CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The insurance industry is a highly specialized industry that gives greater security to the fortunes of entrepreneurs and the whole society. It is one of the financial institutions in Nigeria today that could aid the growth of small and medium scale businesses. It is on this knowledge that Egeria (cited in Victor, 2013) describes insurance as handmade of commerce which plays a vital role in the going concern of humans (entrepreneurs) as an economic animal. Chikeleze and Echekoba (2008) defined insurance as a contract whereby one party, called the insurer, in return for a consideration, called the premium, undertakes to pay the other party, called the insured a sum of money or its equivalent in kind upon the happening of specified event that is contrary to the interest of the insured.
Insurance represents a promise of future compensation relating to specific losses in exchange for periodic payments. Insurers are similar to banks and capital markets as they solve the need of business units and private households in financial intermediation (Victor, 2013).
The contribution of insurance industry to an economy‘s growth and efficiency is not the only entry point into its role in business development. The contribution of insurance to poverty alleviation and the welfare of the poor is also potentially of considerable importance. And also, case studies and other qualitative evidence make a persuasive case that the potential social value of insurance provision to the growth of small and medium scale business warrants a great deal of more experimentation with business models and products to develop scaleable approaches that combine commercial and philanthropic elements (Subba Rao and Srinivasulu, 2013).
The small and medium scale businesses’ contributions to economic growth and development have been recognized globally, Nigeria inclusive. Ofoegbu, Akanbi and Joseph (2013) agree that SMEs are the panacea for the economic development of many developing countries including Nigeria. They believe that interest on SMEs would contribute to creation of jobs, reduction in income disparity, production of goods and services in the economy, as well as providing a fertile ground for skill development and acquisition, serve as a mechanism for backward integration and a vehicle for technological innovation and development especially in modifying and perfecting emerging technological breakthroughs. SMEs contribute to improved living standards bring about substantial local capital formation and achieve high level of productivity and capability. SMEs are recognized as the principal means of achieving equitable and sustainable industrial diversification and dispersal.