medium scale enterprises are indispensable instrument that contributes to the
accelerated industrialization in developing countries as well as many countries
of the world. It also serve as sources .of inputs for large production concerns
in big and developed economies.
the significance role played by those enterprises industries, the government
throughout the world favourably disposed towards the ideas that help to promote
problem to thus sector is funding. In this study, the effect of small and
medium scale enterprises in Nigeria is discussed. It revealed the effort on the
part of government and Small and Medium Enterprises equity Scheme at providing
the needed finance for the growth and development of SMEs in Lagos State
Nigeria, the systematic bottleneck frustrating those efforts that funding of
SMEs business in Nigeria is effective.
TABLE OF CONTENTS
Title page i
Table of Content vi
CHAPTER ONE: INTRODUCTION
1.1 Background of the study 1
1.2 Statement of problem 6
1.3 Objectives of the study 7
1.4 Research questions 8
1.5 Research hypotheses 9
1.6 Research methodology 9
1.7 Significance of the study 10
1.8 Scope and limitation of the
1.9 Operational Definitions 11
1.10 Organization of the study 11
CHAPTER TWO: LITERATURE
2.1 Introduction 13
2.2 Importance and Roles of SMEs
to the Economy 16
2.3 SMEs Growth and Trends in
2.4 Factors Encouraging Small and
Medium Entrepreneurship 19
2.5 Commercial Banks in Nigeria:
History and Roles 21
2.6 Commercial Banks Credit to
2.7 Factors against the Survival
of Small Scale Industry 24
2.8 Sources of Finance for SMEs 26
2.9 Problems of Financing SMEs in
Policies towards the SMEs subsector in Nigeria. 30
3.1 Introduction 39
3.2 Research design 39
3.3 Population and Sample Size 39
3.4 Sources of Data 40
3.5 Research Instrument 40
3.6 Questionnaire Administration 40
3.7 Re-statement of Research
3.8 Methods of Data Analysis 41
CHAPTER FOUR: DATA
PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction 45
4.2 Data presentation 45
4.3 Testing of hypotheses 55
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 59
5.2 Summary of findings 60
5.3 Recommendations 61
Research Questionnaire 64
BACKGROUND OF THE STUDY
The role of
Small and Medium Scale Enterprise in economic development of a nation cannot be over emphasized. For both developing and
developed countries, small and medium scale enterprise plays important roles.
In the process of industrialization and economic growth. Studies in Nigeria
have shown that the sector contributes to the national objectives of economic
development (Akerele and Abubakar, 1999). Apart from increasing per Capita
income and output, Small and Medium Scale Enterprises create employment
opportunities, enhance regional economic balance through industrial distribution and generally promote effective
resource utilization considered critical to engineering national economic
development and growth.
(1991) sees SMEs' as a quasi-sponge for urban employment and a provider of
inexpensive consumer goods with little or no _ import content, serving an
important pressure-releasing and welfare-augmenting function. SMEs also
contribute to long-run industrial growth by producing an increasing number of
firms that grow up and out of the small scale sector.
relationship between small and medium scale enterprise finance and economic
development has been extensively written upon. Schumpeter (1984) is generally
recognized as one of the pioneers in proposing the view that financial
institutions are necessary conditions for economic development. He asserted that for an economy to experience growth, two
factors are necessary and sufficient. These are the presence of· entrepreneurs
and the availability of service providers of external finance. Similar views
are also held by other authors including Goldsmiths et al (1999) and Cameron
attainment of .independence in Nigeria, every known regime recognizes the
importance of promoting SMES as the basis of economic growth. As a result,
several micro lending institutions were established to enhance the development
of SMES. Such micro credit institutions include the Nigerian Bank for Commerce
and Industry (NBCI), National Economic Reconstruction Fund (Nerfund), the
People's Bank of Nigeria (PBN), the Community Banks (CB), and the Nigerian
Export and Import Bank (NEXIM), and the liberalization of the banking sector.
the seminal role played by SMEs notwithstanding its development is limited by
inadequate funding and poor management. The unfavorable macroeconomic
environment has also been identified as one of the major constraints which most
times encourage financial institutions to be risk-averse in funding small and medium scale
businesses. The reluctance on the part of financial institution to fund SMEs
can be explained by the insufficient capital base of banks and information
irregularity that often exists between SMEs and lending institutions.
