THE ROLE OF COMMERCIAL BANKS IN TH PERFORMANCE OF SMALL SCALE ENTERPRISES IN NIGERIA
By
Author
Presented To
Department of Entrepreneur
ABSTRACT
According to allbusiness.com (2010), the abbreviation of small and medium scale enterprises (SMEs) occurs commonly in the European Union and in International Organizations such as the World Bank, the United Nations and the World Trade Organization. Also the term Small and Medium Scale Businesses (SMEs) is predominantly used in the United States of America. The European Union states traditionally have their own definition of what constitutes SMEs. For instance, the traditional definition in Germany Limits Small and Medium Scale Enterprises to two hundred and fifty (250) employees while in Belgium, it is limited to one hundred (100) employees. Recently, the European Union has standardize the concept by categorizing enterprises with less than ten (10) employees as ‘micro’, those with fewer than fifty (50) employees as ‘Small’ and those with fewer than two hundred and fifty (250) employees as "medium". In the United States of America, any business with fewer than one hundred (100) employees is classified as "small" while medium scale business refers to a business with fewer than five hundred (500) employees.
In India, Micro and Small Enterprises play a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector account for about 39% of the manufacturing output and about 33% of the total export of the country. Also in South Africa, the term Small, Medium and Micro Enterprises (SMMEs) is usually used, while in Nigeria, the term Small and Medium Scale Enterprises (SMEs) is generally used. From the foregoing, it can be deduced that Small and Medium Scale Enterprises, are enterprises that have the capacity to employ at most five hundred (500) employees at a time and it has been proved to be the back bone of every economy.
The brain behind every successful Small and Medium Scale Enterprise is entrepreneurship which in the words of Olagunju Y. (2004) is an undertaking in which one is involved in the task of creating and managing an enterprise for a purpose. The purpose as further stated may be personal, social or developmental. One who is involved in this task is called an entrepreneur. Also a line between an entrepreneur and business owners must be drawn. While business owners establish and manage their own enterprise for personal gains, entrepreneurs exploit ideas that create a business that benefit them, the society and act as developmental weapon.
2.2 The Growth of SMEs and the contributive Schemes in Nigeria.
Sanusi (2003), Kayode (2001) and Hassan (2003), mentioned various schemes that have contributed to the growth of Small and Medium Scale Enterprises in Nigeria. The industries credit scheme (ICS) was introduced in 1971 as a revolving grant by the federal and state governments in Nigeria to assist in meeting the credit needs of SMEs on a relatively more liberal condition than in private leading institutions.
2.2.1 The Nigeria Bank for Commerce and Industry (NBCI).
The Nigeria Bank for commerce and Industry was established jointly by the federal government of Nigeria and the Central bank of Nigeria (CBN) in 1978 as the apex institution for Financing Small and Medium Scale Enterprises. The rationale for establishing the bank was to bring financial discipline to bear and to hopefully ensure a more efficient utilization of scarce financial resources for the development of viable Small and Medium Scale Enterprises. Bank was also vested with the power to administer the federal ministry to commence and industry’s special funds for small and medium scale Enterprises under a soft loan agreement.
2.2.2 The Central Bank of Nigeria special Credit Programme for Small and Medium Scale Enterprises (SMEs).
The Central Bank of Nigeria is the principal agent for implementing government financial and monetary policies and has over the year introduced a number of schemes for promoting improved access to credit for industrial development particularly in Small and Medium Scale Enterprises. The thrust of the schemes according to Bullion and CBN (2002) can be grouped into three, in line with Central Bank guidelines for Small and Medium Scale Enterprises under the bank’s monetary policy guidelines of 1988.
i. Credit guideline in respect of loans to Small and Medium Scale Industries:
In 1970, the Central Bank of Nigeria expanded its credit guidelines to incorporate Small and Medium Scale Enterprises with effect from January 1971. With the directive, at least 10% of bank loans and advances were allocated to Small and Medium Scale Enterprises.
ii. In April 1980, loans and advances available to Small and Medium Scale Enterprises rose from 10% to 20% in January, 1991. It was also clearly stated that stringent penalties await those who disregard the directive.
iii. Central Bank rural banking programme started in Nigeria in 1977 when the first phase (1977 - 1980) was introduced. The essence of this programme is to reduce the problems of poor access to credit by rural sector operators of Small and Medium Scale Enterprises. At the initial stage, a total of two hundred (200) rural branches were to be established and at that time, there were only twenty one (21) commercial banks in the country. By the end of June, 1980, a total of one hundred and eighty eight (188) of such proposed branches were established. The second phase of the programme took off in January, 1981 to December 1984 during which two hundred and sixty six (266) rural branches were established and between 1985 to 1986. As more pressure came from the Central Bank, additional nineteen (19) branches were established. The third phase was cumulated to push the number of branches to seven hundred and fifty six (756) at the end of 1988.
2.2.3 World Bank facilities for Small and Medium Scale Enterprises:
In order to further promote the growth of Small and Medium Scale Enterprises in Nigeria the federal government of Nigeria also negotiated additional financial assistance from the World Bank to complement other sources of funds available to small and medium scale Enterprises. This resulted into a loan of $270 million which was managed directly by Small and Medium Scale Enterprises apex unit within the Central Bank.
