ROLE OF COMMERCIAL BANKS IN THE PERFORMANCE OF SMALL SCALE ENTERPRISES
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ROLE OF COMMERCIAL BANKS IN THE PERFORMANCE OF SMALL SCALE ENTERPRISES
2.1 Overview of Small and Medium-sized Enterprises
According to allbusiness.com (2010), the abbreviation small and medium-sized enterprises (SMEs) is widely used in the European Union and international organisations such as the World Bank, the United Nations, and the World Trade Organisation. In addition, the phrase Small and Medium Scale Businesses (SMEs) is widely used in the United States.
The European Union’s member states have traditionally defined SMEs differently. For example, the traditional definition in Germany limits small and medium-sized enterprises to 250 people, whereas in Belgium it is limited to 100 employees.
The European Union recently standardised the notion by categorising firms with fewer than ten (10) people as’micro’, those with fewer than fifty (50) employees as’small’, and those with fewer than two hundred and fifty (250) employees as “medium”.
Any business with fewer than one hundred (100) employees is classed as “small” in the United States of America, while a medium-sized business has fewer than five hundred (500) employees.
Micro and Small Enterprises play an important role in India’s industrial sector. In terms of value, the sector is predicted to account for approximately 39% of the country’s manufacturing production and 33% of its overall exports.
In South Africa, the phrase Small, Medium, and Micro Enterprises (SMMEs) is commonly used, while in Nigeria, the term Small and Medium Scale Enterprises (SMEs).
According to the following, Small and Medium Scale Enterprises (SME) are businesses that may employ no more than 500 people at a time and have been proven to be the backbone of every economy.
Entrepreneurship is the driving force behind every successful Small and Medium Scale Enterprise, defined by Olagunju Y. (2004) as an effort in which one is involved in the work of founding and operating an enterprise for a specific goal.
The claimed purpose may be personal, social, or developmental. Someone who is involved in this endeavour is known as an entrepreneur. There must also be a distinction made between entrepreneurs and business owners.
While business owners construct and manage their own businesses for personal gain, entrepreneurs capitalise on ideas to create businesses that benefit them, society, and serve as a developmental weapon.
2.2 Growth of SMEs and Contributive Schemes in Nigeria.
Sanusi (2003), Kayode (2001), and Hassan (2003) discussed different strategies that have aided the expansion of Small and Medium Scale Enterprises in Nigeria.
The industries credit scheme (ICS) was established in 1971 as a revolving grant by Nigeria’s federal and state governments to help SMEs meet their credit needs under more liberal terms than private leading institutions.
2.2.1 The Nigeria Bank of Commerce and Industry (NBCI)
In 1978, the federal government of Nigeria and the Central Bank of Nigeria (CBN) established the Nigeria Bank for Commerce and Industry as the premier institution for financing small and medium-sized enterprises.
The rationale for establishing the bank was to instill financial discipline and, presumably, to promote a more efficient use of scarce financial resources for the establishment of sustainable Small and Medium-Sized Enterprises.
The bank was also given the authority to administer the federal ministry of commerce and industry’s special funds for small and medium-sized enterprises under a soft loan arrangement.
2.2.2 The Central Bank of Nigeria’s special credit programme for small and medium-sized enterprises (SMEs)
The Central Bank of Nigeria is the primary agent for implementing government financial and monetary policy, and it has implemented a number of initiatives over the past year to promote increased access to financing for industrial development, particularly in Small and Medium Scale Enterprises.
Bullion and CBN (2002) classify the schemes into three categories based on Central Bank guidelines for Small and Medium Scale Enterprises under the bank’s monetary policy guidelines of 1988.
i. Credit guidelines for loans to small and medium-sized industries: In 1970, the Central Bank of Nigeria amended its credit rules to include Small and Medium Scale Enterprises, which took effect in January 1971. With the mandate, at least 10% of bank loans and advances were dedicated to Small and Medium-Sized Enterprises.
ii. In April 1980, loans and advances offered to small and medium-sized businesses increased from 10% to 20% by January 1991. It was also made clear that individuals who violated the directive would face severe punishment.
iii. The Central Bank’s rural banking plan in Nigeria began in 1977, with the introduction of the first phase (1977-1980).
The goal of this plan is to address the issue of limited access to financing among rural sector operators of Small and Medium Scale Enterprises.
Initially, two hundred (200) rural branches were to be constructed, and the country had just twenty-one (21) commercial banks. By the end of June 1980, one hundred and eighty-eight (188) of these projected branches had been developed.
The second phase of the initiative ran from January 1981 to December 1984, with the establishment of 266 rural branches, followed by 1985-1986.
As the Central Bank applied increased pressure, nineteen (19) new branches were established. The third phase culminated with the number of branches reaching seven hundred and fifty six (756) by the end of 1988.
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