The critical causes on why financing small and medium scale industries by commercial banks in Nigeria have not been very effective were evaluated. Not only are the SMEs starved with financial back-up, they are also faced with other external problems such as high interest rates, inconsistency in government industrial policies, lack of infrastructural facilities and internally; poor management practices, high rate of business failure, poor accounting standards, shortage of skilled manpower and financial indiscipline.
In view of these numerous problems, this research work was conducted so as to come out with solutions as this will pave way for banks to have more confidence in financing these SMEs efficiently and effectively as against hitherto, their stringent lending policies and the risk averse behaviour of funding. This has become necessary as it is a well know fact that the survival, growth and development of SMEs of any country depend largely on funding with other factors put in place.
In the light of the findings in this research work, some recommendations and suggestions were made to the government, commercial banks and the small and medium scale entrepreneurs themselves which if implemented will not only sustain the survival, growth and development of this sector, it will also provide employment opportunities and improve the economy situation of Nigeria.
TABLE OF CONTENT
Title page i
Table of content vi
1.0 Introduction 1
1.1 Background of the study 1
1.2 Statement of the problem 2
1.3 Objective of the study 2
1.4 Formulated of the study 2
1.5 Justification of the Study 3
1.6 Research Methodology 3
1.7 Scope of the Study 4
1.8 Limitation of the Study 4
1.9 Definition of Term 5
2.0 Literature Review and Theoretical Framework 6
2.1 Introduction 6
3.1 Introduction 13
3.2 Research Design 13
3.3 Research Instrument 13
4.0 Presentation and Analysis of Data 16
4.1 Introduction 16
4.2 Presentation of Data 16
4.3 Testing of Hypothesis 22
5.0 Summary, Conclusion and Recommendation 24
5.1 Summary 24
5.2 Conclusion 24
5.3 Recommendation 25
TEST BOOKS 28
For both developing and developed countries, small and medium scale firms play important roles in the process of industrialization and economic growth.
All small scale enterprises are established purposely to achieve stated goals and objectives of the establishment. The development of a nation to a great extent depends on the stability of its economy. The establishment of small scale enterprises is usually acknowledge as the engine of economic growth and fast means of underdevelopment economics. In recent times, there has been tremendous increase in the establishment of small scale enterprises worldwide.
Nigeria, like many developing countries of the world has began to realize the important role of small scale business play in the development of a sound industrial base for any nation. The increase awareness of the fact that small scale enterprises, like self-Reliance Economic Advancement programme (SEAP), constitute the major tool for developing the economy of every nation precipitated great concern by the three levels of government (Federal, State and Local Government). The role performed by small scale enterprises in Nigeria includes the provision of employment opportunities, contribution to the Gross Domestic Product (GDP), utilization of local materials, which encourages self-reliance mobilization of idle capital towards development of urban and rural sector. A small scale enterprises includes restaurant, services, bakery, block industry, barbing, medicine or chemist store, barbing and hair dressing saloon among others.
Structural adjustment (SAP) which was introduced in (1987) aimed at effective altering and restricting the production patterns of the economy as well as eliminating price distortion, heavy dependence on the export of crude oil and importation.
Nigeria government established some banking and financial institution to help facilitate the implementation of the economic programme. Among these institution were the Nigerian Bank for Commerce and Industry (NBCI), the Nigerian Industrial Development Bank (NIDB), also The People’s Bank of Nigeria (PBN) and Community Bank established to provide funds for small and medium scale enterprises witnessed slow growth rate because of the uncooperative attitude of our financial institutions through bureaucratic red-tapism which tend to make borrowing difficulty due to certing stringent requirement. Moreover, these institutions usually offer short-term business loans provided mainly working capital. Few industries succeed in utilizing these available opportunities to develop a sound financial base while many others are handicapped by financial constraints, ignorance of the usefulness of financial institution and difficulty in obtaining loans due to rigorous borrowing procedure.
1.2 Statement of the Problem
One of the main obligation of commercial Bank in Nigeria and else where in the maximum contribution to the economic development of the nation. Others are maximum profitability owned to the depositors. This research work will concentrate on the maximum contribution to the economic development of the nation, i.e. through financing SMEs by commercial banks. The analysis of the research problem with this pose some questions like. Do commercial banks finance small and medium scale enterprises adequately, if not what are the limitation.
