Impact Of Deposit Money Banks On The Growth Of Small And Medium Scale Enterprises In Nigeria
The impact of deposit money banks on the growth of selected micro enterprises in Nigeria, with SMEs in Abuja as a case study, was investigated. Three research questions were formulated to do this. In this study, the survey design was used, and also simple random sample techniques. The population consists of selected Abuja SME operators. The researcher conveniently picked 111 respondents while 90 were validated while determining the sample size. Data was collected using a questionnaire that was self-constructed and validated. The frequency tables and percentages were used to examine the gathered and validated surveys, while the hypothesis was tested using the SPSS V23 chi-square statistical tool. The impact of deposit money banks on the growth of selected micro enterprises in Nigeria, with SMEs in Abuja as a case study, was investigated. Frequency tables and percentages were used to examine the surveys, while chi-square statistical tests were used to test the hypothesis were tested using chi-sqaure statistical tool SPSS V23. According to the findings of the study, there is no significant relationship between small and medium-sized business funding and deposit money banks. Furthermore, the findings revealed that deposit money banks exist, as well as lending to small-scale industries and addressing the demands of small and medium-scale businesses. It is suggested that the government be consistent in its industrial policies in order for manufacturing enterprises to consider tariff measures when making trade decisions. The study recommends that the government be consistent in its industrial policies so that manufacturing firms can factor tariff measures into their trade decisions, and that the government provide adequate infrastructural facilities such as electricity, roads, and water supply for SMEs to reduce the high cost of doing business. As a result, banks will be more willing to support SMEs since their investment will be repaid.
Table of Content
- Title Page
- Table of Content
- List of Tables
- 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
Review of Literature
- 2.1 Conceptual Framework
- 2.2 Theoretical Framework
- 2.3 Empirical Review
- 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
Data Presentation and Analysis
- 4.1 Data Presentation
- 4.2 Analysis of Data
- 4.3 Answering Research Questions
- 4.4 Test of Hypotheses
Summary, Conclusion and Recommendation
- 5.1 Summary
- 5.2 Conclusion
- 5.3 Recommendation
1.1 Background to the Study
Small and medium-scale enterprises (SMEs) are viewed as tools for alleviating poverty in Nigeria and enhancing the country’s economy.
Economic development is a long-term process in which an economy’s actual national income grows. Economic development also refers to poor nations achieving higher levels of real per capita income and better living circumstances for their citizens. For affluent nations, maintaining progress is a challenge, but for impoverished countries, speeding growth is an even greater challenge (Ojo, 2010). The importance of finance in economic growth has long been recognized in the literature. Financial intermediation through the banking system, it is said, plays a critical role in economic development by influencing savings allocation, hence enhancing productivity, technical progress, and the rate of economic growth (Sanusi, 2011).
For both developing and developed countries, micro, small and medium scale firms play important roles in the process of industrialization and economic growth. Apart from increasing per capita income and output, MSMEs create employment opportunities, enhance regional economic balance through industrial dispersal and generally promote effective resource utilization considered critical to engineering economic development and growth (Sule, 1986; Udechukwu, 2003). Micro, small and medium enterprises (MSMEs) are companies whose headcount or turnover falls below certain limits. The definitions change over time and depend, to a large extent, on a country’s level of development. Thus, what is considered small in a developed country like the USA could actually be classified as large in a developing country like Nigeria. However, the definition of MSMEs in Nigeria as contained in the National Policy on Micro, Small and Medium Enterprises (SMEDAN, 2007) is adopted in this study (Table 1), because it is in line with the definition in other developing countries like Indonesia (Timberg, 2000) as well as in the European Union (EU) (European Commission, 2007).
