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PROJECT TOPIC  : ROLE OF COMMERCIAL BANKS IN FINANCING SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA (1986 - 2016)

PROJECT PROPOSAL

BACKGROUND TO THE STUDY
Interest in the role of Small and Medium Scale Enterprises (SMEs) in the development process continues to be in the forefront of policy debates in developing countries. The advantages claimed for Small and Medium Enterprises (SMEs) are various, including: the encouragement of entrepreneurship (Safiriyu and Njogo, 2012; Ayozie and Latinwo, 2010; Ayesha, 2007); the greater likelihood that SMEs will utilise labour intensive technologies (Agwu and Emeti, 2014; Salami, 2003, Muritala et al. 2012) and thus have an immediate impact on employment generation (Ayozie and Latinwo, 2010; Etuk et al. 2014; Agwu and Emeti, 2014; Aigboduwa and Oisamoje, 2013; Dimoji and Onwuneme, 2016); they can usually be established rapidly and put into operation to produce quick returns; SMEs development can encourage the process of both inter- and intra-regional decentralization (Ogujiuba et. al., 2004); and, they may well become a countervailing force against the economic power of larger enterprises (Salami, 2003). More generally the development of SMEs is seen as accelerating the achievement of wider economic and socio-economic objectives, including poverty alleviation (Agwu and Emeti, 2014; Etuk et al. 2014; Safiriyu and Njogo, 2012; Ayozie and Latinwo, 2010; Udechukwu, 2003).

Finance has been viewed as a critical element for the development of SMEs. It is worth mentioning that firms depend on a variety of sources for their finance. These includes internal and external; formal and informal. However the relationships among these sources and their effects on investment remain unclear in the literature. In the case of SMEs, bank credit or loan is major alternative of external funding (James and Ashamu, 2014). Previous studies have decried the limited access to external financial resources available to smaller enterprises compared to larger organisations and the consequences for their growth and development (Gbandi and Amissah, 2014; Omika, 2014; Yahaya, 2015; Akanbi, et al. 2016 etc). According to Valverde et al (2005) bank credit play a crucial role in providing external financing to Small and Medium Scale Enterprises (SMEs). But in Nigerian context, this crucial source of finance for Small and Medium Scale Enterprises is apparently non-functional (Kadiri, 2012). This is evident in the ratio of loans to Small Scale Enterprises to Commercial banks’ total credit, which shows that a meager 0.07% of commercial banks’ total credit was granted to Small Scale Enterprises in 2016 (CBN, 2016). More worrisome is the fact that this ratio has been falling over the years and continued unabated in the post-consolidation era (Iorpev, 2012). Berg and Fuchs (2013) attribute this trend to the high interest rates on Government securities which serves as a disincentive to intensify lending to Small Scale Enterprises (SMEs).

Typically, SMEs face higher transactions costs than larger enterprises in obtaining credit. Lee (2004) further argues that poor management and accounting practices have hampered the ability of SMEs to raise finance. Information asymmetries associated with lending to small-scale borrowers have restricted the flow of finance to SMEs (Berger and Udell, 2004). SMEs often operate at such a low scale that is unattractive to banks (Ugoani and Dike, 2013). Many of them are unincorporated and banks are not forthcoming in investing in a multiplicity of small ventures that are scattered all over the country. Besides, SMEs are mostly family businesses and they are therefore reluctant to open their businesses up, especially to the banks that they regard as intruders. Information such as financial accounts, business plans and feasibility studies which should be provided to external financiers is often lacking and when available, it lacks details and rigor. The concomitant effect is that less financial facilities are made available to SMEs by banks. In spite of these claims however, some studies show a large number of SMEs fail because of non-financial reasons (Lawrence, 2003; Wattanapruttipaisan, 2003; Asaolu et al, 2005). For instance most entrepreneurs in Nigeria lack the appropriate management and business skill to turn their business around.

STATEMENT OF PROBLEM
The key problem facing most Small and Medium-Scale Enterprises (SMEs) is inadequate finance; whether for the establishment of new industries or to carry out expansion plans. The bulk of commercial bank lending to industries is working capital which goes to well-entrenched blue-chip enterprises which have enough bargaining power to negotiate better borrowing terms. The negative bias against SMEs was demonstrated by commercial banks’ preference to pay penalty rather than meet the 20% target lending to Small and Medium Scale Enterprises (SMEs) by making risky investments when the Central Bank’s credit guidelines were in force. It is therefore not surprising that their lending to Small and Medium Scale Enterprises (SMEs) drastically declined after the abolition of the guidelines in 1996.

