The Contributions Of Banks To The Development Of Small Scale Enterprises In Nigeria
This study focuses on the contribution of Untied Bank for Africa to the Development of Small Scale Enterprises. It aims at evaluating the contribution of United Banks in financing small scale businesses, identifying challenges of accessing bank loans as well as possible factors hindering implementation of credit policies by banks. To achieve this, the survey research design was adopted with oral interviews and questionnaires to elicit responses. The simple percentages and chi – square (c2) test statistics were used in analyzing the data and determining the tenability of the hypotheses formulated. Unaffordable terms of capital, challenges in accessing bank loans and advances and factors hindering implementation of credit policies were found to be more challenging, the researcher recommends that banks should make available capital an affordable terms ensure regular routine check on businesses, educate entrepreneurs through managerial workshops and government should enforce implementation of credit to policy to boost the development of small businesses.
1.1 Background of the Study
In both developed and developing countries, the small scale industry is seen as the vehicle for rapid industrialization, sustainable economic growth and development, poverty alleviation as well as the seed bed of innovation and employment generation. It goes without saying therefore, that small scale enterprises have the potential of becoming the engine of the economic growth in any country (http://www.snbd.com, July 8 2010).
Because of this paramount importance of small scale businesses, there has been a pressing need for the involvement of banks in financing its development in Nigeria and Kaduna in particular. This is due to the fact that banks loans constitute the most important source of institutional financing for both start-up and growing enterprises.
It is the realization of this fact that made the government to establish various schemes and programmers in the past to enhance credit availability to small scale enterprise in Nigeria. In recent time now however, the Nigeria bankers committee in 1999, approved the scheme requiring all banks in Nigeria to set aside 10 percent of their profit before Tax (PBT) for equity development in small scale and medium scale industry.
Despite these measures, many small scale businesses with economic potentials for growth often fail and close down due to lack of funds, insufficient working capital, lack of managerial experience and skilled labor, poor accounting records as well as lack of infrastructural facilities (central Bank of Nigeria: the billon, October/December 2004:58-b5)
Thus, how banks have contributed to improving the aforementioned challenges and the expectations, regarding the development of small scale enterprise in Kaduna are the issues discusses in research work.
1.2 Statement of the Problem
Although the small scale enterprise is regarded as the bedrock of industrialization of an economy, attempts made by many entrepreneurs to start and operate them have met with high percentage of failures, lack of fund and insufficient working capital have identified as some of the cause of such failures. The study therefore seeks to answer such questions as; have banks been able to make available capital on affordable terms to small scale enterprise? What measures have been put in place to ensure that such funds are effectively used by enterprises? Does small scale enterprise actually have easy access to credit facilities? These and more issues constitute the problems that necessitate this research work
1.3 Objective of the Study
The objective of this research work are :
- To evaluate the role of banks in financing small scale enterprise in Kaduna.
- To identify challenges faced by small scale businesses in accessing loans
- To identify possible factors handing implantation of credit policies on loans and advance to small scale entrepreneur.
1.4 Significance of the Study
The significance of this study is that, it shows the relevance of banks in financing small scale businesses, thus enhancing business growth and expansion an attainment of goals and objective of the business. It is also beneficial for formulation of policies and programmes by the federal and state government as they might be looking forward to taking necessary steps to prevent the collapse or failure of small scale businesses in Nigeria and Kaduna in particular. Again, it will enable the entrepreneurs to have more understanding of how businesses should be financed, thus having knowledge on funding further research in this area.
1.5 Research Questions
For the purpose of this research work, the following questions would serve as a guide to evaluate the development role played by the united bank for African (UBA) plc.
- Is capital made available on affordable terms to small scale enterprise?
- Are there challenges facing small scale enterprise in accessing bank loan?
- What factor hinders implementation of credit policies on loans and advances to small scale entrepreneurs?
1.5.1 Statement of Hypotheses
- H0: Capital is not made available to small business on affordable terms.
H1: Capital is made available to small business on affordable term.
- H0: There are no challenges facing small scale business in accessing bank loans and advances.
H1: There are challenges facing small scale business in accessing bank loans and advances.
- H0: There are no factors hindering implementation of credit policies on loans and advances to small scale businesses.
H1: There are factors hindering implementation of credit policies on loans and advances to small scale businesses.
1.6 Scope of the Study
This research work is limited to cover the development in terms of financing the small scale business enterprise in Kaduna using the united Bank for Africa Plc as a case study, with a view to highlighting related problems and proposing solutions to the problems.
1.7 Limitation of the Study
This study is constrained by the cost of acquiring information as the researcher had to browse on the internet, search academic journals and books relating to the subject matter of the research work. Also, considering limited time, other competition course works with this study does not allow for exhaustive research work.
Summary, Conclusion and Recommendations
Financing has been a major concern of most small scale business enterprises in Nigeria and Kaduna is not left out. Though the economy is benefiting form the existence of these small scale enterprises in terms of job creation, rural development, invention and innovation and training for supervisors and managerial workers, inadequate capital has resulted in poor growth and development and most often failure of these enterprises.
Hence, this research workers has unfolded the fact that the inadequacy of capital result from failure of banks as a major source of institutional financing, to make capital available on affordable terms. Similarly, Bisi & Banji (2008) are of the opinion that, the inadequate capital is not only occasioned by the reluctance of commercial banks to grant them loans but also, credibility crisis, inexperience and incompetence of entrepreneurs to attract the capital. And that these are the problem limiting the ability of small scale businesses to play their role in poverty and development challenges plaguing developing countries like Nigeria (www.smu.ca/chal.hlf, 21st November, 2010).
Furthermore, the researcher found out that there are challenges in accessing bank credit as a result of poor accounting records, diversion of loans to other uses and firms inability to service dept. in a related study, Ayadomola (2003) is of the view that illiteracy of operators of small scale enterprises is the cause of these challenges and that training operators in managerial skills will enable them recruit, manage, develop and control inter-business activities (234 next.com, 21st November, 2010). Also, Bisi & Banji (2008) said education will enable them start the right business at the right level of operation, experience, chapter and competence that attract capital requirement.
From the result of findings, we generalize that small scale businesses have limited access to institutional credit (due to stringent lending terms by banks and poor accounting records by small scale entrepreneurs.
Although small scale enterprises have contributed much to the economic development of Nigeria and Kaduna in particular, it is poorly financed and this reflects on their performance in terms of growth and development.
It was also discovered that despite the efforts of the banks in developing small scale industry, there are still several factors responsible for the poor financing of small scale businesses by the banks ranging from poor accounting records diversion of loan amount to other uses, inability to service departments to inability of the enterprises to comply with the stringent lending terms.
Thus, this study further identifies some of the factors hindering availability of loans and advances to and by small scale enterprises.
From the conclusion reached, the following recommendations were put forward:
- Banks should make available capital on more affordable terms by making their lending terms more favourable and affordable to small scale enterprise so they could have access to institutional credit.
- Banks should engage on regular routine check on the business location and business community to ensure that funds borrowed are effectively and efficiently utilized by entrepreneurs.
- Attention should be given to education of entrepreneurs through accounting and managerial workshops to equip them on the techniques of accounting, book-keeping and business management.
- Government should enforce implementation of credit policies by banks such that defaulting banks receive penalty. This is to check poor implementation of government policies on loans and advances and this will result in better financing of small scale businesses.
5.4 Suggestion for Further Study
The limitations of this study did not allow for exhaustive research work. Therefore, further study could be done to cover broader scope on the subject matter. Also other variables could be engaged to better evaluate the problems put forth on this study.
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