Since Nigeria’s independence in 1960, the government has pursued a number of measures aimed at accelerating growth. The government resorted to using national economic plans to regulate the economy. Small businesses and entrepreneurship have received less attention as important components of economic development and growth. Until 1986, when the structural adjustment plan (SAP) was implemented, government policies continued to display a strong bias for major enterprises. The program acknowledged the growing significance of entrepreneurship in laying a firm basis for the nation’s growth and wealth creation. Following economic policies and programs recognized the importance of entrepreneurship and small-scale businesses in the economy in a variety of ways. Currently, policy ideas are represented in national and state documents on economic empowerment and development. Governments at all levels are more concerned about Nigerians’ economic empowerment and the need to alleviate poverty, have given entrepreneurship and the resultant small and medium scale enterprises a rising visibility and attention in the country. A lot of interest has also been kindled for the study and understanding of the roles of SME’s in the country, especially in employment generation and poverty reduction. There is a rising growth particularly in the less developed countries (LDCs) on small and medium enterprises (SME) for achieving industrial development because of the numerous advantages SMEs have over large-scale industrial establishment.
The banking system is critical for any nation since it is the hub of any economy’s socioeconomic growth. Terungwa, (2016). This means that commercial banks have an active developmental role in the economy, such as moving funds from surpluses to deficit spending units. In Nigeria, commercial banks are seen as the primary source of funding for SMEs and entrepreneurs. Finance has been recognized as a vital part in the growth and development of SMEs, according to Akabueze (2007). For example, the establishment and effective operation of any industrial firm, large or little, would need the availability of cash for capitalization, working capital, and rehabilitation, as well as the formation of new investments. Policymakers in both the public and private sectors have been particularly interested in providing money to the industrial sector, particularly to SMEs. It is common knowledge that businesses rely on a range of funding sources. External and internal, institutional and informal sources are among them. Aruwa (2009).
1.2 Statement of the Problem
Despite all of the efforts and supports of various administrations and governments, small and medium enterprises have not had the expected influence on the Nigerian economy, which is reason for concern. The hope has been that following a small business’s initial success, it will be able to seek funding from the formal sector, particularly MFIs or banking companies, to grow its operations.
Micro, small, and medium firms, which are typically risk-appraised by lenders as the “lower end” of the credit market, sometimes experience discrimination from formal credit providers, resulting in strict credit restriction and hefty risk-premium charges, if they are able to acquire credit at all. The restrictive situation stems from their inability to back up lending offers with traditional preferred securities such as mortgages, land, sterling shares, or other “gilt-edges” (CBN/CeRAM, 2007). This is why, in Nigeria and other developing nations, specific finance schemes and funds have emerged throughout time.
While financing is obviously not the only problem militating against the MSME sector, it is certainly the most formidable. Like any other investment in the real sector of the economy, investment in MSMEs is relatively bulky because of the need for fixed assets such as land, civil works, buildings, machinery and equipment and movable assets. Moreover, empirical studies (Udechukwu, 2003; NISER, 2005), show that the incidence of the extra outlays required to compensate for deficiencies in the supply of basic utilities is relatively heavier on MSMEs than large enterprises. While such extra investments have been shown to account for about 10 percent of the cost of machinery and equipment of large enterprises, they represent about 20 to 30 percent of that of MSMEs because of the absence of economies of scale.
Furthermore, due to the long gestation period of MSME investments in the real sector compared with trading activities, and other ancillary reasons, MSMEs have suffered bias by deposit money banks, which prefer to pay penalty rather than meet up the 20 percent target lending to small-scale enterprises (SSEs) following the then CBN credit guidelines in the direct monetary policy regime (CBN, Research Dept., 1995). This resulted in a drastic decline of SSEs lending after the abolition of the sectoral allocation in 1996 (CBN, Statistical Bulletin, 2009).
The study will examine problems associated with the role of deposit money banks in the growth of small scale industry in Nigeria. It will give information on the possible areas for in provident.
Furthermore, the study will help deposit money banks to assess and appraisal their role in financing small scale industry in Nigeria.
Moreover, suggestions and recommendations made in this study will help policy makers formulate new economic policies maintain or modify the existing one. It will equally serve as guidelines to researchers who may wish to decide with 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 compliance with government monetary policy.
1.3 Objective of the Study
The main objective of the study is to examine the Impact Of Deposit Money Banks On The Growth Of Selected Micro Enterprises In Nigeria. Other specific objectives are:
- To highlight the different sources of finance available to Micro enterprises;
- To examine the role of deposit money banks in satisfying the financial needs of SMEs in Nigeria;
- To examine method to reduce formality needed for financing the Micro enterprises by deposit money banks.
