The Role Of Financial Institutions As A Catalyst For Small Business Development (A Case Study Of First Bank Plc Owerri)
This project work deals with the role of financial institutions as a catalyst for small business development. The main objective of the commercial bank (First bank) in particular in terms of its role in the financing of small scale business. On the basis of findings and other major facts unvoided by this research work, it can be concluded the financial institutions such as commercial banks have been performing significantly well in its role regarding the financial of businesses.
The study succeeded in making some major findings that hampers the banks performance of this role possibly proffer solutions. Notable among the findings are: the discovering of remarkable fluctuations in loan approvals and disbursement, the existence of persistent wide gap between loan approval and disbursements, restrictive and stringent lending policy. It was equally gathered that the bankers sponsors a programme called young entrepreneurship scheme and extents loan to future entrepreneur through natural economic reconstruction fund (NERFUND).
Also certain major problems that militate against the efficient operation of this bank was also uncovered. Such as unreliable information from its customers concerning their business, bad debts, liquidity squeeze and stringent CBN monetary policy guidelines.
In this project work, the method of descriptive statistics was adopted in the analysis of data. It is worthy of note that this project work encountered same major limitations and constraints in the area of finance time, and researchers. The tended to limit the validity of our conclusion.
Table Of Contents
- Title page
- Approval page
- Table of contents
- 1.1 Background of the study
- 1.2 Statement of the study
- 1.3 Purpose of the study
- 1.4 Significance of the study
- 1.5 Scope of the study
- 1.6 Limitation of the study
- 1.7 Research Question
- 1.8 Hypothesis
- 1.9 Definition of terms
2.0 Literature Review
- 2.1 Definition of small business and financial institutions
- 2.2 Place of small business
- 2.3 General principles as applied to bank lending
- 2.4 Government restriction on lending
- 2.5 The services financial institutions provided
- 2.6 The problems of small business in Nigeria
- 2.7 Methods of lending
- 2.8 Factors to be considered in lending
- 2.9 The role of small business enterprises in economic development
- 2.10 What is business failure?
- 2.11 Factors militating against the operation of the bank towards the financing of small business.
- 2.12 How banks can assist small scale business
- 2.13 Different forms of small business in Nigeria
- 2.14 The financial statement of a small business
3.0 Research Methodology
- 3.1 Introduction
- 3.2 Design of the study
- 3.3 Sources of data
- 3.4 Method of data collection
- 3.5 Population of the study
- 3.6 Sample of the study
- 3.7 Validation of the instrument
- 3.8 Reliability of the instrument
- 3.9 Method of data analysis
4.0 Presentation and Analysis of Data
- 4.1 Introduction
- 4.2 Analysis of personal data
- 4.3 Analysis of general data
- 4.4 Test of hypothesis one
- 4.5 Test of hypothesis two
5.0 Summary of Findings, Conclusion and Recommendation
- 5.1 Summary of findings
- 5.2 Conclusion
- 5.3 Recommendations
1.1 Background Of The Study
Financial institutions are intermediaries between the owners and users of fund. An intermediary is a go between owners and financial intermediary. This is also an institution which links lenders and borrowers either (as principal) by obtaining deposits from lenders and then relenting to borrower or (a broker) arranging a transaction.
They provide obvious and convenient ways in which lenders can save money which can then be lent out on their behalf. They aggregate savings and provide ready source of funds from surplus units to deficit units without financial institutions, there will be no meaningful intermediation process and no financial system.
The financial system consists of various financial institutions, there will be no meaningful intermediations, operators and instruments for the mobilization of funds and at the fostering of economic growth and development of a nation. Whereas a financial system is a prime mover of economic developments, its ability to do this revolves round the institutions and the intermediation process. According to Christy (1977) the level of system development is the best indicator of general economic development potential of a nation.
Small business development is an important area in Nigeria economic which has not received the type of attention it deserves. In different countries of the world the Europe and Asia, small scale business plays important role in the economic development. In Nigeria today, small scale business provides employment to a large proportion of population.
