The Role Of Commercial Banks In The Development Of Small Scale Enterprises

Project and Seminar Material for Business Administration and Management BAM

The Role Of Commercial Banks In The Development Of Small Scale Enterprises


In the last fifteen years Nigeria has been experiencing the most serious small – scale crisis. The first major factor that put the country’s small – scale on the tendons position was the main stay of the economy. Nigeria being among the major producer of crude oil, suffered adversely from the effects of hurt in the wide oil market. Nigeria depend on oil exportation for over 90% of its foreign exchange earning and 85% it government revenue. I also observed that if banks declare huge profit in a year, it is for the benefit of the small – scale industries since part of it is invested in preferred sector of the economy. a case in point in the natural housing funds decree of 1990 which require banks and insurance companies to invest an amount equipment to not less than 10% of their loan and advance rate. Such policy, it must be enforced should cut policy, it must be enforced cut across all sectors of small-scale industries. All these tend to be imposed restrictions on banks and limit their performance.

Chapter One


1.1 Background of the Study

The aims of every government is to provide its people with basic services leadership and protect the entire people’s interest within its power, for government to this, it must have a sound and adequate financial planning to make it possible to cater for the people’s needs.

To a larger extent any government which comes into power has to depend on banks and other financial institution for keeping of some of its development project so also, the government agencies and general public depends largely on loan from the banks to carry out their day to day business affairs.

Generally, the main aim of every bank is to minimize the lost of running affairs of the bank and at the same time maximize owners profit. Some bank like the Central Bank of Nigeria (CBN) and development Bank was established purposely to develop some section of the economy e.g Small Scale Business, Industry, Agriculture etc.

Therefore, this bank despite the fact that they make profit, they are not profit oriented.

Therefore this research is based on the role played by commercial banks to the promotion of small scale enterprises in Nigeria with particular interest on the role played by the first bank of Nigeria Plc at it is the oldest commercial and leading bank in the country having been in prevailing economic problems brought about by the structural adjustment programme.

1.2 Statement of the General Problem

The banking industry plays an important role to the economy of any nation and there is no doubt, it plays an indispensable role for the development of Small Scale business.

This is not to say that they do not have lapses. Among the factors that lead to the inefficiency in the banking industry are:

a) Financial Distress:

This financial distress in Nigeria financial system is a problem that has recent assume an intractable dimension.

b) Bad Management:

This singular factors leaves a high stone of management which usually determined by academic/professional qualification, relevant experience, technical know how, business reflect, ability to formulate and implement good policies leadership qualities and style etc. because of the relative attractiveness of banking especially, people from different profession find them self in the mid system of banking operations without proper grooming the fact that banking is a district profession of its own with intricacies and idiosyncrasies.

c) Inadequate Capital Bases:

There is a saying that says “Life guard in a swimming pool must himself be a good swimming,” for a bank to enjoy confidence of depositors, it must have strong capital bases as evidence of strength. It is important that bank operates portability for the shareholders have to increase through accreting to statutory and general in service.

d) Risk Assets Portfolio:

This is no doubt a reflection of poor management. Most banks do not have clear investment or credit policy and there is absolutely no control on credit. In most cases it is the managing director or chairman or the promoters of these banks, who have lending power and they lend mainly to their own business and to friends without business or without following the due assessment or control.

e) Board Room Crisis:

It is unfortunate that s business which begins in a spirit of annuity and cordially at times turns into loss face and tension among the sponsors problems have in the past arisen on such topic as who plays what roles and people instability to concentrate on another people’s opinion have cause dissentients in the boardroom even physical frame as autocracy on the part of these who see themselves as the promoters or major shareholders can often caused board room crisis.

The monetary authorities had to be called into the management of some banks when thing get out of hand until the crisis is over. Board member engage in protected legal battle and by the end of the day who losses the rest of us.

1.3 Objectives of the Essay

The objective of this essay is to investigate in to the role played by commercial banks, which cannot be over emphasized in the small – scale development.

The purpose of carrying out this research work is to present a details and clear picture of the role played by commercial bank in small scale development. Example to what extent commercial banks have fulfilled their role in small scale development in Nigeria.

Expose factors which affects and determine the role of commercial in small scale development, suggest ways for improving banks participation in the development of small scale and the growth of the economy as a whole.

1.4 Significance of the Study

The significance of the study is therefore based on: identifying and analyzing to commercial bank on how to apply the small scale business situation in Nigeria. Also in identifying analyzing and providing advise to the government and central bank of Nigeria, on how to adjust or improve the banking regulation.

It is hoped that the finding of this research work regardless of its limitation would give the banking industries an insight knowledge of identifying ways to improve customer services in term of small scale development.

In enlightening customers of services available which are unknown to them.

1.5 Scope of the Study

The research specifically covers comprehensively the banking industry to the small scale and economy of Nigeria.

The primary responsibilities of all types of banks that we have in the industry have been touched in the literature review.

Generally the author attempted to examine their role of commercial bank to the small scale, thought there are several financial and banking industries to banking industries. A particularly consider the sources of fund to the bank and how these funds are fully utilized to make it own contributions to our national development and at the same time, maximize owners profit.

