IMPACT OF BANK LENDING ON SMALL-SCALE INDUSTRIES
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IMPACT OF BANK LENDING ON SMALL-SCALE INDUSTRIES
ABSTRACT
The Impact of Bank Lending on Small-Scale Industries (A Case Study of Some Selected Small-Scale Industries in Aba Metropoly) is the title of this project. Four research questions were expressed during the course of this study, and three research questions were formed utilising the percentage and statistical chi-square technique for analysis, respectively.
A total of 127 questionnaires were distributed to respondents, with 120 of them correctly completed and returned. The findings are as follows: it was discovered that there is a difference of opinion on. The cause of default and the best strategy to improve bank lending to small-scale enterprises. The basic aim of bank operation should not be overlooked while developing rules for banks, particularly those dealing with small-scale enterprises.
In terms of the demand for bank credit for the expansion of small-scale companies, both banks and small-scale entrepreneurs should agree that there is a need for additional funding for small-scale industries. Entrepreneurs believe that the loan conditions for this are not economically possible, so they hunt for alternative sources of funding, which is frequently insufficient.
The following recommendations are given in light of the aforesaid findings: Banks should promote advising and counselling services to small-scale industries. Loan refinancing should be used on a frequent basis. Banks should emphasise the importance of timely payment of interest and loans. Government intervention is very important.
INTRODUCTION TO CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Banks, like a company, must produce profits in order to survive. They typically provide a variety of multi-product services to the public that are critical to the public, industries, depositors, and regulatory bodies.
Banks’ primary function is to lend funds to other sectors of the economy using funds deposited by depositors. According to A. N Nwankwo (1987:164), he said:
Lending is deemed effective when it successfully satisfies the banker’s commitment to provide maximum profitability to share holders while also providing maximum liquidity to depositors. This is due to the fact that highly profitable lending, which also ensures liquidity for depositors, is not always effective.
Proposed commercial lending may be regarded effective in terms of profitability and liquidity, but it may be ineffective in terms of maximum contribution to economic development. Similarly, loans to small-scale industries may be viewed as ineffective in terms of development.
This effective lending in a developing economy like Nigeria can be defined as the lending equation that maximises the liquidity and profitability objectives as well as the development objectives of the economy. The necessity for small-scale companies in Nigeria was not completely realised until the early 1980s, when the government began emphasising direct loans to small-scale industries.
This was one of the primary goals of the economic rehabilitation effort under the structural Adjustment effort (SAP), which was designed to increase the level of economic activity in the economy.
Banks are required by monetary policy to allocate 20% of their loanable funds to small-scale companies. The Central Bank of Nigeria (CBN) will penalise banks that do not comply. However, banks have had a lot of problems with gravity such loans.
They are as follows:
i. A high percentage of defaults
ii. The amount spent on research and other portfolios in comparison to the profit earned through loan interest.
iii. The majority of applicants lack any type of collateral.
All of these reasons have contributed to the low rate of bank lending to small businesses. Nonetheless, government policies in terms of economic development encourage the construction and expansion of small-scale companies, which contribute both directly and indirectly to economic growth and enable Nigeria to participate in ownership to a greater level.
The government of Nigeria industries a similar concept of balanced growth and payment positions, and it is against this backdrop that the expansion of banks lending to small-scale industries can be fully appreciated.
1.2 STATEMENT OF THE PROBLEMS
While policymakers in Nigeria have been concerned about the provision of loans to small-scale enterprises, the results have been disappointing in comparison to the enormous amount of resources committed. Banks are hesitant to lend to small-scale businesses. The importance of small-scale industry failure in economic progress cannot be overstated.
1.3 OBJECTIVES OF THE STUDY
The purpose of this study is to examine the influence of bank loans on small-scale industries.
i. To assess the influence of bank loans on the acquisition of technological skills and the capacity building of small-scale companies.
ii. To determine the elements influencing bank financing to small-scale industries.
iii. on assess the impact of bank loans on small-scale industries.
iv. Research technologies commonly employed by banks in financing to small-scale businesses.
1.4 RESEARCH QUESTION
The research question must precisely pose the question that the effort is intended to answer. The research questions are, for the most part, related to the study’s goal. The only difference is that the purpose borrows in the form of a statement, whereas the research question lends in the form of a question. The following are the questions:
i. What effect does bank lending have on the development of technology skills and capacity in small-scale industries?
ii. What are the elements that influence small-scale bank lending?
What are the effects of bank financing on small-scale industries?
iv. What methods do banks typically employ when lending to small-scale businesses?
1.5 RESEARCH HYPOTHESIS
A hypothesis is a proposition assumed for the sake of argument or a theory to be proven or disproven by reference to flaw. It acts as a guide for a research project. Once mentioned, the research must make every effort not to be used in the study.
1. Ho: In the evaluation of bank loans on technology acquisition, skill does not play a big role in small-scale industries.
Hi: Evaluation of bank loans on technology acquisition, skill plays a vital role in small-scale industries.
2. Ho: There are no factors that influence bank lending to small-scale industries.
Hi: There are several elements that influence bank lending to small-scale businesses.
3. Ho: There is no effect of bank financing on small-scale industries.
Hi: Bank lending has an effect on small-scale industries.
1.6 THE SIGNIFICANCE OF THE STUDY
We will pay close attention to bank lending on small-scale industries, particularly those with a high content of local value adders, as well as providing them with technical services. In developing a nation’s economy, the development of small-scale industries is seen as an integral and fundamental part of the nation’s broad policy of industry growth.
Small-scale businesses account for around 8% of all firms in the country, therefore what happens in the sub-sectors has a big influence on the other sectors of the economy. As a result, the study project’s analysis will be valuable to private persons, the government, and the general public, as mentioned below.
1. Small-scale businesses and prospective investors who have the small-scale business version will be able to obtain reinvent information that will help them manage their small-scale business’s finances.
2. This research will undoubtedly assist commercial and merchant banks in making positive impacts for efficient performance.
3. The public would be aware of the difficulties and potential of small-scale industries, which will broaden the people’s knowledge in Nigeria.
4. The significance of this study will also add to the current literature regarding constants and pertinent facts, which will contribute to the improvement of the research problem.
5. The study will assist the federal and state governments in ensuring that various government programmes are implemented, and recommendations will be offered to improve performance.
6. Finally, the research will help to broaden my academic perspective in the field of the subject matter, in addition to being required for the Higher National Diploma of Abia State Polytechnics.
1.7 THE DEFINITION OF TERMS
LENDING: The act of transferring money. One of the most crucial functions of a bank is lending.
LIQUIDITY: The possession of valuable items that can be quickly converted into cash.
loan QUANTITY: A very little amount of loan.
GOVERNMENT POLICIES: Action plans, statements of views, etc. proposed or enacted by a government for a specific purpose.
COLLATERAL: Property delivered by someone as a guarantee that he would pay the loan simply put, is what one gives out in case he does not provide what is granted to him on credit.
PROFIT: The difference between how much money is spent and how much money is earned in business.
PORTFOLIO: A collection of investments owned by a person, bank, or other entity.
DEVELOPMENT: The action or practise of encouraging new industries to create jobs for the unemployed. The process of becoming or being developed.
BANK: An organisation or location that offers financial services. A location where money is held for security purposes.
REGULATORY AUTHORITY: A board established by the government to guarantee that its policies are legal. They issue commands and penalise violators.
SMALL-SCALE: It is defined as firms or companies with assets (including working capital but excluding land) of N750,000 or less and paid employees of up to 50 people.
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