Okoro (2004) posits that financial intermediaries plays crucial
role in the operations of most economies; thus, government considers them as
important and special. Research, as surveyed by Levine (1997), shows that
efficiency of financial intermediation can' affect economic growth;' as such
there is positive relationship between economic' development and financial
A bank is a
financial institution that keeps money for the individuals or companies,
exchange currency, give loans and offer other financial services. Also a bank
is an organization whose principal operation is concerned with the accumulation
of temporary idle money of the general public for the purpose of advancing it
to others for expenditure (R.P Kent). Essang and Olaiyode sees bank as a monetary institutions owned by either government or
private businessmen for the purpose of profit making, one the functions being
the acceptance of deposits from the public. These deposits are in turn given as
loan to small and medium scale enterprises among others, which leads to provision
of employment opportunities in the country, (Ijaiya, 2003 and Abdulraheem, 2000; Ekeze; 1995; and Stephen and Osagie, 1998).
banking system must be able to facilitate economic growth, provide platform for
sound monetary policy implementation, as well as, ensure price stability.
During the pre-consolidation era, there were inadequacies in banks
performances, which resulted in low capital base, large number of small banks
with .relatively small branches, poor rating bank, weak corporate governance
and non-compliance with regulatory requirements and huge non-performance
financial sector can best be described as dual in the manner of most developing
countries. It basically consists of the Central Bank, Commercial Banks, Rural
Banks, and Non-Bank financial institutions making the formal sector. In the
informal sector, the players include money lenders, credit groups and thrift
institutions. A lot of literatures on small and
medium scale enterprise financing have highlighted the role of small and medium
scale enterprises in the socio-economic development, of developing nations (see
Anheier and Seibel 1995, Adzah. 1998, Aryeety 1996). Small .and medium scale enterprises sector contribute immensely to the
national objective creating employment opportunities, training entrepreneurs,
generating income and providing a source of livelihood for majority of low
income earners in the country (Akerele and Abubakar, 1999).
Although SMEs are vital to the
economy, the sector is constrained by multifaceted problems that threaten its
survival. Foremost 'among these constraints is the problem of limited access
to· deposit and credit facilities and other financial services .provided by
formal lending institutions. Institutional lenders often perceive lending to
SMEs as too risky, because the entrepreneurs lack sufficient capital base and
adequate collateral to guarantee loan. Financial institutions are of the view
that small and medium entrepreneurs have no performance antecedents on which to
evaluate their credit worthiness. They see small entrepreneurs as unstable,
especially because most often enter and exit the market and often lack the
incentives to remain for a tangible period of time, and are, as a result, risky
borrowers. Small and Medium Enterprises business performance is usually poor as
a result of low education, managerial and entrepreneurial skills. Even in cases
where government intervenes to stimulate investment in SMEs, institutional
investors are reluctant to embrace such development,· primarily because SMEs
are undercapitalized and have no asset base sufficient enough to guarantee
loans; Access of cheap funds from capital market through the issuance of
debenture and equity instruments is constrained by high transaction cost. For
these and other reasons, SMEs financing is usually restricted to private equity
and retained earnings, such that meaningful growth and expansion are usually
inhibited by lack of external financing.
results include a credit gap for SMEs and micro businesses, (especially long, term credits whenever it exists), higher real
interest rates and enormous differentials in financial costs for small, medium
and micro investors.
As more and
more banks become intrigued by the idea of entering the small and. medium scale
enterprises (SMEs) finance market, the "lessons learned from some of the
experienced players become useful in the decision making process. Even if a
bank enters the small and medium enterprise finance market for socially responsible
reasons, the long-term viability of the small and medium scale enterprise
finance programme is eventually defined by the contribution to the banks
profitability. Determining cost and revenue drivers is key to ensuring that
resources are available and properly allocated; cost, both actual and imputed,
'are fairly assigned; and pricing strategies accurately reflect' profitability
goals. Once the bank is convinced that the net operating margin of small scale
enterprises finance product can be high relative to other products in the bank,
the challenge becomes growing the volume so that the absolute' net income is
1.2 STATEMENT OF PROBLEM
economies, developed and developing have come to realize the value of small and
medium scale enterprises. They are seen to be characterized by dynamism, witty
innovation, efficiency and their small size allows for faster decision making
process. Governments world over have formulated comprehensive public policies
to encourage, support and fund the establishment of SMEs. Development in small
and medium enterprises is sin-qua-non for employment generation, solid
entrepreneurial base and encouragement of the use of local raw materials and
technology. However, lack of access to finance can usually be found at the top
of any list of the problems of small and medium enterprises. SMEs generally
start with· their own resources and are usually undercapitalized. This a major
factor in their failure. In Nigeria, financial institutions are usually
unwilling to meet the small and medium scale enterprises needs for seed money
investments capital as a result of high transaction cost and perceived risks,
the lack of collateral and financial data, and negative bank experience in
dealing with small asset backed borrowing. The problem is worsening when it
comes to long-term finance because of the unstable and high inflation
environments. A small-and medium scale enterprise requires a long-term
financing to acquire equipment, support fixed capital investment and to provide
working capital for the firms operations.
fear of the banks with regards to the ability of SMEs to repay loan obtained
from bank and the profitability of lending to these enterprises given the cost
of such lending activities it would appear that SMEs are not getting the
adequate funding from' these banks. In this study, we wish to investigate the
adequacy of bank’s provision of support to SMEs in Nigeria.
