THE IMPACT OF BANK LOANS ON SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA

(A CASE STUDY OF CUSTOMERS IN UBA PLC AWKA BRANCH)

By

ONUH KENNIS CHUKWUNWEOLU

Presented To

Department of Entrepreneur

ABSTRACT

This project work was carried out primarily to assess the role of commercial banks in financing small scale industries with particular reference to UBA Plc Awka Branch. In this exercise two vital categories of functional areas were investigated. The two groups under investigation were the staff and customers of UBA. They were considered to stand better chances of evaluating the Impact of Commercial Banks Loans in Financing Small Scale Industries. The instrument of data collection was questionnaire approach. The questionnaire items were distributed to the staff and customers whose opinions formed the basis of the analysis. The data and material collected were presented in tabular form and complemented by chi-square method. Based on the analysis from the information gathered, it was revealed that small scale industries have positive impact on the economy of the Nation because it provided employment opportunities to the youths. Based on the outcome of the projects on the basis of analysis, recommendations were offered on the best way the commercial banks could finance the small scale industries for the welfare of the people.

TABLE OF CONTENTS

TITLE PAGE

CERTIFICATION

APPROVAL PAGE

DEDICATION

ACKNOWLEDGEMENT

ABSTRACT

TABLE OF CONTENTS

CHAPTER ONE

10 INTRODUCTION

11 Background of the Study

12 Statement of the Problem

13 Objectives of the Study

14 Significance of the Study

15 Limitations of the Study

16 Research Questions

17 Research Hypotheses

18 Definition of Terms

CHAPTER TWO

20 REVIEW OF RELATED LITERATURE

21 Historical Small Scale Business

22 Importance of Small Scale

23 Features/Characteristic of Small Scale Business Enterprises

24 The Major Forms of Financial Assistance

25 Problems of Small Scale Industries in Nigeria

26 The Roles of Banks in Financing Small Scale Enterprise

27 Advantages of Banks as Sources of Finance to Industrialist

28 Disadvantages of Banks as Source of Finance to Small Scale Enterprise

CHAPTER THREE

30 RESEARCH DESIGN AND METHODOLOGY

31 Introduction

32 Research Design

33 Area of the Study

34 Population of the Study

34 Sources of Data Collection

35 Questionnaire Designs

36 Method of Data Analysis

37 Statistical Technique

371 Decision Rule

372 Validity of the Test

CHAPTER FOUR

40 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

41 Introduction

42 Analysis of Distributed Questionnaire

43 Test of Hypothesis

44 Summary of Data Presentation and Analysis

CHAPTER FIVE: 

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

51 Introduction

52 Summary of Findings

521 Findings Associated with the Financial Institution

522 Findings Associated with the Government

523 Findings Associated with the Small Scale Enterprises

53 Conclusion

54 Recommendations

BIBLIOGRAPHY

APPENDIX A

APPENDIX B

CHAPTER ONE

10 INTRODUCTION

11 Background of the Study

In Nigeria, as in many other developing countries there is dearth of financial institutions which cater for long and medium term credit needs of business operations In exception to this, they suffer a great deal for want of capital for development and expansion

By definition, commercial bank is an institution where money and other valuable items are kept for security purposes and at the same time transact business such as giving of loans and advances

Among the most important commercial banks in Nigeria are: The First Bank Plc formerly known as the bank of West Africa which has the largest assets and located its head office in Nigeria at 37 Marina, Lagos The Union Bank formerly known as Barclays Bank which was established in the year 1917 in Lagos as the first branch and is the first bank to hit one billion naira customers' deposit The commercial banks trend made through British and French Banks now called the United Bank for Africa Limited which was established in 1949 making it the third expatriate bank of dominate the early Nigerian Commercial Banking

The issue however remains that her pace, towards economic development has not kept record with the naturally endowed nations While some sectors of the economy have recorded some significant growth, others continued to lag behind inspite of increased financial resource allocations