Business can be defined as all profit directed economic and commercial activities that provide goods and services necessary to a nations perspective, it may be seen, involves organized activity and nothing happens through chance various business public or private exist in the country. Some of the businesses are on a small scale while others are on a large scale. These businesses include Agriculture, manufacturing, service industries, trading, exports, imports and distributive business to mention but few. Small scale business on the other hand could be defined according to Federal Ministry of industries as a manufacturing, process or services enterprise whose capital investment does not exceed N250, 000 in machinery and equipment only.
Practically, these businesses have been contributing towards the sustenance and buoyancy of the economy. Using the role the commercial banks will play in the financial of small scale business and the effect on the economy is what this research is set to examine.
1.2 Statement Of The Problem
It has observed that lack of finance coupled with poor management has dealt a big blow on the survival or development of small which are established in Nigeria do not live beyond their year of commencement due to poor financial management and lack of finance. As a result, the nations economic growth has suffered a serious set back since small business plays complementary role in the economic development of the nation.
In view of these problems, this research topic is designed to examine these financial problems and the ways by which commercial banks assist in alleviating this problems of finance posing a big barrier for the small business development with a particular reference to first bank Plc Owerri.
As the pivot of this study, the researcher is interested in finding out the supposed role of this commercial bank as a catalyst interest rate, and the extent it has helped in providing adequate finance for the small business in Nigeria.
The under listed problems go a long way to hamper their prospects in receiving adequate finance from commercial banks. The problems are:
Management inefficiencies, absence of viable feasibility study to their project before seeking for loan. Under capitalization and difficulties in obtaining loans financial institutions. Mis-application of loan and the default in repayment of such loan borrowed.
1.3 Purpose Of The Study
This research project seeks to achieve the following purposes or objectives:
- To determine the various types of financial institutions in Nigeria.
- To evaluate the role of financial institutions as a catalyst for small business development.
- To determine the types of small business in Nigeria.
- To evaluate the problems of small business development and the problem of financial institutions in assisting small business.
1.4 Research Questions
- Does financial institutions contribute to small business development?
- What role do financial institutions play that serves as a catalyst for small business development?
- Is there any factor that militates against the assistance of financial institution to small business enterprises?
- These problem or factors can they be averted?
- Does financial institutions assist small business financially only?
- Ho: Financial institution does not contribute to small business development
HI: Financial institution does not contribute to small business development
- HI: Financial institution assist small business financially only.
Ho: Financial institution assist small business financially
Hi: Financial institution does not assist small business financially
1.6 Significance Of The Study
A small business enterprise plays a significant role in the economic development of a nation especially in Nigeria.
Here, so many people will benefit from this research work in so many ways. Owners of small business will find this study useful as it will expose them to consequences of not taking cognizance certain environment factors which affect small business development.
Obviously, this study will be useful to researchers and students especially in the literature review who do future research.
This study will equally be of a great important to the employers and employees of the private sectors of any economy through findings solutions to the numerous issues that have impeded the development of small scale businesses.
Lastly to organization, workers and subordinate, this research work will give them the insight of borrowing for business expansion.
1.7 Scope Of The Study
The research is basically concerned with the role of financial institution play in small business developing. Mainly the commercial banks like First bank Plc Owerri. This study covers also the evaluation of the role of First bank Plc in financing small business enterprises in Nigeria.
1.8 Limitation Of The Study
However, the researcher encountered so many problems during the research work. A time constraint was the major problem that omitted this work. Also lack of finance posed another barrier from the researcher in obtaining the necessary materials and data needed for this work.
More so, the tendency of the respondent to hear information need for this study posed another problem. There was exhibition of like warm attitude from the respondents especially from the respondents especially from the bank’s officials at the first contact.
Again the time available to carry out this topic was extremely short and insufficient, coupled with other academic commitment, the writer view this long essay as being limited by time. These limitations notwithstanding, the researcher through his consented effort has endeavour to produce a research work which he hoped would not only meet the academic requirement, but also satisfy every interested party.
Lastly, lack of materials such as books and journals hindered the researcher from making more findings
1.9 Definition Of Terms
This could be defined as the process of planning, organizing, controlling, co-coordinating, leading and directing organization resources to achieve stated organizational goals.
Small Scale Business:
These are those business in which its sales turnover do not exceed N500,000.