1.3 OBJECTIVES OF THE STUDY
of this research work is to examine the role of Banks in the development of
small and medium scale enterprises in Nigeria especially with the recent
reforms in banking industry. The objectives are to:
Determine the extent to which small and medium scale enterprises make use
of loan from banks to develop their businesses.
Financially support the government efforts to massively create employment
opportunities teeming unemployed Nigerians.
Establish a pool of investible funds for financing the micro, small and
Eliminate the burden of interest and other financial charges for the entrepreneurs.
Stimulate economic growth, develop local technology and generate employment
for capable and suitable Nigerians.
Determine if government have been making effort to support the' growth of
small and medium scale enterprises in Nigeria.
1.4 RESEARCH QUESTIONS
purpose of this study, the following related questions would be examined:
Why is small and medium scale
enterprises so important in Nigeria?
What are the forms of credit facilities available to small and medium scale
enterprises through the banks?
To what extent have banks affected the development of small and medium scale enterprises
Has there been any difference in the holding period of credit given to
small and medium scale enterprises since the bank recapitalization in 2005?
What are the constraints hindering the development of small and medium
scale enterprises in Nigeria?
What are the possible policy measures to encourage small and medium
enterprises operation in Nigeria?
What measures are put in place by the government In financing small scale
1.5 RESEARCH HYPOTHESIS
purpose of this study, the following hypothesis would be tested:
Ho: Funds via
banks by small and medium scale enterprises do not have any positive effect on
their productivity and survival.
Hi: Funds via banks by small and medium
scale enterprises have positive effect on their productivity and survival.
Ho: The contribution of small and medium
scale enterprises to national output do not have any positive relationship to economic
Hi: The contribution of small and medium
scale enterprises to national output do have positive relationship to economic
1.6 RESEARCH METHODOLOGY
research techniques will be used. This study will rely largely on secondary
data. However, the proceeds of the analysis will be used to accept or reject
the hypothesis stated. The Chi -square method will be used. Both qualitative
and quantitative analysis will be used to analyze the summaries in information
generated from the research.
OF THE STUDY
research is to be carried out with particular interest in assessing the role of
Banks in the development of small and medium scale enterprises in Nigeria,
using Zenith Bank Plc as the case study and data collection centre. The
significance of this study is to carry out a research to determine if the above
objectives have been achieved, as regards the development of small and medium
scale enterprises, to determine the effect of SMEs performance on economic
growth in the place of vision 2010 agenda and to determine if the loans granted
SMEs is making significant impact on the economic sector in term of their
turnover growth and also, the finding implications and recommendations from
this study would be of help to the banks and policy makers in improving their
level of commitment in the development of small and medium scale enterprises.
1.8 SCOPE AND LIMITATION OF THE STUDY
covers banks operating in Nigeria with Zenith Bank PIc being our focal point.
The reason being the time and financial constraint under which the study
expected to be completed, with the fact that Zenith Bank PIc has been one of
the strongest and, biggest new generations bank in Nigeria since its
establishment, capable of given virtually all the needed information in the
area of the role of banks in the development of small and medium scale
enterprises in Nigeria.
1.9 OPERATIONAL DEFINITIONS
enterprises: This is a business unit that has minimum capital but have, potential to
develop but no financial assistance either from financial institution, federal
or state government. (Obikoya et al, 2001).
enterprises: This is a business unit that has
little or no financial' assistance either from financial institution, federal
or state government (Obikoya et al, 2001).
A large and complicated piece of work
especially one that is done with a group of other people (Coleman, 2004). Bank:
A bank is a monetary institution owned by either government or private
businessmen for the purpose of profit making (Essang and Olaiyode, 1974).
1.10 PLAN OF THE STUDY
research work is divided into five major chapters. Chapter one contains the
introduction; while chapter two contain the literature review, chapter three
contain research work. Chapter four shall
contain the presentation of data and data analysis and lastly Chapter five contains
the summary, conc1usionsand recommendations.