BACKGROUND OF THE STUDY
Small and Medium Enterprises (SMEs) have been recognized as
a driving force for economic growth in any nation. They are also perceived as
the key to Nigeria’s economic growth, poverty alleviation, increase
productivity level in a nation, and employment generation in recent years has
generated a lot of research interest on their challenges and prospect. In
recognition of the role of Small and Medium Scale Enterprises in the economic
growth process of Nigeria, government has taken concerted efforts to foster the
growth of Small and Medium Scale Enterprises and also develop entrepreneurship.
Small and Medium Scale Enterprises are of necessity to a nation’s
industrialization process. One foremost way of promoting Small and Medium Scale
Enterprises is by having easy access to finance. Finance is of high importance
to the growth of Small and Medium Scale Enterprises. Afolabi (2013) noted that
a major gap in Nigeria’s industrial development process in the past years has
been the absence of a strong and virile SMEs sector attributable to the
reluctance of banks especially commercial banks to lend to the sector.
Commercial banks through their intermediation role are meant to provide
financial succour to SMEs. Prior researchers have identified lack of finance as
a threat to the performance of SMEs. For SMEs to perform their role in the
economy, they need adequate funds in terms of short and long-term loans
(Ohachosim, Onwuchekwa&Ifeanyi, 2013).
Adequate financing of Small and Medium Scale Enterprises is
paramount to their survival, financial constraint is one of the main reasons
Small and Medium Scale Enterprises fail in Nigeria. Osoba (1987) argued that
financing strength is the main determinant of small and medium enterprises
growth in developing countries. There is no gain saying that finance would
boost the performance of Small and Medium Scale Enterprises if adequate and
optimally utilized. The dearth of funds in these businesses is capable of
crippling their operations. Lack of funding for SMEs creates obstacles in
allowing them contribute to economic growth and development. Onugu (2005)
ranked access to finance as the second problem faced by Small and Medium Scale
Enterprises in Nigeria. Commercial banks are often reluctant to lend to Small
and Medium Scale Enterprises because of the perceived risky nature of Small and
Medium Scale Enterprises by them. Analysis of the annual trend in the share of
commercial bank credit to small-scale industries indicates a decline from about
7.5 per cent in 2003 to less than 1% in 2006 and a further decline in 2012 to
0.14 per cent (Sanusi, 2013). The decline shows that commercial banks have less
preference to lend to Small and Medium Scale Enterprises. The main identified
gap that necessitated this study is the perceived the role of commercial banks
in financing Small and Medium Scale Enterprises in Nigeria.
STATEMENT OF THE PROBLEM
There are numerous problems that hinder the growth of small
and medium scale enterprises in developing countries. Lack of access to credit
hinders the growth and development of SMEs. Also is the problem of cutthroat
competition of the established industries and the small and medium scale
enterprises also are a critical problem. Most times commercial banks do not
follow the credit guidelines and other related policy issues affecting the
small-scale enterprises in Nigeria. In some instances where commercial banks
obey policy guidelines, they charge very high interest rate. The problem of
credit to small scale industries may not necessarily be as a result of
financing insufficiency but rather for some other reasons among which are.
Insufficient preparation on the part of small scale
entrepreneurs in their request for credit assistance.
Information gaps as to range of funding institutions and
scope of services available in these institutions
Moreover, servicing of small business accounts is relatively
experience, risky and difficult to monitor with low turnover of account.
However, the parishioners in the sector small scale industry
do not display competence in preparing justification for their project. Most of them do come up with cash flow
projections, projected balance sheets, among others. They are based on personal rudimentary in
formation and speculation. At times when
they seek the advice of consultants, the outcome that are made figures project
based on assumptions which are most of the time unrealistic. As a result such
proposals are out rightly rejected by banks when credit demands in this sector are
not in compliance in this government monetary policy and credit guidelines
which must be adhered to by banks.
1.3 RESEARCH QUESTION
What are the roles of commercial banks in financing small
scale Enterprises in Nigeria?
What are the impact of commercial Banks on small and Medium
Scale enterprises in Nigeria?
What are the effects of financing on the performance of
What are the problems encountered by SMEs in obtaining
finance from commercial banks?
What is the relationship between the performance of SMEs and
What are the possible ways in which commercial banks can
help in the success and advancement of small and medium scale enterprises?
1.4 AIMS OF THE STUDY
The major purpose of this study is to examine sport
diplomacy and regional integration. Other general objectives of the study are:
To examine the role of commercial banks in financing small
scale Enterprises in Nigeria.
To examine the impact of commercial Banks on small and
Medium Scale enterprises in Nigeria.
To examine the effect of financing on the performance of
To examine the problems encountered by SMEs in obtaining
finance from commercial banks.
To examine the relationship between the performance of SMEs
and economic development.
To suggest possible ways in which commercial banks can help
for the success and advancement of small and medium scale enterprises.
1.5 RESEARCH HYPOTHESIS
H0: There is no significant role of commercial banks in
financing SMEs in Nigeria.
H1: There is a significant role of commercial banks in
financing SMEs in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
This study will highlight problems associated with the role
of commercial banks in financing small scale industry in Nigeria. It will give
information on the possible areas for improvement. Furthermore, the study will
help commercial banks to assess their role in financing small scale industry in
Nigeria. Moreover, suggestions and recommendations made in this paper will help
policy makers formulate new economic policies to maintain or modify the
existing one. It will equally serve as a guideline to researchers who may wish
to research this study in the future. It will also help small scale
entrepreneurs to make sufficient preparation in their request for credit
assistance. It will guide the entrepreneurs in making credits demands that are
in compliance with government monetary policy. The last but not the least it
will help the entrepreneurs to display competency in preparing justification
for their project. It is rear to see most of them coming up with cash
projections, projected balance sheets.
1.7 SCOPE OF THE
The study is based on role of commercial Banks in Financing
SMEs in Nigeria, case study of Lagos State.
1.8 LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
Time constraint– The researcher will simultaneously engage
in this study with other academic work. This consequently will cut down on the
time devoted for the research work.
1.8 DEFINITION OF TERMS
Small Scale Enterprise: An enterprise with a labor size of
11-1000 workers or a total cost of not more than 50 million including working
capital but excluding cost of land (Sule, 1986:207).
Medium Scale Enterprise: An industry with a labor size of
between 10-300 workers or a total cost of over 50 million but not more than 200
million including working capital but excluding cost of land (Clifford,
Commercial Bank: A financial institution that acquires
deposit from savings, surplus unit and give out loans to savings deficit units.
Sole Proprietorship: Is a business owned and conducted by
one person presumably assisted by one or more persons for intakes wife and
Enterprises: It means any establishment engaged in
production, repairs or services to satisfy human wants and make room for