an audit is conducted in an
EDP environment. However, the application of auditing procedures may require the auditor
to consider techniques (Computer Assisted Audit Techniques) that use the computer as an
audit tool (Onochie, 2005). These are techniques available to the non-technical auditor to
bridge the gap between him and the computer system and help to manage his way through the
data files and get what he wants (Oladipupo, 2003).
CAATs are used by the auditor for the following reasons (Oladipupo (2003) & Onochie
(2005)):
To extract data or create an audit trail (tracing a business transaction through all
stages in which it features in the records of the business) in the absence of human
readable records.
To perform audit procedures that are lengthy or error-prone.
To obtain assurance that program controls function correctly.
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To improve the efficiency and effectiveness of audit procedures and thereby reduce
cost.
In test of detail of transactions and balances, for example, the use of audit software to
test all (or a sample) of transactions in a computer file.
During analytical review procedures, for example, the use of audit software to identify
unusual fluctuations or items.
For compliance tests of general EDP controls, for example, the use of test data to test
access procedures to the program libraries.
For compliance tests of general EDP application controls, for example, the use of test
data to test the functioning of a programmed procedure.
CAATs are normally placed in three main categories (Byrne, 2009):

(i) Audit software
Computer programs used by the auditor to interrogate a clients computer files; used mainly
for substantive testing. They can be further categorised into:
Package programs (generalized audit software) pre-prepared programs for which the
auditor will specify detailed requirements; written to be used on different types of computer
systems
Purpose-written programs perform specific functions of the auditors choosing; the auditor
may have no option but to have this software developed, since package programs cannot be
adapted to the clients system (however, this can be costly)
Enquiry programs those that are part of the clients system, often used to sort and print data,
and which can be adapted for audit purposes, e.g. accounting software may have search
facilities on some modules, that could be used for audit purposes to search for all customers
with credit balances (on the customers module) or all inventory items exceeding a specified
value (on the inventory module).
Using audit software, the auditor can scrutinise large volumes of data and present results that
can then be investigated further. The software consists of program logic needed to perform
most of the functions required by the auditor, such as: select a sample, report exceptional
items, compare files, analyse, summarise and stratify data. The auditor needs to determine
which of these functions they wish to use, and the selection criteria.
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(ii) Test data

Test data consists of data submitted by the auditor for processing by the clients computer
system. The principle objective is to test the operation of application controls. For this reason,
the auditor will arrange for dummy data to be processed that includes many error conditions,
to ensure that the clients application controls can identify particular problems. Examples of
errors that might be included: supplier account codes that do not exist, employees earning in
excess of a certain limit, sales invoices that contain addition errors, submitting data with
incorrect batch control totals.
Data without errors will also be included to ensure correct transactions are processed
properly. Test data can be used live, i.e. during the clients normal production run. The
obvious disadvantage with this choice is the danger of corrupting the clients master files. To
avoid this, an integrated test facility will be used (see other techniques below). The
alternative (dead test data) is to perform a special run outside normal processing, using copies
of the clients master files. In this case, the danger of corrupting the clients files is avoided
but there is less assurance that the normal production programs have been used.
(iii) Other techniques
There are increasing numbers of other techniques that can be used; the main two are:
Integrated test facility used when test data is run live; involves the establishment of
dummy records, such as departments or customer accounts to which the dummy data can
be processed. They can then be ignored when client records are printed out, and reversed
out later.
Embedded audit facilities (embedded audit monitor) also known as resident audit
software; requires the auditors own program code to be embedded into the clients
application software. The embedded code is designed to perform audit functions and can
be switched on at selected times or activated each time the application program is used.
Embedded facilities can be used to:
Gather and store information relating to transactions at the time of processing for
subsequent audit review; the selected transactions are written to audit files for
subsequent examination, often called system control and review file (SCARF)
Spot and record (for subsequent audit attention) any items that are unusual; the
transactions are marked by the audit code when selection conditions (specified by the
auditor) are satisfied. This technique is also referred to as tagging.
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The attraction of embedded audit facilities is obvious, as it equates to having a perpetual audit
of transactions. However, the set-up is costly and may require the auditor to have an input at
the system development stage. Embedded audit facilities are often used in real time and
database environments.
According to Oladipupo (2003) and Onochie (2005), before an auditor decides whether or not
to use CAATs, he should consider the following:
His computer knowledge, expertise and experience.
The availability of CAATs and suitable computer facilities.
The impracticability of manual test where input documents are non-existent and where
the EDP system does not produce a visible audit trail of transactions processed or where
output reports are not produced.
The effectiveness and efficiency of CAATs.
The time available to perform the audit (using CAATs save time).
INTERNAL CONTROLS IN A COMPUTERISED ENVIRONMENT

The internal control in a computer environment is normally considered under 2 main
headings (Byrne, 2009):
General Controls: These are policies and procedures that relate to many applications and
support the effective functioning of application controls. They apply to mainframe, miniframe and end-user environments (the situation in which the users of the computer systems
are involved in all stages of the development of the system). General IT controls maintain the
integrity of information and security of data and commonly include controls over: data centre
and network operations, system software acquisition, change and maintenance, program
change, access security, application system acquisition, development, and maintenance (ISA
315 (Redrafted)).
They may be either manual or programmed. They are often sub-divided into administration
controls and systems development controls.
(i) Administrative controls
Controls over data centre and network operations and access security include those that:
prevent or detect errors during program execution, e.g. procedure manuals, job
scheduling, training and supervision; all these prevent errors such as using wrong data
files or wrong versions of production programs
24
prevent unauthorized amendments to data files, e.g. authorisation of jobs prior to

processing, back up and physical protection of files and access controls such as passwords
ensure the continuity of operations, e.g. testing of backup procedures, protection against
fire and floods.
(ii) System development controls

The other general controls referred to in ISA 315 cover the areas of system software
acquisition development and maintenance; program change; and application system
acquisition, development and maintenance.
System software refers to the operating system, database management systems and other
software that increases the efficiency of processing.
Application software refers to particular applications such as sales or wages. The controls
over the development and maintenance of both types of software are similar and include:
Controls over application development, such as good standards over the system design
and program writing, good documentation, testing procedures (e.g. use of test data to
identify program code errors, pilot running and parallel running of old and new systems),
as well as segregation of duties so that operators are not involved in program
development
Controls over program changes to ensure no unauthorized amendments and that

changes are adequately tested, e.g. password protection of programs, comparison of
production programs to controlled copies and approval of changes by users
Controls over installation and maintenance of system software many of the controls
mentioned above are relevant, e.g. authorisation of changes, good documentation, access
controls and segregation of duties.
Application Controls: These are manual or automated procedures that typically operate at a
business process level and apply to the processing of transactions by individual applications.
Application controls can be preventative or detective in nature and are designed to ensure the
integrity of the accounting records. Accordingly, application controls relate to procedures
used to initiate, record, process and report transactions or other financial data. These controls
help ensure that transactions occurred, are authorised and are completely and accurately
recorded and processed (ISA 315 (Redrafted)).
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Application controls apply to data processing tasks such as sales, purchases and wages
procedures and are normally divided into the following categories:
(i) Input controls
Examples include batch control totals and document counts, as well as manual scrutiny of
documents to ensure they have been authorised. An example of the operation of batch
controls using accounting software would be the checking of a manually produced figure for
the total gross value of purchase invoices against that produced on screen when the batchprocessing option is used to input the invoices. This total could also be printed out to confirm
the totals agree.
(ii) Processing controls
An example of a programmed control over processing is a run-to-run control. The totals from
one processing run, plus the input totals from the second processing, should equal the result
from the second processing run. For instance, the beginning balances on the receivables
ledger plus the sales invoices (processing run 1) less the cheques received (processing run 2)
should equal the closing balances on the receivable ledger.
(iii) Output controls
Batch processing matches input to output, and is therefore also a control over processing and
output. Other examples of output controls include the controlled resubmission of rejected
transactions or the review of exception reports (e.g. the wages exception report showing
employees being paid more than $1,000).
(iv) Master files and standing data controls
Examples include one-for-one checking of changes to master files, e.g. customer price
changes are checked to an authorized list. A regular printout of master files such as the wages
master file could be forwarded monthly to the personnel department to ensure employees
listed have personnel records.
DOCUMENTATION/COMPUTER AUDIT WORKING PAPERS
The working paper of a computer auditor represents a logical extension of the traditional
work files of auditors in more conventional processing system. The conventional audit
working paper and computer related working papers in particular differ in format,
complexity, content and extent (Oladipupo, 2003).
26
According to Onochie (2005), the documentation on the audit files should reflect the nature
of the audit. Appropriate questionnaire and check lists must be produced together with record
of clients data processing systems and controls. The standard of working papers and
retention procedures for a CAAT should be consistent with that on the audit as a whole (ISA
230). It may be convenient to keep the technical papers relating to the use of the CAAT
separate from the other audit working papers.
THE FUTURE OF AUDITING IN AN EDP WORLD
Akpa (2014) suggests that future technology will impact auditing in the following areas and
this will shape research direction: type and source of evidence, evidence quality, audit scope
expansion, professional education and standards, staffing, legal liability, etc.
METHODOLOGY
The paper employed the use of exploratory research design. It used secondary data (e.g.
books, journal articles, discussion and working papers, etc.) which was relevant to Auditing
and information technology. This design was chosen in order to explore some relevant
applications of information technology or computers in auditing the financial statements of
entities.
CONCLUSION AND RECOMMENDATIONS
Even though the computerisation of accounting records results is relatively achieving greater
accuracy, it is posing new challenges and risk to the work of auditors. These new challenges
cannot easily be ignored, because auditors are required to form an opinion on whether the
financial statements presented before them give a true and fair view of the financial position
of a company at a stated date. There are dangers if auditors place too much reliance in
computer output without investigating the means by which that output is produced. As a
result auditors should enhance their competence in information technology so as to use
computers effectively in terms of correct data input and processing.
When auditing a computer system, the auditor will need to go beyond the usual audit
techniques. An audit firm should weigh the costs and benefits of investing in CAATs before
implementing them. If the benefits exceed the costs, then the audit firm must opt for such
techniques as they considerably reduce the audit timing and also enhance the quality of the
audit work. There is every possibility that the business environment will become more
27
advanced as a result of technological advancements. The auditor should therefore keep

abreast with the latest technological development in order to remain relevant.
REFERENCES
Anderson, R. J. (1977). The external audit, Toronto: Cropp, Clark Pitman.
Bhaskar, K. N. (1982). Use of computers in accountancy courses. Accounting and Business
Research, 13, 3-10.
Bhaskar, K. N. (1983). Computers and the choice for accounting syllabuses. Accounting and
Business Research, 13, 83-93.
Bhaskar, K. N. & Williams, B. C. (1986). The impact of microprocessors on the small
accounting practice. London: Prentice-Hall International.
Byrne, P. (2009). Auditing in a computer based environment. Student Accountant. London:
United Kingdom: Association of Chartered Certified Accountants.
Get Through Guides. (2013). Paper p7 advanced audit and assurance (international) study
text (5th ed.). Surrey, United Kingdom: Author.
International
Standard
of
Auditing
230.
Audit
documentation.
Retrieved
from
http://www.ifac.org/sites/default/files/downloads/a011-2010-iaasb-handbook-isa-230.pdf
International Standard of Auditing ISA 300. Planning an audit of financial statement.
Retrieved from http://www.ifac.org/sites/default/files/downloads/a016-2010-iaasb-handbookisa-300.pdf
International Standard of Auditing ISA 315 (Redrafted). Identifying and assessing the risks of
material misstatement through understanding the entity and its environment. Retrieved from
http://www.ifac.org/sites/default/files/downloads/2008_Auditing_Handbook_A100_ISA_315
.pdf
International Standard of Auditing ISA 330. The auditors response to assesses risk. Retrieved
from
http://www.ifac.org/sites/default/files/downloads/a019-2010-iaasb-handbook-isa-
330.pdf
Millichamp, A. H. (2002). Auditing (8th Ed.). London, United Kingdom: Thomson Learning.
Okereke, L.C. (2000). Principles and practice of auditing and investigations: A manual for
professionals and non-professionals (1st ed.). Lagos, Nigeria: Lima.
28
Oladipupo, A.O. (2003). Principles and practice of auditing. Benin City, Nigeria: Mindex
publishing.
Onochie, V.O. (2005). A handbook on auditing and investigation for higher studies. Lagos,
Nigeria: Vindo Associates Ltd.
Porter, B.A., Simon, J. & Hatherly, D. (2008). Principles of external auditing (3rd ed.). West
Sussex: Wiley.
29
Government Accounting System in Africa: A Comparative Study

of Cash-Basis and Accrual-Basis of Reporting
Festus Rotimi
Info-Tech Business School,
Illinois, Chicago-USA
festimi@yahoo.com
Abstract
The objective of this study is to investigate the accounting system that should be adopted in
the Nigerian public sector for achieving the financial, public and growth objectives of the
government. To achieve this purpose, research questions were raised, hypotheses were
formulated and a critical review of extant literature was made. The population of the study
consists of eighteen (18) state legislators and thirty-nine (39) Directors of Finance and
Accounts of the chosen ministries and extra-ministerial departments. In order to generate the
necessary data for this study, the survey method of research design was adopted in which a
well-structured questionnaire designed in five-point Likert Scale was administered on the
study population. The data generated for this study were analysed using mean scores while
the stated hypotheses were statistically tested with Z-test. The findings generated from this
study indicated that cash basis of accounting does not significantly promote effective
financial reporting of public sector entities in Nigeria, since the z-test result shows that the
computer z-value (1.0) is less than the critical z-value (1.96). Similarly, it was gathered in
this study that accrual basis of accounting significantly promotes effective financial reporting
of public sector entitles in Nigeria. In view of the above findings we recommended the
adoption of accrual basis of accounting in public sector entitles in Nigeria.
Keywords: Cash accounting, accrual accounting, public sector entity, assets and liabilities,
receivables and payables
INTRODUCTION
In modern democratic governance, the basic objectives used in assessing the performance of
public sector organizations are financial objective, public objective and growth objective.
While the financial objective is concerned with the ability of the government to meet the
needs and aspirations of taxpayers, public objective focuses on meeting the demands of the
citizenry (i.e. those within and outside the tax bracket), and the growth objective is tailored
towards improvement in economic performance and international relations (Okoye and
Oghaghomeh, 2011). An efficient and transparent public sector financial reporting system
can be very helpful in achieving the above objectives as such a system enhances the
credibility of financial information, public trust and attracts foreign investment.
The South Asian Federation of Accountants SAFA (2006) revealed the following issues to
be considered in choice of public sector accounting system accountability in the use of
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public funds, timeliness of financial information, efficient financial management and control
system, transparency in decision-making, good governance, comparability of financial
reporting with other countries of the world, ease of raising capital from the international
markets, and donor agencies, and reliable information on the use of taxpayers money.
A review of existing literature on cash accounting and accrual accounting systems indicate
that cash accounting system provides essential information and it is simple, easier to
understand, facilitate decision making, and much more objective than other alternatives
(Ross, 2003. However, the system is not intended to provide information on the cost of
services, earned revenues, account receivables, account payable, long-term assets and
liabilities, accrued interest on external debt and stock value (Zakiah, 2007; Saleh, 2007;
Joned and Pendlebury, 1984). In addition, Okoye and Oghoghameh (2011) revealed that cash
accounting system is not significantly effective in providing accounting information for
efficient performance of public sector organization, because there is no indication of longterm.
Fiscal strength and the relationship between revenues, expenses, and changed in net worth
and the trade-off between the burdens current and future taxpayers. Obazee (2011) claim that
cash basis of accounting is not comprehensive enough to give true and fair view of
government activities. It does not provide the users with complete and comprehensive
financial information needed for decision-making purposes and accountability functions.
Developments in government activities and programmes in recent times have raised concerns
over whether the cash basis of accounting currently used in Nigerian public sector helps in
presenting an accurate and fair view of governments fiscal position, financial performance
and cash flows. As a result, accrual accounting system that is previously thought to be
suitable only for private sector organizations has been seen to be an alternative for better
reporting of government activities because with it, accountability in assured, information on
assets and liabilities are readily available, comparability of financial information becomes
effective, costs are adequately matched with revenue and compliance reporting becomes
possible and effective (SAFA, 2006). Available literature such as Adeqbayo (2010), Ross
(2003), Hajik and Kpamala (1998), and De Volkskrant (1994), have equally questioned the
use of accrual accounting system in public sector entities on the grounds that it is not budget
compliant, operating costs are higher, more difficult to understand and operate, it delays the
review and assessment of cash position, and it involves a subjective adjustment of financial
statements. Based on the above, there is a continuing debate over the use of cash accounting
31
and accrual accounting in public sector entities. It is against this backdrop that this study
tends to investigate the accounting system that should be adopted in the Nigerian public
sector for achieving the financial, public and growth objectives of the government.
To achieve the stated objective, the following research questions were raisedi.
To what extent does cash basis of accounting promotes effective financial reporting of
public sector entities in Nigeria?
ii.
To what extent does accrual basis of accounting promotes effective financial reporting
of public sector entities in Nigeria?
In order to provide tentative answer to the research questions, it was hypothesized that(i)
Cash basis of accounting does not significantly promote effective financial reporting
of public sector entities in Nigeria.
(ii)
Accrual basis of accounting does not significantly promote effective financial

reporting of public sector entities in Nigeria.
LITERATURE REVIEW
Most studies on tax compliance particularly in developing countries indicate that people
avoid and evade taxes because of poor usage of tax revenue by the governments. Therefore
efficiency and transparency in financial reporting system have become extremely important
for governments all over the globe. The basis of accounting for achieving efficiency and
transparency in government activities and programmes is of utmost importance. According to
Omenika (2008), the basis of accounting is a set of rules and principles that determine the
recognition of expenses and revenues in exchange transactions. It could be cash basis or
accrual basis. While cash basis recognizes transactions and events only when cash is received
or paid, accrual basis recognizes all transactions and events irrespective of whether cash is
received /paid or not (Omenika, 2008).
To provide a proper perspective of the two basis of accounting, a comparative analysis based
on existing literature is made as follows;
(i)
Recognition of Total Liabilities: Liabilities are obligations owed. The basis of

government accounting should provide relevant and accurate information about
governments liabilities.
Under the cash basis of accounting, no liabilities are
recognized. Accordingly, neither liabilities due in the current period (short-term

