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COMMERCIAL
BANKS CREDIT AND THE SMALL AND MEDIUM SCALE ENTERPRISE
(A
CASE STUDY OF BONNY L.G.A)
ABSTRACT
This research
examines commercial bank credit on small and medium scale enterprises in
Nigeria. This was analyzed using Bonny L.G.A as a case study. The study also
looked at the nature and characteristics of commercial bank credit on small and
medium scale enterprises, the problems of small and medium scale enterprises,
and to evaluate government policies on small and medium scale enterprises.
Primary data was obtained in our study; field work was conducted by giving
questionnaire to 200 small and medium scale enterprises. The simple percentage
method was used to analyze the impact of commercial bank credit on small and
medium scale enterprises in Nigeria. It was found that commercial banks have
not impacted so much on small and medium scale enterprises in Nigeria, by given
out adequate credits. The result indicates a weak influence of commercial bank
credit on small and medium scale enterprises in Nigeria. There is need for
commercial banks to extend the time given to borrower to pay up loans, to
reduce the interest rate given to the borrowers, encouraging small and medium
scale enterprises industrialist to apply for loans for expanding running their
business in order to increase the contribution of small and medium scale
enterprise to economic growth and development in Nigeria.
TABLE OF CONTENTS
PAGE
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
Table of Contents vi
CHAPTER
ONE: INTRODUCTION
1.1 Introduction
of the study 1
1.2 Statement
of problem 6
1.3 Objective
of study 8
1.4 Research
hypothesis 8
1.5 Method
of study 9
1.6 Significance
of study 11
1.7 Limitation
of study 11
1.8 Organization
of study 12
CHAPTER
TWO
2.1 Literature
review 13
2.2 Definition
of commercial banking 13
2.3 Role
of commercial banking 14
2.4 Nature
and characteristic of commercial banking 15
2.5 Definition
of small and medium scale enterprise 17
2.6 Origin
of small and medium scale 17
2.7 Characteristic
of small and medium scale enterprise 18
2.8 The
role of SMEs in the economic development in Nigeria 19
2.9 Problems
of small and medium scale enterprise in Nigeria
22
2.10 Commercial
bank credit and SMEs 25
CHAPTER
THREE
3.0 Analysis
of data and discussion of findings 27
3.1 Introduction 27
3.2 Data
presentation and analysis 27
3.3 Test
of hypothesis 32
3.4 Discussion
of finding 33
CHAPTER FOUR: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
4.1 Summary 34
4.2 Recommendations 34
4.3 Conclusion 35
Bibliography
Questionnaire
CHAPTER ONE
1.1 INTRODUCTION
The
high level of poverty combined with slow economic growth in the formal sector
has forced a large part of African population into self-employment and informal
activities. A business whether small or big simple or complex, private or
public is created to provide competitive prices.
Business
in Nigeria has been classified as small and medium and large. In both the
developed and developing countries, the government is turning to small and
medium scale industries, since it plays an important roles in the process of
industrialization and economic growth. Apart from increasing per capital income
and output, small and medium scale enterprise create employment opportunities,
enhance regional economic balance through industrial dispersal and generally
promote effective resource utilization considering critical to engineering
economic development and growth. It is also a seedbed of innovations,
inventions and employment.
HISTORICAL DEVELOPMENT OF SMALL
SCALE AND MEDIUM ENTERPRISE
Small
scale industry development is part and parcel of Nigeria. Evidence abound in
our respective communities of what successes our great grandparents made of
their respective trading concerns, yam barns, iron smelting, farming cottage
industries and the likes. So the secret behind their success of a self-reliant
strategy does not like in any particular political philosophy, so much as in
the people’s attitude to enterprise and in the right to which the right
incentive is adequate enough to make risk worth taking are provided.
Prior
to Nigeria independence, the business climate was almost totally dominated by
the colonial and other European multinational companies like United African
company (UAR), GB Olivant, Unilever Plc, Patterson Zechonics, levents etc.
These
companies primary engaged in bringing into Nigeria finished goods from their
parent companies overseas. These companies have vast business experience and
strong capital base, and dominated the Nigeria economy. The government of those
days encouraged them to become stronger by giving incentives as favourable
traffics and tax concessions.
Towards
the tail end of the 1950s, the Nigeria Industrial Development Bank (NIDB) was
founded to assist potential entrepreneurs to get involved in Agriculture
exploration of natural resources, commerce and Industrial production. This time
and the early 1960s saw the massive increase in Nigeria import market, while
the Nigerian economy became largely dominated by very few large foreign firms.
