Role of Commercial Banks in the Performance of Small and Medium Scale Enterprise in Nigeria (a Case Study of First Bank Plc)
Chapter One
Research objectives
General Objective
The general objective of the study was to assess the contribution of commercial banks to the performance of small and medium scale enterprise in Nigeria.
Specific Objective
- To determine the relationship between credit determinant factors and Entrepreneur’ profitability.
- To examine the credit determinant factors effecting Entrepreneur’ profitability.
- To explore the challenges facing the SMEs towards
CHAPTER TWO
LITERATURE REVIEW
Theoretical Literature Review
The Concept of Small and Micro Enterprises
According to allbusiness.com (2010), the abbreviation SMEs occurs commonly in the European Union and in International Organizations such as the World Bank, the United Nations and the World Trade Organization. Also the term Small and Medium Scale Businesses (SMEs) is predominantly used in the United States of America. The European Union states traditionally have their own definition of what constitutes SMEs. For instance, the traditional definition in Germany Limits Small and Medium Scale Enterprises to two hundred and fifty (250) employees while in Belgium, it is limited to one hundred (100) employees. Recently, the European Union has standardize the concept by categorizing enterprises with less than ten (10) employees as ‘micro’, those with fewer than fifty (50) employees as ‘Small’ and those with fewer than two hundred and fifty (250) employees as “medium”. In the United States of America, any business with fewer than one hundred (100) employees is classified as “small” while medium scale business refers to a business with fewer than five hundred (500) employees (Oni, 2021).
In India, Micro and Small Enterprises play a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector account for about 39% of the manufacturing output and about 33% of the total export of the country. Also in South Africa, the term Small, Medium and Micro Enterprises (SMMEs) is usually used, while in Nigeria, the term Small and Medium Scale Enterprises (SMEs) is generally used. From the foregoing, it can be deduced that Small and Medium Scale Enterprises are enterprises that have the capacity to employ at most five hundred (500) employees at a time and it has been proved to be the back bone of every economy. The brain behind every successful Small and Medium Scale Enterprise is entrepreneurship which in the words of Olagunju (2004) is an undertaking in which one is involved in the task of creating and managing an enterprise for a purpose. The purpose as further stated may be personal, social or developmental. One who is involved in this task is called an entrepreneur. Also a line between an entrepreneur and business owners must be drawn. While business owners establish and manage their own enterprise for personal gains, entrepreneurs exploit ideas that create a business that benefit them, the society and act as developmental weapon (Berry et al, 2002).
The UNIDO defines SMEs in terms of number of employees by giving different classifications for industrialized and developing countries. The definition for industrialized countries is given as follows; a) Large – firms with 500 or more workers; b) Medium – firms with 100-499 workers; c) Small – firms with 99 or less workers and the classification given for developing countries is as follows; a) Large – firms with 100 or more workers; b) Medium – firms with 20-99 workers; c) Small – firms with 5-19 workers; d) Micro – firms with less than 5 workers (UNIDO, 1999). It is clear from the various definitions that there is not a general consensus over what constitutes the SME (Ayyagari et al, 2006). Definitions vary across industries and also across countries. It is important now to examine definitions of entrepreneurship given in the context of Europe, Ghana and South Africa.
As presented in the Recommendation 2003/361/EC in Europe, the category of micro, small and medium-sized enterprises (SMEs) is made up of enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding 50 million euro, and/or an annual balance sheet total not exceeding 43 million euro. To check if an entity is an SME the first step is to verify if it is an enterprise and if it fits to the following three criteria: staff headcount, annual turnover and annual balance sheet total. The main categories of entrepreneurship, based on their relations with other enterprises are autonomous – by far the most common category – a partner or linked enterprises. The calculations for each of the three types of enterprise are different and will ultimately determine whether the enterprise meets the various ceilings established in the SME definition and later if or not benefits of special financing programs, created both by the European Union and by national governments (European Commission, 2003). The ceilings apply to the figures for individual firms only. A firm which is part of larger grouping may need to include employee/turnover/balance sheet data from that grouping too. The main factors determining whether a company is an SME are: number of employees and either turnover or balance sheet total.
In Ghana, there have been various definitions given for small-scale enterprises but the most commonly used criterion is the number of employees of the enterprise (Kayanula and Quartey, 2000). In applying this definition, confusion often arises in respect of the arbitrariness and cut off points used by the various official sources. In its Industrial Statistics, the Ghana Statistical Service (GSS) considers firms with fewer than 10 employees as small-scale enterprises and their counterparts with more than 10 employees as medium and large-sized enterprises. Ironically, the GSS in its national accounts considered companies with up to 9 employees as SMEs (Kayanula and Quartey, 2000). In defining small-scale enterprises in Ghana, Steel and Webster (1991), and Osei et al, (1993) used an employment cut-off point of 30 employees. Osei et al (1993), however, classified small-scale enterprises into three categories. These are: (i) micro – employing less than 6 people; (ii) very small – employing 6-9 people; (iii) small – between 10 and 29 employees. A more recent definition is the one given by the Regional Project on Enterprise Development Ghana manufacturing survey paper. The survey report classified firms into: (i) micro enterprise, less than 5 employees; (ii) small enterprise, 5 – 29 employees; (iii) medium enterprise, 30 – 99 employees; (iv) large enterprise, 100 and more employees.