Small Scale Administration:
A federal agency established in 1953 solely to advise and assist the nation’s small scale business.
An organization chartered either by the comptroller of the currency and known as a national bank or chartered by the state in which it will conduct the business of banking.
In spite of competition from mortgage institutions, insurance companies and other financial institutions, banks are still the major financial intermediaries in Nigeria for the following obvious reasons.
A person or an organization that borrows money especially from a bank
An amount of money that has been made available for a particular purpose.
To work together in order to achieve a particular aim to organize a group of people to do things. The union against the cuts
Connect with money and finance financial services institutions to give financial advice assistance support to be in financial difficulties, an independent financial adviser.
A very short period of time, a moment.
5.0 Summary Of Findings, Conclusion And Recommendation
5.1 Summary Of Findings
The summaries of findings made in this study are given here under:
Firstly, the research work covered unremarkable fluctuation in both loan approval and disbursement. This trend does not speak well of the bank in terms of efficiently in credit lending generally. However slight variations were apportioned between loan approval and disbursement. The banks performance could be adjudge fair going by this yard stick.
Furthermore, the lending policy of the bank was found to be stringent and restrictive with so much emphasis being place collateral securities, it credit administration is associated with a lot of protocols and this tend to hamper early approval of loans. The bank adopts a strategy known as full / partial management participation in its lending activity. This is revealed by the analysis of data generated through the questionnaire. The bank equally sponsors programme called young entrepreneurship scheme (yes) and gives loan to future entrepreneurs through national economic reconstruction fund (NERFUND).
In addition, analysis of data generated through the questionnaire equally revealed that the bank is set with such problems like bad debt, unfulfilled obligation, and unreliable information from customers concerning their business and low morality of customers. It was also gathered that the bank is confronted by such special problems like liquidity squeeze, stringent central bank monetary policy guide lines and measures.
Moreso a wide gap exist persistently between loan application and loan beneficiaries. Next the bank receives the highest patronage from the manufacturing business followed by the agricultural businesses as indicated by the analysis of data generated through the questionnaire.
Finally, financial institutions give all the necessary assistance required for the upliftment of business ranging from financial advisory to full participation in business but among all these, it gives more preference to business financing.
On the basis of findings and other facts reviewed by this research work, it can be concluded that financial institutions has not been performing significantly well in this role regarding the financing of small business. This conclusion finds its root in the following facts uncovered by the study.
Notable fluctuations were discovered in both loan approvals and disbursement over the years. Closely allied to this is another major findings that has to do with a persist wide gap that exist between loan approvals and loan disbursement. Such factors do not speak well of the bank in question in terms of its role in the financing businesses.
Again, its lending policy was found to be stringent and restrictive with so much emphasis being placed on collateral securities. The credit administration of this bank is associate with so much protocol, which is partly responsible for delays in loan approvals and disbursements.
The study equally revealed certain bottleneck which contributed to its less problem include unreliable information from the customers concerning their businesses, liquidity policy guidelines
However, the business financing role of this bank can be enhanced if the bank can full partial management participation with more vigour and diligence.
Having cognizance of the problem identified in this research work and the conclusion made, the following recommendations are hereby made by three researchers.
Firstly, in order to narrow down the persistent wide gap between loan application and measures to greatly improve its savings and deposits mobilization operations. This will go a long way funds which will help in bringing the identified gap.
Secondly by, loan appraising officers should undergo periodic training and refresher courses. This will help their skill and efficiency. This is will help in curbing the incidence of bad full partial management participation. This banks full partial management participation device will be of help here, as well it could be more effectively implemented.
Thirdly there is need for the bank to streamline the protocols associated with its credit administration. This is necessary in order to minimize the delay in loan approval and disbursement.
Fourthly, the central bank of Nigeria needs to relax some of its stringent monetary policy measures and guidelines. For instance, CBN should appreciate the need to curtail the application of the instrument of stabilization securities as this is contributing to the problem of liquidity squeeze confrontation commercial banks generally.
Fifthly, financial institution should consider it worthwhile and necessary to set up efforts towards its advisory role regarding various businesses. This will assist in improving and boosting its performance in terms of business financially specifically, the bank is expected promoters on the economic viability and profitability of business which they wish to promote.
