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THE ROLE OF
COMMERCIAL BANKS IN FINANCING SMALL SCALE BUSINESS
CHAPTER ONE:
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Small-scale
business has been an important element in this country’s drive towards a self
reliant economy. This is based on the legalization that small-scale enterprises
are desirable worldwide; hence, it is an avenue for reducing the rate of
unemployment in the country and thereby contributing to the Gross Domestic
Product (GDP) of the nation. In the developed countries today, technological
advancement was due to the establishment of small-scale business and
industries.
Small-scale
enterprises are considered as a pivot for technological takeoff and self
reliance of any nation. In the commercial world, there are various kinds of
business undertakings. These business activities range from the private
enterprise to public corporation. According to Central Bank of Nigeria Monetary
policy and programmes, circular to commercial and merchant banks define
small-scale business as:
Those with
annual turn over not exceeding 500000. According to the Industrial Research
Unit of university of Ife defined a small-scale business as One whose principal
assets in capital equipment, plant and working capital are less than 250000 and
employing fewer than 50 (fifty) full time worker.
1.2
STATEMENT OF THE PROBLEM
In Nigeria
and perhaps throughout the world, the importance of small-scale business cannot
be over emphasized.
However, the
small-scale enterprise sub-sector is seriously affected by structural problem.
These include inadequate capital, ‘Infrastructural deficiencies, Lack of
technological knowledge and local market. These problems have hampered the
development of small- scale business in Nigeria.
Another
problem is the massive unemployment, rural-urban migration, poverty and over
dependence on the foreign countries. The increasing relation of the fact that
the engine of development of the country is to be found within the country’s
capacity.
The
rationales for advocating small-scale industrialization is that capacity
requirement are small and there for within the reach of indigenous
entrepreneurs. Small-scale industries create employment, use of more local raw
materials and use of low level of technology.
1.3
OBJECTIVES OF THE STUDY
A study into
the impact and contribution of commercial banks in financing small-scale
business in Nigeria is important. In view of 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:
1. To
examine the impact and contribution of commercial banks in financing
small-scale business Nigeria
2. To
explore further ways of supporting small-scale business in Nigeria
3. Identify
the major obstacle militating against the development of small-scale business
in Nigeria.
1.4 RESEARCH
QUESTION
The
researcher has related in his research topic that is “The Role of Commercial
Banks In financing Small-Scale Business” and can now come up with the following
questions to be answered in the course of this research
1. Is there
any need for commercial banks to finance small scale business?
2. Do
commercial banks encounter problems in providing finance for small scale
business?
3. Has
commercial banks improve the nature and operation of small-scale business?
4. Is there
any significant role small-scale business play to the development of the nation
economy?
1.5 RESEARCH
HYPOTHESIS
Ho:
Commercial banks do not make any significant contribution towards the financing
of small-scale business.
Hi:
Commercial banks contribute significantly towards the financing of small-scale
business in Nigeria.
1.6 SCOPE OF
THE STUDY
This
research work is designed to cover the contribution of commercial banks in
financing small-scale business in Nigeria. But due to the large number of
commercial banks in the country, the study is restricted to United Bank for
Africa (UBA) Nasarawa branch only.
1.7
SIGNIFICANCE OF THE STUDY
The
importance of the study is to seek and direct government effort, stimulate and
promote economic growth, develop local technology and to also generate
employment. No doubt that this work would be of benefit to a host of stake
holders in the small-scale enterprise scheme, especially the owners (promoters)
and employees of business organization, the students, the government, investing
financial institution and the general public.
THE OWNERS
The owners
or promoters of a business organization are free to approach any bank of their
choice for the purpose of accessing these cheap funds that does not attract
interest It encourages them by igniting development and promotion of
entrepreneurship skills. Banks become partners as equity shareholders of the
company and their technical and financial expertise are exhibited for the
business to grow.
EMPLOYEES
Employees
are all interested in their wage settlement in the sense that with more working
capital at the disposal of the organization. It would mean a favourable
opportunity for higher productivity at the same time the profitability of the
firm would increase and in effect guarantee the job security of the employee.
GOVERNMENT
The
government or policy maker seem to be the major beneficiary as a result that
sound management policy affect good governance and attract the maximum support
of the government. As capacity building in the economy improves, the
productivity increase thereby improving the standard of living of the citizenry
and reduce the nation’s social problems such as insecurity due to youth
restiveness.
GENERAL
PUBLIC
The overall
interest of the general public is the testing point of every economic tool and
are also expected to benefit as good policies affects the public positively and
vice versa.
1.8
LIMITATION OF THE STUDY
The study
proves more difficult than earlier anticipated; at the beginning of this
research work limited difficulties were encountered. However, during the course
of the study more problems were encountered. One of the problems encountered
was with regards to the nature of respondents. In some cases it was difficult
to meet the manager and were there was success in meeting them in person it was
difficult for them to give prompt attention to the researcher. Another problem
encountered was fear entertained by some respondent that the government would
use the information obtained from them one clay. This was particularly
experience during oral interview of the respondents.
1.9
DEFINITION OF TERMS
CAPITAL:
According to Anyeale (1993) in his book titled “comprehensive economics”
defines capital as the wealth or property that can be used to produce more
wealth. It also refers to the fund invested in a business.
BANK:
Section 61 of Bank and Other Financial Institution Decree (BOFID) defines a
bank as the business of receiving deposit on current account, savings account
and other similar account, paying or collecting cheque drawn by or paid in by
customers, provision of finance or such other business as governor may by order
publish in the gazette designate as banking business.
COMMERCIAL
BANK: According to Osubor J. U. in his book “Business Finance and Banking in
Nigeria” commercial banks are a nations most important financial institution in
the sense that their performance of services are unique and are distinguished
from other forms of financial institution.
FINANCIAL
INSTITUTION: Ekeziel ES (1993), “The Element of Banking” defines financial
institution as an institution that provide funds to organization to meet their
financial obligation.
FUND
MANAGER: These are companies set up and registered with
Securities
and Exchange Commission (SEC) and Corporate Affairs Commission for the purpose
of managing investment in viable small- scale industries on behalf of banks.
SCHEME: This
is the policy reform introduced by the government to carry out equity
investment under the small-scale industries.
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