PROFILE OF THE TECHNICAL SUPPORT TO SMALL SCALE ENTERPRISES BY COMMERCIAL BANKS
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PROFILE OF THE TECHNICAL SUPPORT TO SMALL SCALE ENTERPRISES BY COMMERCIAL BANKS
Chapter One: Introduction 1.1 Background of the Study
Industrial and economic development are aided not by a few large-scale enterprises, but by a plethora of small-scale industries with the potential to create jobs and boost economic growth.
Governments and development experts have completely recognised small-scale industries as the primary driver of economic growth and a key role in fostering private sector development and partnership.
The development of small-scale industries is thus an important component of most economies’ growth strategies, particularly in Nigeria. Small and medium-sized firms (SMEs) not only contribute significantly to raising living standards, but they also generate significant local capital and achieve high levels of productivity and capacity utilisation.
From a planning standpoint, SMEs are increasingly recognised as the primary way of ensuring equitable and long-term industrial diversification and dispersal; in most countries, SMEs account for considerably more than half of total employment.
A fundamental gap in Nigeria’s industrial growth process in recent years has been the lack of a robust and viable small and medium-sized firm. The Structural Adjustment Programme (SAP) resulted in widespread dislocation and catastrophic devaluation, wiping out the little gains made by the first generation of local businessmen.
SAP’s policies are based on the neoclassical notion of perfect competitive markets, which makes assumptions that do not appropriately reflect constraints on SMEs in developing countries.
The removal of commerce and other restrictions has changed the world into a global village. As a result, SMEs in developing countries are struggling to survive in an intense competitive environment for the development of SMEs so that they could adequately play the role expected of them in economic transformation
which includes mobilisation of domestic savings for investment, appreciable contribution to gross domestic product, increased harnessing of local raw materials, employment generation, significant contribution to poverty reduction efforts through su
This would be made feasible by a responsive industrial policy and government-wide economic development policies that enable collaboration among all development partners as well as effective coordination and utilisation of economic resources.
Defining the Small-Scale Enterprise
The industry is a group of companies that produce comparable or related products. Firms form industries, and these firms might be viewed as enterprises. There is no single, widely accepted definition of small-scale enterprise.
Definition varies per country. Definitions vary throughout time even within the same country. What is considered little in one country may not be so in another. Most definitions, however, involve the number of employees, capital investment, yearly sales turnover, total assets, or a combination of the two.
Different government agencies have defined SMEs in a variety of ways, which are listed below:
i. According to the Federal Ministry of Industry, SMEs are those whose total assets, including working capital but excluding land costs, do not exceed N150,000 or have fewer than 50 paid employees.
ii. According to the 1985 Nigeria Bank for Commerce and Industry (NBCI) definition, a small-scale enterprise is one that has assets (including working capital but excluding the cost of land) of less than N750,000.
iv. The Company and Allied Matters Decree (1990) defines a small-scale enterprise as one with an annual turnover of no more than N1 million.
iv. According to the Nigeria Industrial Policy (1989), small-scale enterprises have a total investment of N100,000 to N2,000,000, excluding land but including working capital.
In the present industrial policy of Nigeria, the National Council of Industry (NCI) defines SMEs as follows:
1. Micro/cottage industry: An enterprise with no more than ten employees and a total cost of no more than N1.5 million, including working capital but excluding land costs.
2. Small-Scale Industry: An enterprise with 11 to 100 employees or a total cost of less than N50 million, including working capital but excluding land costs.
3. Medium Scale Industry: This is an enterprise with 101 to 300 employees and a total cost of more than N50 million but less than N200 million, including working capital but excluding land costs.
4. Large-Scale Industry: This is an enterprise with at least 301 employees or a total cost of more than N200 million, including working capital but excluding land costs.
Given the various definitions stated above, it is crucial to note that a company that is considered a micro industry in a technologically mature country like the United States may be considered a medium or large scale operation in a developing country like Nigeria. This is due to disparities in pricing, technology, and economic progress.
This is to state that there is no universally accepted definition of SMEs, thus the definition in a given country and time is defined by the level of economic development and technological innovation.
Characteristics of Small-Scale Enterprises
The Bolton Committee (1971) attempted to address the issues associated with utilising a single criteria variable to identify small-scale firms by offering “economic” definitions. They define a small firm as having the following characteristics:
1. If it holds a modest percentage of the market.
2. It is managed by its owners or part owners in a personalised manner.
3. Independent in the sense that it is not part of a larger enterprise.
4. Personal commitment on behalf of the owners.
Classification of Small-Scale Enterprises
Small-scale enterprises can be characterised as follows:
1. Small-scale firm classification by industry. This classification is based on the type of economic activity carried out by the small-scale firm.
2. Small-scale enterprises are classified based on the markets they service. This typology identifies three types of markets: satellite, specialist, and marketeers.
3. Classification of small-scale businesses by ownership.
1.2 Statement of the Problem
Small and medium-sized businesses face a slew of challenges, the most significant of which is financial constraints. This is due to the restricted funding sources available for small and medium-sized businesses.
To support small and medium-sized businesses, commercial banks devised a strategic approach that included giving short- and medium-term loans as well as long-term funding to these businesses at high interest rates. This measure continues to impose more constraints on SMEs. Another issue is inadequate service facilities.
This study will look into the following:
i. Activities of major financial institutions to assess their commitment to small businesses and determine why there is a gap in their credit delivery system for SMEs.
ii. Whether the guidelines on interest rates and loan facilities for small-scale enterprises are consistent with the scheme’s objectives.
1.3 PURPOSE OF THE STUDY
This study aims to demonstrate how commercial banks in Nigeria help grow small-scale companies.
2. The progress and challenges faced by these banks in carrying out their responsibilities to small-scale industries.
3. The success or failure of small-scale industries.
4. The impact of small-scale industries on economic development.
5. Sources of long-term loans for small-scale companies.
6. Provide basic service facilities for small-scale industries.
1.4 Scope of the Study
The study will focus on the importance of small-scale enterprises to economic development, as well as the role of commercial banks in issuing loans to small-scale industries and government policies and incentives for small-scale companies.
1.5 IMPORTANCE AND SIGNIFICANCE OF THE STUDY
The study will provide small-business owners, lenders, and government officials with a clear picture of the problems confronting small-scale industries, as well as an understanding of how to address these issues and promote the development of small-scale industries.
The study will also examine the role that commercial banks have had in the development of small-scale companies.
1.6 LIMITATION/ STUDY CONSTRAINTS
Samples will be used to represent the entire population, and because some companies are reluctant to share crucial information that they consider confidential, there will undoubtedly be some bias in the data analysis.
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