liabilities) nor liabilities which are owed beyond the current period (long-term
32
liabilities) are recorded in the operating accounts of that period. As a result of not
recognizing the long-term liabilities such as pensions and claims, their costs as well are
not recognized and reported because the governments do not make plans to meet these
liabilities when they fall due. Consequently, the deficit in one period may increase more
than the other periods (Langendijik, 1990). For example, Zik (1997) reported that in the
late 1980s, Canadas federal and provincial governments had accumulated more than
$30 billion unrecorded employee pension liabilities. In some provinces, the size of
unrecorded liability equaled or exceeded their accumulated deficits. But the accrual
basis shows hidden liabilities and forces the government entities to suddenly show huge
deficits in governmental funds. More so, receivables and payables of the government
are made known at the end of the fiscal year only with the adoption of accrual
accounting system.
(ii)
Revenue Recognition: Under the cash basis of accounting the revenues will only be
recognized in the financial statements in the period in which cash is received. However,
the cash receipts do not make distinction between current receipts and capital receipts.
So an excess of receipts over payments cannot be called income because receipts might
encompass capital receipts. This will result in that the revenues, which are earned in a
given fiscal year, are not known. As such it is difficult to evaluate the efficiency of
revenue collection staff and to discover the losses during the collection process (Okoye
and Oghoghomeh, 2011). In addition, under cash basis, receipts and revenues are
identical since no difference exists between the time when they are recognized and
when they are collected. But under accrual basis, the recognition of revenues is required
at the time when they are earned, and the receipts occur when revenues are collected.
This manner of revenue recognition presents a better financial information (Saleh,
2007).
(iii) Recognition of Total Cost of Goods and Services Provided: The use of cash-based
accounting system would result in reporting of only those costs, which involved a cash
flow during the period. However, the cash disbursements do not reflect what the
organization cost to run during the year, because these disbursements may also include
cash flows resulting from, for example, the acquisition of assets or the repayments of
debt related to the previous years. This means that cash-based accounting system makes
no difference between expenditures and disbursements, and generally no distinction
between current and capital expenditure. Capital purchases are treated in the same
manner as personnel expenses with no recognition that they are productive for years. As
33
a result, there is little incentive to use current capital assets efficiently. Accordingly,
under the cash basis of accounting, it is difficult to know how much resources have
been consumed in carrying out the operations during the accounting period (operating
costs). Also as a result of not capitalizing the fixed assets and not recognizing the longterm debts, the depreciation and interest costs are not accounted for. This, in turn,
means that the costs of producing the services in the government entities, and the total
cost of the programs and activities, which take place in the given period, are also not
known. Consequently, it is difficult to generate the right information about the total cost
of services and goods produced during the year and such costs are important for
performance evaluation, control, public contracts policy, and to measure the efficiency
and effectiveness of the governmental entities (Saleh, 2007). However, the accrual
accounting recognizes total costs of goods and services appropriately.
(iv) Disclosure of Stock Value: Cash-based accounting system does not present information
regarding the value of stocks that are consumed during the fiscal year or the closing
stocks. This is because the accounts are not concerned with recording the usage; they
are rather concerned with the cash outflow, which has been paid for purchases.
Consequently, there are no stock adjustments, stock valuation and stock measurement.
This would result in that the real value of the stock is not known and this is turn gives
rise to the appearance of several problems such as carrying cost problem; freezing the
public money, opportunity costs of public capital. Furthermore. These stocks can be lost
by a deliberate manipulation during the addition and deduction operations. On the other
hand, accrual accounting takes such adjustments into consideration. This exercise will
consume time, money, and effort, thereby increasing operational costs. The output of
the accounting system with respect to the stocks is considered as one of the main and
important information sources that the management relies on in the decision making
process. So the absence of useful accounting information regarding stocks would result
in finding it difficult to take the right decision (Zakiah, 2007).
(v)
Recognition of Total Assets: Assets are economic benefits of an entity which have to be
reported in financial statements. The elements, which are included in the financial
statements under the cash-based accounting system, are cash receipts, cash
disbursements and cash balances. Accordingly, there is no information provided on the
total assets (financial and physical). For example, there is no information provided
about the investment in materials, supplies, equipments and other assets, which are
available for future use in discharging government activities and programmes. Accrual
34
accounting provides accounts to take care of all assets including those that are still in
use, those that have reached the end of their useful life and those that have been sold.
Nevertheless, this information can be used in estimating how much is to be requested
for acquisition of assets in each years budget (Appollos, 2001).
(vi) Manipulation of Accounting Records: The balances of appropriations (the estimated
expenditures) available for expenditure may not be accurately stated when determine
only on the basis of cash payments. Part of the balances so determined are needed to
pay for credit goods and services received or ordered which makes accrual accounting
basis more reliable. There is a strong potential for over-spending appropriated amounts
when the cash basis is used (Hongs, 2004). More so, under the cash basis, most of the
liabilities are hidden and this gives government officials and politicians the opportunity
to manipulate the deficit amount. Similarly, with accrual basis of accounting, there is
need to exercise judgment in determining the amount of cash flow for the period and
this, involves a subjective adjustment of financial statements which is prone to
manipulation (Ozugbo, 2009).
(vii) Accountability and Transparency: As mentioned earlier, information on period revenues
and expenses, long-term assets and liabilities, receivables and payables, value of stocks,
total cost of series provided are essential for efficient financial reporting. For example,
information on assets and liabilities is a measure for net worth. Since the net worth is
the difference between total assets and total liabilities, the changes in the total assets
and the total liabilities will affect the net worth. So if the government increased the
liabilities either by borrowing to fund the deficit or obligation to make payments in the
future, such as pension; or increased the assets which would provide economic benefits
to the reporting entity, these actions would affect the net worth. Similarly, information
on the total cost of services and gods enables the government to compare the total cost
of services and goods produced in the previous years. Ozugbo (2009) asserts that
accountability and transparency in the use of taxpayers money is assured in accrual,
basis of accounting and it is difficult to be achieved in cash accounting system.
(viii) Financial Control Function: Cash accounting is not a complete accounting system and
its internal control is very weak. Inherent to this system is the lack of control in the
usage of inventories during the year. On the other hand, the cash basis assists in
fulfilling the budgetary control function. The budgetary controls concerned with
ensuring that actual expenditures are in line with budgeted amounts and the objectives
and levels of activity envisaged in the budget are achieved. Therefore it is required in
35
the governmental entities, in order to achieve the control purposes, to prepare the
budget (a budget is financial plan describing the estimated expenditures and the means
of financing them) as a control means of the activity of the government entity besides
the financial regulations restrictions. In a nutshell, while cash accounting system is
prepared for budgetary control, accounting system is suitable for internal control
(Eagleton, 2009; Veneeva, 2003).
(ix) Comparability of Financial Reporting: As it is clear from the nature of cash-based
accounting system that it is interested in cash flows and recognizes the events and
transactions only on cash basis. Therefore, it ways happens that one year can be charged
by costs made in other years. Accordingly, the use of cash basis results in over-lapping
of activities of different financial years thereby hindering effective performance
measurement (Zik, 1997). For example, if the government entity purchased some
stationeries worth N50,000 in 2010
and used them in the same year but makes
payments in 2011, the accounts in 2010 will not show the accrued costs of the
stationeries and the accounts in 2011 will show only the payments which are included
in the total expenditures of that year although the year has not benefited from the
stationeries. Consequently, the adoption of accrual accounting system by governmental
entities often makes the comparison between the results of different financial years
more useful and important (Zik, 1997). Ozugbo (2009) added that for international
comparability of financial reporting of government entities, accrual accounting is the
pathway to success.
(x)
Stewardship Function: The stewardship function of financial reporting demands that

information that can assist in assessing whether resources were used in accordance with
the legally adopted budgets must be furnished. Zaklah 92007), and De Volkzkrant
(1994) state that cash accounting system is more appropriate in meeting the stewardship
function of public fanatical reporting because it is budget compliant.
(xi) Book-keeping and Accounts Every financial reporting system requires that necessary
books of account be kept and maintained to provide information of financial
performance. Under the cash accounting system, account books are very simple to keep
and maintain and easier to understand compared to accrual basis of accounting.
(Ozugbo, 2009). This is because cash accounting provides only necessary and essential
information on receipts and disbursements made during the fiscal year.
(xii) Quick Decision Making: The ultimate goal of accounting information is for decision
making. When decisions are not made at the right time perhaps due to delay in
36
providing the necessary information, a wrong decision could be made in the long-run
and this adversely affect the overall performance of the entity (Adebayo (1004) asserts
that cash accounting provides useful information that permit analysis of the monetary
impact of fiscal transactions, review and assessment of cash position thereby facilitating
decision making.
METHODOLOGY
The population of this study consists of legislators and Directors of Finance and accounts of
Ministries and extra-ministerial departments in Rivers and Delta States of Nigeria. In order to
generate the necessary data for this study, a survey method of research design was adopted in
which a well-structured questionnaire designed in five-point Likert Scale was administered
on eighteen (18) state legislators and thirty-nine (39) Directors of Finance and Accounts of
selected ministries and ministerial departments.
The data generated for this study were analysed using mean scores while the stated
hypotheses were statistically tested with Z-test. The Z-test was computed using the formula
Where:
= Mean of X1
= Mean of X1
= Variance of X1
= Variance of X2
n1 = Size of X1
n2 = Size of X2
DATA PRESENTATION AND ANALYSIS
This section of the study focused attention on the empirical analysis of data generated for this
study. The questionnaire administered to the respondents were fully completed and returned
thereby representing one hundred percent (100%) response rate.
37
In testing the first hypothesis, the respondents were asked to indicate the extent to which cash
basis of accounting promotes effective financial reporting of public sector entities in Nigeria
and their responses are presented in the table below.
Table 1: Cash Basis of Accounting and Effective Financial Reporting of Public Sector
Entities in Nigeria.
Responses
Scores
(x)
Frequencies
(F)
Fx
Very High
Extent
High Extent
Low Extent
)2
F(
Frequencies
(F)
Fx
5.62
11
0.004
0.03
-0.94
0.814
-1.94
18
71
55
1.36
1.85
20.35
13
52
0.36
0.13
1.68
1.77
24
-0.64
0.41
3.28
3.76
7.53
-1.64
2.69
10.76
2.94
8.64
-2.64
6.97
20.91
14.95
39
142
56.98
1.06
1.124
36
0.06
Very Low
Extent
Undecided
Total
Source; Filed work, 2011
= 3.94
= 3.64
= 0.83
= 1.46
= 1.0
n2
39
This result is represented in a normal distribution as shown below

Figure 1:
Normal Distribution for Test of Hypothesis I

Acceptance
1.96
F(
)2
25
= 18
(
)2
n1
(
)
1.0
1.96
38
Decision: Accept H0; since Z-computer (1.0) is less than Z-critical (1.96). This implies that
the cash basis of accounting does not significantly promote effective financial reporting of
public sector entities in Nigeria.
In testing the second hypothesis, the respondents were asked to indicate the extent to which
accrual basis of accounting promotes effective financial reporting of public sector entities in
Nigeria and their responses are presented in the table below.
Table 2: Cash Basis of Accounting and Effective Financial Reporting of Public Sector
Entities in Nigeria.
Responses
Scores
(x)
Frequencies
(F)
Fx
Very High
Extent
10
50
0.61
High Extent
28
Low Extent
Very
Extent
Undecided
Total
Low
)2
)2
0.378
3.72
10
50
1.46
2.13
21.3
-0.39
0.152
1.06
12
48
0.46
0.21
2.54
-1.39
1.932
24
-0.54
0.29
2.33
-2.39
5.712
14
-1.54
2.37
16.60
-3.39
11.492
11.49
-2.54
6.45
12.90
18
79
16.27
39
138
55.67
F(
Source; Filed work, 2011
)2
Frequencies
(F)
Fx
)2
= 4.39
= 3.54
= 0.90
= 1.43
n1
= 18
= 2.83
n2
39
This result is represented in a normal distribution as shown below

Figure 2:
Normal Distribution for Test of Hypothesis I
Rejection
-2.83 1.96
1.96
39
2.83
F(
Decision; Reject H0; since Z-computer (2.83) is greater than Z-critical (1.96). This implies
that the accrual basis of accounting does not significantly promote effective financial
reporting of public sector entities in Nigeria.
DISCUSSION OF FINDINGS
In this study, various factors such as recognition of total assets and liabilities recognition of
total cost of goods and services, revenue recognition, disclosure of stock value, manipulation
of accounting records, accountability and transparency, financial control function,
comparability of financial reporting, stewardship function, maintenance and ease of bookkeeping and accounts, and quick decision making; were empirically used in testing the
influence of the two accounting systems cash basis and accrual basis, in promoting
effective financial reporting of public sector entities in Nigeria.
The result of our analysis shows that cash basis of accounting does not significantly promote
effective financial reporting of public entities in Nigeria as the Z-test result (1.0) is less than
the critical value of 1.96. The finding is supported by the previous studies such as Okoye and
Oghoghomeh (2011), Obasee (2011), Ozugho (2009), Saleh (2007), Zakiah (2007), Hongs
(2004), Zik (1999), and Langendijik (1990). Okoye and Oghoghomeh (2011), reported that
cash accounting system is not significantly effective in providing accounting information for
efficient performance of public sector organizations because there is no indication of longterm fiscal strength an relationship between revenues, expenses and changes in net worth and
the trade-off burdens of current and future taxpayers. They equally claim that with cash
accounting, it is difficult to evaluate the efficiency of revenue collection staff and discover
the losses during the collection process because the total revenues which are earned in a
given fiscal year are not known. Obazee (2011) claim that cash basis of accounting is not
comprehensive enough to give true and fair view of government activities. Ozugbo (2009)
asserts that accountability and transparency is difficult to achieve in cash accounting system
because there is lack of information on period revenues and expenses, long-term assets and
liabilities, receivables and payables, value of stock and total cost of goods and services
provided. Saleh (2007) affirms that with cash accounting it is difficult to generate the right
information about the total cost of services and goods produced during the year and such
costs are important for performance evaluation, control, public contract policy, and efficiency
and effectiveness measurement of governmental entities. Zakiah (2007) claim costs
accounting lacks useful accounting information regarding stock value and such would result
40
in management finding it difficult to take the right decision. Hongs (004) opine that there is
strong potential for over-spending appropriated amounts when the cash basis is used. Zik
(1999), states that the use of cash basis results in over-lapping of activities of different
financial years thereby hindering effective performance measurement. Langendijik (1990)
reveals that under cash accounting no liabilities are recognized and consequently the deficit
in one fiscal period may increase more than other fiscal periods.
Similarly, this study revealed that accrual basis of accounting significantly promotes effective
financial reporting of public sector entities in Nigeria, as the Z-test result 2.83 is greater than
the critical value of 1.96. Other studies such as Ozugbo (2009), Saleh (2007), SAFA (2006)
and Appollos (2001) are in concordance with our result. Ozugbo (2009) asserts that
accountability and transparency in the use of taxpayers money is assured in accrual basis of
accounting since the system provides a more comprehensive information. Saleh (2007) is of
the opinion that accrual accounting makes distinction between current receipts and capital
receipts because revenues are recognized at the time when they are earned, and the receipts
occur when revenues are collected and this presents a better financial information SAFA
(2006), reported that with accrual accounting system, accountability is assured, information
on assets and liabilities are readily available, comparability of financial information becomes
effective, casts are adequately matched with revenues, and compliance reporting becomes
possible and effective. Appollos (2001) claim that information generated from accrual
accounting can be used in estimating how much is to be required for acquisition of assets in
each year as budget and this serves as an informed decision. However, the works of Adebayo
(2001), Ross (2008), Hajik and Kpamalu (1998), and the Volkskrant (1994) fail to agree with
this finding. They claim that accrual accounting is not budget compliant, increased operating
costs, more difficult to understand and operate, delays the review and assessment of csh
position and involves a subjective adjustments of financial statement, which is prone to
various forms of manipulation.
CONCLUSION AND RECOMMENDATION

Public sector accounting system has been devoid of advancement in terms of continuing
existence of rule-based accounting framework but as the government mandate becomes
increasingly growth-oriented, the realignment of the financial accounting system supporting
41
the developmental role of the government has become imperative. Two bases of accounting
cash accounting system are currently in contentions to achieve this purpose.
It is important to realize that whichever basis of accounting is adopted, either one only gives
a partial picture of financial status of the reporting entity. While the accrual basis shows the
ebb and flow of income and debts more accurately, it may leave the reporting entity in the
dark as to what cash reserves are available, which could result in serious cash flow problem.
In trying to produce a cash flow statement, accrual accounting may involve subjective
adjustments, which are prone to various forms of manipulations for personal gains.
In order to improve financial reporting in the public sector all over the world, the
International Federation of Accounting (IFA) has constituted International and standardizes
government financial reporting standards. The standards and guidelines issued by the Board
revealed the need for a comprehensive system of financial reporting in public sector entities.
In meeting the above objective and in view of the findings generated from this study, it is our
humble submission to recommend the accrual basis of accounting for public sector entities in
Nigeria.
REFERENCES
Adebayo, J (2010) Accrual Accounting Does it meet Government Financial Reporting
Objective? International Journal of Public Finance and Economic Development; 13(4); 126134
Appollos, D (2001) Public Sector Financial Reporting; Fortune Press; Enugu
De Volkskrant, W.K (1994) Can Public Sector Abandon Cash Accounting? International
Journal of Development Studies in Arab World; 7(2); 18-20
Eagleton, T (2009) Public Sector Financial Controls; Researches in Public Finance; 13(2);
79-86
Hajik, G and Kpamala, J (1998) Public Sector Accounting and Financial Management; New
Delhi; Vikas Publishers
Hongs, M (2004) Public Financial Management and Accounting; New Jersey; Prentice Hall
Inc.
Jones, K. and Pendlebury, I. (1984) Problems of Cash Accounting; International Journal of
Public Finance; 9(1); 134-141
Langendijik, T.O (1990) Cash Accounting and International Control in Government
Parastatals The Australia Perspective; The Accounting Review; August/September; 34-38
Obazee, J (2011) Moving from Cash to Accrual Basis of Accounting The Transition Path;
Workshop on Accounting and Financial Reporting in the Public Sector; Held at Ibadan,
Nigeria
42
Okoye, E.I and Oghoghomeh, T. (2011) Cash Accounting System in the Nigerian Public
Sector The case of Delta State Government, Proceedings of the International Conference on
Social Sciences and Humanities; Universite Nationale Du Benin, Abanney-Calavi; 2(6); 153158
Omenika, H (2008) Advanced Public Financial Management; New York; Free Press
Ozugbo, M.J (2009) Financial Reporting for Good Governance in Public Sector Entities; in
Nedaw, D (Ed.) Public Sector Accounting; Bahir Dar; Nakura Publications Ltd
Ross, S.A (2003) Cash Accounting Preferred to Accrual
http://www.publicfinancialrepoting.com; Retrieved on 10th July 2011
Accounting;
SAFA (2006) A study on Accrual-Based Accounting for Government and Public Sector
Entities; September
Saleh, Z (2007) Malaysian Governmental Accounting National context and user
Orientation; International Review of Business Research Paper; 3(2); 386-394
Veneeva, V (2003) Public Sector Economics; London; Belhaven press
Zakiah, S (2007) Cash-Based Accounting System and Government Financial Reporting; A
Ph.D Seminar paper presented to the Faculty of Business and Accountancy; University of
Malaya, Kuala Lumpar
Zik, T.E (1997) Accrual Accounting and Cash Accounting in Public Sector A comparative
Analysis; American Economic Review; 72(1); 149-157
43
Effects of Micro-Financing on Micro and Small Enterprises in