In South Africa, the most widely used framework is the definition of the National Small Business Act 102 of 1996, which defines five categories of businesses. The definition uses the number of employees (the most common mode of definition) per enterprise size category combined with the annual turnover categories, the gross assets excluding fixed property. The definitions for the various enterprise categories are given as follows; a) Survivalist enterprise: The income generated is less than the minimum income standard or the poverty line. This category is considered pre- entrepreneurial, and includes hawkers, vendors and subsistence farmers. (In practice, survivalist enterprises are often categorised as part of the micro-enterprise sector); b) Micro enterprise: The turnover is less than the VAT registration limit (that is, R150 000 per year). These enterprises usually lack formality in terms of registration. They include, for example, spaza shops, minibus taxis and household industries. They employ no more than 5 people; c) Very small enterprise: These are enterprises employing fewer than 10 paid employees, except mining, electricity, manufacturing and construction sectors, in which the figure is 20 employees. These enterprises operate in the formal market and have access to technology; d) Small enterprise: The upper limit is 50 employees.
Small enterprises are generally more established than very small enterprises and exhibit more complex business practices; e) Medium enterprise: The maximum number of employees is 100, or 200 for the mining, electricity, manufacturing and construction sectors. These enterprises are often characterized by the decentralisation of power to an additional management layer (Berry et al., 2002). The National Small Business Act’s definitions of the different categories of business may be summarized as set out in Table 2.2 below.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
Case study research design was used. This involves collecting empirical data, generally from only one or a small number of cases. It provides rich details about those cases of a predominantly qualitative nature. A case study generally aims to provide insight into a particular situation and often stresses the experiences and interpretations involved in the study. It uses direct observation to give a complete snapshot of a case that is studied. It is useful when not much is known about a phenomenon (Saunder et al, 2003). With this design, the researcher is able to interview the respondents and obtain background records and administers questionnaires to acquire quantifiable data on the subject.
Sampling Procedures
Purposive sampling
A non probability sampling was employed by which purposive sampling method was to select the targeted UBA banks as it offers credit facilities including loan to entrepreneurs considered in this study.
Snowball/Referral sampling
Snow ball/referral sampling was utilized to identify respondents who meet the criteria as SME owners and through this method 85 SMEs were obtained. The reason behind its justification is that the first respondents who accessed the loan helped the researcher to identify others whom they knew did the same until the researcher collected sufficient data from them (Bailey, 1989).
CHAPTER FOUR
DATA ANALYSIS AND RESULT PRESENTATION
Demographic Characteristics of Respondents
This study intended to collect data from male and female as well as married and unmarried as respondents. Also the study intended to look on the age of respondents and their education level. The characteristics of respondents were involved to reveal the relationship of these characteristics on engaging in SMEs undertakings. Based on the study results, the greater number 80% of respondents were males. This result is in line with other studies which reporting that failure rates for female owned firms are higher than those of males. The tendency has handicapped by limited to access to finance, stringent collateral requirements and women’s double duties (Riding and Swift, 1990; Evans, 2000).
The results from the study in Table 4.1 show that 90.6% of the respondents were married. This result is in line with the report Uttaro (2002) that married individuals are more likely to engage into entrepreneurs than unmarried respondents. Also the result has supported by study carried by Dessalegn (2008) which shows that married respondents had more relatively networks and better access to entrepreneurship than unmarried. Impliedly the results depicting that married respondents demanding to engage in SMEs more than unmarried respondents. This could be to the fact that married respondents has more family responsibility the fact force them in one way or another to increase their income towards meeting their family responsibilities.
CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS
Conclusions
The analyses of the socio-economic characteristics of the respondents depicts that majority of entrepreneurs were in the middle age hence, can be active engage in SMEs undertakings. Also the study revealed that, the level of literacy was very high among the respondents as about 70.6% of total respondents had secondary level education. This education is considered a good base for adopting and implementing new innovations easily.
Furthermore, the findings of this study revealed that, the amount of loan provided by UBA bank has both significant relationship and contribution to profits gained annually by SMEs. Although business management trainings would contribute higher income gains, this study revealed insignificant contribution regardless of a maximum of four trainings offered per year to most of entrepreneurship. Shortages in human resources development, bank financial restrictive regulations particularly on rates and collateral also lack of market information were areas reported to hamper SMEs towards profitability. No matter how long an enterprise had been in business, entrepreneurial skills were still a problem to more profit generation.
Recommendations
Based on study findings this study recommends that;
- In order to ensure higher profits, the bank should provide higher amounts ofloan to entrepreneurs with low interest
- Business management trainings should be regularly provided to cope with the changing business situations, but more importantly should be relevant to the firms an enterprise
- SMEs should employ well trained and skilled personnel or consider the costsof human resource development (trainings) in their general operation costs for more entrepreneurial skills as well as customer care. This will contribute to more gains as new items will be produced and will create an attractive environment to
- Since loan is the only facility to profit, the commercial bank should relax itsrestrictive regulations which may discourage borrowing and offering more credit facilities for SMEs in Anambra
- Itis important for small business owners to seek and maintain good relationships with credit providers like banks and other financial institutions. Adding to this is the importance of small firms not only considering loans as to increase equity, but also they should be ready to opt for selling equity or part ownership of the business. This will improve the issue of in-access to finances and capital
- SMEs owners need to seek first an adequate knowledge of business beforeengaging into doing any kind of business idea they have. Small business owners can do this by enrolling into training programmes and courses on business administration conducted by various educational institutions.
- Thegovernment should invest in research and development so as to explore what can be done to improve the small firm’s situations either by looking into what other developing countries have done or by coming up with new This in general will help in improving the challenges faced by small businesses in the country
Recommendation for further research
This study focused on the assessment of the contribution of commercial banks to the performance of small and medium scale enterprise in Anambra State. Apart from this it observed the following relevant issues that need further research:
- Further research should assess the relationship between financial management practices and SME
- Further research should assess the contribution of social networking of entrepreneurship to venturing of new
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