ABSTRACT
This research examined the the role of banks in financing small scale enterprises in Nigeria. The survey research was used in this study to sample the opinion of respondents. This method involved random selection of respondents who were administered with questionnaires. Relevant conceptual, theoretical and empirical literature was reviewed. The target population of the study comprised selected staffs and owner of small-scale enterprises in Nigeria. The questionnaire administered was three hundred and ten (310) copies and three hundred copies (300) retrieved which constitute the sample size. The descriptive and analytical approach was adopted using Chi-square to test and analyze the hypotheses earlier stated.The result revealed that there is a significant the role of bank on the growth of small-scale enterprises development in Nigeria. The finding of the study also reveals that weak capital base is one of the challenges encountered by banks industry in Nigeria. The findings of the study also reveal that there is a significant relationship between small-scale enterprises and the economic growth of Nigeria. The finding of the study also reveals that the challenge of ethics and professionalism is one of the challenges encountered by banks industry in Nigeria. The findings of the study reveal that revenue and profitability is one of the characteristics of Small and Medium Size Enterprises in Nigeria. It was therefore concluded that banks significantly play a roleon financing small scale enterprises in Nigeria. It was recommended that monetary Authorities should endeavour to remove bottlenecks involved in the process of granting banking credit facility to SME’s as this would encourage easy accessibility of loans and other incentives that will improve SME financing and subsequently, economic growth
CHAPTER ONE
INTRODUCTION
Small and Medium scale enterprises are significant employment sources in the United States as more than half of the total human capital get employed through them. They also account for two-thirds of the European Union's aggregate human resources (Takats, 2004). Small and Medium scale enterprises (SMEs) are akin to an automatic instrument used in moving the engine of an economy forward to bring about growth and development (Oladele et al., 2014). According to Ghandi and Amissah (2014), SMEs' global relevance is vividly clear, positioning them as a fulcrum for economic growth and promoting private sector development. Beyond Nigeria, small and medium scale enterprises are types of businesses involved in numerous pursuits. These businesses include the construction of local agricultural tools, ownership of bars, automobile mechanics, tailors, transporters, iron manufacturers, internet cafés, washmen, and software development, to mention but a few. On the local scene, a vast number of SMEs resides in the private sector and constitutes over ninety percent of businesses in the Federal Republic of Nigeria and accredited to be responsible for over 50% of jobs generated.
National Statistics available for developing economies shows that SMEs possess varied contribution to economic growth depending on individual economic structure. Finance has been identified as one of the significant factors determining SMEs' survival and growth in developing and developed countries by many business surveys, and such research has come to stay (World Bank, 2019). However, it has been empirically proven that lack of financing has been identified as one impediment to SMEs' growth in Nigeria (Ikpor et al. 2017). The scarcity of capital impedes SMEs' capacity in resolving macroeconomic challenges, and not being able to access adequate funds from financial agencies is a significant challenge. Adequate funding is key to SMEs playing an active role in the host economy and small businesses’ ability to access funds remains a subject of interest to business owners, researchers, government parastatals, commercial banks, and trade groups, to mention but a few.
In Nigeria, commercial banks do not consider SMEs' financial needs due to information asymmetries leading to an adverse selection process, hence, favouritism towards large firms (Afolabi, 2013). This development makes financing the main compelling factor to SMEs' growth, thereby hindering their ability to contribute more significantly to the Nigerian economy. Information made available by the Central Bank of Nigeria (2018) shows that as of 1999, deposit-money bank loan to small businesses was over 46 billion naira. Later, it decreased to about 12 billion naira and remained at that level up to 2017. Therefore, many small businesses in Nigeria have relied continuously on the fund realized internally, which increasingly became inadequate due to frequent exchange rate devaluation, rising consumer price index, and grinding poverty, thereby limiting SMEs' growth and their contribution to the economy. The Nigeriangovernment has established several credit facilities and other support arrangements to finance SMEs. However, most of the funds are channelled through commercial banks who, for some reason or reasons, are not able to make such funds available to SMEs in a reasonable time limit. As a result of this development, SMEs’ expected contribution to economic growth, employment creation, and poverty reduction is hampered.