1.4 Research Questions
- What are the different sources of finance available to small scale enterprises?
- What are the roles of deposit money banks in satisfying the financial needs of SMEs in Nigeria?
- What are the methods to reduce formality needed for financing the Micro enterprises by deposit money banks?
1.5 Statement of the Hypothesis
- H0: There is no significant relationship between Financing of small and medium scale Enterprises and Deposit Money Banks.
- H1: There is significant relationship between Financing of small and medium scale Enterprise and Deposit Money Banks.
- H0: There is no significant relationship between deposit money banks and lending to small scale industries and also in meeting the needs of small and medium scale Enterprises
- H1: There is significant relationship between deposit money banks and lending to small scale industries and also in meeting the needs of small and medium scale Enterprises
1.6 Significance of the Study
During the 1960’s and early 1970’s most Nigerians engaged in industrial project did so on subsistence level but now emphasis has shifted to the sophisticated and capital intensive enterprises. Annual policies of the Federal Ministry of Nigeria in recent years have been to ensure that commercial banks provide needed capital to small scale enterprises to help improve their present state. The study therefore sets out to ascertain the extent to which commercial banks have performed the role and the findings will help make recommendations and suggestions for future improvement of the present situation.
Considering the type of collateral security required by the banks which must be fulfilled before granting loans. Since Deposit Money Banks act as intermediaries between surplus and deficitor as a bridge between scattered pockets of savers and the business community desirous of loans for investment, at the end of this research work the following will be attained;
- SMEs industrialist will be able to know some sources of finance and choose amongst them the best.
- Deposit Money Banks will know how effective and efficient they have been towards economic development.
- Deposit Money Banks will be able to make some adjustments in their lending processes.
1.7 Scope of the Study
The scope of the study is an appraisal of Deposit Money banks in the growth of small scale enterprises in Nigeria, a case study of Selected SMEs in Abuja.
Deposit Money banks adhere strictly to the rule of secret; in banking thus they refused to release information. It will guide the entrepreneurs in making credit demand that are compliance with government monetary policy.
In view of the current emphasis on industrialization of the country in order to reduce the country’s import bill from foreign countries, the study focuses attention on the evaluation of the ability of small scale entrepreneurs to obtain loans from the Deposit Money banks to attain the needed level of productivity and growth of their enterprises. The research covers selected small scale entrepreneurs in Abuja. For the period of three weeks.
1.8 Limitation of the Study
Some of the difficulties encountered by the researcher were the unco-operative attitudes of many of the banks’ officials approached and some of the small scale entrepreneurs who misconstrued the essence of the study. Another problem is that of lack of time on the side of respondents to answer the questionnaires in details coupled with the high fare of public transportation. This greatly increased the cost of production and limited the scope of areas covered by this study. Also difficulties were encountered in collecting data from the banks used as case study. Some of the questions in the questionnaire were not answered inspite of the university’s inscription on the questionnaire and the letter of authorization by the head of department attached to it as well as the detailed explanations given to them on the need of the study. They insisted that some of the required information were confidential and should not be released.
1.9 Definition of Terms
1. Small Scale Enterprises or Industries:
Any enterprises with a minimum assets base of N200 million excluding the land and working capital and with the number of staff employed not less than 10 or more than 300.
2. Deposit Money Banks:
Banks are financial firms or division of larger firms that accepted deposit subject to withdrawer on demand and invest part of these deposits in interest bearing loans and investments. They are profit making, banks organized on a joint stock basis that is the purpose of their establishments to make profits for their owners the shareholders.
3. Short Term Credit:
This type of credit is a credit or loan that has maturity period that is less or more than one year. E.g. Personal loan.
4. Medium Term Credit:
This is a type of credit or loan that has a maturity period of more than one year but not exceeding two years to be repaid back. E.g. loan required for temporary business requirement.