The inability of SMEs to attract bank credit or resources has hindered or stifled their growth. The reasons for this inadequate fund can be attributed to the following reasons:
• High rate of inflation that led to the vast depreciation of Naira exchange rate, thus making it difficult for most Small and Medium Scale Enterprises to obtain required inputs for expansion.
• Low level of savings in the economy, which leads to low capital formation.
• High rate of interest charged on loans, which scared off potential small and medium scale entrepreneurs.

Inability of specialized financial institutions such as the Bank of Agriculture (BOA), Bank of Industry (BOI), Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN) etc, to provide for their funding because of the peculiar problems with these specialized institutions which make it impossible for them to provide enough fund for the Small and Medium Scale Enterprises. Therefore, this study seeks to evaluate the role of commercial banks in Small and Medium Scale Enterprises (SMEs) financing in Nigeria.

OBJECTIVES OF STUDY
The main objective of this study is to evaluate the financing of Small and Medium Scale Enterprises in Nigeria taking into consideration various conditions such as economic, political, social, psychological etc under which small-scale enterprises operate.
In view of the above, this study intends to find out the following:
(i) To identify the economic potential of Small and Medium Scale Enterprises in Nigeria.
(ii) The role of commercial banks in the financing Small and Medium Scale Enterprises in Nigeria.

RESEARCH QUESTIONS
This research work shall be guided by the following research questions:
1. What role do Small and Medium Scale Enterprises play in the economic growth and development of Nigeria?
2. What role do commercial banks play in the development of Small and Medium Scale Enterprises in Nigeria?

RESEARCH HYPOTHESES
HYPOTHESIS I

H0 - That there is no relationship between Gross Domestic Product and the operations of Small and Medium Enterprises in Nigeria.
H1 - That there is relationship between Gross Domestic Product and the operations of Small and Medium Enterprises in Nigeria.

HYPOTHESIS II
H0 - That there is no relationship between the loan granted to Small and Medium Enterprises and the interest rate in Nigeria.
H1 - That there is relationship between the loan granted to Small and Medium Enterprises and the interest rate in Nigeria.

RESEARCH METHODOLOGY
Econometric procedure shall be adopted in the course of this research work. The Ordinary Least Square (OLS) technique will be employed in obtaining the numerical estimates of the coefficients in different equations.

The data for this study would be obtained mainly from secondary sources, particularly from Central Bank of Nigeria (CBN) and Bureau of Statistics (BOS) publications.

The research would be based on the relationship between the loan granted to Small and Medium Scale Enterprises by commercial banks, interest rate of commercial banks and the real Gross Domestic Product of the country with data covering the fiscal year between 1986 and 2016.

MODEL SPECIFICATION
MODEL I
gdp = a0 + a1Lsse + Ui
Where gdp - Gross Domestic Product
Lsse - Loan granted to Small scale enterprises by Commercial banks
a0 & a1 - Parameters
Ui - Stochastic Variable.

MODEL II
Lssebank = b0 + b1 i + Ui
Where Lssebank - Ratio of loan granted to Small scale enterprises to total credit of Commercial banks
i - Average interest rate of Commercial banks
b0 & b1 - Parameters
Ui - Stochastic Variable.

SIGNIFICANCE OF THE STUDY
Small and Medium Scale Enterprises in Africa rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance assistance, failing which under-investment in long term capabilities (training and R & D) may result (Oyelaran-Oyeyinka, 2003). This study is significant because it would help to evaluate the operations of a vital segment of the industrial sector – Small and Medium Scale Enterprises, which have been identified as having very high potential in promoting economic growth and development (Oni and Daniya, 2012). The evaluation shall be done with special focus on their financing thereby adding to the existing literature on the subject matter.

SCOPE OF THE STUDY
This research work focuses on the financing of Small and Medium Scale Enterprises (SMEs) in Nigeria paying special attention to the role of commercial bank credit in the development of Small and Medium Scale Enterprises. Although there are other types of banks that grant credit facilities to Small and Medium Scale Enterprises in Nigeria, the analysis in this study focuses on commercial banks only. The research intends to study the essential problems encountered by Small and Medium Scale Enterprises and suggest ways by which they can be adequately and efficiently financed.

