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THE ROLE OF BANKING
IN FINANCING SMALL SCALE INDUSTRIES
(CASE STUDY OF UNION
BANK PLC)
ABSTRCT
It is to review what essentially
constitutes small scale industries for an adequate discussion of the issue
involved:- financing of small scale industries by the commercial banks. Often,
there is no single criticism for classification of business unit as small
scale. The central Bank of Nigeria for example defines small scale
enterprises as any enterprise whose annual turnover is less than (N 500,000)
five hundred thousand Naira as small scale.
Furthermore the National Directorate of employment (NDE)defines it to include
projects with capital investment of below five thousand Naira (N500) and a
staff strength of three (3) persons. While the centre for management
Development (CMD) gave the definition of small scale industry in the policy
proposal it submitted to the federal Government in June 1982 as follow; “A
small scale industry in a factory or production type of operations, employing
up to fifty (50) full time workers. Investment in plant and machinery but
excluding land and building shall not exceed five hundred thousand (N500,000)
Naira power, plant and machinery are utilized its operations.
In a nutshell, a small- scale industries are classified in the following
criterion; initial capital outlay, ownership structure, initial capital outlay,
ownership structure, management style, profit level market share, number of
employees and total assert size etc.
The objective of this project work will include the extent to which small scale
industries in Nigeria have been able to obtain loans and advances from Nigeria
commercial banks as a major source of finance to the economy and many others.
The project was carried out by using Union Bank PLC, Okpara Avenue, Enugu as a
case study.
TABLE OF CONTENT
CHAPTER ONE
1.1
Background of study
1.2
Statement of Study
1.3
Objective of the study
1.4
Scope and limitation
1.5
Research questions
1.6
Hypothesis
1.7
Significances
1.8
Definition of terms
CHAPTER TWO
2.1
Introduction
2.2
Meaning of small scale industries
2.3
Government policy
2.3.1
Projection and promotion
2.3.2
Monetary and Fiscal policies adopted by government
2.3.3
Effects of Government Polices on small scale industries
2.4
Financing
2.5
Problems facing the small scale industrialists
2.6
Improving funding to small scale industries
CHAPTER THREE
3.0
Methodology
3.1
Research design
3.2
Area of the study
3.3
Population of the study
3.4
Sample and sampling procedure
3.5
Instrument for data collection
3.6
Validity of the research instrument
3.7
Reliability of the research
3.8
Method of administration of research instrument
3.9
Method of data analysis
CHAPTER FOUR
4.1
Data presentation and results
4.2
Testing Hypothesis
CHAPTER FIVE
5.1
Summary of Finding
5.2
Recommendation
5.3
Conclusion
5.4
Bibliography
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF STUDY
The concept of
self-reliance has occupied a place in the literature of economic development
over the years, basically as a manifestation of the various attempts by the
developing world to state new economic strategies, which world relieve them
form economic dependence of their fromer colonial masters in Europe. Today,
some years after, the concepts of self reliance continues to be misunderstood
in its fundamental ramifications and has remained elusive in large sections of
the developing world.
In Nigeria in
particularly, neither the mixed economy approach to development nor the
capitalist approach appears to have respond to the dictates of economic self
reliance.
Consequently, in
pursuit of self reliance in the developing world particularly in Nigeria, the central
government, enacted a decree called ‘Enterprises promotion Decree, when there
was need for small scale enterprises owned ad managed by Nigerians to be
promoted.
The importance of
small-scale enterprises in the promotion of economic development has always
been at the forefront of development strategies.
However, many
developing countries have failed to adopt this strategy owing to their belief
that it is a relatively slow process of industrialization. But in the recent
times, due to the scarcity of foreign exchange that attention began to be
focused once again on development of indigenous that will be local resource
based.
Without the
development of small-scale industries in Nigeria, that nation’s quest for
industrialization will certainly remain forever at a stake. It is the
humble opinion of the researcher that future developments in our
industrialization must address the basic issue of creating linkages within the
economy to begin to produce real inputs to our manufacturing activities.
Priority attention
must therefore be given to these industries for which domestic inputs could
easily be produced. This automatically brings to mind the Agro-Allied
industries like food processing and other by products objective should be to
maximize the value added in their processing and manufacturing as final goods
or immediate inputs.
Empirical evidence
indicates that strong incentives should be given to small scale industrialist
to enable them meet the food requirement and also to promote for sustained
industrial growth. For instance, the market determined exchange rate
through SFEM with its resultant high cost of imported inputs might serve as an
impetus fro industrialist to intensify their search for local substitutes.
In 1971, the
government of the then East central state statutory enacted an edict
establishing on office which was hither to a sub-system of the ministry of
commerce ad industry to be known as fund for small scale industry credit scheme
(FUSI) to give credits for prospective investors to enable them establish their
business in a bid to moving the country towards industrialization.
As at march 9th
1992, loans approved for small scale projects in Enugu State by Nigerian Bank
for commerce and industry (NBCI) amounted to N13,345.40.
Similarly, in the circular
on small scale and medium enterprises loan scheme released by central Bank of
Nigeria in February, 1989, it was reveal that world bank has granted a loan of
U.S. $270 million to the federal government for the development of small scale
and medium scale enterprises in the private sector.