5. Long Term Credit:
This type of credit matures in more than three years and above. It has a very long maturity period as agreed by the lender and the borrower. E.g. are business development loans and Bridging loans.
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.
Summary, Conclusions and Recommendations:
This chapter summarizes the findings on the impact of deposit money banks on the growth of small and medium scale enterprises in Nigeria, Selected SMEs in Abuja as 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 on the impact of deposit money banks on the growth of selected micro entreprises in Nigeria, Selected SMEs in Abuja as case study. The study is was specifically focused on highlighting the different sources of finance available to Micro enterprises; to examine the role of deposit money banks in satisfying the financial needs of SMEs in Nigeria; and examining method to reduce formality needed for financing the Micro enterprises by deposit money banks.
The study adopted the survey research design and randomly enrolled participants in the study. A total of 90 responses were validated from the enrolled participants where all respondent are selected SMEs operators in Abuja Municipal Area. The chi-square (X2) statistical was employed in testing hypothesis. The chi-square (X2) is a sample statistical measure used in testing hypothesis concerning the signification of any difference between a set of observed frequency (o) of a sample and a corresponding set of expected of theoretical frequency (e).
The study reveals that they have needed advice on certain issues or information concerning your organization. It was also revealed that they keep daily or weekly records of business transactions. Also findings show that CBN also influence the bank lending policies. The research also reveals that there is no significant relationship between financing of small and medium scale enterprises and deposit money banks. Finally findings shows that there is significant relationship between deposit money banks and lending to small scale industries and also in meeting the needs of small and medium scale enterprises.
With respect to the analysis and the findings of this study, the following conclusions emerged;
The economic rationale for financing to small and medium-scale businesses (SMEs) is unmistakable, since small and medium-sized businesses have increasingly become a key element in the economic development of many nations throughout the world. The importance of deposit money banks’ credit to the expansion of small and medium-sized businesses, which in turn accelerates economic growth and development, has been objectively demonstrated in this study. Furthermore, in Nigeria, the finance-led growth postulation for economic growth and development through the mobilization and allocation of financial resources to deficit economic units is applicable.
Despite the fact that studies have been conducted on this topic, this study should serve as a catalyst for scholars to develop new ideas to help banks improve credit to the private sector as a means of achieving Nigeria’s vision of becoming one of the world’s top twenty economies.
Finally, this study contributed to the existing of knowledge by evaluating the various methods of deposit money banks in the growth of businesses in Nigeria. It explains the significance of SMEs in the banking sector’s growth. It provides a thorough understanding of the banking sector’s role in the economy.
Through the services they provide and the functions they perform in the economy, the banking sector has been characterized as a prominent essential participant in the financial industry that has positively impacted individuals, businesses, other financial institutions, the government, and the economy at large. Finally, despite the sector’s performance, it continues to face challenges. This implies that the banking industry and its operations still have a long way to go in terms of delivering innovative services for improved client relationships, better financing schemes, and Nigerian economic development.
Based on the findings the researcher recommends that;
- The government should be consistent in its industrial policies so as to enable manufacturing firms to factor tariff measures into their trade decisions.
- The government should provide adequate infrastructural facilities like electricity, roads and water supply for the SMEs as this will reduce the high cost of doing business. This will encourage banks to fund the SMEs as their investment will be recouped.
- The government should regard SMEs should regard SMEs as the ‘eggs’ that hatch big businesses. Apart from the adequate incentives in (2) above, the government should support SMEs by bulk purchasing their products and retailing them both for the domestic market and for exports.
- The banks should target potential borrowers for its core operations and form them into groups. Then soft loans should be made available to these SMEs, repayable within a specified period before others in that strategic group can benefit from the scheme. The idea is that with this system, a subtle pressure from other SMEs that are members of this strategic core is mounted on the benefiting group to repay so that others can benefit from the scheme. This will no doubt introduce healthy capitalization among SMEs through factoring the credibility of the borrowers.
- To facilitate their access to bank credits, the government should be issuing LPOs to the SMEs and payment should be made promptly to the SMEs as this will encourage their growth and the banks can also accept such contract papers as collateral.
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