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CHAPTER ONE

INTRODUCTION

1.0     Background to the Study

The post-independence Nigerian government adopted the entrepreneurship government which constrained it to assume the role of entrepreneur and the urge to offset the economic neglect of the colonial government and that resulted in engaging in ambitious industrialization programmes. When the Nigerian industrial Development Bank Limited (NIDB) was established in 1964 for the purpose of speeding up the industrialization process, its mandate was to promote industrial projects which were large enough to make applicable contribution to the national economy. However, the collapse of the oil boom in the early 1980’s exposed the inherent weaknesses of this importation of inputs resulted in large idle capacities, thereby creeping many gross domestic product (GDP) declined in the face of the strong national aspiration for the restructuring of the economy and reduction of the dependence on petroleum. Small and medium scale enterprises have since become the focus of national industrial policy. In  pursuit  of  self-reliance  in  a  developing  country  particularly  in  Nigeria,  the  central government enacted a decree called “Enterprises promotion Decree” when there was need for small scale enterprises in the promotion of economic development. This has since been at the fore front of development strategies.

However, many developing countries have failed to adopt these strategies owing to their belief that it is a relatively slow process of industrialization. Without the development of small scale enterprises in Nigeria, the nation’s quest for industrialization will certainly remain forever at a slow pace.  It is the humble opinion of the researcher that further development on our business enterprises must add to the basic issue of creating linkage within the economy to begin to yield real inputs to our economic activities. Priority attention must therefore be given to those business enterprises for which domestic inputs could easily be produced.  The objective should be to maximize the value added in their processing and manufacturing as final strong producer incentives to small scale enterprises are necessary not only to meet the food requirement but also to promote growing input supplier industrial growth.

The present economy constraints may well turn out to be a blessing in disguise to our small scale industry effort particularly for the dynamic manufacturing sector. For instance, the market determined exchange rate through Foreign Exchange Market with its resultant high cost of imported inputs may serve as an impetus for industrialist to intensify their search for loan substitute.

In 1971, the government of then East Central State statutorily enacted an edit establishing an office which was hitherto a sub-system of the ministry of commerce and industry to be known as fund for small scale industries Credit Scheme (FUSSI) to give credits to prospective investors to enable them establish, thus helping the country towards industrialization.

  As at 1996 and 1999 respectively, banks’ loans and advances to small scale enterprises rose from ₦42,302.1 to ₦46,824.00 million.  However the very slow rate of growth of the industrial sector, the inability of the sector to adequately provide and satisfy the needs of the economy, the over-dependence of the nation at large on foreign goods, pose a necessary course for concern. The means for helping small scale enterprises to acquire the much needed finance form the background of this research.

1.2 STATEMENT OF THE PROBLEM

There is dearth of financial institutions which cater for long and medium term credit needs of businesses operating in the economy. Small scale enterprises are no exceptions to these, and they suffer a great deal for want of capital for development and expansion of the economic survival of the country. It cannot be over emphasized that they have moved from the subsistence level of pre-indigenization period to a position of importance in the country’s   industrialization process.

In an attempt to modernize many small scale enterprises, their standard of operation has moved into the capital intensive stage.  The need in many cases is beyond the financial capability of the entrepreneurs who set up the business.  The major alternative for the provision of such capital is the financial institutions and among the financial institutions operating in the country, commercial banks are the major sources of credit to the various sectors of the economy.

However, it is common knowledge that getting financial support from commercial banks has been grossly inadequate for budding indigenous entrepreneurs and even for those who have been in the manufacturing business for a long term. Three types of credit are usually required by   small scale enterprises.  They include:

i.            Short Term Loan: This type of credit is used to finance yearly operation until the product or proceeds from the industry are sold. The amount which is involved in this type of credit is usually small but lack of this type of credit is most accurately felt by small scale entrepreneurs who have little or no saving upon which to withdraw as they are mostly beginners.

ii.           Medium Term Loan: This type of loan is for more than one year maturity period but not exceeding three to five years. This loan is mostly required for acquisition of inexpensive equipment with relatively short life span.

iii.         Long Term Loan: This type of credit is necessary for acquisition of major industrial machines, improvement in industrial equipment, building and land: It is a type of loan that the maturity period is for quite a longer duration.

Small  scale  enterprises  therefore  can  be  a  powerful  instrument  in  bringing  about  a  revolution  in  industrial  practices  and  in  firms  productivity  especially  if  supplied  in  sufficient  quantity  and  used  effectively.

The  study  therefore  identifies  small  scale   entrepreneurial  financing  by  commercial  banks as a major role to entrepreneurial  development  because  finance  is  just  one  of  the major factors  of  production.

1.3 OBJECTIVES  OF  THE  STUDY

               In  view  of  the  above  problem  of  small  scale  entrepreneurship,  the  overall  objectives  of  this  study  is  to  evaluate  the  role  of  commercial  banks  in  financing  small  and medium scale  industries  in  Enugu.

The specific objectives are:

I.     To  evaluate  the  extent  to  which  small  and medium scale  enterprises  in  Enugu  have  been  able  to  obtain  loans  and  advances  from  Nigerian  Commercial  Banks,  as  major   source  of  finance  to  the  economy.

II.   To ascertain the problems facing Commercial banks in financing small and medium scale enterprises in Nigeria.

III. To  identify  problems  encountered  by  small and medium scale  enterprises  in  obtaining  funds  from  commercial  banks.  

IV.              To  determine  the viability  in  small and medium scale  enterprises  financing  by  commercial  banks.

V.  To  appraise  and  evaluate  the  situation  and  make  recommendations  on  how  to  improve  on  commercial  bank  provision  of  finance  to  small and medium scale  enterprises.

1.4    RESEARCH QUESTION

1.      To what extent can small and medium scale enterprises obtain loans and advances from Nigerian

Commercial Banks?

2.      What are the problems facing commercial banks in financing small and medium scale enterprises in

Nigeria?

3.      What are the problems facing small and medium scale enterprises in obtaining funds from commercial banks?

4.      How viable is small and medium scale enterprises financing by commercial banks?

5.      How can commercial bank’s provision of finance to small and medium scale enterprises be improved upon? 

             1.5    HYPOTHESES

The hypotheses to be tested include:  

Ho1:  United  Bank  for  Africa  (UBA)  does  not  comply  with  the  Central  Bank  of  Nigeria  Credit  Guidelines as it affects lending to small and medium scale enterprises.

Ho2:  Union Bank of Nigeria Plc. does  not  comply  with  the  Central  Bank  of  Nigeria  Credit  Guidelines as it affects lending to small and medium scale enterprises. When commercial banks are not willing to comply with the credit guidelines of the central bank, it will be a hindrance for any institution to obtain loans or advances from the bank.  

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