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THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURIAL DEVELOPMENT

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RESEARCH INFORMATION

[icon type=”icon-pencil”]: THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURIAL DEVELOPMENT
[icon type=”icon-book”]: Chapter 1 – 5
[icon type=”icon-book-open”]: 78 Pages
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Keywords:THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURIAL DEVELOPMENT


RESEARCH BODY

ABSTRACT

The subject matter of this research work is to evaluate the extent to which Small Scale entrepreneurs in Enugu have been able to obtain loans and raise finance from Nigerian Commercial Banks as a major source of finance to the economy. The main objective of the study is to establish the role of Commercial Banks in financing Small Scale Enterprises (SSEs) in Enugu

.A review of literature was done to ensure the conclusion of the study. Based on the analysis, Commercial Banks comply with the Central Bank of Nigeria (CBN) credit guidelines which stipulated that they should set aside 10% of their profit before tax for loan to Small Scale Enterprises (SSEs).Commercial Banks require feasibility report from SSEs before granting loan to them. Small Scale Enterprises do not provide proper feasibility studies due to poor level of education. The research concluded that for small scale enterprises to survive, there have to be a collective effort between them and banks. Also the government should engage more in the development of Small Scale Enterprises by creating and embarking on various incentives to encourage both Small Scale Enterprises and commercial banks.

TABLE OF CONTENTS

 CHAPTER ONE:INTRODUCTION

1.1Background of the study

1.2 Statement of the Problem

1.3 Objectives of the Study

1.4 Research Question

1.5 Hypotheses

1.6 significance of the Study

1.7 Limitations of the Study

1.8 Definition of terms

  CHAPTER TWO:  REVIEW OF RELATED LITERATURE

2.1 The meaning of Small Scale Enterprises

2.2 Roles and Importance of Small Scale Enterprises (SSEs)

2.3 Funding Needs and sources of Funds For Small Scale Enterprises (SSEs)

2.4 The predominance of Small Scale Enterprises In Nigeria

2.5 Problems facing Small Scale Enterprises in Nigeria

2.6 Commercial Banks financing Small Scale Enterprises

Under the New Central Bank of Nigeria (CBN) Directive and its likely impact

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY

3.1 Population of the Study

3.2 Determination of Sample Size

3.3 Instruments of Sample Size

3.3.1 Primary Data

3.3.2 Secondary Data

3.4 Method of Data Collection

3.4.1 Questionnaire Administration

3.4.2 Interview Method

3.5 Method of Data Presentation

 CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation-Primary Data

4.2 Presentation of Questionnaire Results in Percentages

4.3 Statistical Tools

4.4 Testing of Hypotheses

 CHAPTER FIVE: SUMMARY OF FINDINGS,CONCLUSIONS AND RECOMMENDATIONS

5.1 Summary of Findings

5.2 Conclusion

5.3 Recommendations

5.4 Suggestions for Further Research

Bibliography

Appendices

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

 The post-independence Nigerian government adopted the entrepreneurship government which constrained it to assume the role of entrepreneur and the urge to offset the economic neglect of the colonial government and that resulted in engaging in ambitious industrialization programmes.

When the Nigerian industrial Development Bank Limited (NIDB) was established in 1964 for the purpose of speeding up the industrialization process, its mandate was to promote industrial projects which were large enough to make applicable contribution to the national economy.  However, the collapse of the oil boom in the early 1980’s exposed the inherent weaknesses of this importation of inputs resulted in large  idle  capacities, thereby creeping many gross domestic product (GDP) declined in the face of the strong national aspiration for the restructuring of the economy and reduction of the dependence on petroleum. Small and medium scale enterprises have since become the focus of national industrial policy.

In pursuit of self-reliance in a developing country particularly in Nigeria, the central government enacted a decree called “Enterprises promotion Decree” when there was need for small scale enterprises in the promotion of economic development.  This has since been at the fore front of   development strategies.

However, many developing countries have failed to adopt these strategies owing to their belief that it is a relatively slow process of industrialization. Without the development of small scale enterprises in Nigeria, the nation’s quest for industrialization will certainly remain forever at a slow pace.  It is the humble opinion of the researcher that further development on our business enterprises must add to the basic issue of creating linkage within the economy to begin to yield real inputs to our economic activities. Priority attention must therefore be given to those business enterprises for which domestic inputs could easily be produced.  The objective should be to maximize the value added in their processing and manufacturing as final strong producer incentives to small scale enterprises are necessary not only to meet the food requirement but also to promote growing input supplier industrial growth.