Nigeria
Adebayo Paul Adejola, PhD
Department of Accounting,
Nasarawa State University, Keffi- Nigeria
padejole@yahoo.com
Abstract
This study investigates the effects of microfinance on micro and small business growth in
Nigeria. The objectives are to examine the effects of different loan administration practices
(in terms of loan size and tenor) on small business growth criteria; to examine the ability of
Microfinance-Banks (MFBs) (given its loan-size and rates of interest charged) towards
transforming micro-businesses to formal small scale enterprises. Hypotheses were
formulated and the paper employed panel data and multiple regression analysis to analyse a
survey of randomly selected enterprises finance by microfinance banks in Nigeria. Strong
evidence was found that access to microfinance does not enhance growth of micro and small
enterprises in Nigeria. However, other firm level characteristics such as business size and
business location, are found to have positive effect on enterprise growth. This paper
recommends a recapitalization of the Microfinance banks to enhance their capacity to
support small business growth and expansion.
Keywords: Microfinance, Micro and Small Enterprises, Microcredit
INTRODUCTION
Since Nigeria attained independence in 1960, considerable efforts have been directed towards
industrial development. The initial efforts were government-led through the vehicle of large
industry, but lately, emphasis has shifted to Small and Medium Scale Enterprises (SMEs)
following the lessons learnt from the success of SMEs in the economic growth of Asian
countries (Ojo, 2003). Thus, the recent industrial development drive in Nigeria has focused
on sustainable development through small business development. Prior to this time,
particularly judging from the objectives of the past National Development Plans, 1962-68,
1970-75, 1976-80 and 1981-85, emphasis had been on government-led industrialization,
hinged on import-substitution strategy.
Since 1986, government had reduced its role as the major driving force of the economy
through the process of economic liberalization entrenched in the IMF pill of Structural
Adjustment Programme. Emphasis, therefore, has shifted from large-scale industries to small
44
and medium- scale industries, which have the potentials for developing domestic linkages for
rapid and sustainable industrial development. Attention was focused on the organized private
sector to spearhead subsequent industrialization programmes. The incentives given to
encourage increased participation in these sectors were directed at solving and/or alleviating
the problems encountered by industrialists in the country, thereby giving them opportunity to
increase their contribution to the Gross Domestic Product (GDP).
The contribution of Micro, Small & Medium Enterprises (MSMEs) to economic growth and
sustainable development is globally acknowledged (CBN, 2004). There is an increasing
recognition of its pivotal role in employment generation, income redistribution and wealth
creation (NISER, 2004). The micro, small and medium enterprises (MSMEs) represent about
87 per cent of all firms operating in Nigeria (USAID, 2005). Non-farm micro, small and
medium enterprises account for over 25 per cent of total employment and 20 percent of the
GDP (SMEDAN, 2007) compared to the cases of countries like Indonesia, Thailand and
India where Micro, Small and Medium Enterprises (MSMEs) contribute almost 40 percent of
the GDP (IFC, 2002).
Whilst MSMEs are an important part of the business landscape in any country, they are faced
with significant challenges that inhibit their ability to function and contribute optimally to the
economic development of many African countries. The position in Nigeria is not different
from this generalized position (NIPC, 2009).
Realizing the importance of small businesses as the engine of growth in the Nigerian
economy, the government took some steps towards addressing the conditions that hinder their
growth and survival. However, as argued by Ojo (2003), all these SME assistance
programmes have failed to promote the development of SMEs. This was echoed by Yumkella
(2003) who observes that all these programmes could not achieve their expected goals due
largely to abuses, poor project evaluation and monitoring as well as moral hazards involved
in using public funds for the purpose of promoting private sector enterprises. Thus, when
compared with other developing countries, Variyam and Kraybill (1994) observed that many
programmes for assisting small businesses implemented in many Sub-Saharan African (SSA)
countries through cooperative services, mutual aid groups, business planning, product and
market development, and the adoption of technology, failed to realize sustained growth and
45
development in these small enterprises. Among the reasons given were that the small-sized
enterprises are quite vulnerable to economic failure arising from problems related to business
and managerial skills, access to finance and macroeconomic policy.
The reluctance of formal financial institutions to introduce innovative ways of providing

meaningful financial assistance to the MSEs is attributed to lack of competition among
financial service providers, in the sense that none of financial service providers came up with
an innovative way of financing small businesses. In order to enhance the flow of financial
services to the MSME subsector, Government had, in the past, initiated a series of
programmes and policies targeted at the MSMEs. Notable among such programmes were the
establishment of Industrial Development Centres across the country (1960-70), the Small
Scale Industries Credit Guarantee Scheme (SSICS) 1971, specialized financial schemes
through development financial institutions such as the Nigerian Industrial Development Bank
(NIDB) 1964, Nigerian Bank for Commerce and Industry (NBCI) 1973, and the National
Economic Recovery Fund (NERFUND) 1989. All of these institutions merged to form the
Bank of Industry (BOI) in 2000. In the same year, Government also merged the Nigeria
Agricultural Cooperative Bank (NACB), the Peoples Bank of Nigeria (PBN) and Family
Economic Advancement Programme (FEAP) to form the Nigerian Agricultural Cooperative
and Rural Development Bank Limited (NACRDB). The Bank was set up to enhance the
provision of finance to the agricultural and rural sector. Government also facilitated and
guaranteed external finance by the World Bank (including the SME I and SME II loan
scheme) in 1989, and established the National Directorate of Employment (NDE) in 1986.
In 2003, the Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), an
umbrella agency to coordinate the development of the SME sector was established. In the
same year, the National Credit Guarantee Scheme for SMEs to facilitate its access to credit
without stringent collateral requirements was reorganised and the Entrepreneurship
Development Programme was revived. In terms of financing, an innovative form of financing
that is peculiar to Nigeria came in the form of intervention from the deposit-money banks.
The deposit money banks through its representatives, the Banker's Committee, at its 246th
meeting held on December 21, 1999. The deposit-money banks agreed to set aside 10% of
their profit before tax (PBT) annually for equity investment in small and medium scale
industries. The scheme aimed, among other things, to assist the establishment of new, viable
46
SMI projects; thereby stimulating economic growth, and development of local technology,
promoting indigenous entrepreneurship and generating employment. Timing of investment
exit was fixed at minimum of three years, that is, banks shall remain equity partners in the
business enterprises for a minimum of three years after which they may exit anytime. By the
end of 2001, the amount set aside under the scheme was in excess of six billion naira, which
then rose to over N13 billion and N41.4 billion by the end of 2002 and 2005 respectively.
The modality for the implementation of the fund is such that the fund set aside is to be
invested within 18 months in the first instance and 12 months thereafter. After the grace
period, the CBN is required to debit the banks that fail to invest the fund set aside and invest
same in treasury bills for 6 months. Thereafter, the un-invested fund would be bided for by
successful investors under the scheme. The fund set aside by the banks under the scheme
decreased from N41.4 billion in 2005 to N38.2billion in 2006. This was as a result of
N2.5billion and N25.3 million set aside from failed banks and liquidated banks respectively,
which were netted out after the bank consolidation exercise. Actual investment during the
period grew from N12 billion in December 2005 to N17 billion in 2006, representing only
29.1 percent of the total fund set aside. In 2007, total amount set aside decreased further to
N37.4 billion, while total investment stood at N21.1 billion representing 56 percent of the
total sum set aside. The number of projects that benefitted from the scheme also increased to
302 projects in 2007, from 248 in 2006 (CBN, 2007).
The CBN found the reasons for the slow pace in utilization of the SMIEIS fund to include:
the desire of the Banks to acquire controlling shares in the funded enterprises and the
entrepreneurs resistance to submit control; inability of the banks to adapt equity investment
which is quite different from what the banks are familiar with in credit appraisal and
management, and lack of proper structure for effective administration of the scheme when it
took off among other factors. Responding to the findings, the Bankers Committee took a
policy decision to extend funding under the scheme to all business activities including even
non-industrial enterprises, except for general commerce and financial services. The name of
the scheme was changed from SMIEIS to Small and Medium Enterprises Equity Investment
Scheme (SMEEIS) to reflect the expanded focus. Also, the limit of banks equity investment
in a single enterprise was increased from N200 million to N500 million, making room for
medium size industries.
47
Despite all these efforts, the contribution of SMEs in the industrial sector to the Nations
GDP was estimated to be 37% compared to other countries like India, Japan and Sri Lanka
and Thailand where SMEs contributed 40%, 52% 55% and 47.5% respectively to the GDP in
2003, (UNCTAD, 2003), hence the need for alternative funding window. In 2005, the Federal
Government of Nigeria adopted microfinance as the main financing window for micro, small
and medium enterprises in Nigeria. The Microfinance Policy Regulatory and Supervisory
Framework (MPRSF) were launched in 2005. The policy, among other things, addresses the
problem of lack of access to credit by small business operators who do not have access to
regular bank credits. It is also meant to strengthen the weak capacity of such entrepreneurs,
and raise the capital base of microfinance institutions. The objective of the microfinance
policy is to make financial services accessible to a large segment of the potentially productive
Nigerian population, which have had little or no access to financial services and empower
them to contribute to economic development of the country.
The microfinance arrangement makes it possible for MSEs to secure credit from
Microfinance Banks (MFBs) and other Microfinance Institutions (MFIs) on more liberal
terms. It is on this platform that we intend to examine the impact of microfinance on small
business growth, survival, as well as business performance of MSEs operators.
The impact of micro-financing majorly should be seen in the multiplication of MSEs across
Nigeria. The survival of these MSEs should reflect in employment generation, engagement of
available local resources, local technology utilization, improved standard of living and
growing gross domestic product (GDP). However, despite MSEs representing about 87% of
all firms operating in Nigeria (USAID, 2005), they only account for 10% of total
manufacturing output, 25% of total employment in the productive sector and 37% of GDP
(Investment Climate Assessment (ICA) survey, 2009). A common problem for the Nigerian
small business sector is that, the high rates of formation of new businesses evidenced in
Corporate Affairs Commission (CAC) annual report have not yet translated into comparable
high rates of small firm growth. New firms are being started but few grow rapidly to become
significant international competitors. For the great majority of micro and small enterprise in
Nigeria long term growth remains uncertain and bleak. The question is how many of these
small businesses are transforming from the subsistence level at start-up to the stage of
maturity and later expansion where they will have to employ more hands? Total productive
output is also low compared to other emerging economies like India, Sri Lanka and Thailand
48
where SMEs contribute 40%, 55% and 47% respectively in 2002 into the productive sectors
of the economy (UNCTAD, 2003).
It is not uncommon to find in many microfinance programmes non-financial services such as
advisory services, managerial and technical training, weekly meetings and pre-loan training
to mention only a few, rendered as support services to MSMEs. These services that are
poorly provided in Nigeria are mostly very costly to deliver (McKernan, 2002), yet many
microfinance programmes consider them an integral part of the success of their programmes.
Though the contribution of such non-financial services is not in doubt, the extent of the
contributions is yet to be ascertained in Nigeria. Therefore, the aim of this study is to
estimate the effects of micro-financing on business performance of MSEs in Nigeria.
LITERATURE REVIEW
Defining small business has always been very difficult and controversial. The term small
business covers a variety of firms. According to Peterson and Kozmetsky (1983), a small
business is one which is independently owned and operated and which is not dominant in its
field of operation. Researchers and other interested parties have used specific criteria to
operationalize the small business, from the perspective of value added, value of assets, annual
sales, and number of employees. Annual sales and number of employees are most often used
to delimit the category. The problem of definition confronts all researchers as well as
operators in the field.
A review of the literature on Micro, Small and Medium Enterprises (MSMEs) shows that the
definition of MSMEs significantly varies from country to country depending on factors such
as the countrys state of economic development, the strength of the industrial and business
sectors, the size of MSMEs and the particular problems experienced by MSMEs. Hence,
there is no uniform or universally accepted definition of MSMEs (Investment Climate
Assessment (ICA), 2009). In Nigeria, parameters such as asset base (excluding land), the
number of workers employed and the annual turnover are used for the classification of
MSMEs. Carpenter (2001) maintains that there is no one definition for SMEs; they are
defined in Nigeria and other countries based on one or all of the following: the size or amount
invested in assets excluding real estate; the annual turnover and the number of employees.
The 1992 review by the National Council on Industrial Standards (NCIS) defined small and
medium scale enterprises (SMEs) as enterprises with total cost (including working capital but
49
excluding cost of land) of more than N31m, but not exceeding N3,150million, with a labour
size of between 11 and 100 employees. There is, however, a consensus of opinions when it
comes to defining SMEs in terms of asset base than on any other parameter. This is because
in case of an economic depression, the impact on turnover and employment base would be
greater than the impact on asset base. For instance, during a depression, there is a tendency
for turnover and the number of people employed to fall substantially, while the asset base
may be unaffected (NCIS, 1992).
MSMEs can be divided into micro, small and medium enterprises. The Federal Ministry of
Industries defines a medium-scale enterprise as any company with operating assets less than
N200 million, and employing less than 300 persons. A small-scale enterprise on the other
hand, is one that has total assets of less than N50 million, with less than 100 employees.
Annual turnover is not considered in the definition of an SME. The National Economic
Reconstruction Fund (NERFUND) defines an SSE as one whose total assets are less than
N10 million, but makes no reference either to its annual turnover or the number of
employees. These and other definitions of the National Association of Small Scale Industries
(NASSI), the National Association of Small and Medium Enterprises (NASME), the Central
Bank of Nigeria (CBN) and other institutions are shown in the Table below.
Table 1: Definition of SME by Nigerian Institutions
Total Assets ( Nm)
Parameters
Annual Turnover (Nm)
No of Employees
Nigerian Institution
MSE
SSE
ME
MSE
SSE
ME
MSE
SSE
ME
Fed. Min. of Industries.
<200
<50
n.a.
n.a.
n.a.
n.a.
<300
<100
<10
Central Bank
<150
<1
n.a.
<150
<1
n.a.
<100
<50
n.a.
NERFUND
n.a.
<10
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
NASSI
n.a.
<40
<1
n.a.
<40
n.a.
n.a.
3 - 35
n.a.
NASME
<150
<50
<1
<500
<100
<10
<100
<50
<10
Nigeria Industrial Policy
n.a
< 2m
<.1
n.a
n.a
n.a
n.a
n.a
n.a
Source:
World Bank, SME Country Mapping 2001
Small and Medium Enterprise Equity Investment Scheme (SMEEIS), a private initiative by
the Bankers Committee defined MSME as enterprises with an asset base not exceeding
$3.85 million (N500 million) excluding land and working capital with staff strength of not
less than 10 and not more than 300 (Sanusi, 2003).
50
A common feature of these definitions is that MSMEs are usually small, owner or family
managed businesses with basic goods and services. MSMEs also tend to lack the
organizational and management structures, which characterize large-scale enterprise. Urban
MSMEs tend to be more structured than their rural counterparts.
The National Policy on MSMEs adopts a classification based on the dual criteria: of
employment and assets (excluding land and buildings), as follows:
Table 2: Classification Adopted by SMEDAN for National Policy on MSMEs
SIZE CATEGORY
EMPLOYMENT
ASSETS (N million)
(excluding land and buildings)
Micro-enterprises
Less than 10
Less than 5
Small enterprises
10 49
5 less than 50
Medium enterprises
50 199
50 less than 500
Source: SMEDAN, 2007

Where there exists a conflict in classification between employment and assets criteria (for
example, if an enterprise has assets worth seven million naira (N7m) but employs 7 persons),
the employment-based classification would take precedence and the enterprise would be
regarded as micro. Employment-based classification tends to be relatively a more stable
definition, given that inflationary pressures may compromise the asset-based definition. In
choosing these definitions, cognizance was taken of all possible factors, including
international comparisons and peculiarities of the various sub-sectors/enterprises (SMEDAN,
2007).
It is obvious that there is no universal definition of MSMEs. Some countries define MSMEs
according to number of employees; others define them based on the level of assets or
turnover or both. However, most definitions are based on a mix of the above parameters. This
creates a definite problem for MSME operators. Lack of proper definition makes it difficult
for them to take advantage of government-assisted programmes meant for them.
EMPIRICAL LITERATURE
Empirical studies on the impact of microfinance can be categorized into two main groups:
those that were not concerned with the selection bias problem and those that were. A large
number of impact studies of microfinance programmes did not take into account selection
51
bias. According to Chen s review of 11 impact studies of the Grameen Bank in Bangladesh,
no study corrected the selection bias (Chen, 1992 cited in Coleman 1999). Shaw (2004) also
studied two microfinance programmes in Sri Lanka, and used a questionnaire and conducted
interviews in one semi-urban and two rural groups. The author presented only median
comparisons of client incomes among four household income groups (extreme poor, poor,
near-poor and non-poor), at the time of the clients first loan (June, 1994) and at the time the
research was conducted (June, 1999). However, he did not take into account selection bias.
Hulme and Mosley (1998) tried to solve the selection bias by studying different credit
programmes in a number of countries. In their study, they included eight microfinance
institutions which provide group lending. Of these eight institutions, two were used as a
control group in case a loan had been approved for participants, but had not yet been received
by any of them. However, only the means of different outcome variables for both treatment
and control groups were introduced. There were no statistical analyses of the differences
between the two groups. In addition, the possibility of endogenous programme placement
could not be controlled with their available data (Coleman, 1999). Recently, many papers on
the evaluation of microfinance programmes have adopted an econometric approach and taken
account of both the selection bias and non-random programme placement Coleman, 1999 &
2002; Khandker, 2005; McKernan, 2002; Morduch, 1998).
According to Colemans (1999) claim for the eligibility criteria for membership
consideration, most group lending programmesdo not impose such eligibility criteria,
rather, they attempt to attract the relatively poor and dissuade the relatively rich from
participating by the small size of loans, the high frequency of meetings, and the stigma of
belonging to a poor persons credit programme. Hence, the method of Pitt and Khandker
could not be implemented in most group lending programmes. Moreover, even in the context
of the three Bangladesh programmes they studied, their survey found that some 18-34% of
programme participants in fact had wealth that should have excluded them from participating.
Hence, the use of this eligibility criterion as a key exclusion restriction may not be
appropriate (Coleman, 1999).
The methodology applied by Coleman (1999) did not require the existence and enforcement
of exogenously imposed membership criteria to identify programme impact. As part of his
52
study, a unique survey which allows for the use of relatively straightforward estimation
techniques was applied for data collection. Then, the survey was done four times over the
course of a year, during 1995-1996, for both members and non-members of the village bank
in 14 villages in Northeast Thailand. Six of those villages were identified as control
villages that were recognized to receive NGO support for village bank within one year after
the identification. It means that there was self-selection for villagers in six control villages as
participants had already decided whether or not they wanted to be members of the village
bank. The rest of the eight villages were treatment villages of which seven villages had a
village bank for two to four years and one village started its village bank suddenly after the
first survey. The comparison between the old village bank members in the eight treatment
villages and the new village bank members in the six control villages could be
undertaken. In addition, the author identified precise impact estimator as a variation of the
length of time for the programme availability in the treatment villages. When non-members
in all villages were included in the sample, this allowed for the use of village fixed effect
estimation to control the possibility that the order in which these 14 villages received
programme support is endogenous. Based on empirical evidence, most studies showed
positive impact of microfinance on different dimensions of outcomes at different levels, even
though they applied various methodologies.
METHODOLOGY
The data generated for the study were analysed using both descriptive and inferential
analytical techniques. The analytical techniques employed are basically two: Survival
Analysis and multiple regression analysis using the ordinary least square (OLS) approach.
The survival analysis incorporated Cox Regression Analysis and Kaplan Meier Survival
Analysis technique. The adequacy of the fitted model was assessed using the likelihood ratio
test. Analyses were done using SPSS statistical package version 15.1. The duration of
survival was measured for each of the MSEs in the study using the past five years records
and financing method as treatment control.
Test of Hypothesis: Micro-financing makes no significant contribution to the survival of
MSEs in Nigeria.
53
Table 3: Adjusted Hazard Ratio from Cox Proportional Hazard Model

Variables in the Equation
Predictor variables
No Regular participation
microfinance
No conversion of profit
Investment
No regular profit
Low technical capacity
in
to
SE
Wald
.098
.025
3.779
.633
.222
3.796
2.015
.376
7.300
1.126
.343
.134
.391
.158
.269
8.774
.224
1.067
.210
.006
No regular contact with Loan

1.555
officer
Low Entrepreneur level of
1.196
education
No access to micro credit
2.011
No mandatory micro savings
1.016
t-value
3.920
2.851
5.359
3.283
3.976
4.446
8.978
4.838
df
Sig.
Exp(B)
Hazard
Ratio
.000
95.0% CI
Exp(B)
Lower
Upper
1.102
3.450
9.162
.002
1.883
2.225
7.781
.021
7.500
1.133
7.154
.000
3.083
2.243
8.141
.006
4.735
1.810
7.164
.003
3.307
2.245
7.550
.031
7.471
1.778
6.066
.001
2.762
2.073
8.711
Source: Authors Computation from Study Sample Data 2014

