The Impact of Bank Loans on Small and Medium-Scale Enterprises in Nigeria: A Case Study of Customers at United Bank for Africa
Chapter One
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To identify the problems encountered by the industrialist in obtaining finance from commercial banks.
- To appraise the situation and make recommendation, as to how to improve on the bank services.
- To highlight the extent to which the commercial banks have helped finance small scale industries and problems hindering such.
- To create attractive opportunities for investment of Nigerian industry and provide outlets for production investment for Nigerian savings.
- To conduct other aspect of commercial banking operations like acceptance of terms deposit and provision of loans to Nigerians.
- To lay emphasize on the provisions of basic ingredients of economic development necessary to finance enterprise, managerial and technical assistance which are in short supply in the rural areas. This study will help to define the contributions of banking programmes in extending banking services to every part of the country.
- To know the roles of commercial banks and suggested ways of minimizing their problem of the financing of the small scale industries in Nigeria. This study will help to promote the financing of small scale industries of the country both at rural and urban areas.
- This study will also help to make recommendations on how best some of the commercial banks activities will be handled.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
There is no single universally accepted definition of SMEs. The definitions change over a period of time and depend, largely on a country’s level of development (Aruwa, 2009). Varying definitions among or within countries may arise mainly from differences in levels of industrial development, economic development and technology (Sule, 1986). Prior to 1992, different institutions and agencies in Nigeria adopted different definitions of SMEs. The institutions comprise the Central Bank of Nigeria(C.B.N), Federal Ministry of Finance, National Association of Small and Medium Enterprises, Centre for Industrial Research and development, National Economic Reconstruction Fund, Nigeria Bank for Commerce and Industry( now Bank of Industry) and National Council on Industry( Aruwa, 2004). In 1992, the National Council on Industry (NCI) streamlined the definition of SMEs to bring in uniformity and provided for its review after every four years ( Aruwa, 2009). The main factors used in defining or determining whether or not an enterprise is an SME are capital and number of employees (Onwumere, 2000). For convenience and easy comprehension, this paper will adopt the Bank of Industy’s definition and categorization of SMEs in Nigeria as presented by Osa-Afiana in Ango (2011). The Bank categorized SMEs in to Micro/cottage, small scale and medium scale.
- Micro/Cottage enterprises; these are enterprises with capital of not more than 1.5million Naira (orUS$11,278) including working capital but excluding cost of land and/or labour size of not more than 10 workers
- Small scale enterprises; these are enterprises with capital investment in excess of 1.5million Naira but not more than 50million Naira (US$375,939) including working capital but excluding cost of land and/or labour size of not more than 11-100 workers
- Medium scale enterprises; these are enterprises with investment worth over 50million Naira but not more than 200million Naira(US$1,503,758) including working capital but excluding cost of land and/or labour size of not more than 100-300 workers
In addition to their definition, SMEs can equally be described and identified by means of their characteristics. Onwumere in Nwachukwu( 2012) identified 21 characteristics of SMEs in Nigeria as follows;
- Labour intensive production processes
- Concentration of management on the key man
- Limited access to long term funds
- High cost of funds as a result of high interest rates and bank charges
- High mortality rate especially within their first two years
- Over-dependence on imported raw materials and spare parts
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to the impact of bank loans on small and medium scale enterprises in Nigeria
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information the impact of bank loans on small and medium scale enterprises in Nigeria. 200 staff of UBA bank in Uyo, Akwa Ibom state was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of bank loans on small and medium scale enterprises 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 the bank loans on small and medium scale enterprises in Nigeria
Summary
This study was on the impact of bank loans on small and medium scale enterprises in Nigeria. Five objectives were raised which included: To identify the problems encountered by the industrialist in obtaining finance from commercial banks, to appraise the situation and make recommendation, as to how to improve on the bank services, to highlight the extent to which the commercial banks have helped finance small scale industries and problems hindering such, to create attractive opportunities for investment of Nigerian industry and provide outlets for production investment for Nigerian savings, to conduct other aspect of commercial banking operations like acceptance of terms deposit and provision of loans to Nigerians, to lay emphasize on the provisions of basic ingredients of economic development necessary to finance enterprise, managerial and technical assistance which are in short supply in the rural areas. This study will help to define the contributions of banking programmes in extending banking services to every part of the country. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of UBA bank in Uyo, Akwa Ibom state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made front managers, customer care officers, marketers and HRMs was used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
The major objective of the 2004 banking reforms was to re-structure and improve operational performance of banks in Nigeria. Achievement of this noble objective will enable the banks to be sound enough to grant credit and other facilities to all sectors of the economy, especially the SMEs that require all forms of financial support. From the findings of the study the 2004 banking reforms have not impacted positively on financing of SMEs. Instead of improvement in financing of SMEs, the reforms introduced measures that prompted banks to introduce more stringent conditions in granting loans to SMEs. The continuous crisis in the banking industry and the 2008 global melt down worsened the situation. The crises made banks to be more cautious in granting credit and other forms of facilities to clients, especially the SMEs that assumed to be vulnerable to all kinds of “shocks” (economic, political and social ) due to their weak financial base.
Recommendation
- As special incentive to SMEs, the Central Bank of Nigeria (CBN) should set clear and measurable credit policies that will ensure increase and sustainability in allocation of credit to them.
- The CBN should formulate and implement policies that will guarantee stablility of interest and exchange rates. This will minimize fear of default by banks and improve the ability of SMEs to pay back loans
- The CBN should encourage commercial banks to offer variety of facilities apart from conventional loans. The facilities may include technical assistance, encouragement/support visits, supply of information on technology, staffing, production etc
- Since SMEs are finding it more difficult to obtain credit from conventional banks as they prefer to deal with scale enterprises, may be due to their strong asset base, government at Federal, State and Local levels, should encourage and support Microfinance banks and other relevant agencies, to assist SMEs in accessing soft loans.
- To encourage local and foreign investment in SMEs, the Government should ensure a conducive business environment by means of providing security, infrastructural facilities like electricity, good roads, water supply etc
REFERENCES
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- Aruw, S. A. (2004). The Business Entrpreneur. Kaduna: Development Scopy Publishers.
- Aruwa, A. (2009). An Assessment of Small and Medium Industries Equity Investment Scheme (SMIEIS) Implementation Guidelines. Retrieved January 30th, 2012, from nskonline.academia.edu/nsukedungacademiaedu/books.
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