An Evaluation of the Impact of Commercial Bank Lending on Small Scale Industries in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
- To examine the participation of commercial banks in financing small scale industries.
- To examine the term structure of loans and advance of commercial banks to small scale industries
- To identify the importance for small-scale industries financing to the commercial banks.
- To identify the cause of variability of small scale industrial financing by the commercial bank.
CHAPTER TWO
LITERATURE REVIEW
Introduction
Mamman and Aminu (2013) assessed the effect of 2004 banking reforms on loan financing of SMEs in Nigeria. A sample size of 500 was randomly chosen and chi-square test provided analysis on the survey data. The study indicated that there is no significant effect of 2004 banking reform on loan financing of SMEs in Nigeria and suggested that there are some constraints which restricted access to loans from the banks for SMEs in Nigeria. Aliyu and Bello (2013) examined the contribution of commercial banks to the growth of SMEs in Nigeria between 1980 to 2009. Using ratio analysis and trend analysis, it was discovered that commercial banks contribute to financing SMEs but their contribution has declined as the government through CBN directives abolished the mandatory bank’s credit allocations. Nwosa and Oseni (2013) examined the impact of banks loan to SMEs on manufacturing output in Nigeria for the period spanning 1992 to 2010. Employing error correction modeling technique, the study deduced that bank loans to the SME sector had significant impact on manufacturing output both in the long and short run. Omah, Duruwoju, Adeoye and Elegunde (2012) examined the impact of post-bank consolidation on the performance of SMEs in Nigeria, with special reference to Lagos State. A sample size of 50 was drawn from the supra-population of the study within Ikeja Local Government in Lagos State. Applying mean, standard deviation and coefficient of variation in its data analysis, the study revealed that SMEs do not have better access to finance through banks, due to neo-reorganisation in banks as a result of post-bank consolidation and SMEs do not have absolute rapport with the financial institutions due to their financial background in Nigeria. Ahiawodzi and Adade (2012) examined the effect of access to credit on the growth of SMEs in the Ho Municipality of Volta region of Ghana by using both survey and econometric methods. The survey involved a sample of 78 SMEs in the manufacturing sector. Both the survey and econometric results showed that access to credit exerts a significant positive effect on growth of SMEs in the Ho Municipality. Obamuyi (2011) compared the performance of loans granted to SMEs by banks with that of micro-credit institutions in Nigeria, using Ondo State as a case study. Analysing through descriptive statistics, the study revealed that the average repayment rate for banks was 92.93% and 34.06% for micro-credit schemes; hence, suggested that banks performed at much higher levels than micro-credit schemes. Chiou, Wu and Huang (2011) examined how diversified operations of banks impact their loans to SMEs by using panel data on 28 banks. The result indicated that as aggressive derivatives traders, the impact of its total assets on SMEs loans is positive at 1% significance level and credit guarantees positively impact SME loans at 1% significance level, implying that large banks are encouraged to make loans to SMEs through the assistance of the credit guarantees scheme.Amonoo, Acquah and Asmah (2003) established whether there is a relationship between interest rates and the demand for credit as well as interest rates and loan repayment by the poor and the SMEs in Ghana. The results showed a negative relationship between interest rates and demand for credits as well as interest rates and loan repayment. The study suggested that lowering interest rates would increase the poor and SMEs demand for credit and loan repayment at banks and non-bank institutions which can be achieved through the amendment of the fiscal policy by the government.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.