Table 3 shows hazard ratios estimated from Cox regression. The Table shows that the
survival of businesses is most strongly influenced by 8 of the 28 predictor variables used for
the survival analysis. These eight (8) influential variables are the ability to generate profits,
ability to convert profits back into investment, easy access to micro credit, adequate technical
capacity, regular contact with loan officers, entrepreneurs level of education, regular
participation in micro finance programmes, and mandatory micro savings. The most
influential predictor variable affecting the survival of businesses is the ability to generate
profits on a sustainable basis. It shows the ability to generate profits regularly and easy access
to micro credit as the top two prominent predictor variables of survival in our estimated
equation. However, based on the Pearson chi-square test of association, both predictor
variables are significantly associated with regular participation in microfinance (p 0.001).
This shows clearly that the significance of the top two predictor variables is attributed to
regular participation in microfinance programme.
The adequacy of the fitted Cox model was assessed using log-minus-log plots, the likelihood
ratio test and the AIC (Akaikes Information Criterion) as diagnostic procedures. All logminus-log plots were parallel, showing that the assumption of proportional hazards was
satisfied. The p-value from the likelihood ratio test was small (0.0001 < 0.05), thereby
54
for
showing that the 8 variables constituting the fitted Cox model were jointly efficient in
explaining the long-term survival at the 5% level of significance.
The key objective of this aspect of the study is to test the ability of microfinance to enhance
small business survival and to identify influential variables that affect the survival of micro
and small enterprises (MSEs), particularly in assessing the degree of importance of
participation in microfinance for promoting viability and long-term survival of micro and
small enterprises. Each of the 8 predictor variables in Table 3 is highly significant at the 5%
level of significance.
DECISION
Table 4 below presents a summary of results obtained for the estimated equation. The log
likelihood of 101.493 is high and significant at 5%. When compared with the critical Chi
square at 5% = 31.4. This led to our decision to reject our null hypothesis and accept our
alternative hypothesis. Because the Chi Square calculated is higher than the critical Chi
square, we conclude that microfinance enhances the survival of small businesses financed by
Microfinance Banks.
Table 4: Overall Statistics for Cox Regression
Omnibus Tests of Model Coefficients (a,b)
-2 Log Likelihood
Overall (score)
Change From Previous Step
Change From Previous Block
Chi-square
Df
Sig.
Chi-square
df
Sig.
Chi-square
Df
Sig.
Chi-square
101.493
11
.002
29.347
11
.002
29.463
11
.002
29.463
Source: Authors Computation from Study Sample Data 2014

a Beginning Block Number 0, initial Log Likelihood function: -2 Log likelihood: 130.956
b Beginning Block Number 1. Method = Enter
DISCUSSION OF FINDINGS
The findings of this study among others reveal that 90% of the Micro and Small Enterprises
(MSEs) financed by MFBs with track records of regular participations in microfinance
programme and easy access to micro credit survived up to 4 years.
55
The study also reveals that the likelihood of survival of small firms increases provided that
they are able to generate profits regularly, have easy access to micro credit and plough back
profits generated into re-investments. The study also shows that formal education has positive
impact on the ability of business owners and operators to conduct business efficiently. The
study reveals that high level of education is a significant factor in increasing operational
efficiency, profitability and success of businesses. Technical capacity is also revealed to
have significant influence on long-term survival of small business. Technical capacity may be
assessed in terms of ability to adapt to new technology, regular technology-related training,
application of information technology and sound business plan writing. Successful businesses
and enterprises were associated with managers who are given to continuous innovation and
adapting new technology. The study also reveals profitability as a key predictor of long-term
survival and viability of MSEs.
CONCLUSION
Entrepreneurs in the small and micro sub-sector of the economy in Nigeria require access to
finance for their businesses to thrive on a sustainable basis. Although, the MSE sector
contributes significantly to the national economy, the sector has so far not been given due
recognition commensurate with level of the contribution. Although financial issues are
important to all firms, results from this study show that both financial and non-financial
services obtained from MFBs have highly benefited MSEs in Nigeria and have facilitated the
sharing of business skills and innovative ideas, as well as alleviated the acute shortage of
finance to an extent. The policy implication of this study is that, micro-financing contributes
significantly to an enhanced entrepreneurial environment by making the business
environment more conducive and narrows the resource gap for small businesses.
When properly harnessed and supported, microfinance can scale-up beyond the micro-level
as a sustainable part of the process of economic empowerment by which the poor improve
their situation. Based on findings from this study, the use of MFBs has potentials for
enhancing the performance of small businesses in three major ways- regular participation in
micro-financing, offering of non financial services, and as a means to enhance
entrepreneurs productivity.
56
RECOMMENDATIONS
i.
Enterprises supported by MFBs should be linked up with larger financing

windows like the SMEIES fund or Strategic Partners as suggested by Ojo (2003).
The linkages should be such that the entrepreneurs would be serviced through
their MFBs based on social capital. This will enable MFBs to introduce loan
products and strategies targeted at financing technology acquisition by MSEs.
ii.
In order to encourage technology acquisition for MSE expansion, MFBs can

categorize their loans into low and high interest loans.
iii.
MFBs should increase the duration of their clients' asset loans, or spread the
repayment over a longer period of time, or increase the moratorium. This will
enable the clients to have greater use of the loan over a longer period for the
acquisition of capital assets and technology.
REFERENCES
Central Bank of Nigeria (2005), Microfinance, Regulatory & Supervisory framework for
Nigeria.http://www.cenbank.org/OUT/PUBLICATIONS/GUIDELINES/DFD/2006/MICRO
FINANCE%20POLICY.PDF. Accessed on Jan. 13, 2008.
Central Bank of Nigeria (2004), Draft National Microfinance Policy and Regulatory
GuidelinesforNigeria.<<http://www.cenbank.org/OUT/PUBLICATION/DRAFT/DFD/2005/
MICROFINANCE%20POLICY.PDF>. Accessed on June. 18, 2007.
Central Bank of Nigeria CBN 2007, annual report.
<http://www.cenbank.org/documents/annualreports. asp. Assessed on Dec. 12, 2008
Coleman, B. E. (1999). The impact of group lending in Northeast Thailand. Journal of
Development Economics, 60, 105-142.
Coleman, B. (2002). Microfinance in Northeast Thailand: who benefits and how much?
Manila: Asian Development Bank.
Khandker, S. R.(2005). Microfinance and Poverty: Evidence Using Panel Data from
Bangladesh. World Bank Economic Review, 19(2), 263 286.
McKernan, S. (2002). The Impact of Microcredit Programs on Self-Employment Profits: Do
Non-credit Program Aspects Matter? The Review of Economics and Statistics, 84(1), 93-115.
Morduch, J. (1998). Does Microfinance Really Help the Poor? New Evidence from Flagship
Programs in Bangladesh. Princeton University working paper.
Morduch, J. (1998). The Microfinance Promise. Journal of Economic Literature, XXXVII,
15691614
57
Ojo, J. A. T. (2003). Partnership and Strategic Alliance Effective SME Development. Small
and Medium Enterprises Development and SMIEIS: Effective Implementation Strategies;
CIBN Press Ltd, Lagos, 185-212.
Peterson, R. & Kozmetsky, G. (1983). Perceived Causes of Small Business Failure: A
Research Note American Journal of Small Business, Vol. 8, Issue 1, pp. 15-19
Sanusi, J. O., Governor CBN. Paper presentation at the 9th John wood Ekpenyong memorial
lecture. Jan 29. 2003.
SMEDAN (2007), National Policy on Micro, Small and Medium Enterprises. <<
http://www.smedan.gov.ng/search.php?searWords=National%20policy%20on%20MSMEs.
Assessed March. 8. 2009.
UNCTAD (2003). Improving the Competitiveness of SMEs through Enhancing Productive
Capacity, TD/B/Com.3/51/Add.1 (Geneva, 31 January 2003), table 2, p. 3 and country
profiles of Nepal and Viet Nam.
Variyam, J. and Kraybill, D. (1994). Managerial Inputs and the Growth of Rural Small Firms.
American Journal of Agricultural Economics, 76(3), 568-575.
58
Financing Small and Medium Scale Enterprises in Nigeria for

Economic Development
Adebayo Paul Adejola, PhD
Faculty of Administration,
Nasarawa State University, Keffi- Nigeria
padejole@yahoo.com
&
Emeka E. Ene, PhD
Bingham University, Karu
Nasarawa State- Nigeria
emekaene@gmail.com
Abstract
In a developing economy like Nigeria, Small and Medium scale enterprises play a vital role
in economic development. Unfortunately, these categories of industries are bedevilled with
many problems ranging from lack of infrastructural facilities, low technological know-how,
and lack of technical skills to financing problems. The overall objective of the study is to seek
for improved or new methods of financing SMEs for improved performance which will in turn
lead to economic development of the nation. To carry out the study; data were collected from
both primary and secondary sources using structured questionnaire and personal interview
and they were presented in tables as frequency distribution and analysed with percentages
and frequencies. The sign test was used to test the hypothesis. The end result of the research
shows that SMEs were underfinanced and various measures were suggested to improve the
funding status including direct government intervention in financing.
Keywords: SMEs, Financing, Microfinance, Economic development
INTRODUCTION
The Nigerian Economy has been unstable. It has witnessed a lot of downturn over the years.
Since the oil boom of the 80s, the state of the economy has deteriorated and Nigeria has
continued to be ranked among the least developed nation. So many reasons can be adduced
for the slow pace of economic growth. Such reasons include; mono-cultural economy, low
industrialization, high import dependency and corruption. Various regimes in the past had
come up with one initiative or the other in a bid to turnaround the economic fortunes of this
country. Also some bodies or agencies have been established to oversee and solve the
problem of poverty and promote economic advancement. In this regard, bodies like the
National Poverty Alleviation Programme (NAPEP), Family Economic Advancement
59
Programme (FEAP), Small and Medium Scale Enterprises Development Agency (SMEDAN)
etc. were established.
Past governments have been involved in different development plans all geared towards
uplifting the nations economy. The government of Gen. Sanni Abacha lunched a
development plan tagged vision 2010. It was a plan that was drawn to put to achieve certain
level of development of Nigerian economy by the year 2010. The government of President
Olusegun Obasanjo in effort to turnaround the economy, embarked on so many reforms in
different sectors of the economy including; education, energy, solid minerals, works,
transport etc. He also established the Due Process Office that brought a lot of positive
changes in the contract award process and execution.
The government of Alhaji Yaradua came up with its own agenda popularly known as the
seven point agenda. Through the seven point agenda his government focused on key sectors
of the economy that sped up economic development of the nation. He also launched a
development plan titled vision 2020. Through this plan he intends to speed up economic
development that will put Nigeria among 20 top-most economies by the year 2020.
Despite these laudable programmes and plans, the pace of economic development seems to
be at a standstill. In fact with the global financial meltdown leading to world economic
recession, the economy seems to be deteriorating further. One problem that has been
identified as a clog in the wheel of economic advancement is the neglect of small and
medium scale enterprises or what some call micro-entrepreneurs. It has been established in
both advanced and emerging economies that the growth of most economies has been
anchored on the growth of small and medium scale enterprises Muhammad (2003)
Countries like Bangladesh, India, and Indonesia etc. are doing well today because they have
gotten it right in developing the middle level manpower that accounts for more than half of
the productive sector.
In Nigeria, despite the fact that government has in one way or the other tried to recognize the
sector and accord it a sort of priority, there are still many challenges restraining the small and
60
medium scale enterprises from realizing their objectives. Some of the challenges that are
teething to small and medium scale enterprises range from lack of infrastructural facilities,
low technological advancement in terms of machinery, absence of experts and technical skills
to lack of fund and inability to access credit facility from banks.
The most critical among the challenges faced by small and medium scale enterprises is lack
of adequate capital and inability to access bank credit. An economy can only grow through
support from the financial sector in availing credits to different sectors. One of the agenda of
banking reforms or recapitalization was to enable banks support the real sector of the
economy by availing credits to firms in these critical sectors. If credit is made available to the
formal sector while neglecting the informal sector where the medium and small scale
enterprises fall in, there will still be gap in the growth of the economy.
While the large scale enterprises have access to bank credit, the small and medium scale
enterprises find it difficult to obtain bank credit. It is in the bid to resolve this problem that
the Federal Government in conjunction with Central Bank of Nigeria carried out reforms in
the lower side of the finance industry. Among the reforms is liberalizing the licensing of
micro-finance banks and conversion of community banks to micro-finance banks.
Micro-finance banks are expected to provide micro-credits to small unstructured businesses,

salary earners, artisans, food vendors, small farmers and traders. It is in pursuit of this
objective as well as the drive to reduce unemployment that the Central Bank established skill
acquisition centres located in three geopolitical zones in the country. The essence of
establishing the centres is to empower the youth through relevant skills training and
subsequently increase their access to fund (credits) with which to start up business.
This research will focus on micro-credits and its accessibility by medium and small scale
enterprises and individual entrepreneurs and other modes of financing them.
EMPIRICAL LITERATURE
Financing Micro, Small and Medium Scale Enterprises
The take-off and efficient performance of any enterprise, be it small or large, requires the
provision of funds for its capitalization, working capital and rehabilitation needs, as well as
61
for the creation of new investments. The entrepreneur needs funds to facilitate the
coordination of other factors of production such as land, labour and capital.
Effort by SMEs to provide the needed fund by themselves has not been a success as only very
few are able. Even the very few that are running presently still needs more capital for
expansion and growth. One of the sources of funding still under-harnessed in Nigerian
Economy is Micro-credit Scheme. This scheme has assisted some countries in the past and
their economies today are ranked among industrialized countries. The study being carried out
will try to find out why the scheme is not vibrant in Nigeria yet and why funding still remains
the most prominent problem of SMEs.
Ojo (1990) in his paper entitled The relative importance of Banks and other institutions in
financing small scale business presented at a seminar identified two major sources of
financing small scale enterprises. The two major sources he categorized into formal and
informal sources.
1. Formal Sources
The formal sources include banks, other financial institution, government loan agencies and
co-operative credit societies. Ojo (1990) pointed out that these sources constituted a small
portion of finance for small scale enterprises. This he attributed to partly the banks
unwillingness to lend to this sector due to their inability to meet requirements including
collateral. He also observed the lukewarm attitude of the small businessmen to approach
banks for loans.
2. Informal Sources
Ojo (1990) noted that informal rather than formal capital markets provide the bulk of small
enterprises financing, especially in the lesser developed countries and in their rural areas. He
is of the opinion that the continued importance of informal markets despite the growth of
monetization and commercialization in the subsistence sectors of developing countries is due
to restrictive and repressive financial policies, lack of innovative measures and instruments to
integrate informal and formal markets and often the lower on transaction costs of certain
informal market credit intermediaries. He identified informal financial intermediaries to
include friends, relatives, and traditional mutual aids groups like esusu, middlemen,
landlords and professional money lenders.
62
The essential characteristic of informal markets is that they are far more loosely monitored
and regulated than formal finance markets. In Africa, informal markets consist mainly of
circles of friends and relatives and sometimes traders and middlemen. In many countries,
ROSCA (rotating savings and credit associations) play a prominent role in rural economy.
The ROSCA is a group in which participants make a regular periodic contribution, the
proceeds being helped to members turn by turn. Personal relationships are dominant factor in
settling up and functioning of these groups often based on village or ethnic origins.
Informal Credit Markets (ICMs) are generally complementary to formal markets. Since they
are able to both mobilize and allocate savings, they are characterized by a smaller scale of
operation and they enable direct contact between borrower and lender. ICMs need to be
closely integrated in the capital market structure in order to solve the needs of the rural
market and of smaller enterprises, in an effective and efficient manner. ICMs have met a
large part of the requirement of small enterprises in both urban and rural areas because of
their ability to assess risk and ensure repayment and their lower loan transaction costs.
Nevertheless, there is still a large unmet demand for credit by rural and small borrowers.
Besides improving the efficiency of institutional finance through higher deposit rates and
subsides for small borrowers (targeted at the rural poor), refinancing of ICMs by formal
financing institutions would help to fill the unmet demand.
In summary, Ojo having identified that the major source of funds for small and medium scale
enterprises comes from informal sector, could not explore all other sources that most SMEs
uses presently.
OBOH (2005) in his paper titled Contemporary approaches for financing micro, small and
medium scale enterprises published in a book on contemporary issues in the Nigeria Banking
System, identified sources of finance for small and medium scale enterprises to come from
two major sources; internal and external sources.
Internal Sources: These include personal savings of the promotion and ploughed back
profit. Due to the fact that the income level in the developing countries is usually small,
personal savings constitute an inadequate source of funds for the SMEs. Similarly, quantum
63
of profit to be ploughed back into the business is also small. Thus, internal sources of funds
are usually inadequate to meet the funding needs of SMEs.
External Sources: This is further divided into informal credit market and formal credit
market. The informal credit market includes funds from friends, relatives, local money
lenders, credit and savings associations. Credit from these sources is more suitable for SMEs
because there is little or no collateral requirement. However, the associated interest rate is
usually high.
On the other hand, the formal or organized credit market is made up of conventional banks,
development finance institutions and other specialized government agencies such as
NERFUND, SME II and capital market. These sources of funds are more important for the
growth and development of SMEs due to relatively low interest rates and the fact that the
volume of loan is larger.
Furthermore, they are in position to give long term loans for projects with long gestation
period which is ideal for the financing of SMEs.
Iman (1998) in her paper entitled Micro-credit/finance scheme: A gender sensitive approach
to poverty alleviation also towed the line of previous authors and identified the following
sources of financing small and medium scale enterprises.
1. Personal Funds (Equity): This is that part of fund invested in the Business by the
owner(s) which the business is under no obligation to refund or pay interest(s) on.
2. Loans from Relations and Friends: Borrowing money from friends and relative to
start an income generating business is also a veritable source of fund.
3. Trade Credit: This is also an important source of short-term financing of a business.
A micro-entrepreneur enjoys trade credit from her supplies when she is allowed to
pay in arrears for goods and services she receives.
4. Borrowed Capital/Loans: This is that portion of capital obtained to supplement the
owners equity. Loan to businesses are under legal obligations to be repaid in
accordance with terms of the loan and in most instance with interest. For the type of
64
income generating activities that we are discussing the loans may come from ESUSU
group, micro-credit organizations, donor agencies and banks.
ESUSU, Ajo or Adashe, is a traditional financed system whereby individuals source for funds
through mutual agreements, covering amounts to be contributed, sequence of drawing from
the poor and unwritten codes governing administration of funds. This system is as old as our
various societies in Nigeria. It is both savings and loan scheme.
Amao (1987) grouped the sources of funding SMEs into formal and informal sources,
and notes that SMEs have traditionally relied on informal sources which were usually more
often than not insufficient for entrepreneurial growth and development. These are sources of
funds, which are in a way personal to the entrepreneur and without recourse to the public
capital markets as such. Such sources are often incapable of generating large volumes of
funds for investment because of inherent limitations. The low capital generating capacity of
such sources accounts to a great extent for the low growth rate of micro-enterprises, which in
turn accounts for their continued lack of access to big funds. The claim that the capital
shortage is the worst problem militating against the growth of VSEs has not gone
unchallenged. It has been argued by Omopariola (1978) that there have been times when
banks and other lending institutions had more money to lend than entrepreneurs were willing
to borrow. Omopariola (1978) further states that while subscribing to the view that
insufficient funds stifle growth of individual firms and consequently slow industrial growth
of individual firms and consequently slows industrial growth in Nigeria (1978, p. 15), a
radical explanation of the idea of capital shortage is offered. In his view, the phenomenon of
capital shortage does not apply to all aspects of the Nigeria economy. Rather, it is only
peculiar to individual firms, and perhaps to particular sectors or industries. He argued that
whereas there is always money to invest in the economy as a whole, firm which were
otherwise unsuccessful in their bids to raise needed funds to finance their operations or which
were ignorant of existing sources of funding, necessarily experienced a capital shortage. He
goes on to explain that this necessarily reflects adversely upon lending institutions in
Nigeria (ibid, p. 16).
APPRAISAL OF GOVERNMENT EFFORTS TOWARDS FINANCING SMES