Small and Medium Scale Enterprises, typically risk-assessed by organizations that make funds available as the ‘’lower end’’ of the credit market, often face intolerance from formal credit vendors. The aforementioned emanates in strict credit control and high riskinstalment charges, even if they secure credit. The oppressive situation emanates from their inability to promise the traditional advocate securities such as; land, mortgages, sterling shares, or other high-grade bonds to back up credit proposals (CBN 2007). This is why government alternative financial arrangements and funds have been developed over the years in Nigeria compared to other developing countries. Financing is not the only challenge making the SME sector less attractive, certainly, it is the most daunting. It is appreciated that SMEs are high-risk businesses and lack acceptable collateral securities such as trade-able securities, first-class mortgages, and high-grade bonds.
The small-scale industry is seen as a key to Nigeria’s growth and alleviation of poverty and unemployment in the country. Therefore, promotion of such enterprises in developing economies like Nigeria is of paramount importance since it brings about a great distribution of income and wealth, development of indigenous technology, speed up the rate of social economic development, economic self-dependence, entrepreneurial development, employment and a host of other positive economic uplifting factors (Aremu 2004). A small-scale enterprise is a business that is not large, in terms of its size, scope of operation, financial involvement and the workforce involved. Most small-scale enterprises are owned by one entrepreneur. Sometimes a small-scale enterprise is said to be a firm that is independently owned and operated and which is not dominant in its field of operation. In general, we should recognize that a small-scale business must have few employees, limited capital investment and small-scale operation (Nicholas, 1997). As far as the development of the rural and urban areas in Nigeria is concerned, the role of small-scale enterprises cannot be under-estimated. The present administration realizes the importance of these small-scale ventures hence the various policies being put in place to encourage their growth. The small-scale businesses have the potentiality to reduce the rate of unemployment in Nigeria and thus to contribute to the Gross Domestic Product (GDP) and economic growth of the nation (Oshagbemi, 1983). The industrialized nations which have attained technological advancement today owe their present position to the establishment of small-scale industries in the past. The small-scale businesses served as pivot for technological take off and self-reliance. In the commercial world, there are numerous kinds of business undertakings. This varies from private enterprises to public corporations. A small-scale enterprise is defined as a business which is independent, small in size and often localized. Most smallscale businesses are operated by private individuals or group of individuals (Onuoha, 1944).
However, several studies have been carried out to identify the drivers of small-scale businesses growth in Nigeria and abroad (Forgha, Sama, &Aquilas, 2016). The outcomes from these studies (both theoretical and empirical) have severally identified financial intermediation as one of the catalyst for small scale businesses growth. Financial intermediation is the process whereby financial service providers like banks pull funds from the public as deposits and transform them into loanable funds (Agbada&Osuji, 2013). This implies that the intermediation process help turns deposit liabilities from surplus economic units to bank’s major interest earner, loans and advances to the deficit units of the small-scale businesses.
Deposit money banks are profit seeking institutions that mobilizes savings from various surplus spending units in the economy and provide financial services for the purpose of making money for their stockholders. Their capital usually comes from private investors, corporate entities and other highly regulated institutions that maintain strict financial discipline in the attainment of their goals. The mobilized funds are usually channeled to the deficit sectors of the economy at a fee after ensuring that adequate polices are put in place to analyze the proposal before the facility can be availed to the client. One of the areas into which funds are channeled is the small and medium scale enterprises in Nigeria. The analysis of the contribution of deposit money banks to small scale enterprises have stem debate and growing interest among researchers, policy makers and entrepreneurs, recognizing the immense contribution of the subsector to economic growth. The relative importance of small-scale enterprise in advanced and developing countries has led and would continue to lead reconsideration of the role of smallscale enterprises in the economy of nations. The development of many countries is often measured by such indices as the level of industrialization, modernization, urbanization, gainful and meaningful employment for all those who are able and willing to work, income per capital, equitable distribution of income and the welfare and quality of life enjoyed by the citizenry. The small-scale industry is seen as a key to Nigeria’s growth and alleviation of poverty and unemployment in the country. Therefore, promotion of such enterprises in developing economies like Nigeria is of paramount importance since it brings about a great distribution of income and wealth, development of indigenous technology, speed up the rate of social economic development, economic self-dependence, entrepreneurial development, employment and a host of other positive economic uplifting factors (Aremu 2004). Specifically, finance literature has shown that the availability of financial factors goes a long way in determining the sustainable development of small-scale businesses. That is, the availability and access to funds for investment is an integral element in stimulating small scale growth in any economy (Sanusi, 2002). Consequently, the will of progress of every economy is hinged on the financial system. The financial system help enhance the production capacity of a nation outwards. Thus, efficient mobilization of funds and access to credit are sine qua non to kick-start the small-scale businesses that will lead to economic growth of a nation.
