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Product Category: Projects

Product Code: 00000760

No of Pages: 64

No of Chapters: 5

File Format: Microsoft Word

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Small and 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.


Based on the significance role played by those enterprises industries, the government throughout the world favourably disposed towards the ideas that help to promote the growth.


The major 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.













Title page                                                                                                      i

Certification                                                                                                ii

Dedication                                                                                                    iii

Acknowledgement                                                                                     iv

Abstract                                                                                                         v

Table of Content                                                                                       vi




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 study                                           10

1.9      Operational Definitions                                                             11

1.10 Organization of the study                                                            11

References                                                                          12



2.1      Introduction                                                                                   13

2.2      Importance and Roles of SMEs to the Economy                16

2.3      SMEs Growth and Trends in Nigeria                                     18

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 SMSI                                         23

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 Nigeria                              28

2.10    Government Policies towards the SMEs subsector in Nigeria.                                                                                                30

     References                                                                     37



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 Hypotheses                                 41

3.8      Methods of Data Analysis                                                         41

            References                                                            44                                                                                           


4.1      Introduction                                                                                   45

4.2      Data presentation                                                                         45

4.3      Testing of hypotheses                                                                 55

Reference                                                                                        58



5.1      Introduction                                                                                   59

5.2      Summary of findings                                                                   60

5.3      Recommendations                                                                        61

Bibliography                                                                                  62

Research Questionnaire                                                             64


Questionnaire S














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.


Kilby, (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.


The 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 (1990).


Since the 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.


However, 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 growth.


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).


A sound 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 insider-related credits.


Nigeria 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.


The end 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 also significant.



Many 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.


Given the 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.



The objectives 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 medium enterprises.

        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.



For the purpose of this study, the following related questions would be examined:


      i.            Why is small and medium scale enterprises so important in Nigeria?

   ii.            What are the forms of credit facilities available to small and medium scale enterprises through the banks?

iii.            To what extent have banks affected the development of small and medium scale enterprises in Nigeria?

 iv.            Has there been any difference in the holding period of credit given to small and medium scale enterprises since the bank recapitalization in 2005?

    v.            What are the constraints hindering the development of small and medium scale enterprises in Nigeria?

 vi.            What are the possible policy measures to encourage small and medium enterprises operation in Nigeria?

vii.            What measures are put in place by the government In financing small scale enterprises?



For the purpose of this study, the following hypothesis would be tested:

Hypothesis One

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.


Hypothesis Two

Ho:   The contribution of small and medium scale enterprises to national output do not have any positive relationship to economic growth.

Hi:    The contribution of small and medium scale enterprises to national output do have positive relationship to economic growth.



The various 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.



This 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.



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.



Small scale 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).

Medium scale 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).

Enterprises: 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).



This 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.

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