Successive government in Nigeria have at different times put in place programs/schemes
designed to facilitate the growth and development of micro, small and medium scale
enterprises. These programmes were in the form of monetary fiscal and industrial policy
65
measures at the macro level and financing arrangements at the micro level. OBOH (2005)
grouped these schemes into three namely:
Provision of local finance through government agencies-Federal Ministry of Industry,

Central Bank of Nigeria, Nigeria Industrial Development Bank (NIDB) Nigerian
Bank for Commerce and Industry (NBCI), Nigeria Export-Input Bank (NEXIM) etc.
Facilitating and guaranteeing eternal finance through the World Bank, African
Development Bank (ADB) and other multilateral institution set up to support SMEs.
The establishment of the National Economic Reconstruction Fund (NERFUND) and

FEAP which was a source of medium and long-term loans to SMEs
Family Economic Advancement Programme (FEAP)

This programme was announced by former Head of State and Commander-in-chief of Armed
forces General Sanni Abacha in 1985 and was initiated by the first lady of the Federal
Republic of Nigeria Mrs Maryann Abacha as a panacea to poverty eradication and peace in
the nation. The programme was particularly targeted at enhancing the development of rural
areas of Nigeria.
Central Bank of Nigeria (CBN)-Directed SME Funding

As a primary organ for projecting and implementing governments policy of funding small
businesses, the Central Bank of Nigeria since 1970 has been instrumental in promoting the
development of wholly Nigeria enterprises through its credit guideline, which required
Commercial and Merchant Banks to allocate a minimum of stipulated credit to the preferred
sectors. For instance in 1979/80 fiscal year, the CBN directed that at least 10% of total loans
and advances to indigenous borrowers be allocated to SMEs. This was subsequently raised to
16 and 20 percent in 1980 and 1990 respectively. However due to the high default rate
coupled with the cumbersome loan administration, banks preferred to pay the prescribed
penalties for non-compliance, rather than channel credit to SMEs.
Nigerian Industrial Development Bank (NIDB)

The NIDB was set up in 1964 to provide credit and other facilities to industrial enterprises
especially medium and large scale ones. The bank had initial mandate of providing credit
facilities for the large-scale industries, however, the bank accommodated SMEs with total
66
assets and working capital of up to N750,000. A remarkable aspect of the NIDB financing of
SMEs was its policy of equity investment of 11-26% in the paid up share capital of some of
the projects it financed. It is on record that the bank disbursed a total of N174.6million to
SMEs between 1980 and 1988. However due to a number of constraints, the banks
involvement in the financing of SMEs dwindled in the late 90s. Presently the bank
metamorphosed into Bank of Industry with greater focus on large scale enterprises.
National Economic Reconstruction Fund (NERFUND)

This scheme which was introduced in 1989 during the structural adjustment programme to
assist SMEs cope with the attendant high production costs arising from high cost of imported
inputs and high rates of interest. In addition NERFUND was established to bridge the longterm financing gap in banks lending to SMEs. The fund was expected to provide long-term
fund for wholly Nigerian owned SMEs operating in area of manufacturing, agro-allied
enterprises, mining, quarrying, industrial support and other ancillary services. The resources
of NERFUND were mainly contributions from the Federal Government, the CBN, and
foreign services. Available record show that from inception in 1989 to 1998, NERFUND
disbursed about US$144.9million and N681.5million to the approved projects.
Small and Medium Industry Equity Investment Scheme (SMIEIS)

This approach is focused on equity investment of the participating financial institutions in
promoting the development of SMEs in Nigeria. SMEIS, which is an initiative of the
Bankers committee, a forum for the meeting of chief executives of bank and the regulatory
authorities was conceived primarily to address the death of long-term finance for the SMEs
and other related problems. The scheme was expected to stimulate economic growth and
diversify the nations production base for sustainable economic development.
Under the scheme, all banks in Nigeria are required to set aside 10% of their profit before tax
annually for equity investment in small and medium scale enterprises, as the banking industry
contribution to government effort towards stimulating economic growth, developing local
technologies and generating employment. The scheme is expected to engender a new form of
partnership between banks and promoters of industry, and to eradicate mutual suspicion
among other. Under the scheme, banks are expected to identify genuine industrialists and
provide financial, technical and managerial support for identified enterprises in the areas of;
67
Agro-allied, information technology, manufacturing, solid mineral, construction, tourism,

educational establishment and other approved activities.
Peoples Bank of Nigeria (PBN)

Peoples Bank was established in 1989 in another Governments intervention in the economic
policies of the nation. The need for the Bank was informed by the desire of Federal
Government of Nigeria to improve access to banking and financial services by a large
segment of the society hitherto excluded from and inadequately provided with such services.
The principal objectives for establishment of peoples Bank of Nigeria were:
The extension of credit facilities to the less privileged members of the society who
cannot normally benefit from services of the conventional banks.
The acceptance of savings from customers and repayment together with any
interest thereon.
Provision of opportunities for self-employment for the vast unutilized and

underutilized manpower resources.
Complement government efforts in improving the productive base of the

economy.
Armed with the above objectives the bank worked assiduously to empower the poor
Nigerians and encouraging rural development.
THEORETICAL FRAMEWORK
Microfinance Policy of Nigeria
In 2005 CBN in its effort to engineer the economic growth of the country and also to lay
emphasis in small and medium scale enterprises as a vehicle for economic advancement,
formulated the microfinance policy that acted as the background to the formation of
microfinance banks.
Policy Objectives
The specific objectives of this microfinance policy are the following:
68
i.
Make financial services accessible to a large segment of the potentially productive

Nigerian population which otherwise would have little or no access to financial
services;
ii.
Promote synergy and mainstreaming of the informal sub-sector into the national
financial system;
iii.
Enhance service delivery by microfinance institutions to micro, small and medium

entrepreneurs;
iv.
Contribute to rural transformation; and
v.
Promote linkage programmes
between
universal/development
banks,
specialized institutions and microfinance banks.

Policy Targets
Based on the objectives listed above, the targets of the policy are as follows:
i.
To cover the majority of the poor but economically active population by 2020 thereby
creating millions of jobs and reducing poverty.
ii.
To increase the share of micro credit as percentage of total credit to the economy from
0.9 percent in 2005 to at least 20 percent in 2020; and the share of micro credit as
percentage of GDP from 0.2 percent in 2005 to at least 5 percent in 2020.
iii.
To promote the participation of at least two-thirds of state and local governments in

micro credit financing by 2015.
iv.
To eliminate gender disparity by improving womens access to financial services by

5% annually; and
v.
To increase the number of linkages among universal banks, development banks,

specialized finance institutions and microfinance banks by 10% annually.
Policy Strategies
A number of strategies have been derived from the objectives and targets as follows:
i.
License and regulate the establishment of microfinance Banks (MFBs)
ii.
Promote the establishment of NGO-based microfinance institutions.
69
iii.
Promote the participation of Government in the microfinance industry by encouraging

States and Local Governments to devote at least one percent of their annual budgets to
micro credit initiatives administered through MFBs.
iv.
Promote the establishment of institutions that support the development and growth of
microfinance service providers and clients;
v.
Strengthen the regulatory and supervisory framework for MFBs;
vi.
Promote sound microfinance practice by advocating professionalism, transparency

and good governance in microfinance institutions;
vii.
Mobilize domestic savings and promote the banking culture among low-income
groups;
viii.
Strengthen the capital base of the existing microfinance institutions;
ix.
Broaden the scope of activities of microfinance institutions;
x.
Strengthen the skills of regulators, operators, and beneficiaries of microfinance

initiatives;
xi.
Clearly define stakeholders roles in the development of the microfinance sub-sector;

and
xii.
Collaborate with donors, coordinate and monitor donor assistance in microfinance in

line with the provisions of this policy.
RESEARCH DESIGN
The study adopted the descriptive survey research design. In the survey, a sample was
selected from an identified relevant population for the purpose of questioning and interview.
The response to the questionnaire and interview process provided the primary data used in the
study.
Procedure for Data Analysis and Model specification
In analysing the data, a brief explanation of specific issues investigated was made under each
sub-heading. This was followed by the presentation of tables and then the analysis of
frequencies and percentages.
70
SIGN TEST
This test was used to test the hypothesis. It is a non-parametric test that focuses on median
rather than the mean as measure of central tendency and derives its name from the fact that
signs, namely +s and s rather than numerical values provided in the raw data were used in
the calculation.
The null hypothesis tested is that the population median is equal to some specified value
against the alternative hypothesis that the population median is different from the specified
value.
Stated symbolically; the null hypothesis was
H0: P(-)=P(+)=0.5 whereas the alternative hypothesis was, H1: P(-) # P(+)
DECISION RULE
For a one-sided test;
Reject H0 if P-value (level of significance), otherwise accept.
For two sided test
Reject H0 if P-value (level of significance), 2 Otherwise accept.
Test of Hypothesis
The hypothesis was tested to prove or disprove some of the assumptions made in course of
the research. Government effort towards financing small and medium scale enterprises has
not had much impact.
Hypothesis Impact of Government Programme

This hypothesis seeks to prove or disprove the fact that government effort towards financing
SMEs had not had much impact in turning the enterprises around.
This hypothesis is tested with data supplied to research question 12.
71
Table 1: Degree of Impact

No
Cumulative
assigned Frequency Percentage Percent

Level of Impact
No impact
1.00
43
21.5
21.5
Small Impact
2.00
143
71.5
93.0
Great Impact
3.00
14
7.0
100.0
200
100.0
Total
The above table shows that 71.5% of the respondents agreed that Government efforts towards
financing small and medium scale enterprises have only had small impact. The median value
is 2 which support the fact that government efforts had only had small impact. However to
find out the actual level of impact, we perform sign test. The result of the test at 5% level of
significance computed using Minitab software is shown below;
Sign Test for Median
Sign test of median = 2.000 versus >
Below Equal Above
Q12 200 43
143
14
2.000
Median
0.9998 2.000
From the computation the value of p is 0.9998 (p>0.05) which is greater than 0.05. This
supports the hypothesis that the median is equal to 2.
Hence we accept the null hypothesis which says that government effort towards financing
small and medium scale enterprises had not had much impact.
CONCLUSION
The following conclusion can be drawn from the investigation;
1. The growth of small and medium scale entrepreneurs has been severely limited by
lack of funds.
72
2. Potential entrepreneurs in Nigeria lack the requisite skills and knowledge to embark
on viable business ventures that will be profitable and boost the growth of the
economy.
3. The average Nigerian entrepreneur lacks the knowledge of various options available
to raise fund to finance small scale businesses. This lack of awareness is hindering the
growth of SMEs.
RECOMMENDATIONS
The following recommendations are made with a view to improving the financing and
performance of Small and Medium Scale enterprises.
1. Comprehensive training programme should be organized for potential and existing
entrepreneurs. Such programme should be in form of seminars, workshops,
enlightenment etc. and should covers areas as, skills acquisition, financing options,
viable business that they can venture into etc. This has become necessary as there is
serious knowledge gap among potential entrepreneurs.
2. Finance should not be the only area of need to be addressed. Even if credit is made
available to entrepreneurs under the current harsh environment of the country, it may
still be difficult for them to operate successfully and contribute to the economic
development.
3. There has been sustained public outcry concerning the poor state of various
infrastructures affecting the day to day operations of small scale business enterprises.
The critical area of infrastructure failure which government has been trying to tackle
include; power & transportation (roads, rails, water), security and land tenure system.
Government should speed up its effort in tackling these critical areas as it plays a vital
role in the sustenance of small and medium scale enterprises.
REFERENCES
Amao J. O (1987) Modes of financing Small-scale industries in Nigeria, in Igwe B.U.N,
Akinbi A.F and Banwo P.A.(eds). Small Scale Industries and Development of Nigeria.
Proceedings of national Conference NISER Ibadan.
Asaolu T.O. (2007) Financing Small Scale Enterprises in Niger State of Nigeria. An
unpublished MBA Thesis; Delta State University Abraka, pp 1-55.
73
Central Bank of Nigeria: Micro-credit Fund. A publication of Development Finance

Department. January 2009.
Central Bank of Nigeria: Microfinance Policy, Regulatory and supervisory Framework for
Nigeria. December 2005.
Mbachu U. M (1996) Corporate Finance; Principles and Practice. Enugu. Optimal Publishers.
Oboh G.A.T (2005) Selected Essays on Contemporary issues in Nigerian Banking. Ibadan.
University press plc.
Ogundipe V. (1997) Commercial bank and the promotion of small scale Enterprises. The
Nigerian Banker Vol 7 No 1 pp 10-13.
Ojo, A. T. (1989) The Relative Importance of Bank and other Institutions in Financing Small
Scale Businesses. A paper presented at a Seminar on Nigerian Banks and Small scale
Business. March 13-14, 1989.
Pinches G.E (1990). Essentials of Financial management. London. Winthrop Publishers Inc.
Cambridge.
Umar A. B. (2009) Financing Small and medium scale Industries in Nigeria. The Guardian,
June 11, 2009.
74
Benefits and Challenges of E-Commerce on Developing Nations

Alhaji Abiso Kabir
Department of Business Administration,
ICT University Cameroon,
Finance Department,
Kala Balge Local Government Area, Borno State-Nigeria
Abstract
E-commerce certainly has a potential to add a higher value to businesses and consumers in
developing countries however, most developing country enterprises are faced with threats
and challenges which hinders the effective utilization of ICT to comply with e-commercial
activities. Based on this, the author reviewed previous literature to investigate the benefits
and challenges of ICT use and e-commerce to developing countries. The following were
identified as benefits of e-commerce; job creation, proximity to major markets, lower cost of
transaction, relatively high levels of functional literacy, growth of entertainment industry,
and high rates of telecommunication penetration. While the challenges to e-commerce
includes; economic barriers, sociopolitical barriers, cognitive barriers, lack of
infrastructure, poor service from the internet service provider, and lack of education. In
order to address these challenges, the author concluded that, there is need for government of
Nigeria to have policies and measures to improve the electricity generation and supply,
improve the quality of internet services and initiate an effective enlightenment campaign
towards to use of e-commerce in the country.
Keywords: E-Commerce, Developing Nations.
INTRODUCTION
E-commerce arguably has a potential to add a higher value to businesses and consumers in
developing countries than in developed countries (Arnold & Quelch, 1998; Lituchy & Rail,
2000; Annan, 2001; Kshetri, & Dholakia, 2002; Kshetri, 2008). Yet most developing
country-based enterprises have failed to reap the benefits offered by modern information and
communications technologies (ICTs) (Kshetri, 2008).However, there exists a growing
consensus among development agencies and academics on the potential role of electronic
commerce (e-commerce) in socio-economic development (Boateng, Heeks, Molla & Hinson,
2008). Use of the Internet and other related information and communication technologies
(ICTs) to conduct business transactions is growing in private, public and non-profit sectors in
both industrialized and developing country contexts (Okoli & Mbarika, 2003). The potential
value of e-commerce has received extensive coverage in research and trade publications with
reportage of several successful e-commerce stories (Mukti, 2000; Berrill, Goode & Hart,
2004; Grandson and Pearson, 2003, 2004). Therefore, literature tends to suggest various
75
definitions of e-commerce (Ngai & Wat, 2002), and in a review of e-commerce research,
Boateng et al (2008) outline four definitions of e-commerce from different perspectives:
1. From a communications perspective, e-commerce is the delivery of information,
products/services, or payments via telephone lines, computer networks, or any other
means.
2. From a business process perspective, e-commerce is the application of technology
toward the automation of business transactions and workflow.
3. From a service perspective, e-commerce is a tool that addresses the desire of firms,
consumers, and management to cut service costs while improving the quality of goods
and increasing the speed of service delivery.
4. From an online perspective, e-commerce provides the capability of buying and selling
products and information on the Internet and other online services (Ngai & Wat,
2002, p. 415).
In line with this idea, Asikhia (2009) mentioned that marketing professionals consider the 21st
century to be a distinctive period because of the electrification of traditional marketing
practices. With regards to Africa and indeed Nigeria, e-marketing is gradually gaining
prominence as a tool for competition in Nigeria (Asikhia, 2009). Most banks now offer ebanking transactions online so that customers can patronize them from the convenience of
their homes or offices (Asikhia, 2009). The growth and acceptance of credit/debit cards and
automated teller machines (ATMs) are also testimonials to the countrys fledging ecommerce. Today, with e-payment solution companies like Master Card, Interswitch, Visa
Card, and E-tranzact, Nigerians can pay, withdraw, or transfer funds anywhere in the country,
as well as make purchases with their e-cards. This development coincides with the increasing
development and growth of Western shopping malls in the country. Shopping online has also
gained acceptance with more Nigerians, who recognize the importance of buying from
abroad and who realize that it is no longer necessary to go in person to shops to make their
purchases. These changes have prompted organizations to step up efforts to electronify their
marketing operations to better satisfy customer needs.
Statistics indicate that the number of Internet users in Nigeria increased from 200,000 in the
year 2000 to 5 million in 2006, for a growth rate of 2,400% (Awe & Olubamise, 2006;
Asikhia, 2009), and this number expected to double by 2016. Increasing numbers of
businesses now handle commercial exchanges of goods, services, information, and ideas
76
through technology. Smart cards, debit cards, ATM cards, point-of-sale technology, scratch
cards, and similar technology are highly visible in the Nigerian business environment (Awe
& Olubamise, 2006).
THEORETICAL UNDERPINNING
A theoretical support serves as the structure that holds and guides the research work which
explains the rationale behind justification of the study (Khan, 2010). Thus, Modernization
Theory (Rostow, 1960) is used to explain the adoption of Information Technology (IT) in
Developing Countries. Certainly, academic proponents of the theory promoted it by
examining the socio-economic conditions of becoming a modern society. The terms less
developed, underdeveloped, and developing countries, also synonymous to Third
World, implied that some appreciable degree of economic and social backwardness
existed in these countries (Toye, 1995, p. 43). The root cause of this underdevelopment was
the focus on traditional modes of production, and the lack of skills, know-how, and poor
tradition of research and exploitation of technology (Soeftestad & Sein, 2003, p. 64). The
poor countries were characterized as being traditional or having primitive values,
comprising of an orientation to the past, strong kin relationships, superstition, and fatalism
(Webster, 1990, pp. 49-50). Developed countries, in contrast, managed to move from this
traditional society through industrial revolutions coupled with research and exploitation of
technology that resulted in an increase in the productive capacities of their societies and
creating the conditions of modernity (Soeftestad & Sein, 2003). The modern society was
characterized by innovation, motivation, entrepreneurship, weaker kin relationships and not
enslaved by tradition (Webster, 1990, pp. 49-50). The social, economic and political systems
of the developed countries, therefore, signified the vision, epitome or desirable state of
society that the less developed countries should seek to become or follow, and the process of
change to achieve that formed the basic notion of modernization (Eisenstadt, 1966, p. 1).
Consequently, the developed countries defined what constituted good change and how it was
to be achieved through imitating the development strategies and ideologies applied in
developed countries into less developed countries in order to bridge the gap of differences or
to become developed like them (Hettne, 2002). Imitation meant that the history of
development through industrialization that had occurred in Western Europe and North
77
America became a blueprint for development for the developing world (Webster, 1990, p.
53). In this perspective the major ideology was to promote economic development raising
the productive capacities of societies through industrialization (Bernstein, 1971).
Modernization theorists argued that industrialization would take-off when the obstacles of
economic growth were removed. This required the creation of capital, through sustained
capital accumulation and investment, and a capitalist class, as in the entrepreneurial ambition
that could catalyze industrialization and further on, modernization (Webster, 1990; Binns,
2002). It thus was expected that the traditional patterns of living; norms, actions and values
would give way as the ideas and technologies of the rich countries diffused through the poor
countries (Boateng, 2008).
As modernization became more popular within academic circles its influence extended into
several development policies and strategies carried out by development agencies, particularly
on business sector (Boateng, 2008).Salifu (2008) argued that, recent and anticipated changes
in technology arising from the convergence of communications and computing are truly
breathtaking, and have already had a significant impact on many aspects of life. Meanwhile,
at the center of this convergence is the internet. Banking, stock exchanges, air traffic control,
telephones, electric power, and a wide range of institutions of health, welfare, and education
are largely dependent on information technology and telecommunications the internet for
their operation (Salifu 2008)).
Since then IT became commercial in the early 1990s, it has diffused rapidly in developed
countries but generally slowly in developing ones (Achimugu, Oluwagbemi, Oluwaranti &
Afolabi, 2009). This has led to a widening IT gap known as digital divide between the two
groups (Achimugu, et al., 2009). The IT gap among developing countries is also increasing.
The more advanced, such as the Newly Industrialized Economies (NIEs), Brazil, Chile,
Estonia and Malaysia, have made enormous progress toward a digital economy, but many of
the rest of the developing nations remain much more backward. Based on this, the paper
discussed on the benefits and challenges of e-commerce on Developing Nations with A
special reference to Nigeria
78
CURRENT TRENDS IN INTERNET USAGE IN NIGERIA