Sixthly, in as much as the bank should not curtail its lending to agricultural and manufacturing business, more loans have to import business, general trade, etc. the bank should equally encourage loan term project by making more provisions for medium and long terms.
Finally the banks should be more eminent in its lending policy, by not attaching so much emphasis to collateral securities as the main condition for granting loans to small business. Instead, some other stringent measures have to be devised like full participation, in the day affairs of the business. These will the recovery of the borrowed loans.
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Frequently Asked Questions
How do financial institutions help in capital formation?
Financial institutions help in capital formation, i.e., increase in capital stock Capital Stock The capital stock is the total amount of share capital (including equity capital and preference capital) that has been issued by a company.
What is the role of financial institutions in the economy?
They are regulated by a central government organization for banking and non-banking financial institutions. These institutions help in bridging the gap between idle savings and investment and its borrowers, i.e., from net savers to net borrowers. Following are the list of roles performed by Financial Institutions – How to Provide Attribution?
What is the role of financial institutions in trust fund management?
Some financial organization provides trust fund services to their clients. They manage the client’s assets, invest them in the best option available in the market, and take care of its safekeeping as well. Financial institutions help small and medium scale enterprises set up themselves in their initial days of business.
How does the government regulate financial institutions?
Due to their pivotal role in the development and growth of the economy, the government regulates these institutions through the central bank, insurance regulators, pension fund regulators, and so on. Over the years, their role has expanded from accepting and lending funds to larger areas of services.
What do you mean by capital formation?
This is capital formation. The process of capital formation involves three steps: (2) Mobilisation of savings through financial and credit institutions; and (3) Investment of savings. Thus the problem of capital formation becomes two-fold: one, how to save more; and two, how to utilise the current savings of the community for capital formation.
What is the role of saving and investment in capital formation?
Saving and investment are essential for capital formation. According to Marshall, saving is the result of waiting or abstinence. When a person postpones his consumption to the future, he saves his wealth which he utilises for further production.
What are the steps involved in the formation of capital?
Capital accumulation follows a process of three steps: First, growth in the volume of real savings. Second, savings mobilization through credit and financial institutions. Third, investment of savings. Hence, the formation of capital is not just a question of saving more, but also using those savings to boost production.
What is the role of capital formation in economic development?
It is the capital formation that accelerates the pace of development with fuller utilization of available resources. As a matter of fact, it leads to an increase in the size of national employment, income, and output thereby the acute problems of inflation and balance of payment.
What are the 7 functions of financial institutions?
Seven functions of the global financial system. savings, wealth, liquidity, risk ,credit, payment, policy. savings function. wealth. net worth. financial wealth. net financial wealth. wealth holdings. liquidity. What are the roles and functions of financial institutions?
What are the functions of financial institutions?
“The decline is largely attributable to the increased awareness of the general public to seek redress from the respective financial institution as a first level in the complaints resolution process,” the report said.
What is the role of financial institutions?
Financial institutions are engaged in the business of dealing with financial transactions and they are highly regulated by the government. Financial institutions help their clients with a wide variety of services like lending, deposit, investment services, and currency exchange.
What does an investment management company do for a trust?
Investment management services invest and divest assets according to the trust documents. Bank trust departments are among the oldest and most well-founded areas of traditional banking. They work with all types of people who want to form trusts to meet their bequest wishes.
What do banks do with trust funds?
If you’ve been thinking about creating a trust fund for your family’s future, or think you might want to one day, you’ll want to learn about how banks handle these tools. Bank trust departments offer two main types of service: trust administration and investment management.
What does a financial and Trust Company do?
Financial and Trust Services. Trust companies also can provide safekeeping services within secure vaults for other types of tangible investments or valuables, such as jewelry and collectibles.
What agency oversees banks?
Consumer Financial Protection Bureau. The Consumer Financial Protection Bureau helps consumers by providing educational materials and accepting complaints. It supervises banks, lenders, and large non-bank entities, such as credit reporting agencies and debt collection companies. The Bureau also works to make credit card, mortgage, and other loan disclosures clearer, so consumers can understand their rights and responsibilities.