While most of the villages still lack the basic necessities of life, potable drinking water, electricity and health facilities, many of the urban areas are becoming dotted with sky-scrappers Thus parallel growth structure between the two areas Hence giving rise to migration from the rural to the urban areas The ultimate effect has been the abandonment of natural resources in the rural areas to urban crimes and inflation

Government's efforts to check the above analyzed problems have not been fruitful rather the problems seem to be complicated in certain cases

The straw that broke the camel's back was the down-turn of oil prices for the growth in oil production coupled with high sales in the 1970's has turned the economy from a production oriented one to an import and distribution one It was what the oil glut was witnessed in 1981's that our economic planners recognized the need to reverse the trend, hence the concept of diversification One of the militating factors of diversifying the economy is the establishment of the small scale industries

The importance of these industries to the economic survival of the country cannot be overemphasized They have moved from the sub-existence level of pre-indigenization period to a position of importance in the country's industrialization process In an attempt to modernize many small scale enterprises, their standard of operations have moved into the capital intensive stage To do this, a reasonable amount of capital needed in many cases are beyond the financial capacity of the entrepreneurs who set up the business

The major alternative for the provision of such capital is the financial institution Among the financial institutions operating in the country, the commercial bank is one of the major sources of credit to various sectors of the economy However, it is a common knowledge that getting the financial support from the commercial banks getting the financial support from the commercial banks has been grossly inadequate for building indigenous entrepreneurs and even for those who have been in the manufacturing business for a long time

12 Statement of the Problem

In any economy, small scale industries are powers to reckon with in terms of provision of employment to the people Small scale industries can perform their roles effectively if they are empowered economically In Nigeria, small scale industries have not been encouraged enough by the government due to some constraints; such as lack of clear policy on the part of the government to strengthen their operations, lack of capitals, lack of facilities in the form of power, water supply, good road networks, and a host of others The enabling environment is necessary to make them operate fully The principle factor hindering their operations is lack of capital The capital for such business could either come through personal savings, through pooling of resources from friends or through commercial banks as the case may be Commercial banks have enormous roles to play to help small scale enterprises but they could not come due to several factors In Nigeria, commercial banks do not actually play the intermediation roles due to lack of capital, lack of defined policy for lending to the public and heavy collaterals among others Lack of defined interest rate, man-know-man syndrome and other constraints prevent small scale industries from performing their roles

This research is essentially designed to investigate why commercial banks hesitate to offer assistance to small scale industries with a view to finding solutions to these problems

13 Objectives of the Study

In view of the problems of small scale industries, the primary objective of the study is to evaluate the role of commercial banks in financing small scale industries in Nigeria

Other secondary objectives include the following:

i To identify the problems encountered by the industrialist in obtaining finance from commercial banks

ii To appraise the situation and make recommendation, as to how to improve on the bank services

iii To highlight the extent to which the commercial banks have helped finance small scale industries and problems hindering such

iv To create attractive opportunities for investment of Nigerian industry and provide outlets for production investment for Nigerian savings

v To conduct other aspect of commercial banking operations like acceptance of terms deposit and provision of loans to Nigerians

vi To lay emphasize on the provisions of basic ingredients of economic development necessary to finance enterprise, managerial and technical assistance which are in short supply in the rural areas This study will help to define the contributions of banking programmes in extending banking services to every part of the country

vii To know the roles of commercial banks and suggested ways of minimizing their problem of the financing of the small scale industries in Nigeria This study will help to promote the financing of small scale industries of the country both at rural and urban areas

viii This study will also help to make recommendations on how best some of the commercial banks activities will be handled