1.6 Definition of Term


It can be seen as an institution set up purposely for safe keeping of money, valuable goods and documents like wills and others. Its could be seen as a places where money is until the owners requires it.

Commercial Bank:

It can be seen as “a Financial Institution set up for keeping and lending money to people, owned by individuals, organization or governments, for the main purpose of making profit.”

Small Scale Enterprise:

It can be seen as a business which is independently owned and operated by one person, and is not dominant in it field of operated in local area.


it can be seen as an increase in income per capital and financial side of people, social and administrative structures as well as social behaviour and attitude of people’s including sometimes the people’s customs and beliefs.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary of Findings

This study evaluates the impact of commercial banks on small and medium scale enterprises in Nigeria. A dataset comprising macroeconomic time series data and individual data of 10 commercial banks was built. The empirical results suggest that commercial banks have significant impact on SMEs and their financing regardless of the general perspective that commercial banks shy away from lending to the SMEs. This confirms that commercial banks still remain an important source of finance for SMEs and an avenue through which SMEs can grow.In order for SMEs to enjoy greater benefits, they should see bank credit as a source of finance to be utilized for the expansion of their business. Government should encourage commercial banks to lend to SMEs by providing incentives and persuade the banks to give preference to SMEs.Also, SMEs on their own part should keep adequate financial accounts of their business operations as this is one of the pre-requisite in securing loans from banks.

5.2 Summary

The chapter detailed out how the data are being analyzed and presented using simple percentage. It also shows the results of the finding on the affirmation of the alternative hypothesis.

In carrying out this research, various discovering were made such as the level of small-scale development, problems of the small-scale enterprise and how to correct them, response and opinions of people and the division carried out.

The role-played by commercial banks and how the Apex banks helps in parties formation were verified. It also revealed the problems of the banks, which are:

Majority of the frauds experience by bank in Nigeria accounted for one by varied that is greediness on the part of the staff when affect the goodwill of the bank and loss of confidence in the bank.

Also good numbers of the frauds committed were through cheques finding and fraudulent loans. However, these frauds can be best controlled through specific prevention internal control and regular section supervision internal control and regular relation of the staff.

5.3 Conclusion

Based on the findings of the research in the earlier chapter of the research project the following conclusions were reached.

The commercial bank in Nigeria, its contribution to the economic development can be seen to be rising years after years despite the over regulation s by the government on banking activities.

The bank also witnessed a low patronage of its services especially by the aspect which was caused by the harsh economic condition of which the propensity to save.

In the provision of employment the bank has been able to stay ahead of other because of its non-discriminatory employment policies of employing both able and disable persons into its organization. The bank is generating much employment opportunities considering its number ofemployees.

This has been ordering assistance to the general public by given characteristic gifts to various causes, which include educational social services and health organization.

5.4 Recommendation

In view of the problem instead in chapter one of this project, the researcher will like to make the following recommendation to the banks and then to the government.

To Commercial Banks

Commercial banks should try as much as possible with the banking regulations of the country to grant loans and advances to small scale businessmen who are able to meet the condition of the commercial banks for their loans and advances. This is turn will increase the scope of the organization activities since majority of Nigeria businessmen who only need small or medium finance to continue operations.

More can be done by Nigeria commercial banks to the small scale development more rapidly then what they have been performing for instance, the areas of export financing, loans syndication or Agric and rural development the expertise and financial support to the commercial banks will be a welcome development.

It is necessary for commercial bank to keep abreast with the latest innovation in banking. There is need for structural changes in banking environment such structural changes must aim at making the banks more responsive to their immediate environment.

It is also necessary for commercial banks to lead their leading policies which attempt to concentrate on short – term loan and advance for commercial trade purpose, such short – term finance can be idle but not in situation where the need fro long term industrial investment is in high demand.

The effectiveness of commercial banks in the economy depend in the availability of infrastructural facilities. The larger community shares the performance of the bank, for instance the uneven spread of intramural facilities militates against some commercial bank aiding some small industries.

The commercial banks should embark on aggressive campaign to educate the citizen of the country about its activities. It carried out successfully, it will increase the number of organization and individuals who will patronize the bank, thus increase the profitability of the small-scale development.

Can embody the sound financial system of the small-scale enterprise needs. Each financial institution must identify its role in the new regulatory framework, which is highly regulator, act professionally and constantly keep at the bank of their mind that both central bank of Nigeria and other bank all have a duly to make the Nigeria and other bank all have a duty to make the Nigeria economic work to all benefits.

Worthily to mention is that application of rigidly sector alone with heavy leakages in the fiscal and exchange rate policies on doubt distorts small scale reform and stables investment in banks. Therefore, the government should look for a means to adjust these policies.

In order for sound small – scale climate bank banks especially commercial bank have been found to be an important vehicle and instrument toward the realization of this goal. Therefore the authority should create an avenue for constant dialogue with the top executives of the banks in the area of financial environment of the country in doing this will provide the room for exchange of ideas between the authority and the banks.

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