The Internet has become an important tool for business growth, social activities and research
in Nigeria (Achimugu, et al., 2009). While the interest is well integrated into education,
business and social activities in developed countries, Nigeria can be said to be attempting
giant strides in embracing its usefulness and applications. Internet/cyber cafes have sprung up
in major cities with majority of them in cities having educational institutions and in big
commercial/business centers/activities. A large majority of Internet access is provided by
these cyber cafes, universities and other research centers. In developed countries, individuals
are well connected to the Internet via various communication links but in developing
countries, individuals might not get connected due to several reasons. These include: Absence
of adequate communication network infrastructures; relatively high cost of equipment that
could not be afforded by the large low-income portion of the Nigerian population; lack of
government interest and support; and problems associated with technical and management
support for Internet connection (Achimugu, et al., 2009).
ELECTRONIC COMMERCE IN NIGERIA

Electronic commerce changed the face of marketing through technology-enabled observation,
surveying, and experimentation (Asikhia, 2009). Most firms now use at least one of the
commercial online services for accessing general news information or for research on more
specialized subjects. Tens of thousands of commercial databases are available worldwide,
providing information on business, technical, and scientific topics, company reports, broker
reports, newspaper and journal articles, and patent documents (Asikhia, 2009). These online
commercial and research information sources provide variety, up-to-date information, cost
efficiency, and accessibility to far-reaching information. Technology-enabled observation in
marketing research is highly objective because it records actual behavior, as opposed to what
the researcher thinks is important (Asikhia, 2009).
The recent resurgence in direct marketing has been enabled by the increased productivity and
processing power of information technology, and marketing is taking advantage of this. Email is increasingly used to target consumers in Nigeria. By 2006, expenditures on Internet
direct marketing had increased from zero to nearly 15.3% of the total direct marketing
expenditure in Nigeria (AIS, 2006). More than 500 million global systems for mobile (GSM)
79
communication users in the world are capable of receiving text messages using short
messaging service (SMS) technology. A survey in the United Kingdom by DMA found that
60% of respondents were running e-mail marketing campaigns, that 16% of marketers were
using e-mail marketing more than direct mail, that 30% elected to use e-mail marketing rather
than telemarketing, and that more than 55% used e-mail marketing more than SMS (DMA,
2002). The arrival of newer generation mobile handsets signaled a new marketing medium.
The use of multi-media messaging service (MMS) technology, which is an upgrade of text
messaging, allows pictures and images to be sent via a mobile phone (Smith, 2001), this
recent development has speed up the effectiveness of e-commerce around the globe.
BENEFITS OF E-COMMERCE ON THE NIGERIAN ECONOMY

Benefits in the e-commerce are not uniformly distributed across nations, as some might
believe (Adekunle & Tella, 2008). Language, telecommunication infrastructure and technical
competence are some of the factors that determine one countrys relative strength in the new
economy (Mounsey, 2002). Therefore, Adekunle et al (2008) identified benefits of electronic
economy to include; job creation, proximity to major markets, lower cost of transaction,
relatively high levels of functional literacy, growth of entertainment industry , and high rates
of telecommunication penetration.
Job creation
With 1.203 million Internet/IP-based jobs, the Internet economy is reshaping the job market.
Many of these jobs (e.g., Web design and development, Internet consulting) did not exist
prior to 1994/1995, and companies have also re-designed existing jobs to meet the challenges
and opportunities of the Internet economy. An estimated 5.9 million Americans work in the
broadly defined high-tech field, of which 20% were associated with the Internet economy as
of 1998 (Barrua, Pinnel, Shutter &Whinston, 1999). As Internet players flourish and as
traditional businesses become more dependent on Internet related technologies for their daily
business operations, new jobs will continue to be created and existing jobs will continue to be
reshaped in the new economy of in the world in general and Nigeria in particular.
Lower cost of transaction
Instant communication, coordination, and collaboration across the Internet are helping firms
lower their transaction costs through virtual integration with suppliers and customers.
80
Proximity to major markets
In the trade of tangible deliveries (goods that must be physically delivered) on the Internet,
the issue of proximity to major markets is critical, as it has implications for transportation
cost and delivery time. As the largest geographical market on the Internet, the Nigeria market
is important not just for its size but also for its spending power. It should be noted that many
countries of the world are closer to this market.
Growth of entertainment industry
The entertainment industry is one of the fastest growing sectors in the digital economy
(Adekunle & Tella, 2008). A recent survey on the online purchasing habits of Britons reveals
that the category of purchases with the second highest frequency by both males and females
was the compact disc and video category (Hijazi, 2000). For instance Nigeria as a country
populated by peoples of diverse ethnic and cultural origin is thought by many to be a great
repository of cultural assets. These endowments place the country at a strategic advantage to
exploit the growing entertainment industry in the digital economy.
Relatively high levels of functional literacy
Active participation in the electronic economy requires functional literacy (Adekunle &
Tella, 2008). Other things being equal any country with a significantly higher literacy rate
than another would be at an advantage in this new economy. Mounsey (2002) pointed out that
although, data are incomplete it has long been believed that many developing countries have
relatively low levels of illiteracy when compared to countries in similar income groups. The
advent of electronic economy had brought about the development in functional literacy. This
gives them an enablement to participate in this new economy.
High rates of telecommunication penetration
Telecommunication is the backbone of the Internet. The higher a countrys rate of

telecommunication penetration the greater is its chances of competitive participation in the
Internet economy. The high rate of telecommunication penetration would therefore prove to
be an advantage in exploiting the opportunities presented by the new economy.
CHALLENGES FACING E-COMMERCE IN NIGERIA

Kshetri (2008) analyzed e-commerce barriers in developing countries in terms of three
categories of negative feedback systems: economic, sociopolitical and cognitive (Noda &
Collis, 2001), and these barriers are perceived as challenges facing the e-commerce sector in
81
the Nigerian context. While economic and sociopolitical factors focus primarily on the
environmental characteristics, the cognitive component reflects organizational and individual
behaviors. Arguably, for the initial adoption of e-commerce in developing countries, the
cognitive component plays a more prominent role (Molla & Licker, 2005). As organizations
assimilate sophisticated e-commerce practices, environmental factors play more critical roles
(Molla & Licker, 2005).
Economic barriers
Positive economic feedback occurs in the presence of increasing returns to scale (Noda &
Collis, 2001). Research has suggested that a slow Internet diffusion in developing countries
has led to a low IT business value measured by performance and productivity (Tam, 1998;
Dewan & Kraemer, 2000). Barriers associated with the lack of economies of scale in small
developing countries are widely recognized. A study found that small sizes of many
Caribbean nations inhibited the development of clusters for the IT industry (Fraser &
Wresch, 2005). Another study found adverse scale effects in the Tanzanian e-commerce
industry (Pigato, 2001). Therefore, slow Internet diffusion in developing countries can be
attributed to market and infrastructural factors controlling the availability of ICTs (Brown,
Malecki & Spector, 1976). In Nigeria, for instance, a lack of electrical supply, a low
teledensity and a lack of purchasing power resulted in a low rural Internet usage (Mercer,
2006). Moreover, manufacturers of ICT products focus on large distributors (Gatignon &
Robertson, 1985) often located in developed countries for their selling initiates.
Unavailability of credit cards is also a major hurdle (Mercer, 2006; Saideman, 2001). Past
studies have found such problems for B2C e-commerce in Russia, India and Latin America
(Hawk, 2004; Hilbert, 2001). In Asia, 3540% of transactions are cash-based (Biederman,
2000). Other aspects of financial systems are also underdeveloped (Kenny, 2003). In the
Caribbean, local banks do not process online credit card transactions (Pigato, 2001) or other
forms of electronic payment systems (Wresch & Fraser, 2006).
Sociopolitical barriers
Sociopolitical barriers can be explained in terms of formal and informal institutions (Alston,
Eggertsson & North, 1996; Tigre & Dedrick, 2004). They often tend to be more difficult and
time consuming to overcome than technological barriers (Tigre & Dedrick, 2004; Kenny,
1999). Social barriers are related with informal institutions. In Asia and Africa, personal
relationships are important in businesses and anonymous online relationships threaten
established interpersonal networks (Gibbs, Kraemer & Dedrick, 2003). Preference for
personal face-to-face communications over e-mails and precedence of established
82
relationships over the Internets inter-personal efficiency also work against e-commerce
(McKinsey, 2001).Political barriers are applied in an organized way by formally appointed
groups (Kshetri, 2008). Many developing countries lack laws that provide legal validity of
digital and electronic signatures (DES) (Stephens & Infrastructure, 2001). Some developing
countries treat ICT products as luxury items and impose import duty, surtax, value added tax,
sales tax, etc. (McKinsey, 2001). Weak formal institutions also lower consumer trust in ecommerce and willingness to buy online (Kenny, 1999).The literature provides abundant
evidence that legal barriers are among major hindrances to e-commerce in the developing
world (Kshetri, 2008). A survey conducted among Brazilian consumers indicated that the low
e-commerce adoption rate was related to government regulations such as concern about
privacy and security, lack of business laws for e-commerce, inadequate legal protection for
Internet purchases and concern over Internet taxation (Tigre & Dedrick, 2004). Likewise, in
China, a lack of transactional and institutional trust related to the weak rule of laws was a
major impediment to e-commerce (Gibbs, Kraemer & Dedrick, 2003; Efendioglu & Yip,
2004).
Cognitive barriers
Cognitive factors are related to mental maps of individuals and organizational decision
makers Huff, 1990). Some analysts argue that cognitive barriers are more serious than other
categories of barriers in developing countries (Gibbs, Kraemer & Dedrick, 2003). Many
effects such as inadequate awareness, knowledge, skills, and confidence serve as cognitive
feedbacks. Consumers lack of awareness (Huff, 1990) and knowledge of ecommerce
benefits and their lack of confidence in service providers have also hindered e-commerce. For
instance, in Latin America, a low rate of credit card usage can be attributed to the lack of
trust in than lack of access to the credit card system (Hilbert, 2001). A final consideration
with cognitive barriers is related to general and computer illiteracy and a lack of English
language skills (Kenny, 2003). Note that most software, human-computer interfaces and
content on the Web are in English (Nunberg, 2000). Estimates suggest that half of the
populations of developing countries cannot speak an official language of their own country
(Kenny, 2003). A lack of capability in English language has thus been a major inhibitor
among non-English speaking consumers, especially the older generation (Gibbs, Kraemer &
Dedrick, 2003). In Slovenia, 75% of the population fluent in English used the Internet
compared to only 1% of non-English speakers (Kenny, 2002). The number of sites in
languages such as Quechua (10 million speakers in Bolivia, Ecuador and Peru) or Ibo (15
83
million speaker in Nigeria) can be counted on the fingers of one handand none offer
interactive features (Kenny, 2002).
In a similar vein, Apulu and Ige (2011) identified unstable electricity, lack of infrastructure,
poor service from the Internet Service Provider, and lack of education as peculiar ecommerce problems to Nigeria.
Unstable Electricity
Apulu andIge (2011) finding shown that, the epileptic supply of electricity in Nigeria has a
major impact on e-commerce and utilization of ICT. Baker (2008) in his study identified that
less than 20% of the Nigerian population have access to stable electricity supply. Similarly,
Gnansounou (2008) also stated in his research that the Nigerian demand for electricity is in
deficit of about 80%. This indicates that there is a correlation between the results of Apulu
and Ige (2011) study and that of Baker (2008) and Gnansounou (2008).
Lack of Infrastructure
Lack of infrastructural facilities is another major barrier affecting the effective e-commerce
utilization of ICT in Nigeria. This is as a result of the insufficient provision of some major
infrastructures needed for the proper implementation of ICT such as Network backbone,
fiber-optic backbone for Local Area Networks amongst others that is essential for
interconnectivity between firms (Apulu & Ige, 2011). Iloanusi and Osuagwu (2009)
identified similar issues in their research. Based on their study, 71.7% of the respondents
indicated that the lack of infrastructural facilities inhibits their ICT usage. Kapuruandara
(2006) highlights that lack of telecommunications infrastructure such as poor Internet
connectivity, lack of fixed telephone lines for end user dial-up access, and the
underdeveloped state of the Internet Service Providers are factors affecting the proper
utilization of ICT amongst SMEs in Sri Lanka. Arikpo et al (2009) in their research, also
highlighted the high subscription and infrastructure costs, coupled with the poor quality of
service by service providers at inception, as a major hindrance to the use of ICT in education
research and development in Nigeria. Arikpo et al (2009) added that, the high cost of ICT
equipment is estimated to be 36.1% which shows that the acquisition of ICT equipments is
also a barrier that inhibits the effective utilization of ICT.
Poor Service from ISP Provider
Poor service provided by ISP providers is estimated to be 67.2%. The poor services provided
by ISPs in Nigeria possess a serious challenge to the effective utilization of ICT due to low
84
bandwidths characterized by very slow speed, high subscription costs, together with frequent
disconnection of the networks.
Lack of Education
From the findings, lack of education is estimated as 61.7%, illiteracy accounts for 59.4%
while lack of technical skills/poor technical knowledge (40%), account as other factors that
also hinder the effective utilization of ICT in Nigeria. Education ranks high with above 50%
of the identified factors. Lack of education and lack of awareness of ICT act as reasons for
non-utilization of ICT (Kapurubandara, 2009). Kapurubandara (2009) added that literacy
amongst SMEs is generally low and often SMEs do not have access to professional advice to
address complex ICT issues. In other words, the poor technical knowledge and lack of
expertise of ICT in SMEs deprives SMEs of benefitting from new developments and in turn
slows their growth.
CONCLUSION
The review of above mentioned literature indicated both benefits and challenges facing the
use of ICT particularly e-commerce in developing countries and indeed Nigeria. Therefore,
the potentials of e-commerce cannot be overemphasized as shown in the previous studies in
terms of job creation, easy access to market, low cost of transaction, growth of electronic
related industries, and high rate of penetration of telecommunication industries. These ICT
related development and other factors have led to rapid economic growth in Newly
Industrialized Economies (NIEs). Despites these potentials however, there are other
challenging factor that adversely affects the utilization of ICT and growth of e-commerce in
developing nations especially Nigeria with is the focus of the paper. The identified threats
include; unstable electricity, lack of infrastructure, poor service from the Internet Service
Provider, and lack of education. The review identified that lack of electricity is the leading
factor behind the non-utilization of ICT in Nigeria; hence efforts need to be made to
reposition the power sector in Nigeria in terms of power generation and distribution in order
to have effective and efficient power supply. There is the need for the government to have
policies and measures to enforce these policies as this will assist to improve the electricity
generation and supply problems in Nigeria. Lack of infrastructural facilities also contributes
to poor performance of e-commerce in Nigeria, this also relates to the inadequate government
support in terms of providing the required infrastructural facilities. Furthermore, the review
indicates that there are other barriers such as poor services from the ISP providers, and lack
85
of education. In terms of education and training there is the need to increase the ICT training
opportunities and create more awareness on the relevance of ICT usage among Nigerians.
With regards to these challenges, the author suggests that, Nigerian government need to
develop policies that are geared towards addressing the issues affecting service demanders
(ICT users) from effectively utilizing ICT and hence, gaining the benefits associated with
ICT utilization in order to create an enabling environment for the utilization of ICT in
Nigeria. There is a need to put some form of initiatives in place, which will assist in solving
this challenge. This includes having the right telecommunications infrastructures in place
such as stable good and stable internet connectivity, fixed telephone lines for end users;
uninterrupted power supply, create mass awareness on the relevance of ICT use in relation ecommerce and so on.
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89
IPSAS as a Tool for Economic Growth and Development in

Africa
Adimelechi Henry Chinedu
Federal College of Education Technical,
Port Harcourt, Rivers State- Nigeria
Adimilechihen@gmail.com
INTRODUCTION
International Public Sector Accounting Standards (IPSAS) are basically accounting reporting
guidelines developed specifically to offer reporting guidance to general purpose financial
reporting officers in the public sector.
In other ways IPSASs are credible, high-quality, independently produced accounting
standards, underpinned by a strong due process and supported by Governments, professional
accounting bodies, and international organizations, such as the International Organization of
Supreme Audit Institutions, the Organisation for Economic Co-operation and Development
and the World Bank.
They are periodically developed and issued by the International Public Sector
Accounting Standards Board (IPSASB), a specialty board of the International
Federations of Accountants (IFAC) headquartered in New York, USA
IPSASB therefore, is an independent standard-setting board with special consideration

to public sector financial reporting standards on ethics and public sector accounting.
As a board of IFAC, IPSASB also issues guidance to support professional accountants

working for the public sector organizations. In addition, IPSASB issues policy
positions on topics of public interest.
WHY IPSAS?
Within the international community, there has been a growing consensus around the need to
harmonize international accounting practices in order to create a homogenous basis for
financial reporting, facilitate accounting processes, and generate information that accurately
reflects the financial position of public sector and nonprofit organizations.
IPSAS is therefore aim at improving the quality of general purpose financial reporting by
public sector entities, leading to better informed assessment of the resource allocation
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decisions made by governments, thereby improving transparency and accountability in the

system.
ADOPTION OF IPSAS BY GOVERNMENTS
The need to achieve high standards of accountability through adoption of consistent
accounting basis and user friendly financial reporting formats is vital. Government leaders
need to plan for periods ahead.
The quality of their decisions can be improved and made better only if they have access to a
reliable source of performance reports, which give periodic comparisons and recognize all
transactions in a transparent manner. The answer to this challenge lies in adoption of the
International public Sector Accounting Standards (IPSASs).
So far Almost 70 countries have adopted IPSASs or are in the process of adopting IPSASs.
Many international organisations, most notably the United Nations, are also in the process of
adopting IPSASs.
Nigeria therefore has no choice than to adopt IPSASs. Thus, IPSAS have become defacto
international benchmarks for evaluating government accounting practices worldwide.
For these reasons, IPSAS deserves the attention of accounting policy-makers, practitioners
and scholars alike.
The global financial crisis has significantly increased these pressures in many cases, which
has led to heightened interest in the long-term financial consequences of government
interventions.
Amidst the challenges of unfavourable climatic conditions, poor infrastructural systems, ever
rising unemployment levels etc. the question that lingers is whether the government can apply
the limited resources at its disposal to meet these challenges.
The implementation of IPSAS would require a migration from the current accounting system
(Cash Basis) to Accrual Accounting.
SCOPE AND AUTHORITY OF IPSAS
IPSASs are designed to apply to the general purpose financial statements of all public
sector entities.
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Public sector entities include Federal , States and local governments, and their
component entities such as departments, agencies, boards, commissions et cetera. It is
important to note that IPSAS do not apply to Government Business Enterprises (GBE
which is covered under IFRS ).
IPSAS are developed and set out to recognize, measure, present and disclose
requirements dealing with transactions and events in general purpose financial
statements.
There are two sets of IPSASs
Cash basis of accounting
Accrual basis of accounting
The adoption of IPSAS by governments will improve both quality and comparability of
financial information reported by their departments and agencies. The IPSASB encourages
the adoption of IPSASs and advocates for the harmonization of national reporting
requirements with IPSASs. By adopting IPSASs therefore, the government will have
undertaken to benchmark its financial reporting against the global best practices.
IMPACT OF IPSAS ADOPTION ON THE GROWTH AND DEVELOPMENT OF

