Role of Money Deposit Banks in Financing Small Scale Business
Chapter One
PURPOSE OF THE STUDY
A study into the impact and contribution of commercial banks in financing small-scale businesses in Nigeria is important. Given the contribution commercial banks make to the development growth of any nation’s economy, the specific aims and objectives of this research hopes to address issues as:
To examine the impact and contribution of commercial banks in financing small-scale business Nigeria
To explore further ways of supporting small-scale business in Nigeria
Identify the major obstacle militating against the development of small-scale business in Nigeria.
Objective of the Study
The main objective of the study is to examine the role of deposit money banks in financing small scale enterprises in Nigeria. Other specific objectives are:
- To highlight the different sources of finance available to small scale enterprises;
- To examine the role of deposit money banks in satisfying the financial needs of SMEs in Nigeria;
- To examine method to reduce formality needed for financing the entrepreneurs by deposit money banks.
CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter is the review of related literature; this is where the researcher review concepts and theories to give clear understanding of the subject and to see through the tested results.
Conceptual Framework
Concept of SMEs
The term Small and Medium Scale Enterprises (SMEs) has no generally established definition. Musa (2013) noted that definition and criteria for classification of an enterprise as small, medium or large varies from one country to another, depending on whether it is developed or developing country. A small business for example to one country may be a large-scale business to another. SMEs in Nigeria, as defined by Small and Medium Industries Equity Investment Scheme (SMIEIS), are enterprises with a total capital employed not less than N1.5 million, but not exceeding N200 million, including working capital, but excluding cost of land and/or with a staff strength of not less than 10 and not more than 300.
The 1992 Review by the National Council on Industrial Standards have defined Small and SMEs as enterprises with total cost of (including working capital but excluding cost of land) above 31 million but not exceeding 50 million with a labour size of between 11 and 100 employees. Bamidele (2012) postulated that SMEs are usually small own or family managed business with its goods and services being basic and also SMEs also tend to lack the organization and management structure, which characterize large-scale entrepreneur (LSE) and Urban SMEs tend to be more structured than their rural counterpart. Aluko (2007) defines SMEs as those enterprises employing up to fifty (50) workers or less than excluding household enterprise. Small business is a business that is privately owned and operated with a small number of employees and relatively low volume of sales. Small-scale businesses are normally owned corporation, partnerships or sole proprietorship. The legal definition of ”small” varies historically, by country and by industry but generally has fewer than 100 employees.
Kadiri (2012) established that SMEs serves as a catalyst for employment generation, national growth, poverty reduction and economic development. SMEs world over can boast of being the major employers of labour if compared to the major industries including the multinationals. Oluba (2014) summarized the contribution of SMEs to an economy, especially developing ones as: Greater utilization of raw materials, employment generation, encourage of rural development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self-employment and provision of opportunity for training managers and semi-skilled workers.
Kadiri (2012) noted that past efforts at providing solution to unemployment problem facing developing nations of the world are often faced with stiff opposition sometime right from beginning. Examining the contributions of small and medium scale enterprises to employment generation in Nigeria using the Binomial Logistic Regression Analysis the result revealed that the sector was unable to achieve this goal due to its inability to obtain adequate business finance for the sector. It was observed that virtually all the SMEs that were sampled relied on the informal sources of finance to start their business. As a way out, the study suggests the need for the integration of the activities of the formal with that of the informal financial institutions. However, acknowledging the role of commercial bank credit in an economy various banking reformed has been established by the monetary authority in Nigeria in enhancing credit accessibility. The overall intentions of these reforms have been to ensure financial stability so as to influence the growth of the economy and also enhance bank to play critical role of financial intermediation in provision and accessibility of credit in the Nigerian economy.
Dada (2014) noted that the consistently repeated complaint of SMEs about their problem regarding access to finance is highly relevant constraint that endangers the development of the sector in Nigeria and investigating the effect of commercial banks’ credit on SMEs development employing Ordinary Least Square (OLS) technique to estimate the multiple regression models.
CHAPTER THREE
RESEARCH METHODOGY
Sources of Data
Both primary and secondary sources of data were adhered to on the course of this study and the attitude and responses of those interviewed were noted.
Primary Sources of Data
The primary sources of data are the sampling or study unit from which information is obtained on a first hand basis. It is very important to note here that the researcher did not adopt any rigid method in the collection of data; rather the data for the research were collected in response to the requirements of the research problem. Creativity and judgment also played a vital role at this stage of the project, bearing in mind the final judgment will be partly constrained be the type and value of information collected. The primary data were gathered from the following sources:
- Oral interview: Personal interviews were conducted in addition to the questionnaires which were duly administered. The information obtained through the oral interview was use in cross checking the responses to the questionnaire. It either affirmed or disproved the data collected.
- Unstructured interviews: Unstructured interviews were also collected out through informal discussions with various staff members at different levels of operations.
- Actual field investigation: The researcher was privileged to see the annual reports in order to fully comprehend their performance as well as its reporting style.