Most of the information and data needed for the study would be gathered from existing literature and from relevant government agencies such as the Central Bank of Nigeria, National Bureau of Statistics (NBS) etc. The estimation period is restricted to the period between 1986 and 2016 due to non-availability of needed data.

PLAN OF THE STUDY
This study shall be divided into five chapters. In Chapter one, which is the introductory part; the background of the study, the statement of the research problem, the objectives of the study and the methodology to be adopted shall be discussed. Chapter two will deal with the literature review. The methodology analysis shall be examined in chapter three. This would also include models specification. Data presentation, analysis and interpretation will be covered in chapter four while the concluding part of the research work will be chapter five where in a nutshell the summary, the conclusion and the recommendations would be discussed.


REFERENCES
Agwu, M. O. and Emeti, C. I. (2014) “Issues, Challenges and Prospects of Small and Medium Scale Enterprises (SMEs) in Port-Harcourt City, Nigeria”. European Journal of Sustainable Development. Vol. 3, no. 1, pp. 101-114.
Aigboduwa, J. E. and Oisamoje, M. D. (2013) “Promoting Small and Medium Enterprises in The Nigerian Oil and Gas Industry”. European Scientific Journal. Vol. 9, no. 1, pp. 244-261.
Akanbi B.; Ogunleye A. and Arogundade S. (2016) “Analysis of Small and Medium Scale Enterprises (SMEs) Financing and Economic Growth: Which Way for Nigeria”. European Journal of Business and Management. Vol. 8, no. 16, pp. 12-17.
Asaolu, T. O.; Oladoyin, A. M. and Oladele, P.O. (2005) “A consideration of the problems and prospects of revitalising the Small-Scale Sector in Nigeria”. European Journal of Scientific Research. Vol. 7, no. 3, pp. 5-11.
Ayesha, B. (2007) Entrepreneurship Development for competitive Small and Medium Enterprises. Tokyo: Asian Productivity Organization.
Ayozie, D. O. and Latinwo, H. K. (2010) “Entrepreneurial developments and small scale industry contribution to Nigerian national development- A marketing interface”. Information Management and Business Review. Vol. 1, no. 2, pp. 51-68.
Berg, G. and Fuchs, M. (2013) “Bank Financing of SMEs in Five Sub-Saharan African Countries: The Role of Competition, Innovation, and the Government”. World Bank Policy Research Working Paper. No. 6563, pp. 1-20.
Berger, A. N. and Udell, G. F. (2004) A More Complete Conceptual Framework for SME Finance. In: Small and Medium Enterprises: Overcoming Growth Constraints World Bank, MC 13-121, October 14-15.
Central Bank of Nigeria (2016) Annual Statistical Bulletin. Vol. 27, December.
Dimoji F. A. and Onwuneme L. N. (2016) Small and Medium Scale Enterprises and Sustainable Economic Development in Nigeria. In: 33rd International Business Research Conference, 4 - 5 January. Flora Grand Hotel, Dubai, UAE.
Etuk, R. U.; Etuk, G. R. and Baghebo, M. (2014) “Small and Medium Scale Enterprises (SMEs) and Nigeria’s Economic Development”. Mediterranean Journal of Social Sciences. Vol. 5, no. 7, pp. 656-662.
Gbandi, E. C. and Amissah, G. (2014) “Financing Options for Small and Medium Enterprises (SMEs) in Nigeria”. European Scientific Journal. Vol. 10, no. 1, pp. 327-340.
Iorpev, L. (2012) "Does Bank Size Matter to Small and Medium Scale Enterprises (SMES) Financing In Nigeria?" International Journal of Business and Management Tomorrow. Vol. 2, no. 3, pp. 1-9.
James, S. K. and Ashamu, S. O. (2014) “Financial Structure Mix: Effect on Growth and Earning of Small and Medium Enterprises in Nigeria”. International Journal of Humanities and Social Science. Vol. 4, no. 4, pp. 132-137.