However,
few Nigerian mostly the semi-illiterate benefited from the general government
attitude of this time, the educated Nigerians then were not interested in
entrepreneurship mainly because their focus was on the position being vacated
by the expatriate staffs, which were leaving the civil service to return home
because of the imminent independence in 1960. Even then, Nigerians considered
the civil services to be more prestigious than business despite the creation of
the colony development loans board, by the colonial administration.
1970-1976:
A major/remarkable breakthrough in small scale business came about through the
indigenization Degree 1972 and later in Nigeria enterprise promotion Act 1977.
These were genuine attempts by the federal government to make sure that Nigeria
plays an active and worthwhile role in the development of the economy. In its
1970-1974 National Development plan the federal government gave special
attention to the development of small scale industries particularly in rural
areas. This was in recognition of the role of small and medium scale
industries, as the seedbeds and training grounds for entrepreneurship.
In
1980-1989, within this decade, the government policy measures placed emphasis
on the technological aspects of industrial development of small scale
industries in Nigeria. Various Nigeria governments within this decade embarked
on corrective measures to divert efforts towards the maximum exploitation or
natural resources, and tried to discourage capital intensive mode of production
in the light of the abundant resources available. The focal point of these
policy measures as constructed place a great emphasis on the technological
aspects of industrial development and development of small and medium scale
industries in Nigeria.
It
is worth of note that the introduction of the structural adjustment programme
(SAP) during the Babagida regime made matter worse for employers of labour and
created a veritable ground for self- employment.
Between
1990-99, the federal and state government have both contributed to the growth
of small and medium scale industries in Nigeria especially in the rural areas
of recent time, various fiscal and non-fiscal incentives have been established
for investors and entrepreneurs in the small and medium scale enterprises
(sectors) of the economy of special mentioning was strategy adopt by the
federal government towards the training and motivation of the unemployment
graduates, to be gainfully employed in and out of school entrepreneurship
development programmes. Thus on the presentation of viable feasible projects,
approved loans are disbursed through pre-selected commercial banks assisted by
the National Directorate of Employment.
The
people bank of Nigeria (PBN) was also in the vanguard of granting of soft loans
to unemployment youths and artisans, and this aimed at diverting the attention
of youths from government salaries jobs, to that of gainful self solely
employment. NDE and the people Bank of Nigeria were solely charged with the
responsibility of generating employment through their various programmes for thousands
of unemployed Nigerians.
However,
a small and medium scale industry can be defined by the criteria of project
costs, capital, cost turnover by the employee, etc. the federal and state
ministries of industry and commerce have adopted the criteria of value of
installed fixed capital to determine what a small and medium scale industry is,
in this respect, the value has varied from N60, 000 N1972, N159,000 in 1975,
N250, 000 in 1979, N500,000 in 1986, to a fixed investment if not more than
N2,000,000 (two million Naira) in 1992. This figure is exclusive of and
building and subject to government determination and land prevailing objective
of public policy.
In
the wake of SFEM, and SAP (structural adjustment programme), this value has
been reviewed and subsequently, increased to five million naira. Since this
happed, there may be a need to classify the small scale industry into micro and
super micro business, with a view to providing adequate incentives and
projection for the former.
In
the meantime, any business or enterprise below the upper limit of N250, 000 and
whose annual turnover exceeds that of a cottage industry currency put at N5,
000 per annum is a small industry. The National Directorate of Employment (NDE)
concept of a small scale industry has been fixed in a maximum of N35, 000.
Small
scale industries constitute a greater percentage of all registered companies in
Nigeria, and they have been in existence for a quite long time. Majority of the
small scale industries developed from cottage industries to small enterprises
and from small scale to medium and large scale enterprises.
1.2 STATEMENT OF PROBLEM
Commercial
baking is one of the one of the most instruments for enhancing economic
development. Its primary function in the development process is to mediate
between savers and investors (that is form surplus spending unit to deficit
spending unit) the forth National Development Plan recognizes this fact when it
states that the basic objectives of the policy is the banking sector is to
ensure that all available saving are mobilized through the provision of
efficient baking services and during such services close to door-step of the
customers within the limit of the manpower available. The policy behind rural
banking scheme was to usher in even development in different part of the
country and cut down on rural urban migration.
The
essence of the scheme therefore is the establishment of branches of commercial
banks (Deposit Money Banks) in the rural areas, which are expected to serve as
machinery for creation and provision of credit to rural areas. Such credit is
to take the form of loans for small-scale farmers and entrepreneurs.
From
all indication, the rural banking scheme of the federal government is not
necessary a scheme designed to create a new type of financial institution in
the rural bank being established are not separate entities but branches of
already existing commercial banks operating within the country.