Secondary Sources of Data
Library and internet materials provided the bulk of the secondary research data collected by the researcher. These resource materials were used to review extensively the facts and the reporting components of UBA Nigeria Plc. For the purpose of obtaining these secondary data the following academic libraries and website were used:
CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND DISCUSSION
Data analysis, findings and discussion
In this chapter, the data collected from questionnaire are presented, analysed and tabulated. Ninety questionnaires were prepared and distributed to the respondent drawn from lower, senior and management staff of UBA of Nigeria.
The analysis were carried out using simple percentage method, the hypothesis will be analyse using the chi-square based on the analysis of the relevant questions.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Summary
The general objective of this study was to analyze the role of deposit money banks in financing small scale enterprises in Nigeria a case study of UBA Nigeria. Other specific objectives were to; highlight the different sources of finance available to small scale enterprises, examine the role of deposit money banks in satisfying the financial needs of SMEs in Nigeria and examine method to reduce formality needed for financing the entrepreneurs by deposit money banks.
Simple random sampling was used to select target individual from each stratum. The complete questionnaires were collected serially, coded and analyzed sequentially a cording to the research questions. In this research work, the rule of the thumb was used for this research where 90 employees of total population were selected as the sample size. The chi-square (X2) statistical was employed in testing hypothesis. The chi-square (X2) is a sample statistical measure used in testing hypothesis concerning the signification of any difference between a set of observed frequency (o) of a sample and a corresponding set of expected of theoretical frequency (e).
The study reveals that they have needed advice on certain issues or information concerning your organization. It was also revealed that they keep daily or weekly records of business transactions. Also findings show that CBN also influence the bank lending policies. The research also reveals that there is no significant relationship between financing of small and medium scale enterprises and deposit money banks. Finally findings shows that there is significant relationship between deposit money banks and lending to small scale industries and also in meeting the needs of small and medium scale enterprises.
Conclusion
The economic rationale for credit to small and medium scale enterprises (SMEs) is indisputable as earlier views of small and medium scale enterprises was seen to have progressively become a major factor in economic development of many countries of the world. This study has empirically brought to light pivotal role of deposit money banks’ credit to growth of small and medium scale enterprises, which in turn accelerate economic growth and development. In addition, the finance led growth postulation for growth and development of an economy through mobilization and allocation of financial resources to deficit economic unit is valid in Nigeria. Although studies have assessed this subject matter, this study should be not an ultimate result on the nexus between banks’ credit and small and medium scale enterprises growth, rather a motivation for the development new ideas by scholars to emphatically and unambiguously assist banks to improving credit to the private sector as a way of achieving the vision of Nigeria to be among the top twenty economy in the world..
Conclusively, this research work makes useful contribution to knowledge by appraising the various means of deposit money banks in financing small scale enterprises in Nigeria. It explicates the importance of SMEs performance of banking sector. 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.
Recommendations
There is no way Nigeria can achieve sustainable funding of small and medium scale enterprises by commercial banks and other agencies such as NERFUND, NIDB etc established for the funding purposes until both the external and internal problems of SMEs are solved. Banks react to the stimulus of the macroeconomic environment and as long as the environment remains conducive, banks will continue to exhibit risk-averse behavior irrespective of the programs put in place to address this problem including the SMIEIS program that was already highlighted. The following recommendations in my opinion will help improve the growth and development of the SMEs:
- The government should be consistent in its industrial policies so as to enable manufacturing firms to factor tariff measures into their trade decisions.
- The government should provide adequate infrastructural facilities like electricity, roads and water supply for the SMEs as this will reduce the high cost of doing business. This will encourage banks to fund the SMEs as their investment will be recouped.
- The government should regard SMEs should regard SMEs as the ‘eggs’ that hatch big businesses. Apart from the adequate incentives in (2) above, the government should support SMEs by bulk purchasing their products and retailing them both for the domestic market and for exports.
- To facilitate their access to bank credits, the government should be issuing LPOs to the SMEs and payment should be made promptly to the SMEs as this will encourage their growth and the banks can also accept such contract papers as collateral.
- On the issue of the internal problems of the SMEs like poor management practices, high rate of business failure, poor account standards, shortage of skilled manpower and financial indiscipline, the government should set up small business management assistance agencies manned by highly skilled and dedicated workers with the view of tackling these problems. The agencies should complement the provision of credit by insuring its efficient use through training and counseling of the small and medium scale entrepreneurs.
- The banks should target potential borrowers for its core operations and form them into groups. Then soft loans should be made available to these SMEs, repayable within a specified period before others in that strategic group can benefit from the scheme. The idea is that with this system, a subtle pressure from other SMEs that are members of this strategic core is mounted on the benefiting group to repay so that others can benefit from the scheme. This will no doubt introduce healthy capitalization among SMEs through factoring the credibility of the borrowers.
- The need for capitalization of the banks cannot be overemphasized as capitalization influences the way banks react to GDP shocks. Also, the credit supply of well capitalized banks is less pro-cyclical. This indicates that well capitalized banks are not risk-averse. Moreover, well capitalized banks can better absorb temporarily financial difficulties on their borrowers and preserve long term lending relationships.
- If (7) above is achieved, the mega banks such as Union Bank should play a more active role in actualizing the objectives of SMIEIs by setting up separate desks to manage the funds and vigorously pursue the idea as with any other bank product and undertaking studies aimed at attracting foreign investors scanning overseas markets and monitoring developments that have implications for the sector.
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