IMPACT OF RECAPITALIZED COMMERCIAL BANKS ON SME DEVELOPMENT IN NIGERIA
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
IMPACT OF RECAPITALIZED COMMERCIAL BANKS ON SME DEVELOPMENT IN NIGERIA
INTRODUCTION
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Small and medium-sized enterprises (SMEs) are critical to the growth of the national economy. Because of their importance and the critical role they play in the nation’s economic development and growth, great emphasis has been focused on funding small and medium firms, which are major contributors to the Nigerian economy.
Because these firms are economic drivers, governmental attention must be paid to them, particularly in developing economies, because of their impact on many sectors of the economy.
Their impact is felt in the following ways: increased utilisation of local raw materials, job creation, encouragement of rural development, entrepreneurship development, mobilisation of local savings, linkages with larger industries,
provision of regional balance through more evenly distributed investments, avenue for self-employment, and opportunity for training managers and semi-skilled workers.
Credit has been recognised in Nigeria as an important tool for boosting small and micro enterprises (SMEs), resulting in the necessity for commercial banks in Nigeria to be recapitalized.
Bank recapitalization, which began in 2006, aims to strengthen and improve Nigerian banks in order to fund all sectors of the economy, particularly the primary drivers of the economy-Small and Medium Scale Enterprises.
Approximately 70% of the population works in the informal economy or in agriculture. The federal and state governments have recognised that financial empowerment of the people is critical for long-term growth and development.
Positive multipliers will be felt throughout the economy if this growth strategy is implemented and the latent entrepreneurial capabilities of this significant part of the population are suitably stimulated and sustained.
The Federal Government has implemented numerous measures over time to boost rural and urban enterprise production capacity in order to give effect to these ambitions. (2006) (Olaitan)
On July 6, 2004, the Central Bank of Nigeria announced a capital increase in the banking sector from N2 billion to N25 billion, effective January 1, 2006. This was done to increase the sector’s worldwide competitiveness, soundness, and ability to provide credit to all productive sectors of the economy.
To meet this responsibility, banks pursued merger and acquisition strategies, as well as the issuance of new shares. The exercise resulted in the formation of 25 new banks.
It was hoped that the consolidation would strengthen the banks, allowing them to provide large amounts of funds to the productive sectors of the economy, which are largely dominated by Small and Medium Enterprises, allowing them to grow into large firms with sufficient resources to contribute to economic development.
In addition, in December 2005, the CBN established a new Micro-finance Policy (MFP) that was intended to be driven by both the public and private sectors.
The policy’s goal was to build community banks so that they could make collateral and non-collateral loans to finance microeconomic activity in the economy. The initiative also intends to provide financial services to those people who would not otherwise have access to them.
As previously said, SME’s play an important role in the growth of an economy since they serve as training grounds for local entrepreneurs, encourage local savings, and maintain equitable wealth distribution, hence limiting rural-urban migration of human resources.
To that aim, the government should work with the private sector to provide an enabling and supportive climate for SMEs to contribute positively to the economy’s development.
1.2 STATEMENT OF THE PROBLEM
Bank fraud, bad lending and credit management practises in Nigeria’s banking sector compelled the Central Bank of Nigeria to reconsider the capital structure of Nigerian commercial banks.
Among other things, this prompted the Central Bank of Nigeria (CBN) to issue an order requiring all banks to increase their capitalization from N2 billion to N25 billion beginning January 1, 2006.
This growth resulted in a variety of financial operations in the Nigerian financial sector, with most banks first choosing for additional funds from the capital market via share flotation. At this point, most banks began soliciting members of the public to purchase new shares in order to fulfil the new minimum capital mandated by Nigeria’s central bank.
Nonetheless, some banks were unable to raise the new minimum capital on their own, necessitating bank mergers and consolidations, decreasing the total number of banks in Nigeria to twenty-five (25).
However, the consolidation of the banking industry created new problems to banks, necessitating greater efforts to reduce costs and promote efficiency, affecting the volume of credit facilities offered to small and medium-sized firms in Nigeria. Iloh et al. (2012) discovered a mismatch between deposit money bank deposits (DMBD) and commercial bank lending to SMEs from 2000 to 2012 (the year merchant banks were decommissioned).