Kadiri, I. B. (2012) “Small and Medium Scale Enterprises and Employment Generation in Nigeria: The Role of Finance”. Kuwait Chapter of Arabian Journal of Business and Management Review. Vol. 1, no. 9, pp. 79-93.
Lawrence O. A. (2003) Critical Success Factors in the Implementation of SMIEIS. Being a paper presented at Central Bank of Nigeria (CBN) Seminar on Small and Medium Industries Equity Investments, August. Lagos: CBN, no. 4, pp. 86-99.
Lee, F. (2004) Financing innovative SMES in a global economy. In: 2nd OECD Conference of Ministers responsible for Small and Medium-Sized Enterprises (SMES) on Promoting Entrepreneurship and Innovative SMES in a Global Economy: Towards a more responsible and inclusive Globalisation, 3-5 June. Istanbul, Turkey: Organisation for Economic Co-Operation and Development (OECD).
Muritala, T. A.; Awolaja, A. M. and Bako, Yusuf. A. (2012) “Impact of Small and Medium Enterprises on Economic Growth and Development”. American Journal of Business and Management. Vol. 1, no. 1, pp. 18–22.
Ogujiuba, K. K.; Ohuche, F. K.; and Adenuga, A. O. (2004) “Credit Availability to Small and Medium Scale Enterprises in Nigeria: Importance of New Capital Base for Banks – Background and Issues”. AIAE Working Paper, pp. 1-25.
Oni, E. O. and Daniya, A. A. (2012) “Development of Small and Medium Scale Enterprises: The role of Government and other Financial Institutions”. Arabian Journal of Business and Management Review. Vol. 1, no. 7, pp. 16-29.
Omika, M. (2014) “Re-positioning Commercial Banks to enhance the productive capacities of Small and Medium – Scale Enterprises (SMEs) for Economic Growth of Developing Nations: A Focus on Nigeria”. International Journal of Public Administration and Management Research (IJPAMR). Vol. 2, no. 2, pp. 193-198.
Oyelaran-Oyeyinka, (2003) “Financing and Development of Small-sale industries in Nigeria”. Central Bank of Nigeria Economic and Financial Review. Vol. 24, no. 4, December.
Safiriyu, A. M. and Njogo, B. O. (2012) “Impact of Small and Medium Scale Enterprises in the generation of employment in Lagos State”. Kuwait Chapter of Arabian Journal of Business and Management Review. Vol. 1, no. 11, pp. 107-141.
Salami, A. T. (2003) Guidelines and Stakeholders Responsibilities in SMIEIS. Being a paper presented at Central Bank of Nigeria (CBN) Seminar on Small and Medium Industries Equity Investments, August. Lagos: CBN, no. 4, pp. 50-65.
Udechukwu, F. N. (2003) Survey of Small And Medium Scale Industries and their potentials in Nigeria. Being a paper presented at Central Bank of Nigeria (CBN) Seminar on Small and Medium Industries Equity Investments, August. Lagos: CBN, no. 4, pp. 6-18.
Ugoani, J.N.N. and Dike, O. N. (2013) “Challenges of Bank Credit among Small and Medium Enterprises (SMEs) in Nigeria”. Journal of Economics and Sustainable Development. Vol. 4, no.6, pp. 84-90.
Valverde S. C., Fernandez F. R.and Udell G. F. (2005) Bank Market Power and SME Financing Constraints. Being a paper presented at the I Fall Workshop on Economics, October. Granada, pp. 1-62.
Wattanapruttipaisan, T. (2003) “Four Proposals for Improved Financing of SME Development in ASEAN”. Asian Development Review. Vol. 20, no. 2, pp. 1-45.
Yahaya Y. (2015) “Financing Small and Medium-Scale Enterprises for Sustainable Growth and Development in Nigeria: A Case Study of Zaria, Kaduna State”. Journal of Economics and Sustainable Development. Vol. 6, no. 14, pp. 137-146.

PROJECT PROPERTIES
Project Status
Available
Number of Chapters
5
Number of Pages
111
Number of Words
17,373
Number of References
74
Project Level
B.Sc.
Price
N15,000 - Fifteen Thousand Naira (Non-Negotiable)
Abstract, Regression Data and Results are included
How to Pay for this Project . . . .CLICK HERE

Keywords: small scale enterprises, financing of small and medium scale enterprises, commercial banks

 

 

 

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