1.3 Objective of the Study
Since the importance of SMEs forwards the development of any country’s economy, as already discussed in chapter one cannot be overemphasized, this write-up is aimed at achieving he following objectives:
- To highlight the different sources of finance avoidable to small and medium scale industries in Nigeria
- To examine the role of commercial banks in satisfying the financial needs of SMEs in Nigeria taking Union Bank of Nigeria Plc as a case study.
- To improve the financial assistance to the entrepreneurs by commercial banks
1.4 Formulation of Hypothesis
Hi: That financing small and medium scale enterprises by commercial banks has been a failure prizes by commercial bans has been a failure
Ho: That obtaining financial assistance by small and medium scale enterprises from commercial banks is very difficult and that most of the assistance is obtained through savings and borrowing from other sources.
1.5 Justification of the Study
In the modern times, industrial production requires the procurement of equipments, machineries and other inputs. The capitals required in procuring industrialists have access to it considering the type of collateral security required by the banks which must be fulfilled before granting loans. Since Commercial Banks act as intermediaries between scattered pockets of surplus and the business community desirous of loans for investment at the end of this research work the following will be attained;
- SMEs Industrial list will be able to known same sources of financial and choose amongst them the best
- Commercial banks will know how effective and efficient they have been towards economy development.
1.6 Research Methodology
As it is fully aware, the significance, reliability and validity of any research work to a great extent depends on the methodology used. There are two methods of data collection; the primary and secondary methods. The primary method consist of structural questionnaire and personal interview, while the secondary method include published government documents and journals, periodicals notable from central bank of Nigerians’ Publications like Bulletins financial and economic review textbooks ,magazines, budget speech and so on be. This research work will not be exceptional.
- There will be two sets of questionnaires: one set will be for same top management and employees of UBN PLC. The other set will go to some small land medium scale industrialist through the chairman of NASSIS.
- There will also be personal interview with some staff in the credit department of CBN, PLC and also some skill of industrial development centre.
- There secondary method will also be consulted as this will give room to obtaining financial data easily. Also data will be obtained form manuals, reports and handbooks of UBN, Plc. IDC inductive.
1.7 Scope of the Study
This research work is intended to examine the financing of SMEs by commercial banks with emphasis on UBN, Plc. As seen in the earlier part of this chapter the importance of SMEs towards economic development of a nation cannot be overemphasized the study covers all kinds of industries, production, processing, servicing, e.t.c.
1.8 Limitations of the Study
One of the major limitations is carrying out their work is time. There is time constraint is carrying out this research work due to the face that there are other academic engagements like attending, lectures, writing, assignment, test e.t.c. Another limitation of this study is tat only UBN, Plc is used. The operation in this bank will certainly not represent. The genuine situation obtainable in other banks. This can be as a result of differ policies or the financial capabilities in lending. However, UBN, plc is chosen because of its financial banking and thus represents commercial banks that can fulfill their obligations as seen in the earlier part of this chapter.
1.9 Definition of Terms
- Small and Medium Scale Industries (Enterprises) SME: Small and medium scale enterprises are defined as those enterprises with fixed assets other than loan but including the cost of new investments not exceeding #36Million.
- Entrepreneur: This can be defied as a person who set and start his own new and small business enterprises
- Economic Growth: This is defined as a sustained increase in a nation’s gross national income per capital over a long time period.
- Economic Development: This is defined as the structural transformation of all the economic indexes form a low to the high strata.
- Financing: This is the process of sourcing for fund or acquisition of funds for financial purpose
- Capital: This can be defined as wealth or property in form of money or property, sometimes the basic sum in an investment enterprise.
- Collateral Security: Property or something valuable which is used as guarantee that someone will pay such a landed property, insurance policy e.t.c which the bank is authorized to take in the event of a customer defaulting in the loan agreement.
- Loan: The sum of money borrowed at an agreed rate of interest. It can be of long term or short term.
- Overdraft: This is a financial assistance granted by way of allowing customers withdraw in excess of the balance in their accounts.
- Assets: Resources or things of value owned by an economic nit, such as a firm, Individual or household as cash property and right to property