THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURSHIP DEVELOPMENT
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THE ROLE OF COMMERCIAL BANKS IN SMALL SCALE ENTREPRENEURSHIP DEVELOPMENT
ABSTRACT OF THE ROLE OF COMMERCIAL BANKS IN THE DEVELOPMENT OF SMALL SCALE ENTREPRENEURSHIP
The purpose of this research is to assess the extent to which small-scale enterprises in Enugu have been able to secure loans and raise cash from Nigerian commercial banks as a major source of finance for the economy.
The study’s major goal is to determine the involvement of commercial banks in financing small scale enterprises (SSEs) in Enugu.To ensure the study’s findings, a review of the literature was conducted.
According to the findings, Commercial Banks follow the Central Bank of Nigeria (CBN) credit standards, which require them to set aside 10% of their profit before tax for lending to Small Scale Enterprises (SSEs).Before awarding a loan to an SSE, commercial banks require a feasibility report.
Due to a lack of education, small scale enterprises do not do thorough feasibility assessments. According to the findings of the study, small scale firms must work together with banks to thrive.
Furthermore, the government should invest more in the development of Small Scale Enterprises by designing and implementing various incentives to encourage both SSEs and commercial banks.
1.1 BACKGROUND OF THE STUDY
The post-independence Nigerian government adopted the entrepreneurial government, which compelled it to accept the role of entrepreneur and the desire to compensate for the colonial administration’s economic negligence, which resulted in ambitious industrialization plans.
When the Nigerian Industrial Development Bank Limited (NIDB) was founded in 1964 to accelerate the industrialization process, its objective was to encourage industrial enterprises large enough to make a significant contribution to the national economy.
However, the collapse of the oil boom in the early 1980s exposed the inherent weaknesses of this importation of inputs, resulting in large idle capacities and a creeping decline in many gross domestic product (GDP) in the face of a strong national aspiration for economic restructuring and reduction of reliance on petroleum.
Since then, small and medium-sized businesses have become the focal point of national industrial policy. In order to achieve self-sufficiency in a growing country, particularly Nigeria,
the central government passed a decree known as the “Enterprises Promotion Decree” when there was a need for small scale firms in the promotion of economic development. Since then, this has been at the forefront of development efforts.
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However, many developing countries have failed to implement these ideas because they believe that industrialization is a long process. Without the development of small scale firms in Nigeria, the country’s quest for industrialization will inevitably stay slow.
In the researcher’s modest opinion, continued development of our company operations must add to the core issue of developing connectivity within the economy in order to begin to yield real inputs to our economic activities.
Priority must therefore be given to those businesses for which domestic inputs can be easily generated. As a final strong producer incentive to small scale firms is required not only to satisfy the food demand but also to support rising input supplier industrial growth, the goal should be to maximise the value added in their processing and production.
The current economic restraints may turn out to be a blessing in disguise for our small-scale business initiative, especially in the dynamic manufacturing sector.
For example, a market-determined currency rate via the Foreign currency Market, with the resulting high cost of imported inputs, may provide as an encouragement for industrialists to strengthen their quest for loan replacement.
In 1971, the government of the then East Central State statutorily enacted an edit establishing an office, previously a sub-system of the ministry of commerce and industry, to be known as the fund for small scale industries Credit Scheme (FUSSI), to give credits to prospective investors in order for them to establish, thereby assisting the country’s industrialization.
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Bank loans and advances to small businesses increased from 42,302.1 million in 1996 to 46,824.00 million in 1999. However, the very slow pace of expansion of the industrial sector,
the sector’s inability to effectively serve and meet the needs of the economy, and the nation’s over-dependence on foreign commodities all point to cause for concern. The background of this research is the ways of assisting small size firms in obtaining much needed financing.
1.2 STATEMENT OF THE PROBLEM
There is a scarcity of financial institutions that cater to the long and medium term lending demands of the economy’s firms. Small scale firms are no exception, and they suffer greatly due to a lack of money for development and extension of the country’s economic survival.
It cannot be overstated that they have progressed from the pre-indigenization subsistence level to a position of prominence in the country’s industrialisation development. Many small scale firms’ operating standards have progressed into the capital intensive stage in an attempt to modernise them.
In many circumstances, the need exceeds the financial capabilities of the entrepreneurs who establish the business. The largest choice for providing such capital is financial institutions, and commercial banks are the major suppliers of credit to the various sectors of the economy among the financial institutions functioning in the country.
However, it is widely acknowledged that financial assistance from commercial banks has been woefully inadequate for aspiring indigenous entrepreneurs and even those who have been in the manufacturing sector for a long time. Small businesses often require three sources of credit. They are as follows:
i. Short-Term Loan: This sort of credit is utilised to finance yearly operations until the product or industry revenues are sold. The amount involved in this sort of financing is typically little, but the lack of this type of credit is most acutely felt by small-scale businesses who, as a rule, have little or no savings to draw from.
ii. Medium Term Loan: This form of loan has a maturity duration of more than one year but not more than three to five years. This loan is generally needed for the purchase of low-cost equipment with a short lifespan.
Long Term Loan: This sort of finance is required for the purchase of large industrial machines, improvements to industrial equipment, construction, and land: It is a form of loan with a much longer maturity period.
Small scale enterprises can thus be a potent tool in bringing about a revolution in industrial practises and firm productivity, especially if adequate quantities are given and employed properly.
Because finance is only one of the key determinants of production, the study finds small scale entrepreneurial financing by commercial banks as a major role in entrepreneurial development.
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1.3 OBJECTIVES OF THE STUDY
Given the aforementioned issue of small-scale entrepreneurship, the general goal of this study is to assess the role of commercial banks in financing small-scale firms in Enugu. The precise goals are as follows:
I. To assess the extent to which small and medium-sized firms in Enugu have been able to acquire loans and advances from Nigerian commercial banks, which are a major source of finance for the economy.
II. Determine the challenges that commercial banks face in financing small-scale firms in Nigeria.
III. To identify issues that small businesses face when seeking funding from commercial banks.
IV. To assess the viability of commercial bank financing for small-scale firms.
V. To assess and evaluate the situation and give recommendations on how to increase commercial bank lending to small businesses.
1.4 RESEARCH QUESTIONS
1. To what extent may Nigerian commercial banks provide loans and advances to small businesses?
2. What are the challenges that commercial banks face in financing small businesses in Nigeria?
3. What are the challenges that small businesses face in obtaining funding from commercial banks?
4. How viable is commercial bank borrowing for small businesses?
5. How might commercial banks improve their provision of financing to small businesses?
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