ROLE OF COMMERCIAL BANKS IN FINANCING SMALL SCALE INDUSTRIES IN NIGERIA
The role of commercial banks in Nigeria's financial small-scale industry is the subject of the dissertation. a Union Bank of Nigeria Plc case study.
Finding out how much the Union Bank of Nigeria Plc has contributed to financing small scale enterprises is the study's main goal.
Surveys and research questions served as the primary source of data for the data gathering process, whereas secondary data was derived from materials found in a variety of published publications, textbooks, journals, and newspapers.
Tables, percentages, and chi-square are all used as part of the analysis process.
The main finding of the study is that during the study period, Union Bank of Nigeria Plc assisted in financing small scale industries.
The central bank of Nigeria and the government can take more steps than they are now taking, according to the findings, to lower the risk in lending to small-scale industries.
The study came to the conclusion that commercial banks' roles should complement each other in order to achieve the ultimate goal of leveraging small scale companies as development catalysts.
1.1 BACKGROUND OF THE PROBLEM
The achievement of self-reliance has been emphasised in Nigeria's subsequent development programmes. This national goal is necessary since people are expected to do a lot,
including producing industrial raw materials, earning high per-capita incomes, and becoming self-sufficient in the production of basic goods like food and materials.
Okporobie (1989:10) notes that despite the apparent emphasis given to the sector, Nigeria's small-scale industries have continued to shrink.
The central bank, however, realised that this policy was insufficient on its own and requested that all commercial banks reserve a portion of the minimum credit allocation for indigenous borrowers for small-scale Nigerian firms with effect from 1970–1980. Ten percent (10%) was the aim set in 1979, and it was later increased to sixteen percent (16%).
Despite the fact that the evidence at hand indicated that commercial banks' compliance with this instruction had been poor. The national banking system's seamless operation will be maintained by the central bank by making every effort to ensure that banks fully couple.
He also noted that Nigeria's efforts to industrialise will undoubtedly remain in jeopardy if small-scale industry growth is not accelerated.
The researcher believes that in order for our industrialisation to progress in the future, we must address the fundamental problems of building connections before the economy can start to generate meaningful inputs for our manufacturing processes.
Therefore, these industries must receive priority attention since domestic inputs for them are readily available. Agro-allied businesses including food processing and other byproducts will result from this.
Maximising the value contributed during their processing and manufacture as final goods should be the goal.
Strong producer incentives for small-scale industrialists are required, according to Nzewi and Oze (1985:56), not only to fulfil the demand for food but also to supply expanding input supplies and demand, which serves as the basis for long-term industrial expansion.
The current economic difficulties could end up being a blessing in disguise for our industrialization process, especially for the burgeoning manufacturing industry.
For instance, the market-determined exchange rate and the high cost of imported inputs may encourage industrialists to step up their search for domestic alternatives.
Small scale businesses are seen as an integral component of a feasible structure for the achievement of significant economic development in emerging economies like Nigeria, according to Ekenyong and Nyong's (1992) observation.
Due to the apparent connection and multiplier effects that small scale firms have on the functioning of the economy and economic growth in general, they are much more cost effective in bringing about development than large enterprises.
According to Osayameh (1989), the following are the factors that make small businesses more amenable to aid.
1. The owner's personal contribution; often, start-up money is derived from life savings.
2. Minimal upfront investment necessary
3. The presence of just a few light legal restrictions and ease of access and exit
4. Suitability for business consulting services due to their modest size, which makes them more receptive to suggestions for improvement.
The four primary types of company financing available to small scale manufacturing in Nigeria are noted by Olashore (1987).
i. Official financial organisations, including commercial banks, merchant banks, insurance firms, and the development bank.
ii. Informal financial institutions like friends, family, and “esus” credit and savings groups.
iii. The NERFUND NEXIM financing scheme.
A programme called the Small and Medium Industries Equity Investment Scheme (SMIEIS) was introduced in 2001, and banks have so far set aside N359 million for it.
Through the small and medium-sized firm (SME) department of Union Bank, the bank has continued to be at the forefront of SME lending as of the end of March 2004.
Any industry with a turnover of less than N750,000, including working capital but excluding land costs, is considered small scale.
According to the Obafemi Awolowo University's Ile Ife centre for industrial research and development, it also refers to businesses with fewer than 50 employees and total assets in plant, equipment, and working capital under N250,000.
1.2 STATEMENT OF THE PROBLEM
Small-scale industries may have credit issues for a variety of reasons, some of which are not necessarily related to inadequate finance.
i. small business owners that request credit assistance do not prepare themselves sufficiently.