As
sad it were, banks could not reach the afore mentioned requirement because to a
large extent, the scheme has drained a lot of financial resources of the banks
by way of not being profitable and that the much talked about rural development
which the scheme was designed to propel is far from materializing and choice
inability of most borrower to provide acceptable and marketable collateral
securities for loans posed problems in sitting banks within rural areas.
From
the reasons given above, there have been calls by some practioners in the nation’s
banking industry, for the scrapping of the idea of rural banking scheme which
the government is still trying to encourage. With the explanation given to the
above, the study will assist us to know whether the scheme has really been
successful or not, especially with the drive in this new millemium.
1.3 OBJECTIVES OF STUDY
1. To
examine the nature and characteristics of commercial bank credit to SMEs.
2. To
critically examine the impact of commercial banks on SMEs development.
3. To
identifying the problems of SMEs.
4. To
evaluate government policies on SMEs.
1.4 RESEARCH HYPOTHESIS
The
research hypothesis will be to test the relationship between bank lending and
the growth of small and medium scale enterprise.
1. What
are the nature and characteristic of commercial banks to SMEs?
2. How has commercial bank affected SMEs
development?
3. What are the problems facing SMEs?
4. How have government policies affected SMEs?
1.5 METHOD OF STUDY
This
study is design in such a way that questionnaire will be used as primary data:
The primary data will be used to investigate the effect of commercial bank’s
credits to small and medium scale enterprise. The source of the data will be a
field work conducted by the researcher. It is limited to small and medium
enterprise, In Bonny Government Area of Rivers State. Shall be a case study.
1.5.1 RESEARCH DESIGN
This
research work is a descriptive survey method, which seeks to examine commercial
bank credits and the small and medium scale enterprise with case study of 200
small enterprises in Bonny Local Government Area.
1.5.2 POPULATION AND SAMPLE OF
THE STUDY
The
research study would be incomplete without the acknowledgment of the population
of the study and the sample of the study.
The
population of the study is the total number of small and medium scale
enterprises is Bonny Local Government Area.
The
sample of the study is 200 small and medium scale enterprises in Bonny. These
shall be interviewed using the questionnaire.
1.5.3 SAMPLE TECHNIQUES
The
techniques use for this research study will be simple random sampling
technique. This will enable the representation of all the small and medium
scale enterprises in Bonny Local Government Area Rivers State.
The
simple random sampling technique is a technique where sample are chosen at
random. Here, the 200 small scale enterprises are picked or chose at random in
Bonny Local Government Area Rivers state.
1.5.4 METHOD OF DATA COLLECTION
Here,
primary data and secondary data was collection for analysis the primary data
for the study collected was the Two Hundred questionnaires (200) which was
administered to the respondents. The secondary data was magazines, journal etc.
the questionnaire will be taken to the selected small and medium scale
enterprises.
1.5.5 METHOD OF THE DATA ANALYSIS
The
data were analysis descriptively. Moreso, the data collected from the
respondent were displayed in tabular form.
The
responses of each small scale industrialist were measured using simple
percentage analysis. This implies with the highest percentage is preferred more
than the response with the lowest percentage.
The
percentage is based on the following calculations.
x 
1.6 SIGNIFICANCE
OF STUDY
The
need for this research work is to provide clear and adequate data to the owner
of small and medium scale enterprises, the readers and other interested
individuals on commercial bank credits and small and medium scale enterprises.
The
results of this research work will also provide the basis for subsequent
re-direction of credit policies towards the development of small and medium
scale enterprise. The result will also be used to increase the body to
knowledge in this field of study.
1.7 LIMITATION OF STUDY
This
study is on the effect of commercial bank credit on small and medium scale
enterprises. It is limited to small and medium enterprise, In Bonny Government
Area of Rivers State.
I
rely on primary and secondary data as my sources of information for this work;
hence the work may not be completely free from inadequate and inconsistence.
The problem of time and financial cannot be exempted. Hence, these constrains
to some extent necessitated the limitation of this study.
1.8 ORGANIZATION OF STUDY
The
study is constructed into four chapters. Chapter one deals with the
introduction of the study. Here the background of the study and statement of
problem is stated. Other areas include objectives research hypothesis, method
of study, significance of study and limitation of study.
In
the next chapter which is chapter two, the theoretical explanation will be made
signifying related observation from different authors and their views on the
concept of commercial bank credits and the small and medium scale enterprise.
Chapter
three, focuses on analysis of data, it deals with hypothesis testing and
interpretation as well as discussion of findings
Summary,
conclusion and recommendation are the major content of the last chapter.
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