Also the establishment and recapitalization of Micro Finance Banks further ease the provision of funds for Small and Medium Scale Enterprises particularly in villages. Objectives for which micro finance banks scheme was established include the following according to Ana I. (2008).
i. To enhance service delivery by micro finance institutions to Micro, Small and Medium
Scale Enterprises (MSMEs).
ii. To contribute to rural transformation.
In India, Micro and Small Enterprises play a pivotal role in the overall industrial economy of the country. It is estimated that in terms of value, the sector account for about 39% of the manufacturing output and about 33% of the total export of the country. Also in South Africa, the term Small, Medium and Micro Enterprises (SMMEs) is usually used, while in Nigeria, the term Small and Medium Scale Enterprises (SMEs) is generally used. From the foregoing, it can be deduced that Small and Medium Scale Enterprises, are enterprises that have the capacity to employ at most five hundred (500) employees at a time and it has been proved to be the back bone of every economy.
The brain behind every successful Small and Medium Scale Enterprise is entrepreneurship which in the words of Olagunju Y. (2004) is an undertaking in which one is involved in the task of creating and managing an enterprise for a purpose. The purpose as further stated may be personal, social or developmental. One who is involved in this task is called an entrepreneur. Also a line between an entrepreneur and business owners must be drawn. While business owners establish and manage their own enterprise for personal gains, entrepreneurs exploit ideas that create a business that benefit them, the society and act as developmental weapon.
2.2 The Growth of SMEs and the contributive Schemes in Nigeria.
Sanusi (2003), Kayode (2001) and Hassan (2003), mentioned various schemes that have contributed to the growth of Small and Medium Scale Enterprises in Nigeria. The industries credit scheme (ICS) was introduced in 1971 as a revolving grant by the federal and state governments in Nigeria to assist in meeting the credit needs of SMEs on a relatively more liberal condition than in private leading institutions.
2.2.1 The Nigeria Bank for Commerce and Industry (NBCI).
The Nigeria Bank for commerce and Industry was established jointly by the federal government of Nigeria and the Central bank of Nigeria (CBN) in 1978 as the apex institution for Financing Small and Medium Scale Enterprises. The rationale for establishing the bank was to bring financial discipline to bear and to hopefully ensure a more efficient utilization of scarce financial resources for the development of viable Small and Medium Scale Enterprises. Bank was also vested with the power to administer the federal ministry to commence and industry’s special funds for small and medium scale Enterprises under a soft loan agreement.
2.2.2 The Central Bank of Nigeria special Credit Programme for Small and Medium Scale Enterprises (SMEs).
The Central Bank of Nigeria is the principal agent for implementing government financial and monetary policies and has over the year introduced a number of schemes for promoting improved access to credit for industrial development particularly in Small and Medium Scale Enterprises. The thrust of the schemes according to Bullion and CBN (2002) can be grouped into three, in line with Central Bank guidelines for Small and Medium Scale Enterprises under the bank’s monetary policy guidelines of 1988.
i. Credit guideline in respect of loans to Small and Medium Scale Industries:
In 1970, the Central Bank of Nigeria expanded its credit guidelines to incorporate Small and Medium Scale Enterprises with effect from January 1971. With the directive, at least 10% of bank loans and advances were allocated to Small and Medium Scale Enterprises.
ii. In April 1980, loans and advances available to Small and Medium Scale Enterprises rose from 10% to 20% in January, 1991. It was also clearly stated that stringent penalties await those who disregard the directive.
iii. Central Bank rural banking programme started in Nigeria in 1977 when the first phase (1977 - 1980) was introduced. The essence of this programme is to reduce the problems of poor access to credit by rural sector operators of Small and Medium Scale Enterprises. At the initial stage, a total of two hundred (200) rural branches were to be established and at that time, there were only twenty one (21) commercial banks in the country. By the end of June, 1980, a total of one hundred and eighty eight (188) of such proposed branches were established. The second phase of the programme took off in January, 1981 to December 1984 during which two hundred and sixty six (266) rural branches were established and between 1985 to 1986. As more pressure came from the Central Bank, additional nineteen (19) branches were established. The third phase was cumulated to push the number of branches to seven hundred and fifty six (756) at the end of 1988.
2.2.3 World Bank facilities for Small and Medium Scale Enterprises:
In order to further promote the growth of Small and Medium Scale Enterprises in Nigeria the federal government of Nigeria also negotiated additional financial assistance from the World Bank to complement other sources of funds available to small and medium scale Enterprises. This resulted into a loan of $270 million which was managed directly by Small and Medium Scale Enterprises apex unit within the Central Bank.
Also the establishment and recapitalization of Micro Finance Banks further ease the provision of funds for Small and Medium Scale Enterprises particularly in villages. Objectives for which micro finance banks scheme was established include the following according to Ana I. (2008).
i. To enhance service delivery by micro finance institutions to Micro, Small and Medium
Scale Enterprises (MSMEs).
ii. To contribute to rural transformation.
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