14 Significance of the Study

The significance of the study includes:

i To help Nigerian businessmen to hold on to their own commercial fields

ii To make Nigerians operate in such a way as to give confidence to work effectively in the commercial and industrial fields Industrialist will benefit because the research project will reveal any problem relating to relationship between commercial banks and the small scale industrialist When these problems are revealed it will aid small scale borrowers to ask for loan easily without any problems

iii To help Nigerian establish industries and own properties with the encouragement of commercial banks

iv To help individuals both entrepreneurs and investors to benefit from loans advances, overdrafts and business opportunities offered by commercial banks Individuals will also gain because when commercial banks give loans to industrialist, it will help to act that the needs of the people are provided if not fully but to an extent that a good number of people will benefit

v To help potential researchers who have the same or related topics to write on, and make use of this work The research will be of importance in that, it will provide data for future studies on the subjects Thus the study will be of benefit to students who will like to research on related topics in future; it will make their work easier because already a foundation has been laid

vi Through this study, the government shall become aware of the problems inherent in initiating such a project and avail themselves of such future problems in initiating other future projects in the same line

vii This work or study shall also help the appropriate authorities to ascertain the contributions and effectiveness of commercialization of banks

15 Limitations of the Study

This topic "The Impact of Bank Loan in Financing Small Scale Enterprises" (A Case Study of UBA Plc, Awka Branch) is very verse but for purpose of manageability and financial constraints, it has therefore resisted or limited itself to some specific banks in Awka, Anambra State

In choosing this bank, the researcher has limited her research in these areas of operation in the institutions that enhance economic emancipation of Nigeria and use inference drawn to apply to other development of financial institutions This has been so because the researcher assumed that all financial institutions saddled with the sole responsibility of small scale industry have the same goal and objective of enhancing small scale industry

16 Research Questions

The following research questions have been put forward to enable the researcher draw conclusion:

i What are the major constraints the small scale enterprises face in obtaining loans from commercial banks?

ii What are the roles of commercial banks to the growth of small scale industries in Nigeria?

iii In your opinion to what extent do you think that small scale enterprises can grow without assistance from the commercial banks?

iv What roles do you envisage government will play to encourage the small scale enterprise in Nigeria?

v To what extent would small scale enterprises contribute to reduction in unemployment among youths in the country?

vi To what extent could small scale enterprise survive in Nigeria in the midst of competitions in banking activities?

17 Research Hypotheses

The following hypotheses have been put forward to help the researcher determine result of this research work

1 Ho: Small and medium scale enterprises in Nigeria do not

contribute to the growth of the economy in Nigeria

Hi: Small and medium scale enterprises in Nigeria contribute significantly to the growth of the economy in Nigeria

2 Ho: Small and medium scale enterprises have no significant

relationship with employment programmes in the country

Hi: Small and medium scale enterprises have significant

relationship with employment programmes in the country

3 Ho: Small and medium scale enterprises have no correlation

with poverty alleviation programme in the country

Hi: Small and medium scale enterprises have direct correlation with poverty alleviation programme in the country

18 Definition of Terms

Small Scale: Different authors have different views of what a small and medium scale industry stands for or mean According to Kerelu FN (1988) A small scale industry is one whose paid-up capital falls within the range of about N750000

The Nigerian Bank for Commerce and Industry (NBCI) which currently plays a very active role in the promotion of small industries defines a small scale industry as one employing up to N500,000 Ezeije (1990)

In most cases, the varied definitions appear to be governed by the interest of the perceived, the purpose of the definition the state of development in which the definition is employed Generally a small business is defined as one which is owned, managed by one or two persons, influenced by the family in decision making has no undifferentiated organizational structure, market shares are small and employ less than fifty (50) persons

Role: For the purpose of this research, role should mean and includes all parts played and exhibited by financial banks

Loans: This is the transfer of fund from one economic entity to another which must be repaid with interest over a stipulated period of time

Credit: This word credit comes from Latin word "Credo" meaning, I believe, ability to command capital of another in return for a promise to repay as specified in the future

Finance: This is concerned with availability of money and capital goods for investment in industries to boost production

Industrialization: Could be defined as a strategy through which more industries are encouraged to spring up

Money: Money can be defined as anything, which is generally acceptable in a given society or locality as a means of exchange and for settlement of debt

Short Term Loan: A source of fund which has a short period of maturity