However, the very
slow rate of growth of the industrial sector, the inability of the sector to
adequately provide and satisfy the need of the economy, the over dependence of
the industrial sector as well as the nation at large on foreign goods, praised
a necessary cause for concern.
The means of helping small-scale
industries to acquire the much-needed finance for growth and development
especially form the banking industry from the background of this research
study.
1.2
STATEMENT OF PROBLEM
Small-scale industry
like any other business cannot be carried on extensively unless funds are
available for maintenance and procurement of equipment and necessary inputs.
Three types of credit
are usually required: short-term credit: this type of credit is used to yearly
operation until the products or proceeds form the industry are sold: the amount
involved s usually small but lock this type of credit is most accurately felt
by small scale industrialists who have little or no savings with which to draw.
Medium – Term Loan:
This type of loan is for more than one-year maturity period by not exceeding
three to five years. This is mostly required for acquisition of inexpensive
equipment with relatively short life span.
Long-term Loan:
This type of credit is necessary for acquisition of major industrial machines,
improvement on industrial equipment building and land. Small scale industrial
credit therefore can be a powerful instrument in bringing about a revolution in
industrial practices and in firms productivity especially if supplied is
sufficient quantity and used efficiently.
It is well known that the development of small scale industries and attainment
of self reliance in industrials production coupled with the provision of raw
materials for other industries is among the top priorities of the successive
government in the country.
Furthermore, the continuous escalation of Nigeria’s import bill and unemployment
are a threat to the country. It is therefore necessary for all to put heads
together to formulate a meaningful policy that will stimulate a positive take
off of our small scale industrial sector such ideals, this work therefore, aims
to put across at the end.
The study therefore, identifies small scale industrial financing by Union Bank
Enugu, Nigeria PLc as part of the wider subject of industrial development
because finance is just one of the factors of production.
1.3
OBJECTIVE OF THE STUDY
The objective of the
study includes
a.
To evaluate the extent to which small scale industries in Nigeria have been
able to obtain loans and advances from Nigeria commercial banks as a major
sources of finance in the economy.
b.
To examine how commercial banks in Nigeria assist the government in promoting
the small industries.
c.
To know the stage of small scale industrial development and what ought to be
done to reduce the problems facing the sector.
d.
To ascertain the extent to which the commercial banks have helped to finance
small scale industries and problems hindering such
e.
To identify the problems encountered by the small scale industrialists in
obtaining funds from the commercial banks.
f.
To evaluate various measures introduced to boost industrial production and its
financing and how this have affected the industrialization of the set goals.
g.
To determine the cause of variability in small scale industrial financing by
commercial banks
1.4
RESEARCH QUESTIONS
i.
Do the financing of small-scale industries by commercial banks boost the
production capacity of small-scale industries.
ii.
To what extent do the Banking industries channel their investment to the small
industries.
iii.
Do the capacity Utilization of our small to produce more and thereby reducing
the demand for foreign goods.
iv.
Must small scale Business be financed by commercial banks alone
v.
What can be the hindrance to the commercial banks financing small scale
industries.
1.5
HYPOTHESIS
Ho:
The Union Bank of Nigeria PLC, Enugu Lending to small
scale industries are affected by the attitude of their customers and other
influences.
H1:
The Union Bank of Nigeria PLC, Enugu Lending to small scale industries are not
affected by the attitude of their customers and other influences.
Ho:
The role of commercial Bank is to increase the productivity of the small-scale
industries.
H1:
Commercial Banks have nothing to do with increased productivity of the small
scale industries
Remember:
Ho:
Represents null hypothesis
H1:
Represents Alternate hypothesis
1.6
SIGNIFICANCES OF THE STUDY
The development of
small scale industries and self reliance in industrial and food production,
coupled with the provision of raw materials for other industries is among the
priorities of the Nigerian Government in the successive development plans.
Against these
backgrounds, the review of the financial problems facing small-scale industries
is essential. An examination of union bank of Nigeria PLC Enugu
performance in financing small scale industries will enable us find a large
extent why there has been a decline in industrial output in recent years.
This study to a every
large extent help;
1.
Boost the production capacity of small scale Agricultural and allied
industries.
2.
Emphasize the need for re-allocation of our resources to the more productive
sectors f the economy.
1.7
DEFINITION OF TERMS:
Small Scale
Industries: the Central Bank of Nigeria defines
this for monetary purposes in terms of their annual turnover which is not more
than five hundred thousand Naira (N500.000).
LOAN: A
sum of money unit at an interest.
LONG TERM CREDIT:
This type of credit is more than three years maturity. It is used to invest in
long-term project.
MEDIUM TERM CREDIT:
This type of credit is more than one year maturity but not exceeding three
years.
SHORT TERM CREDIT:
This has a very short life span. It last for months and should be matured for
repayment in less than one year period of a time.
ROLE:
An actor’s part in a play, person task or duty, in an undertaking.
BANK:
An established for keeping money and valuables safely, the money is being paid
out on the customers order (by means of cheque or cash)
EFFICIENT:
Producing satisfactory result
COMMERCIAL BANKS:-
This is the financial intermediary that collects money customers of the general
public for safe keeping on their various accounts and make them available when
required. It offers loan at an interest to the customers and also
provides the required security.
MORATORIUM:
Temporary agreed ban on an activity
GRAPPLING:
Hold firmly, seize.
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