The present economy constraints may well turn out to be a blessing in disguise to our small scale industry effort particularly for the dynamic manufacturing sector. For instance, the market determined exchange rate through Foreign Exchange Market with its resultant high cost of imported inputs may serve as an impetus for industrialist to intensify their search for loan substitute.

In 1971, the government of then East Central State statutorily enacted an edit establishing an office which was hitherto a sub-system of the ministry of commerce and industry to be known as fund for small scale industries Credit Scheme (FUSSI) to give credits to prospective investors to enable them establish, thus helping the country towards industrialization.

As at 1996 and 1999 respectively, banks’ loans and advances to small scale enterprises rose from ₦42,302.1 to ₦46,824.00 million.  However the very slow rate of growth of the industrial sector, the inability of the sector to adequately provide and satisfy the needs of the economy, the over-dependence of the nation at large on foreign goods, pose a necessary course for concern. The means for helping small scale enterprises to acquire the much needed finance form the background of this research.

1.2 STATEMENT OF THE PROBLEM

There is dearth of financial institutions which cater for long and medium term credit needs of businesses operating in the economy. Small scale enterprises are no exceptions to these, and they suffer a great deal for want of capital for development and expansion of the economic survival of the country. It cannot be over emphasized that they have moved from the subsistence level of pre-indigenization period to a position of importance in the country’s   industrialization process.

In an attempt to modernize many small scale enterprises, their standard of operation has moved into the capital intensive stage.  The need in many cases is beyond the financial capability of the entrepreneurs who set up the business.  The major alternative for the provision of such capital is the financial institutions and among the financial institutions operating in the country, commercial banks are the major sources of credit to the various sectors of the economy.

However, it is common knowledge that getting financial support from commercial banks has been grossly inadequate for budding indigenous entrepreneurs and even for those who have been in the manufacturing business for a long term. Three types of credit are usually required by   small scale enterprises.  They include:

  1. Short Term Loan: This type of credit is used to finance yearly operation until the product or proceeds from the industry are sold. The amount which is involved in this type of credit is usually small but lack of this type of credit is most accurately felt by small scale entrepreneurs who have little or no saving upon which to withdraw as they are mostly beginners.
  2. Medium Term Loan: This type of loan is for more than one year maturity period but not exceeding three to five years. This loan is mostly required for acquisition of inexpensive equipment with relatively short life span.
  3. Long Term Loan: This type of credit is necessary for acquisition of major industrial machines, improvement in industrial equipment, building and land: It is a type of loan that the maturity period is for quite a longer duration.

Small  scale  enterprises  therefore  can  be  a  powerful  instrument  in  bringing  about  a  revolution  in  industrial  practices  and  in  firms  productivity  especially  if  supplied  in  sufficient  quantity  and  used  effectively.

The  study  therefore  identifies  small  scale   entrepreneurial  financing  by  commercial  banks as a major role to entrepreneurial  development  because  finance  is  just  one  of  the major factors  of  production.

1.3 OBJECTIVES  OF  THE  STUDY

               In  view  of  the  above  problem  of  small  scale  entrepreneurship,  the  overall  objectives  of  this  study  is  to  evaluate  the  role  of  commercial  banks  in  financing  small  scale  enterprises  in  Enugu.

The specific objectives are:

  1. To evaluate  the  extent  to  which  small  scale  enterprises  in  Enugu  have  been  able  to  obtain  loans  and  advances  from  Nigerian  Commercial  Banks,  as  major   source  of  finance  to  the
  2. To ascertain the problems facing Commercial banks in financing small scale enterprises in Nigeria.
  • To identify problems  encountered  by  small  scale  enterprises  in  obtaining  funds  from  commercial
  • To determine the viability  in  small  scale  enterprises  financing  by  commercial
  1. To appraise  and  evaluate  the  situation  and  make  recommendations  on  how  to  improve  on  commercial  bank  provision  of  finance  to  small  scale

1.4      RESEARCH QUESTION

  1. To what extent can small scale enterprises obtain loans and advances from Nigerian Commercial Banks?
  1. What are the problems facing commercial banks in financing small scale enterprises in Nigeria?
  1. What are the problems facing small scale enterprises in obtaining funds from commercial banks?
  2. How viable is small scale enterprises financing by commercial banks?
  3. How can commercial bank’s provision of finance to small scale enterprises be improved upon?

