The Effect Of Credit Risk Management On Entrepreneurial Development In Nigeria

Project and Seminar Material for Entrepreneurship

The Effect Of Credit Risk Management On Entrepreneurial Development In Nigeria


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This study was carried out to examine the effect of credit risk management on entrepreneurial development in Nigeria using selected SMEs in Aba, Abia state as a case study. The study was specifically set to examine the effect of credit risk management on entrepreneurship development of SMEs in Aba, ascertain the impact of access to credit facilities on business expansion among SMEs in Aba, and investigate the effect of the major constraint of access to finance on entrepreneurship development of SMEs in Aba. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprise of SMEs operators in Aba, Abia state. In determining the sample size, the researcher conveniently selected 240 respondents and all were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using mean score tables, while the hypotheses was tested using regression analysis method to test the hypotheses formulated. Small Scale Enterprise still suffers greatly from inadequate policy on fund raising, lack of risk management personnel, lack of credit advisory unit in loan houses and Inability to determine appropriate source of funding which significantly affects their level of development. The findings of this study have also found out that the Nigerian markets are filled with numerous business opportunities. Based on the findings, it was recommended that increased government support, uninterrupted power supply and communication link, provision of skilled manpower and computer wizard in operation of payment system, collaboration among banks, provision of adequate security and fight against corruption would assists and improve the growth and development of entrepreneurship in Nigeria. To mention but a few.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


Introduction

1.1 Background of Study

SMEs are the engine room for the growth of any developing economy, because they form the bulk of business activities in developed and developing economies like Nigeria(Kpelai, 2009). However, the small business’ contribution to macro- economic development is inhibited by the fact that they have no, or only overpriced, access to finance institutions and other services (Schneider-Barthold, 2002).

Credit risk management is a structured approach to managing uncertainties through risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. The strategies include transferring to another party, avoiding the risk, reducing the negative effects of the risk, and accepting some or all of the consequences of a particular risk. According to Plourd (2009), the importance of risk management is now escalated above issues such as long-term and short-term financing constrains. Proclaiming the existence of a risk management strategy is insufficient, enterprises need to actively engage in risk management practices to address the convergence of major risks as experienced in the current economic climate where the credit crisis risk, fluctuating commodity prices, increased government debt, rising unemployment and declining consumer spending are impacting individually and combined, on enterprises.

Entrepreneurship development involves leadership skill, managerial quality, transparency and accountability which have created opportunities for industrial development, communities and individual empowerment. A number of studies have been carried out on the effect of Microfinance on Entrepreneurial Development. In fact, academic interest that shows the effect of entrepreneurial development evidenced by the fact that some academic journals have devoted special issues to research establishing this linkage. However, credit risk arises whenever a lender is exposed to loss from a borrower, counterparty, or an obligatory who fails to honour their debt obligation as they have contracted (Luy, 2010). According to Colquitt (2007), this loss may derive from deterioration in the counterparty’s credit quality, which consequently leads to a loss to the value of the debt, or according to Crouhy,M.; Galai, D. & Mark (2006), the borrower defaults when he is willingly to fulfil the obligations. Funding has therefore remained one of the key managerial problems that keep confronting business enterprises in Nigeria today which may due to improper credit risk management. Therefore, this study will examine credit risk management and entrepreneurship development of SMEs in Nigeria.


1.2 Statement of the Problem

The problem of SME financing has received the most tremendous research efforts from researchers. Some notable works in this respect include Inang & Ukpong (2002) & Aruwa (2004). In their findings, four problems in financing SMEs have become recurrent: the cost of capital; risk; the inappropriate terms on bank loans; and the shortage of equity capital. Over the years government has enacted various policies and introduced schemes aimed at financing SMEs (Amaeshi 2007). However it is worrisome to note that SMEs are starved of funds and the financing problems keeps reoccurring (Mambula, 2002).

Credit risk management has become a global issue in area of small scale industrial sector, deficiency in entrepreneurship development create a lot of constraint to economic development especially developing countries. The SMEs in Nigeria are still characterized by numerous key setbacks among which is the extremely high cost of administration of small loans, this is worsened by high interest rates; discrimination from banks averse to risk of lending to small borrowers (Onugu, 2005). All these, have affected the SME in delivering the expected results and various skeptics have been raised against the increasing recognition of SMEs in the research literature in both developed and developing countries in recent time.

Credit risk management practices is an issue of concern in financial institutions today and there is need to develop improved processes and systems to deliver better visibility into future performance. There have been controversies among researchers on the effect of credit management techniques adopted by various institutions. According to Saunders and Allen (2002), good selection strategy for risk monitoring is adopted by the credit unions implies good pricing of the products in line with the estimated risk which greatly affect their profitability. Mwirigi (2006) on the other hand stated that loan portfolio management and operational efficiency management are the most important to consider in Credit Risk Management as they are the most important in enhancing the performance. The principal concern of this study is to ascertain the effect of various credit risk management techniques and strategies that are adapted by entrepreneurial on their performance. Based on the aforementioned, this study seek to examine the effect of credit risk management on entrepreneurial development in Nigeria.