Information gaps regarding the services offered by various funding entities and their range
iii. In addition, serving small company accounts requires considerable skill, is dangerous, and requires careful monitoring due to the limited account turnover.
The parishioners in the small business sector, however, show no aptitude for crafting a justification for their undertaking. The majority of them frequently produce anticipated balance sheets, cash flow predictions, and other documents.
They are founded on conjecture and rudimentary personal knowledge. When they seek the assistance of consultants, the conclusions that are drawn frequently rely on projections that are frequently erroneous.
As a result, banks outright reject such suggestions.
There are appropriate when credit demands in this industry do not follow federal credit criteria that banks are required to follow.
The researcher recognises these issues and believes it is vital to conduct our research on them.
1.3.1 OBJECTIVES OF THE STUDY
The study's goals are as follows:
a. To determine how much the Union Bank of Nigeria Plc has contributed to the financing of small-scale industries.
b. To pinpoint the issues that small-scale business owners have while trying to borrow money from Union Bank of Nigeria Plc.
c. To assess how various initiatives to increase industrial production and its funding have affected the achievement of the desired objectives.
d. To identify the factors that have changed how Union Bank of Nigeria Plc. finances small-scale industries.
e. To offer suggestions and advice based on the information the study's data produced.
1.4 RESEARCH QUESTIONS
The following questions will be addressed by the critical evaluation.
How much has Union Bank of Nigeria Plc. contributed to financing small-scale businesses?
b. What challenges do small-scale industrialists face when trying to borrow money from Union Bank of Nigeria Plc?
c. What different initiatives have been made to increase industrial production and its financing, and how have they impacted the achievement of the targets set?
d. What are the reasons for changes in Union Bank of Nigeria Plc's financing to small-scale industries?
a. Is there a direct link between lending to small-scale businesses and economic growth and economic independence?
1.5 RESEARCH HYPOTHESIS
A. There is no direct correlation between lending to small-scale businesses and economic growth and economic independence.
b. There is no correlation between the attitude of these consumers and the lending to small-scale industries by Union Bank of Nigeria Plc.
1.6 AIM OF THE STUDY
The study's focus is on how Nigerian commercial banks support small-scale industries. a Union Bank of Nigeria Plc case study. It leaves out the part played by commercial banks in financing big and medium-sized businesses.
1.7 LIMITATIONS OF THE STUDY
However, the researcher was subject to some limitations, which include the following.
Time is an important factor in a study of this kind because it gives researchers enough time to collect enough data to develop conclusions that are accurate or nearly accurate. Time was a constraint for the researcher because the study's time frame was brief.
Cost: The survey would need to be expanded to include more areas. However, there were certain restrictions in this case, such as the cost of travelling to obtain the materials and the price of typing the already finished work.
c. Lack (Scarcity) of statistical information
A limitation was the absence of statistical information from our financial institutions, including the Commercial and Merchant Bank, Ministry of Financial and Economic Development, and Central Bank of Nigeria (CBN).
Commercial banks declined to give information because they firmly follow the rule of secrecy in banking.
1.8 significance OF THE STUDY
This study will highlight issues related to commercial banks' financing of small businesses in Nigeria.
It will provide details on potential areas for improvement.
The study would also aid commercial banks in evaluating and appraising their contribution to Nigeria's small-scale sector finance.
Additionally, the comments and proposals given in this article will assist decision-makers in developing new economic policies and sustaining or changing current ones.
It will also act as a guide for future researchers who might want to make decisions based on this study.
Small-scale business owners will also benefit from making a thorough preparation for their request for credit support.
It will direct business owners in making credit requests that adhere to governmental monetary policies.
Last but not least, it will assist the business owners in demonstrating competence while creating a justification for their project. It is disappointing to see the majority of them creating predicted balance sheets and cash flow forecasts.
1.9 DEFINITION OF TERMS
any sector of the economy where the total investment is less than N750,000, excluding the cost of land.
The Obafemi Awolowo University at Ile Ife's centre for industrial research and development also defines it as those industries with a combined assessment of plant, equipment, and working capital of less than N250,000 and no more than 50 people.
(2) commercial bank
a financial organisation that lends money to savings deficit units and collects deposits from savings surplus units.
3. CENTRE FOR INDUSTRIAL DEVELOPMENT:
Offer small scale managerial, technical, consulting, and extension services.
4. DECREE ON INDIGENIZATION:
a law mandating that at least 60% of all businesses be held by Nigerians.
5. UNIQUE PROPRIETORSHIP:
Is a company that is owned and run by one individual, sometimes with assistance from one or more people for hiring spouses and kids.
Small-scale industry credit programme (SS/CS).