This study was carried to examine an evaluation of the impact of commercial bank lending on small scal
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain an evaluation of the impact of commercial bank lending on small scale industries in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of commercial bank lending on small scale industries in Nigeria
Summary
This study was on an evaluation of the impact of commercial bank lending on small scale industries in Nigeria. Three objectives were raised which included; To examine the participation of commercial banks in financing small scale industries, to examine the term structure of loans and advance of commercial banks to small scale industry, to identify the importance for small-scale industries financing to the commercial banks and to identify the cause of variability of small scale industrial financing by the commercial bank. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from first bank. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
This research work makes useful contribution to knowledge by appraising the various means of financing SMEs in Nigeria in comparison with financing in other lands or countries. It explicates the importance of SMEs to economic development. It gives a proper insight of what the banking sector entails of the economy. Banking sector globally are identified to be major key players in the financial industry that have positively affected individuals, business organization, other financial institution, the government and the economy at large through services they offer and the function they perform in the economy. Finally, despite the effectiveness of the sector, it still suffers some setbacks. This means that the banking sector and their activities still have a long way to go in providing new services for good customer relationship, better financing schemes and development in the Nigerian economy. This research work exanimate the contribution of commercial banks in financing small scale industries in Nigeria. A case study First bank of Nigeria plc small scale enterprises re regarded as an organic part of a viable structure for the attainment of meaningful economic development in developing economics like Nigeria. They bring about development than larger enterprises because of the perceived linkage and multipliers effects which the small scale industries have on the performance of the economy and economic growth in general. The optimism after years of persistent effort sing to achieve economic emancipation of the country by imported technology is that the only alternative is to adopt a more local and positive strategy. That best alternative industrialization strategy is the establishment and continues financial assistance to the small scale industries. In essence, if the described objective of using SME as catalysts of development is to be achieved, then the contribution of commercial banks should be mutually supportive
Recommendation
Having highlighted the problems and shortcomings of the small and medium enterprises (SMEs) in Nigeria, the following recommendations aimed at correcting and eliminating those constraints are put forward for consideration. In order to reduce the risk in small and medium enterprises (SMEs) lending, the central bank of Nigeria and the government must ensure that they keep on regulating properly their current initiative of requiring all commercial banks to set aside 10 percent of their profit before tax for equity investment in small and medium size enterprises. Rediscounting by the central bank of Nigeria (CBN) can sample possibility for encouraging commercial banks to gain experience in medium and long term building operation. A number of procedures can be adopted such as preferential discount rates, multiple discount rates or quotas favouring certain purposes. The banks themselves can ensure maximum risk of the loan losses by providing technical and managerial resources to various kinds of small enterprises customers. This would assist them in project preparation, implementation, financing and management. At the same time, small scale enterprises can avail themselves to such services provided by the government at the entrepreneurial development centre. In order to make credit available to SMEs sector, the banks and the government should make use of the rural banking program. The branches of each bank in the rural community should be given free hand to take certain decisions concerning advancement of these loans and advances to rural small scale enterprises. They should be able to act as ‘management consultants’ identifying problems and suggesting solutions. Banks would also need to be encouraged to find the working capital requirements of SMEs. In the face of limitations and inadequacies already enumerated in this project, small size enterprises are high risk for banks to lend. Consequently, part of the government programs for small enterprises would be to devise a means of providing incentives and management to banks to be able to freely lend to small enterprises. Central bank of Nigeria (CBN) should license more micro finance banks to be able to extend more loans to small and medium enterprises. We also recommend that SMEs should not base only in urban areas. This is because the numbers of small enterprises in urban areas are alarming and commercial banks cannot give loans to all. This is why they should be encouraged to reside more in rural areas i.e rural small enterprises should be encouraged. If this is achieved, the government should ensure that it provides more infrastructural facilities in rural areas so as not to discourage these small businesses in achieving their objectives. Finally, a major impediment to growth generally in Nigeria has been the state of economic and social infrastructure. This has been an over-flogged issue in the discussion of Nigeria’s economic development. Provision of necessary infrastructural facilities and the enabling environment for business operations generally is an imperative. Uninterrupted power supply, good roads and transportation networks, rural development, efficient, effective and cheap communications etc. are the basis to competitive performance of enterprises. Their provision will definitely reduce the funding needs of small enterprises as they would no longer require funds to provide electricity, water, telephone and other infrastructures on their own.
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