The Role of Financial Risk Assessment in SME Sustainability in Nigeria: A Study of Small Businesses in Ogun State
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Background of the Study
Financial risk assessment is a critical component of business sustainability, enabling enterprises to identify potential threats to their financial stability and develop strategies to mitigate them. In Ogun State, a region with a vibrant SME sector, financial risks such as credit defaults, liquidity issues, and interest rate fluctuations pose significant challenges (Adekunle & Femi, 2024).
Despite the potential benefits of financial risk assessment, many SMEs in Ogun State lack the expertise or tools necessary to conduct comprehensive assessments. This often results in unanticipated financial challenges and, in some cases, business closure. Exploring the role of financial risk assessment in SME sustainability can provide valuable insights into enhancing their resilience and long-term success (Olusegun & Adebayo, 2025).
Statement of the Problem
SMEs in Ogun State often face financial challenges due to inadequate risk assessment practices. The lack of proactive identification and management of financial risks undermines their sustainability and growth potential. This study seeks to examine how financial risk assessment practices influence SME sustainability and to identify ways to improve these practices.
Objectives of the Study
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To explore the role of financial risk assessment in SME sustainability in Ogun State.
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To identify barriers to effective financial risk assessment among SMEs.
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To propose strategies for improving financial risk assessment practices in SMEs.
Research Questions
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What is the role of financial risk assessment in SME sustainability in Ogun State?
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What barriers hinder effective financial risk assessment among SMEs?
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What strategies can improve financial risk assessment practices in SMEs?
Research Hypotheses
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H₀: Financial risk assessment does not significantly influence SME sustainability in Ogun State.
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H₀: Barriers to financial risk assessment do not significantly impact SME performance.
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H₀: Strategies for improving financial risk assessment do not significantly enhance SME sustainability.
Scope and Limitations of the Study
This study focuses on small businesses in Ogun State and their financial risk assessment practices. It excludes larger enterprises and SMEs outside Ogun State. Limitations include variations in financial risk types and potential reluctance of SMEs to share financial data.
Definitions of Terms
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Financial Risk Assessment: The process of evaluating potential financial threats to an organization and determining appropriate mitigation measures.
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SME Sustainability: The ability of small and medium-sized enterprises to maintain operations and growth over the long term.
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Ogun State: A Nigerian state with a robust SME presence.
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