1.3 Objectives of the Study

The main study objective is to examine the effect of credit risk management on entrepreneurial development in Nigeria. while the specific objectives of the study include;

  1. Examine the effect of credit risk management on entrepreneurship development of SMEs in Aba.
  2. Ascertain the impact of access to credit facilities on business expansion among SMEs in Aba,
  3. Investigate the effect of the major constraint of access to finance on entrepreneurship development of SMEs in Aba.

1.4 Research Questions

The study will be guided by the following questions;

  1. What is the effect of credit risk management on entrepreneurship development of SMEs in Aba?
  2. What is the impact of access to credit facilities on business expansion among SMEs in Aba?
  3. What is the effect of the major constraint of access to finance on entrepreneurship development of SMEs in Aba?

1.5 Research Hypothesis

  • Ho1: Credit risk management has no significant impact on entrepreneurship development in Nigeria.
  • Ho2: Access to credit facilities does not have any significant impact on business expansion
  • Ho3: The constraints faced in accessing finance does not have any significant effect on entrepreneurship development.

1.6 Significance of the Study

Since it has been accepted that development of small scale industry is inevitable in economic development of the country, this study will be of significant benefit to entrepreneurs by helping them to take credit risk management seriously so as not face financial problems or performance problems which can threaten the continuous existence of their business and at the end also affect the economy as a whole. This study will also benefit government to make policy that will improve entrepreneurship development in Nigeria and credit risk management in the country especially for small scale industries.

The study will be of benefit to academia by contributing and broadening existing knowledge of entrepreneurship by student which will in turn help in influencing student’s decision for those who might want to venture into entrepreneurship later in life and also to help make sound business decisions.


1.7 Scope of the Study

This study is structured to generally examine the effect of credit risk management on entrepreneurial development in Nigeria. This study shall focus on some of selected SMEs in Aba, Abia State.


1.8 Limitation of the Study

The major limitation experienced in this study is the Pension Fund Administrators itself. Most of the information provided by the Legacy Pension Manager required explanation as to the reason behind such activities and actions. Nevertheless, there is always solution to a problem the problems were to an extent surmounted. There is also a limitation to textbooks, Journals and other materials in the library which are relevant to this study. I have to source for some materials outside the library. In addition, there was insufficient time for the study. In fact, it is very difficult for a student to go for a research work at the detriment of his lectures. This affects the expected quality of the research work.

Furthermore, inadequate finance has an effect on this research work due to the current situation of the economy which makes prices of things very high viz-avis the cost of transportation the pension fund administrator to obtain relevant materials to this research work were very expensive.


1.9 Definition of Terms

Entrepreneurship

Entrepreneurship is a human activity which plays a major role in economic development its history is as old as human history it indicates to the spirit of enterprise.

Credit Risk Management

Credit risk management is a structured approach to managing uncertainties through risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources.


1.10 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows.

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on the effect of credit risk management on entrepreneurial development in Nigeria using selected SMEs in Aba, Abia state as a case study. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was to examine the effect of credit risk management on entrepreneurial development in Nigeria using selected SMEs in Aba, Abia state as a case study. The study was specifically set to examine the effect of credit risk management on entrepreneurship development of SMEs in Aba, ascertain the impact of access to credit facilities on business expansion among SMEs in Aba, and investigate the effect of the major constraint of access to finance on entrepreneurship development of SMEs in Aba.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 86 responses were validated from the enrolled participants where all respondent are SMEs operators in Aba, Abia state.


5.3 Conclusions

SSEs in every economy in the world require access to finance as well as mange the risk involved in facilitating credit facilities for their business to thrive on a sustainable basis. The study has shown that poor credit risk management serves as a drawback in the stride towards achieving improved entrepreneurship development. Results from this study have shown that for Small Scale Enterprises to stand as a driving force towards achieving economic growth and development, access to credit facility plays a significant roles as result have clearly shown that access to credit have an enormous significant impact on business expansion. Furthermore, the findings of this study have shown constraints faced by SSEs in accessing Finance and Managerial Capacity have negative significant effect on the rate of entrepreneurship development.

As such, credit and credit risk management among SSEs should be given prior recognition as they have clearly shown that they can serve as bedrock on which SSEs and the nation can build on towards achieving the economic breakthrough.


5.4 Recommendations

Based on the conclusion drawn, the following recommendations were made:

  1. The importance of credit risk management to business sustainability and entrepreneurship development cannot be overemphasized. Although, findings have shown that not all small Scale Enterprises can afford to set up a risk management unit due to the informal nature of most SSEs operation. As such, Policy makers, Industrialists and Financial Institutions should ensure that an effective risk management unit is put in place so as to give SSEs operators advisory services as well as enlighten them on the need to consult the risk management unit before determining issues relating to the types of fund to use and how it should be sourced.
  2. Finance is said to be the bedrock of business operations. This means that the role of Government in ensuring that SMEs can be relied upon as a backbone for economic growth and development is vital. As such, policy makers and financial institutions should ensure that means such as favorable interest rates, soft or no collateral backed loans and other mediums suitable to encourage SSEs in obtaining loans externally are devised to ensure that financial services can be easily accessed and relied on by SSEs operators.
  3. Government should ensure that it provide the much needed enabling environment for both SSEs operators to operate. SSEs operators should also ensure that the right hands are placed on desk to manage the affairs of the organization.

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