NIGERIAN ECONOMY
Adoption of IPSAS will impact positively on the Growth and Development of Nigerian
Economy in the following ways:
(a)
Accounting and financial reporting
IPSAS Adoption will bring the following changes in Accounting and Financial Reporting in
Public Sector, thereby making Reports more detailed and reliable for economic decisions:
Full recognition of Liabilities for employee benefit obligations and other accruing
compensatory benefits ( though not the case with cash Accounting)
Recognition and depreciation of capital assets such as buildings, vehicles, furniture

and equipment, as a result of which capital assets will not be charged to expenditures
at the cost of purchase (including the cost of bringing the asset
into operation) in
the year of purchase, but will be depreciated over their useful life;
Change in the structure and content of financial reports at all levels.
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Changes in Expenditure and income recognition etc.
(b) Compliance with International Financial Rules and Regulations
Adopting IPSAS simply entails complying with International Reporting Best

Practices. This will no doubt give creditability to Accounting and Financial Reports
prepared in the country.
(c) Budget and Budgetary Control System
IPSAS No. 24 ensures that the public sector entities discharge their accountability
obligations and enhance the transparency of their financial statements by
demonstrating compliance with approved budget. This therefore entails that Public
Sector Entities must improve on its level of budget Implementation which is healthy
for our Economic Growth and Development.
(d) Quality and Comparability
The adoption of IPSASs by Nigeria Government will improve both the quality and
comparability of financial information reported.
It will improve the comparability of reports between various government agencies,

parastatals, donor funded projects, etc.
Reports prepared in accordance with IPSASs provide for comparability between

different financial periods, even within the same institutions, hence facilitating
management decisions
(e) Transparency
Disclosure information requirements of various reports will facilitate transparency in

the financial dealings of public institutions. These disclosures will enable users of
financial information interpret the reports in the right context and better decision
making processes.
(f) Governance
IPSAS will result in stronger governance procedures and a framework for the
accounting practise in the public sector. This will strengthen the financial
management of public institutions. This is good for the Economy.
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(g) Improvement on Capital Allocation
The credit crisis has raised several public sector accounting issues. One of the issues
is how capital can be allocated to more productive sectors. It is expected that
adoption and full implementation of IPSAS will bring improvement on Capital
Allocation.
(h) Oversight Issues
In all countries, changes to government accounting systems require the approval of

the chief financial officers and possibly the legislature.
Approval may take the form of administrative rule or legislation.
Budgetary support to implement IPSAS is the most tangible form of endorsement. To

the extent that international organizations of legislators, finance ministers, budget
directors exist, their willingness to participate in an oversight body for IPSAS would
be conducive to the implementation of IPSAS. It has been said that wars are too
important to be left to generals. If so, government accounting may be too important to
be left to accountants. For those who fear the politicization of accounting, politics is
that way government operates. IPSAS represents accounting for government.
However, accounting by government is still the way of accounting of government is
carried out.
(i) Increase in Foreign Investment
Due to credible financial reports and their comparability
Increase Donors interest
In many states today, balance sheet audits, when performed, still routinely reveal
major discrepancies. This is because in Nigeria the operation of government business
and accounts has been within the general framework of the principles of fund
accounting. The major problem is that the financial reporting structure is far from the
principles in absolute terms, as such, compliance with relevant standards has at best
been incidental.
Judging from the information available from the IPSAS Board, the process of
adopting and implementing IPSAS has already begun. That would be similar to
starting the construction process while the conceptual design is still being drawn. The
hopes are high, but the risks may be higher.
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CONCLUSION
One may draw an analogy between adoption of IPSAS in Nigeria and constructing a new
building to replace an old one.
Before the new building is realized, many steps have to be executed:
(1) An architect sketches a conceptual design, refines it into a blueprint and also must comply
with the building code promulgated by government authorities to ensure safety, among other
objectives.
(2) A structural engineer will come in to make sure that the building the architect has
designed will not collapse under various stressful scenarios, such as earthquakes, strong
winds, and extreme temperatures.
References
Hennie Van G. (2010): International Financial Reporting Standards A Practical Guide 5th Ed. The
World Bank Washington DC.
Training materials on IPSAS sensitization workshop; Federation Accounts Allocation Committee
(FAAC), 2012.
International Public Sector Accounting Standards (IPSAS) and IPSASB's; www.ipsasb.org. 2014
95
Effectiveness of Information and Communication Technology on

the Operations of Banks
Ebenezer Ogunyinka, PhD.
HawaMc,
Baton- Rouge, Louisiana, USA
Ebenezer@hawa.com
Abstract
Several studies have revealed conflicting results as regards the actual impact of ICT on
corporate performance. While some conclude that ICT does not make a significant
contribution to corporate performance; others posit that ICT contribution to corporate
performance is immense. This study is borne out of this curiosity to ascertain the actual
impact of ICT investments on corporate performance in African banks, using Nigerian banks
as case study. The paper employed a combination of questionnaires and observation to
collect information from the staff and customers of the banks to evaluate the influence of ICT
related problems on the performance of the financial institutions. The paper equally used
secondary information such as annual statements of accounts of the sampled banks, Nigerian
Deposit Insurance Commission (NDIC) and Central Bank of Nigeria (CBN) publications to
determine the performance of the banks via such performance measures as net income (the
dependent variable) against the various investments of banks, which include ICT investments,
investments in non-ICT labour and other investments for a period of ten years (1998 to
2007). Thus, the paper examines the relationship between ICT investments and banks
performance. It made two phases of analysis. In the first phase of analysis, multiple
regression analysis was used via SPSS 15 to test the first hypothesis on whether or not ICT
applications and investments significantly contribute to the performance (measured in terms
of net income) of Nigerian banks. In the second phase of analysis, Chisquare test was
employed to test the second hypothesis on whether or not ICT related problems influence the
performance of Nigerian banks. The study revealed that ICT investments do not contribute
significantly to the profitability of Nigerian banks and ICT related problems influence the
performance of Nigerian banks. Based on the findings and conclusions, the paper
recommended that Nigerian banks develop internal maintenance skills, invest more on latest
ICT technologies that make use of biometrics as security solutions, make complimentary
investments on business process reengineering and fully maximize the opportunities available
in information and communication technology.
Keywords: ICT, Effectiveness, Operations, Biometrics
INTRODUCTION
ICTs are basically information handling tools, a varied set of goods, applications and services
that are used to produce, store and process, distribute and exchange information. They
include the old ICTs of radio, television and telephone, and the new ICTs of computers,
satellite and wireless technology and the Internet. These different tools are now able to work
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together, and combine to form our networked world- a massive infrastructure of

interconnected telephone services, standardized computing hardware, the Internet, radio and
television, which reaches into every corner of the globe.
The revolutionary potential of new ICTs lies in their capacities to instantaneously connect
vast network of individuals and organizations across great geographic distances at very little
cost. As such, ICTs have been key enablers of globalization, facilitating worldwide flows of
information, capital, ideas, people and products. They have transformed businesses, markets
and organizations, revolutionized learning and knowledge sharing, empowered citizens and
communities and created significant economic growth in many countries. ICTs have
amplified brain power in much the same way that the 19th century industrial revolution
amplified muscle power.
In recent years, with the coming of the digital age, there has been a growing awareness of the
significance of Information and Communication Technologies. Financial institutions have
understood that poor information and communication system have an impact on every aspect
of its performance, from operational effectiveness to strategic management.
However, the unfolding development and the inherent challenges of Management
Information System (MIS), demand that to maximize the benefits of information and
communication technology such as improving management / customer relationships,
streamline operations, expand activities, improve services and minimise risk exposures in a
turbulent business environment, organisations need to compliment the investment in ICT with
corresponding investment in Business Process Re-engineering (Gates, 2000).
This paper begins by analysing the trend in Information and Communication Technologies
(ICTs). It then considers the role played by Information and Communication Technology in
the overall performance of banks using Nigerian banks as a case study and how it will impact
on the overall goal attainment of the institutions. Finally, the paper discusses how ICT
adoption has transformed the banking sector in terms of changes in structure, strategies,
products, service delivery and performance as well as the problems associated with these
changes.
STATEMENT OF PROBLEM
The following problems are evident in the operations of Nigerian Banks:
i. Inefficiency in payment and transactions processing system.
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ii. Time spent on various banking transactions and unnecessary use of material resources
such as paper.
iii. Frequent system breakdown without provision for an alternative means of attending to
customers during the period of breakdown.
iv. Ineffective business strategies requiring restructuring and reengineering programmes.
v. Time spent by customers queuing for the services in spite of the use of ICT tools such
as Automated Teller Machine (ATM).
Looking at the array of these problems and the efforts by the introduction of technology to
address these problems, it is only necessary to look at the investment in information and
communication technology to see whether the investment in the sector is justified. It is
therefore, pertinent to look at the general impact of Information and Communication
Technology on the general performance of Nigerian banks.
OBJECTIVES OF THE PAPER

Basically, this study seeks to achieve the following objectives:
1. To determine the relationship between ICT investment and performance.
2. To determine whether Nigerian banks are maximizing the opportunities and potentials
available in ICT.
3. To determine the problems limiting the ability of Nigerian banks to maximize
opportunities available in ICT.
4. To evaluate the management of the transaction processing system.
5. To determine the quantity of ICT investment in banks and establish its contribution to
profitability, customer satisfaction, and overall performance.
STATEMENT OF HYPOTHESES
There have been claims by virtually all banks of acquiring state-of-the-art communication
equipment as well as satellite technology to support their operations, with so doing, they hope
to render customized services as well as improve their efficiencies. Sequel to the above, this
paper wants to test that:
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Hypothesis 1
H0 :
ICT applications and investments do not contribute significantly to the profitability of
Nigerian Banks.
H1 :
ICT applications and investments contribute significantly to profitability of Nigerian
Banks.
Hypothesis 2
H0 :
Information and Communication Technology related problems do not have significant
relationship with the performance of Nigerian Banks.

H1 :
Information and Communication Technology related problems have significant
relationship with the performance of Nigerian Banks.
LITERATURE REVIEW
During the last few decades, financial institutions and other organisations have made
immense investments in Information and Communication Technology (ICT). The
implications of these investments for productivity have been discussed in business and
academic communities (Kayode, 2005). Besides, according to the role of ICT in Business
process reengineering, BPR is essential for organizations to increase potential impact of ICT
on overall performance of a company (Ahmad, 2008). This paper will provide an overview of
the relevant literature relating to ICT and performance, to direct theoretical contexts toward
research hypothesis. In that line, we shall look at the relationship between ICT investments,
Business process Reengineering and Corporate Performance.
Information and Communication Technology ICT)
Information and Communication Technology (ICT) is the set of activities that facilitate the
capturing, storage, processing, transmission and display of information by electronic means.
Information technology comprises of the hardware, software and human ware.
Information and Communication Technology (ICT) is the set of activities that facilitate the
capturing, storage, processing, transmission and display of information by electronic means
(World Bank, 2002). ICTs include Computer, Internet, Communication networks, Telephone,
Radio, Television, and Wireless Technologies like Global System of Mobile Communication
(GSM).
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BPR begins with process redesigning which leads to fundamental changes in many aspects of
an organization, including organizational structure, job characteristics, performance measures
and the reward system. BPR relies heavily on the ICT uses to create radically different
working methods to achieve improvements of the order of magnitude required. Furthermore,
BPR facilitates the change in corporate managements perception of technology. It also
confirms an alternative channel through which ICT solutions are being scrutinized and
selected (James, Peter & Donatus, 2004).
ICT-BASED SERVICES IN THE NIGERIAN BANKING SECTOR

According to Jim (2006), in the past few years, banking activities in Nigeria had depended
heavily on the deployment of information technology. The net value of ICT investment by
Nigerian financial institutions is estimated at over N50 billion. This huge amount is an
indication of the desire of Nigerian financial market to deploy ICT as a strategic source in
competitive positioning for the 21st century. There are also clear indications that banks in
Nigeria would thrive on web-based services in view of the overwhelming enthusiasm ebanking/internet banking is generating in Nigerias rapidly changing financial landscape. But,
is the Nigerian financial market e-ready?
Information and Communication Technology has assisted the way and manner in which
banks carry out their operations to satisfying both their existing and potential customers. The
products and services offered by banks in Nigeria include:
1.
Automated Teller Machine (ATM)
An ATM is a machine that enables a bank to handle customers transaction around the clock
i.e. 24 hours a day; 7 days a week banking service at electronic speed.
It is evident that ATMs render numerous services to customers. Another advantage of using
ATM is the convenience of carrying portable ATM smart cards instead of cash. ATMs
displayed in several countries over the world can be linked online to the banks software or
operated off lines.
2.
Telephone Banking
Here the customer only needs to lift the telephone handset, and push the buttons. A voice
response system emulates an operator who answers the customers call on the other end of
the line; customers hear a friendly human voice that greet the caller, guides him/her through
every step of the process servicing their needs swiftly and accurately.
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Telephone banking makes use of automated interactive voice response (IVR) systems; this
enables customers to know their deposits and savings account balance, cheques recently
cleared, interest rates, loan rates information among others.
3.
Internet (On-Line) Banking
The internet is the interconnection (network) of computers worldwide. Virtually any kind of
information ranging from politics, religious, culture, tourism, education etc can be gotten
from surfing the internet. Internet banking become the apex of banking technology; here a
customer is able to make transactions in his bank account from anywhere in the world via
internet.
It is a form of online real time banking. Customers banking transactions is being controlled
by the internet; confines and the data transactions are captured and processed as they
occurred (real time).
4.
Electronic Mail (E-Mail)
This combines the feature of telephone and paper communication. It has the advantage of
speed and variety. The electronic mail system can provide banks with the following services:
i. A variety of message formats for instance letter, notepads and memos of financial
statement.
ii. Communication to other branches and customers over long or short distances.
iii. Text manipulation facilities to allow composing, editing and storing of messages. This
enhances banks clerical operations.
5.
Facsimile (Fax)
This allows the sending of an exact copy of an original (using radio transmission or telephone
network) to be recomposed by the receivers equipment. In banks, fax machine could be used
to send documents in which the signature has to be verified, for inter-bank transactions with
customers. Facsimile system works by scanning a document and digitally coding the contents
which are then transmitted and recorded at the receiving end.
6.
Decision Support System (DSS)
This system refers to the application of ICT on the problem met by decision makers. Those
problems include marketing, forecasting, statistical analysis etc. The DSS multipurpose
application can also be used to support functions like credit and corporate planning at all
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levels of management. In general the DSS will enable bank management use analysis tools
which will make information more effective.
A DSS has the ability to capture, store and manage large volumes of data; it makes use of
packages like Lotus 1.2.3 and super calc. These and other packages can be used for instance
in analysing the profitability of opening of new branch at particular location putting into
consideration several factors.
7.
Smart Cards
A smart card is a small plastic card on which information is stored in electronic form. It
contains a microchip that has information about the card holder. Such information may
include account balance and authorized code. Smart card could either be a credit card, debit
card or access card.
8.
Counting Machine
A counting machine is an electronic device used to count paper money at extremely high
speed. Money counting is one factor that delays banking services. With the emergence of the
counting machine, this delay has been greatly reduced. A counting machine looks somehow
like a large calculator. It has split that enables it pick paper money one by one but at a very
high speed. The counting machine can be used to ascertain the number of notes from a
bundle.
9.
Teleconferencing
Teleconferencing is the linking of two or more locations by using a transmission media. With
teleconferencing facilities, banks can conduct meetings without the physical presence of the
individual involved. Teleconferencing technology could either be audio conferencing or
video conferencing. Visual conferencing is more expensive but it has the ability to send both
audio and visual transmission, marketing conferencing as real as possible.
10.
Electronic Visa Payment System (E-VISA)
This is another e-based solution that allows embassies to process documents and payments.
Features / Benefits include:
Fast track processing of visa applications.
Convenient payment of visa fees through the web.
Less queues at Embassies/High commissions.
Efficient visa administration procedure.
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Portal supports the following electronic payment platforms: Master card, Nigerian Debit card;
E-transact card.
11.
Master Card
The master card is a credit card denominated in dollars. It is global payment instrument
which is recognized and accepted in over 210 countries and territories.
Two years card validity.
Flexible on multi-currency purchase.
Secured and accepted in over 210 countries and territories.
Open to customers and non-customers.
On-line monthly statement.
SMS alert on all card transactions.
A convenience card for shopping around the world.
24 hours access to funds, without the need for cash or cheque.
An easy way to track spending with detailed listing of every purchase on monthly
statement, clearly indicating date, time and location.
Accepted at all location with the Master Card acceptance (over 210 countries
worldwide).
It allows for internet shopping on the web (online purchase).
12.
Maestro Card
The maestro is a debit card anchored on the master card brand. It is denominated both in
Naira and Dollar. The local currency variant is the first to be issued in Nigeria. It is an on-line
debit card that account holders have 24 hours access to accounts via Terminals, ATMs and
the internet.
13.
Value Card
Value card is an electronic purse in the form of a plastic card with a built-in microchip that
allows the cardholder to store money on the card rather than carry cash.
Features /Benefits include:
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Widely accepted in a wide range of outlets across the country and used to pay for visa
and related fees at designated embassies.
Convenience as it eliminates the risks of carrying cash. Safe and secured as it can only
be assessed with a 4 digit personal identification number (PIN) which is only known
to the holder.
Enables the loading / storing of large sums of money since N16.7 million can be
loaded and stored on the card at once.
14.
E-Ticketing (Electronic Ticket)
This is a paperless electronic document used for ticketing passengers in the airline industry.
Reduces booking expenses by eliminating the need for printing and mailing of paper
documents.
Loss of documents/wrong mailing of documents eliminated.
15.
Security Access Control Collection
Banks run free collection services via electronic and physical cash receivership. The
collection integrates customers access control codes, spy ware, blue-tooth, smartcard, mark
stripe cards to their up run devices.
16.
Port Management Services
This is an e-payment solution designed to enhance collection of levies and payments at the
ports. It is all encompassing software that will allow all forms of payments.
17.
Money Transfer
I-Cash Local Money Transfer

I-Cash is the banks local money transfer aimed at eliminating the difficulties of quick money
remittances for urgent needs. The product is open to customers and non-customers of the
bank.
Customers are paid cash only.
Customers receive monies from designated branches already advised by sender.
Beneficiary presents identification as advised by sender before payment.
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Sender gives a test question/answer as additional security.