In Nigeria, it is argued that small and medium scale enterprise (SMEs) often experience difficulty in accessing banking credit due to the assumed risk exhibited by the weak or new ones, absence of collateral to support credit, their remote area of operation and relatively small size of loan required. Consequently, business transaction costs are relatively high and the addition of the cost of the loan makes it exorbitantly too high for them to allow a reasonable return on investment. The State of Nigeria economy today with regards to unemployment has made it necessary for entrepreneurship to be embraced and encouraged by the populace. The major problem of the people is finance i.e. lack of capital. From what we see in our Nigeria environment, a lot of small businesses continue to remain small even where opportunities for expansion exist. Despite the availability of commercial and other banks that are willing to come to the aid of entrepreneurs who engage in small scale businesses, there seem to be a lot of such entrepreneurs that do not know how to approach the banks and utilize available opportunities.
According to Osuala, (1993), small scale indigenous businesses were in existence before modern marketing developed in Nigeria. These small-scale businesses were however not as predominant or demanding in their operational activities as is evident today. The state of Nigeria’s economy today with regards to unemployment has made it necessary for entrepreneurship to be embraced by the populace. The major problem of the Nigerian people is finance i.e., lack of capital. From what we see in our Nigerian environment, a lot of small businesses continue to remain small even where opportunities for expansion exist. Despite the availability of commercial and other banks that are willing to come to the aid of entrepreneurs who engage in small scale businesses, there seem to be a lot of such entrepreneurs. Based on these, this study is designed to reassess the impact of financial intermediation in influencing and sustaining small scale businesses growth in Nigeria. The aim of this study is to ascertain the role of banks on financing the growth of small scale businesses in Nigeria.
Lack of education on the part of SME owners and inadequate facilities in agricultural, purchasing and supply sector has been a big challenge to SME’s (Ukwuagu 2002). Onwuka (2015) saw the problem facing SMEs as inadequate funding on the part of the commercial banks and other financial institutions and poor management on the part of small business owners. On the other hand, government has failed to provide stable macro-economic environment and adequate physical infrastructural facilities to the SMEs. Having known all these, the study embark on identifying the various problems faced by SMEs in the procurement of loans from commercial banks, the contribution of commercial banks to SMEs as well as the contribution of SMEs towards the growth and development of Nigeria’s economy. These and many other reasons prompted the researcher to embark on the course to study the role of the banks in financing small and medium enterprises in Nigeria.
The main aim of this study is to examine the role of banks in financing small scale enterprises in Nigeria. Other specific objectives of the study include;
The following questions were derived to give the present study a direction;
The hypothesis that will guide through this research is:
Hypothesis One
H0: There is no significant role of banks on on the growth of small-scale enterprises development in Nigeria.
H1:There is asignificant role of banks on on the growth of small-scale enterprises development in Nigeria
Hypothesis Two
H0: There is no significant relationship betweenbetween small-scale enterprises and the economic growth of Nigeria.
H1: There is no significant relationship betweenbetween small-scale enterprises and the economic growth of Nigeria
The result of this study will be of immense benefit to the banks. It will help the commercial banks recognize the role SMEs play in the economy and when to provide them with enough fund so as not to hinder the growth and development of the economy.
Through this study, the small business owners will be able to recognize the best or appropriate means to procure loans and be educated on the various ways loans can be obtained and the equivalent collateral to give in exchange for loan.
Also, the study will enable the government to know the necessary areas to improve in terms of funding to small businesses and the areas of SMEs that needs enlightenment through programmes and seminars etc.
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.
Lastly, the study will also serve as a guide to any person(s) carrying out a similar research work.
This study is limited role of banks in financing small scale enterprises in Nigeria.
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 in spite 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 onthe need of the study. They insisted that some of the required information were confidential and should not be released.
Commercial Banks: Commercial bank as a financial institution that is authorized by law to receive money from businesses and individuals and lend money to them.
Small Scale Enterprises:According to Yakubu (2010) small scale enterprise are privately owned corporations, partnerships or sole proprietorships that have fewer employees and or less annual revenue than regular sized business or corporation.
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