1.5      HYPOTHESES

The hypotheses to be tested include:

Ho1:  United  Bank  for  Africa  (UBA)  does  not  comply  with  the  Central  Bank  of  Nigeria  Credit  Guidelines as it affects lending to small scale enterprises.

Ho2:  Union Bank of Nigeria Plc. does  not  comply  with  the  Central  Bank  of  Nigeria  Credit  Guidelines as it affects lending to small scale enterprises. When commercial banks are not willing to comply with the credit guidelines of the central bank, it will be a hindrance for any institution to obtain loans or advances from the bank.

1.6 SIGNIFICANCE OF THE STUDY

During the 1960’s and early 1970’s most Nigerians engaged in industrial project did so on subsistence level but now emphasis has shifted to the sophisticated and capital intensive enterprises. Annual policies of the Federal Ministry of Nigeria in recent years have been to ensure that commercial banks provide needed capital to small scale enterprises to help improve their present state. The study therefore sets out to ascertain the extent to which commercial banks have performed the role and the findings will help make recommendations and suggestions for future improvement of the present situation.

1.7 LIMITATION OF THE STUDY

In view  of  the  current  emphasis  on  industrialization  of  the  country  in  order  to  reduce  the  country’s  import  bill  from  foreign  countries,  the  study  focuses  attention  on  the  evaluation  of  the ability of small scale entrepreneurs to  obtain  loans   from  the  commercial  banks  to  attain  the  needed level of productivity of their enterprises.  The  research  covers  selected  small  scale  entrepreneurs  in  Enugu  State. For the period of three weeks.

Some  of  the  difficulties  encountered  by  the  researcher  were  the  unco-operative  attitudes  of  many  of  the  banks’  officials  approached  and  some  of  the  small  scale  entrepreneurs  who  misconstrued  the  essence  of  the  study.

Another  problem  is  that  of  lack  of  time  on  the  side  of  respondents  to  answer  the questionnaires in  details coupled with the  high  fare  of  public  transportation.  This  greatly  increased  the  cost  of  production  and  limited  the  scope  of  areas  covered  by  this  study.  Also  difficulties  were  encountered  in  collecting  data  from  the  banks  used  as  case  study.  Some  of  the  questions  in  the  questionnaire  were  not  answered  inspite  of  the  university’s  inscription on  the  questionnaire  and  the  letter  of  authorization  by  the  head  of  department  attached  to  it  as  well  as  the  detailed  explanations  given  to  them  on  the  need  of  the  study.  They  insisted  that  some  of  the  required  information  were  confidential  and  should  not  be  released.

1.8   DEFINITION  OF  TERMS

  • Small Scale Enterprises

As  defined  in  the  Nigerian  context,  following  the  current  official  definition  of  industrial  enterprises  adopted  by  the  13th  meeting  of  the  National  Council  on  Industry  (NCI)  Markudi,  Benue  State  in  July,  2001  as  “an  enterprise  with  total  capital  employed  of  over  ₦1.50m  but  not  more  than  ₦50m,  including  working  capital  but  excluding  cost  of  land  and  or  labour  size  of  11-100  workers.

  • Short term  credit

This type  of  credit  is  a  credit  or  loan  that  has  maturity  period  that  is less or more than one year. E.g.  Personal loan.

  • Medium term  credit

This  is  a  type  of  credit  or  loan  that  has  a  maturity  period  of  more  than  one  year  but  not  exceeding  two  years  to  be  repaid  back.  E.g. loan required for temporary business requirement.

  • Long term  credit

This  type  of  credit  matures  in  more  than  three  years  and   above.  It  has  a  very  long  maturity  period  as  agreed  by  the  lender  and  the  borrower.  E.g. are business development loans and Bridging loans.

Keywords: THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURIAL DEVELOPMENT



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Keywords: THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURIAL DEVELOPMENT