Speed of availability Money can be controlled within minutes at the receiving
branch.
Large network of branches. The sender has various choices of where money can be
cashed.
Simplicity: The process of sending and collecting cash is simple.
ReliabilityThe beneficiary is sure of collecting his money from designed branch.
No fee payment by beneficiary.
18.
Western Union Money Transfer
Banks offers a Western Union Money Transfer service and international money transfer
product with the worlds largest network. It is available in over 200 countries with over
210,000 agent locations worldwide.
-
Funds are paid within minutes of receiving instruction from abroad.
Beneficiaries can receive their money in dollar or naira as directed by the sender.
Adequate security to verify the identity of beneficiary.
Flexible and easy to collect.
No fee payment by beneficiary.
Funds can be received in any of the branches of a bank nationwide.
Sender gives a test question/answer as additional security.
You dont need to be an account holder to be a beneficiary of Western Union

Transactions from the bank.
Beneficiaries without accounts can open accounts with the proceeds of their transfer.
Dollars received in the banking halls can easily be converted to naira at competitive
rates from the bureau-de-change in the banking hall.
19.
Domiciliary Extra Accounting (DEA)
This is a product packaged to guarantee a high yield on investment by customers while at the
same time providing comfort and hedging against exchange rate volatility.
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Minimum amount of USD50,000 or equivalent in EURO.
Minimum tenor of 90 days.
Attractive interest rate (ranging between 1 4%).
Allows for lodgements / withdrawals in cash / transfer (subject to prevailing exchange
control regulations).
Certificates can be used as collateral for loan.
Personalized executive and advisory services.
IMPORTANCE OF ICT FOR BANKING SERVICES

Many writers concur with the fact that ICT applications are indispensable instruments of
banking nowadays. This importance is recognized worldwide and huge sums of money have
been invested in acquisition, deployment and maintenance of ICT by banks. Lunardi (2002)
equally observe that banks in Latin America increased their investments in ICT to sixty
percent (60%) between 1999 and 2003. Likewise, Caldwell (1998) observes that for several
years beginning from 1995, the annual expenditure on the upgrading of ICT and introduction
of new services in Australia was one billion, nine hundred and fifty million dollars ($1.950
billion). The import of all these lend credence to the fact that ICT has become an integral part
of banking services, whether in product or service offering, delivering channels or internal
management.
Goldfinder (1998) observes that ICT penetration in banking services is a ceaseless process of
change. ICT started as an administrative back-office function support. It moved to the front
office to facilitate contacts with customers and to support financial transactions. According to
him, the entire process can be divided into four (4) stages:
1.
Back Office Automation: When the key motivation is to reduce transaction cost
and administrative overhead.
2.
Front Office Automation: When personnel dealing with external parties

(customers or other financial institutions) were able to access centrally-held
information.
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3.
Bring Customers On-line: When customers gain direct access to their accounts
in the core processing and accounting function.
4.
An Integrated System: Where various elements of ICT are brought together to

provide a complete picture of customers relationships and banks position.
ICT has profoundly influence the nature of money and monetary systems. Some believe that
information technology has made more difficult the conduct of monetary policy and
supervision of financial institutions by blurring distinctions between various category of
money and financial account savings investment, and demand deposits (Goldfinger, 1998;
and Oluyemi, 2001).
CONCEPT OF CORPORATE PERFORMANCE

Evaluations of corporate practices invariably use the notion of corporate performance. Akin
to corporate performance are a number of semantically related terms, such as corporate
health, success, efficiency, effectiveness, productivity or excellence. Some authors use the
terms interchangeably often ostensibly in order to overcome terminological confusion. Others
come up with additional labels such as organization or corporate goodness. Whichever term
is adopted the end result is the same because there is no difference between them. The terms
are the same and they are accepted as such.
FINANCIAL/ECONOMIC PERFORMANCE MEASURES

Students examining performance effects of strategic decision use predominantly financial /
economic goals to be the only ultimate organizational goals (Venkatraman and Ramanujan,
1986; Zahrly and Reuning Elliot, 1994). Performance is usually accessed with accountingbased measures (e.g. profitability measures such as return on assets, return on investment,
return on sales, return on equity, market-based measures - e.g. price-earnings ratio). In
general, there is no much agreement on which specific measures to employ for the
assessment of financial / economic performance. Hubbard and Bromiley (1995) found that
researchers as well as practitioners employ highly diverse financial performance measures.
However, accounting based criteria are common in performance evaluations. At the same
time, such accounting based measures have been subject to considerable amount of critics.
However, the convergence of accounting and market-based performance measures seems to
depend on time and context factors.
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OPERATIONAL PERFORMANCE
In addition to financial performance criteria, Venkatraman and Ramanujam (1986) propose
operational performance measures such as market share, new product introduction,
product/service quality and marketing effectiveness. Comparable approaches are the balanced
scored (Kaplan and Norton 1992) or the business model approaches (Meyer and Gupta,
1994), which include financial as well as operational criteria relating to value for customer,
innovation and internal business improvement. These models promote the linking of data
from several financial and operational measures in order to see if improvement in one area
has been achieved at the expense of another.
CONCEPT OF BUSINESS PROCESS REENGINEERING

Hammer (1990) defined BPR as the fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in critical measures of performance cost,
quality, capital service and speed.
According to Laudon (2001), competitions among companies oblige them to employ the new
technologies for improving productivity level of their resources. Productivity growth directs
companies increase market share. Business process reengineering has been adopted by many
firms in an effort to improve their competitive position and enhance their ability to produce
customer satisfaction and delight (Ahmad, 2008).
Nowadays, demands of customers change continually, and strong competition makes
companies retain their customers and delight them. So, hierarchy structures do not fulfil
companies competitive requirements anymore (Laudon, 2001) and organisational
modification is necessary for companies to stay in the competitive market.
Laudon (2001) concluded that radical changes are the main characteristics of BPR to alter
organizational structures from duty orientation to business process approach. Therefore
reengineering is one of the important necessities for companies to fortify their situation in the
market.
BPR involves the fundamental redesign of a business process. It has been called the new
industrial engineering in contrast to the old Taylorian industrial engineering based on task
decomposition and specialization (Grover 1994). BPR could involve a change in the way the
process is organized, the roles of the participants involved in the process, elimination of steps
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in the process or a change in their temporal sequence. In its purest sense BPR initiatives
should start with a clean slate (Grover et al, 1994).
In figure 1, the schematic form of BPR has been shown.
Figure 1: BPR Schematic

The BPR analysis task typically consists of the following:
1.
Collecting data on the existing process.
2.
Breaking the existing process down into activities.
3.
Capturing expenses, staff and materials information for each activity.
4.
Capturing the sequence and timing of the several activities.
5.
Capturing information flow and material flow through the process.
IMPACT OF ICT INVESTMENTS ON CORPORATE PERFORMANCE

Literature is replete on business value of ICT. The central issue is whether the tremendous
amount of ICT capital invested has had any impact on the performance of the investing firms.
However, in this review the intention is not to give details of prior work, rather, an attempt to
discuss key findings as well as the major hurdles researchers and practitioners face in this
area.
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Prior research on ICT in the banking services sector falls into one of the following two
categories namely; descriptive analyses of the use of ICT and the value it generates, and,
measurement of the business value of ICT.
The first category is primarily based on case studies at the firm or industry level and offers
useful insights about significant issues. While research in the second category i.e. research on
the measurement of ICT on business value consist of studies on the impact of specific
technologies and that of the overall use of ICT.
One of the studies in the first category is that conducted by Weill (1992). He classified ICT
into three categories based on the management goals supported by the system. The study of
the valve manufacturing sector identified significant productivity gains due to transactional
ICT, but did not find any positive impacts for strategic or informational (ICT infrastructure)
systems. Still another study by Brynjolfsson and Hitt (1993) used firm level data on three
hundred and eighty (380) large firms for the period from 1987 to 1991 to measure the ICT
impact. This study found that ICT had made a substantial and statistically significant
contribution to firm output. Thus, so far, empirical findings reported in the literature on
impact of ICT investment at firm or industry level, are mixed.
In the second category, Steiner and Teixeira (1990) drew on a wealth of experience with
many of the large American banks in McKinsey and Companys financial services consulting
practice and presented arguments about why ICT investments in the major lines of the
commercial banking business create value for banking customers, but destroy profitability for
the firms that service them.
In the case of Nigeria, very little empirical research has examined ICT impact on corporate
performance. One of such limited studies was conducted by Idowu (2002) on the effect of
ICT on the growth of the banking industry in Nigeria. This study assesses the perception of
banking customers on the quality of banking services using a questionnaire survey. The study
sampled five commercial banks namely; Wema Bank Plc, Union Bank, Omega Bank,
Corporative and Access Bank. It examines one major issue; impact of ICT on bank services
but in three different perspectives namely effect of ICT on banking services, effect of ICT on
customer services and on bank productivity measured in term of speed of operation. It
concludes that ICT has contributed immensely to growth of the banking industry in Nigeria.
The second study is that conducted by Oyeyinka (1996) on ICT in the finance sector. It
examines the adoption of computers in Nigerian banks with specific reference to the specific
110
ways computer is affecting the organisation of work and constraints to its adoption. The study
covered twenty financial institutions comprising of twelve commercial banks, five merchant
banks, one development bank and two mortgage institutions. Although the study did not set
out to evaluate productivity gains, it concludes that given the enthusiastic adoption of
computers by Nigerian banks, the perceived benefits may have outweighed the costs of
adoption.
These few studies undertaken to determine the impact of ICT in banking in Nigeria indicate
that there is paucity of literature on impact of ICT on corporate performance in the banking
sector. Besides, the ones available have not been specific on financial performance. Thus, this
present study fills this gap in the literature, particularly with respect to bank performance
within the Nigerian context. Though the study looks at the impact of ICT at the firm level, it
takes a very broad perspective because it includes various banks in terms of size, age, and
geographical spread among other variables.
RESEARCH METHODOLOGY
The paper employed a combination of questionnaire and observation to collect information
from the staff and customers of banks to evaluate the influence of ICT related problems on
the performance of Nigerian financial institutions. The paper equally used secondary
information such as annual statements of accounts of the sampled banks, Nigerian Deposit
Insurance Commission (NDIC) and Central Bank of Nigeria (CBN) publications to determine
the performance of the banks via such performance measures as net income (the dependent
variable) against the various investments of banks, which include ICT investment,
investments in non ICT labour and other investments for a period of ten years (1998 to 2007).
The first level of analysis aims at establishing the relationships stated in the first hypotheses
of the paper. For this purpose the paper employed parametric statistics to establish the needed
relationship. In particular, the paper used multiple regression analysis. The multiple
regression analysis was done with the aid of Statistical Package for Social Science (SPSS)
version 15.0. In the following hypothesis there is a regression equation needed to establish
the relationship;
Hypothesis 1: ICT applications and investments do not contribute significantly to the
profitability of Nigerian banks.
To test this relationship, the following regression equation is stated:
111
Netincomt = a + i Annuictvestt + 2AnnuOpercostt + 3Annuvestossett + i

Where:
a
Intercept
Netincomt
Corporate performance at time t measured by Net income.
Annuictvest
Annual ICT Investment
AnnuOpercost
Annual Operating Costs
Annuvestosset
Annual Investment on other Assets
Error level
In the second level of analysis, the paper used descriptive statistics to present the summary of
data collected from the responding banks. It also used descriptive statistics to analyse the
data. However, the paper subsequently proceeds to test the second hypothesis stated earlier
with the aid of non-parametric statistics such as Chi-square. The following hypothesis was
tested in that manner:
Hypothesis 2: Information and Communication Technology related problems do not have
significant relationship with the performance of Nigerian Banks.
Results and Discussions of Findings
The following tables represent the results of the regression equation.
Table 1:
Regression results on ICT contribution to Banks performance
Model
Standardized
Coefficients T
Un-standardized Coefficients
B
1 (Constant) 1533646367.075
Std. Error
Beta
1048528385.486
Sig.
Co-linearity
Statistics
Tolerance VIF
Std.
Error
1.463
.194
ICTI
1.520
1.643
.259
.925
.390 .316 3.160
O.I
1.325
.516
.704
2.570
.042 .330 3.029
OP.C
-.586
1.463
-.066
-.401
.702 .905 1.105
Source: Multiple Regression Results through SPSS 15
112
The information on Table 1 presents a picture of ICT contribution to bank performance in

Nigeria. In general, it is apparent that ICT investments have some contributions to banks
performance. The significance level for ICT from Table 1 above is 39%. By implication, we
accept the null hypothesis and reject the alternative hypothesis, thereby implying that
Information and Communication Technology (ICT) investments has no significant
contribution to the profitability of Nigerian banks.
The significant level is 39% as against 5% level chosen.
The results equally revealed that at 5% significant level, the significant level of other
investments on net income is 4.2% .Since this is less than the 5% level chosen, it implies that,
investments in other assets (i.e. other than ICT) have significant contribution to the
performance of Nigerian banks. Also, at 5% level of significance chosen, the operating costs
as regressed on net income showed a significance of 70.2%. This is higher than 5% chosen,
implying that operating costs has no significant contribution to the performance of Nigerian
banks, measured in terms of profitability (i.e. income).
The Variable Inflation Factor as revealed in Table 1 is 19.4%, meaning that there is colinearity between the unexplained variable and some of the independent variables.
Table2: Regression results on R, R square and Durbin Watson Tests
Model
R
Square
Adjusted
R Square
R Square F
Change
Change
Df1
.923(a)
.777
.851
Std. Error of the

Estimate
Change Statistics
DurbinWatson
df2
R
Sig. F Square
Change Change
F
Change
df1
Df2
1224241879.04546
.851
.007 1.982
11.454
Sig. F
Change

The information on Table 2 represents the results of R, R square and Durbin Watson tests. R
Test shows a result of 0.92 implying a strong correlation between dependent variable and
independent variable, R2 test revealed that 0.851 of the changes in net income is as a result of
ICT investments, other investments and operating costs. Durbin Watson test result is 1.982,
meaning that there is no auto correlation.
113
Table 3: Regression results on ANOVA

Model
Sum of Squares
1
Regression 5149960879314
1600000.000
Df
Mean Square
Sig.
17166536264380550000.000
11.454
.007(a)
1498768178408768000.000
Residual
8992609070452
610000.000
Total
6049221786359
4200000.000

ANOVA test whether there is regression at all. The result in Table 3 above shows a
significant level of 0.007 or 0.7%, implying that there is regression.
The Chi-square values were computed from the information and it surmises that ICT-related
problems have significant relationship with the performance of Nigerian Banks.
FINDINGS
It was discovered that ICT investments and applications do not contribute significantly to
banks performance in Nigeria. The types of ICT applications that are designed to contribute
to performance are front office applications. These types include telecommunications, online
banking, electronic fund transfer, smart cards, telephone banking, home banking, and ATMs,
among others. These types of ICT applications are directed at improving bank-customer
relationships. However, the study revealed that ICT related problems affects the ability of
Nigerian banks from taking full advantage of these ICT facilities.
It was discovered by the study that ICT applications such as , data processing from computer
terminal, computer terminal access, facsimile systems, electronic filing system and computer
with voice dictation input do not contribute significantly to banks performance, because
proper synchronization has not been made between these various ICT facilities and the
potentials in them.
It was discovered that other investments, which include: short-terms funds, short-terms
investments, loans and leases, cash and interest bearing deposits with other banks contribute
significantly to the profitability of Nigerian banks.
114
Investment on non ICT labour and other related costs have been found not to have significant
impact on banks performance. This is because the huge sums of money invested were not
commensurate with the returns, thereby reducing profitability.
Automated Teller Machine (ATM)-related problems have also been found by the study to
have significant relationship with banks profitability. This shows that ICT related problems
have not been efficiently handled by Nigerian banks. The seven most pressing ICT related
problems in Nigerian banks include: Lack of investment capital; Lack of maintenance culture
in the public network; Security threats; Inadequate ICT internal maintenance culture; Lack of
encouragement from the government on indigenous development of ICT facilities; lack of
ICT management knowledge and inadequate basic infrastructure. The reason for the problems
border on the fact that ICT usage by banks was not motivated internally through internal
dynamics of national ICT infrastructural development in the country rather an externally
induced process. For instance infrastructural facilities were not laid when ICT adoption
became popular among banks in the 90s. Nigeria did not have ICT policy until the year 2000
and the countrys telecommunication network was dominated by NITEL until the late 1990s
when telecommunication sector was deregulated.
CONCLUSIONS
Based on the findings above, the following conclusions emerge:
Nigerian banks currently use ICT as source of competitive advantage and not as strategic
necessity to improve profitability. This stems from the fact that they are yet to derive
maximum benefits from the use of ICT. Secondly, ICT use in Nigerian banks is significantly
constrained by ICT related problems and lastly, the effective usage of ICT to significantly
improve performance requires a complementary investment in Business process reengineering (BPR).
RECOMMENDATIONS
The following recommendations which are likely solutions to improve on the performance of
banks on the effective use of ICT are the following:
a) The Nigerian banks need to integrate all types of ICT into the main stream of banking
operations to maximally experience a positive impact on their performance. This can
be done by banks executives commitment to understanding how ICT management
115
can be developed internally. The current reliance on front office applications alone
will translate into serious problems in the future if proper synergy is not made
between the front office and other applications.
b) In order to obviate the problem relating to effective use of ICT as a performance
improvement strategy, there is need for mergers and consolidations among Nigerian
banks. Consolidation that does not take cognizance of the strategy imperative of ICT
as a source of performance and competitive advantage only reduces the scope of
banking in the future. If properly considered, a maximum of twenty banks in Nigeria
is sufficient in order to take advantage of ICT effectively. Twenty mega banks
certainly will have the wherewithal to completely leverage the use of ICT. This is
because their large asset base will guarantee the ability to overcome most, if not all of
the ICT related problems. In addition, they will be able to acquire latest ICT
applications as well as the knowledge to manage ICT effectively. The cumulative
effect is that Nigerian banks will be placed at the level of international standard in
terms of both ICT applications and the use of ICT as a source of improving
performance.
c) The government needs to encourage indigenous development and manufacture of
computer hardware, software and other ICT applications in order to reduce the cost of
importing these applications. Policies should be made to control importation of ICT
equipment so that the indigenous manufacturers will have the opportunity to use
innovative and creative skills to develop ICT facilities that will be cost effective as
well as perfect quality of indigenous ICT applications. This will help stimulate
domestic competition in the manufacture of ICT applications and equipment and as
such will not only obviate the high cost associated with the importation of these
equipment but will also lead to improvement in the quality of domestic manufacture.
This will go a long way in reducing the pressure on our foreign exchange and will
generally improve our balance of trade problems and other related macroeconomic
problems.
d) Infrastructural facilities are imperative for banks to take advantage of ICT. The
current state of infrastructural facilities in Nigeria is appalling. Though government
has made efforts in improving Electricity and Telecommunications services in
Nigeria, the efforts have not yielded any significant positive results. While many
banks have resulted to the use of VSAT and alternative power supply, these
116
alternatives only add to the mounting cost of banking operations and by extension
affecting the profits of the banks. In addition, the lack of these infrastructural facilities
discourages the use of credit cards in the banking sectors of the Nigerian economy.
This is because the use of credit cards depends on very stable power supply and
dependable network. For the country to have a proper and functional cashless
economy there must be concurrent use of both debit and credit cards and the only way
this can be realised is through the improvement in the infrastructural facilities of the
network and power supply. This will not only improve the use of ICT by banks but it
will lead to complete cashless economy with externalities of reduced bank robberies
among others.
e) Banks need to train staff in the maintenance of ICT applications internally. High cost
of regular maintenance coming from outside would be reduced drastically if there is
very good internal maintenance culture. This will go a long way in saving the profits
of the banks being eroded as a result of high cost of maintenance of ICT applications
externally.
f) Banks should be aware that without complimentary investment on business process
reengineering, the opportunity currently made available by ICT applications may
change to threat. Therefore, Nigerian banks should provide appropriate infrastructures
in order to reengineer the business processes and stabilize and support the positive
contribution of ICT in profitability.
g) Banks should implement security measures that make use of biometrics. Biometric
security is a fast growing area of computer security. These are security measures
provided by computer devices that measure physical traits that make each individual
unique. These include, voice verification, finger prints, hand geometry, signature
dynamics, keystroke analysis, retina scanning, face recognition and genetic pattern
analysis. Biometric control devices use special purpose sensors to measure and
digitize a biometric profile of an individuals fingerprints, voice or other physical
traits. The digitized signal is processed and compared with a previously processed
profile of individual stored on magnetic disc. If the profiles match, the individual is
allowed entry into a computer network and given access to secure system resources;
and which could equally reduce fraudulent act by the staff and customers.
117
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