There is a significant difference between the two variables, and while deposit money bank deposits increased significantly, commercial bank lending to SMEs decreased from 2004 to 2010.
The difference between commercial bank deposits and lending to SMEs reflects a shift in emphasis from lending to SMEs to financing to major investors (customers).
While the banking industry is believed to fuel any economy, one must ask whether Nigerian commercial banks have overlooked SMEs, which are critical for the growth and development of the Nigerian economy.
Nonetheless, it is worth noting that community/microfinance bank (CMFB) lending to SMEs followed the same pattern as its bank deposit.
This means that as community/microfinance bank deposits grew, so did lending to SMEs. Regardless of the direct influence of community/microfinance banks on SMEs, SMEs continue to complain about a shortage of funding, and lending to SMEs in Nigeria remains low.
This is because their capital, reserves, and deposits are insufficient to meet the needs of small and medium-sized businesses.
1.3 OBJECTIVES OF THE STUDY
The study’s major goal is to investigate the effects of bank recapitalization on small and medium-sized businesses in Nigeria. The following are the study’s specific objectives:
To ascertain the relationship between commercial banks and the performance of Nigerian small business entrepreneurs.
To investigate whether bank recapitalization increased cash for SMEs loans.
To investigate SMEs’ access to Small and Medium Enterprise Equity Investment Scheme (SMEEIS) funds.
1.4 RESEARCH QUESTIONS
In order to fulfil the aforementioned goals, the researcher developed the following study questions:
What is the relationship between commercial banks and the performance of Nigerian small business entrepreneurs?
Is bank recapitalization beneficial to SMEs?
Small and Medium Enterprise Equity Investment Scheme Funds: How accessible are they to SMEs?
1.5 THE STUDY’S HYPOTHESIS
In accordance with the study’s objectives and research questions, the following hypotheses are proposed:
Ho: In Nigeria, there is no significant association between commercial banks and the performance of small business owners.
Hi: Commercial banks and the performance of Small Business Owners in Nigeria have a strong relationship.
Ho: Bank recapitalization has not resulted in an increase of funds for SMEs.
Hello: Bank recapitalization has resulted in an increase in funds available to SMEs.
Ho: Small and Medium Enterprise Equity Investment Scheme funds are difficult for SMEs to analyse.
Hi: SMEs can quickly analyse Small and Medium Enterprise Equity Investment Scheme funds.
1.6 SIGNIFICANCE OF THE STUDY
Robust economic growth cannot be achieved without well-targeted efforts to eliminate poverty by empowering people and expanding their access to factors of production, particularly credit.
The provision of microfinance services will considerably boost the latent capacity of disadvantaged entrepreneurs, allowing them to engage in economic activities and become more self-sufficient; increase employment prospects, increase household income, and create wealth.
The absence of essential financial support from microfinance banks to Micro Business operators in Lagos state, on the other hand, has become a serious concern in Nigeria.
As a result, policymakers will find this study useful in determining the impact of microfinance on small-scale investors. This study will also help to further future research in the field.
1.7 SCOPE OF THE STUDY
The scope of this research is Nigeria’s recapitalized commercial banks and their SME customers. However, because there are many commercial banks with a large number of SME customers, the research is limited to Mainstreet Bank’s Osun branch and some of its SME customers.
1.8 LIMITATIONS OF THE STUDY
The study’s main limitations were time and money constraints. Money became an issue because the researcher could not afford the cost of reaching out to more banks. The researcher was also involved in other school activities, which limited the amount of time available for the assignment.
1.9 DEFINITION OF TERM
An economy is the total sum of value-added goods and service transactions between two agents in a territory, whether they are individuals, organisations, or states.
An economy is an economic system that consists of the production, distribution, or exchange, and consumption of finite products and services between two agents, who can be individuals, enterprises, organisations, or governments.
Acquisitions and mergers: Mergers and acquisitions (abbreviated M&A) are aspects of corporate strategy, corporate finance, and management that deal with the buying, selling, dividing,
and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or in a new field or location, without the creation of a subsidiary, other child entity, or the use of a joint venture.
Recapitalization is a type of corporate reorganisation that involves a significant change in a company’s capital structure.
Small and Medium Enterprises (SMEs)
SMEEIS stands for Small and Medium Enterprise Equity Investment Scheme.
Need help with a related project topic or New topic? Send Us Your Topic