THE IMPACT OF BANK LOANS ON SMALL AND MEDIUM

SCALE ENTERPRISES IN NIGERIA

ABSTRACT

This project work was carried out primarily to assess the role of
commercial banks in financing small scale industries with
particular reference to UBA Plc Awka Branch. In this exercise two
vital categories of functional areas were investigated. The two
groups under investigation were the staff and customers of UBA.
They were considered to stand better chances of evaluating the
Impact of Commercial Banks Loans in Financing Small Scale
Industries. The instrument of data collection was questionnaire
approach. The questionnaire items were distributed to the staff
and customers whose opinions formed the basis of the analysis.
The data and material collected were presented in tabular form
and complemented by chi-square method. Based on the analysis
from the information gathered, it was revealed that small scale
industries have positive impact on the economy of the Nation
because it provided employment opportunities to the youths.
Based on the outcome of the projects on the basis of analysis,
recommendations were offered on the best way the commercial
banks could finance the small scale industries for the welfare of
the people.

1
 TABLE OF CONTENTS

TITLE PAGE

CERTIFICATION

APPROVAL PAGE

DEDICATION

ACKNOWLEDGEMENT

ABSTRACT

TABLE OF CONTENTS

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objectives of the Study

1.4 Significance of the Study

1.5 Limitations of the Study

1.6 Research Questions

1.7 Research Hypotheses

1.8 Definition of Terms

CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE

2
2.1 Historical Small Scale Business

2.2 Importance of Small Scale

2.3 Features/Characteristic of Small Scale Business Enterprises

2.4 The Major Forms of Financial Assistance

2.5 Problems of Small Scale Industries in Nigeria

2.6 The Roles of Banks in Financing Small Scale Enterprise

2.7 Advantages of Banks as Sources of Finance to Industrialist

2.8 Disadvantages of Banks as Source of Finance to Small Scale

Enterprise

CHAPTER THREE

3.0 RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

3.2 Research Design

3.3 Area of the Study

3.4 Population of the Study

3.4 Sources of Data Collection

3.5 Questionnaire Designs

3.6 Method of Data Analysis

3.7 Statistical Technique

3.7.1 Decision Rule

3
3.7.2 Validity of the Test

CHAPTER FOUR

4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 Introduction

4.2 Analysis of Distributed Questionnaire

4.3 Test of Hypothesis

4.4 Summary of Data Presentation and Analysis

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction

5.2 Summary of Findings

5.2.1 Findings Associated with the Financial Institution

5.2.2 Findings Associated with the Government

5.2.3 Findings Associated with the Small Scale Enterprises

5.3 Conclusion

5.4 Recommendations

BIBLIOGRAPHY

APPENDIX A

APPENDIX B

4
 CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

In Nigeria, as in many other developing countries there is dearth

of financial institutions which cater for long and medium term

credit needs of business operations. In exception to this, they

suffer a great deal for want of capital for development and

expansion.

By definition, commercial bank is an institution where money and

other valuable items are kept for security purposes and at the

same time transact business such as giving of loans and

advances.

Among the most important commercial banks in Nigeria are: The

First Bank Plc formerly known as the bank of West Africa which

has the largest assets and located its head office in Nigeria at 37

Marina, Lagos. The Union Bank formerly known as Barclays

Bank which was established in the year 1917 in Lagos as the first

branch and is the first bank to hit one billion naira customers’

deposit. The commercial banks trend made through British and

5
French Banks now called the United Bank for Africa Limited

which was established in 1949 making it the third expatriate

bank of dominate the early Nigerian Commercial Banking.

The issue however remains that her pace, towards economic

development has not kept record with the naturally endowed

nations. While some sectors of the economy have recorded some

significant growth, others continued to lag behind inspite of

increased financial resource allocations.

While most of the villages still lack the basic necessities of life,

potable drinking water, electricity and health facilities, many of

the urban areas are becoming dotted with sky-scrappers. Thus

parallel growth structure between the two areas. Hence giving rise

to migration from the rural to the urban areas. The ultimate effect

has been the abandonment of natural resources in the rural

areas to urban crimes and inflation.

Government’s efforts to check the above analyzed problems have

not been fruitful rather the problems seem to be complicated in

certain cases.

6
The straw that broke the camel’s back was the down-turn of oil

prices for the growth in oil production coupled with high sales in

the 1970’s has turned the economy from a production oriented

one to an import and distribution one. It was what the oil glut

was witnessed in 1981’s that our economic planners recognized

the need to reverse the trend, hence the concept of diversification.

One of the militating factors of diversifying the economy is the

establishment of the small scale industries.

The importance of these industries to the economic survival of the

country cannot be overemphasized. They have moved from the

sub-existence 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 operations have moved into the capital intensive

stage. To do this, a reasonable amount of capital needed in many

cases are beyond the financial capacity of the entrepreneurs who

set up the business.

The major alternative for the provision of such capital is the

financial institution. Among the financial institutions operating in

7
the country, the commercial bank is one of the major sources of

credit to various sectors of the economy. However, it is a common

knowledge that getting the financial support from the commercial

banks getting the financial support from the commercial banks

has been grossly inadequate for building indigenous

entrepreneurs and even for those who have been in the

manufacturing business for a long time.

1.2 Statement of the Problem

In any economy, small scale industries are powers to reckon with

in terms of provision of employment to the people. Small scale

industries can perform their roles effectively if they are

empowered economically. In Nigeria, small scale industries have

not been encouraged enough by the government due to some

constraints; such as lack of clear policy on the part of the

government to strengthen their operations, lack of capitals, lack

of facilities in the form of power, water supply, good road

networks, and a host of others. The enabling environment is

necessary to make them operate fully. The principle factor

hindering their operations is lack of capital. The capital for such

8
business could either come through personal savings, through

pooling of resources from friends or through commercial banks as

the case may be. Commercial banks have enormous roles to play

to help small scale enterprises but they could not come due to

several factors. In Nigeria, commercial banks do not actually play

the intermediation roles due to lack of capital, lack of defined

policy for lending to the public and heavy collaterals among

others. Lack of defined interest rate, man-know-man syndrome

and other constraints prevent small scale industries from

performing their roles.

This research is essentially designed to investigate why

commercial banks hesitate to offer assistance to small scale

industries with a view to finding solutions to these problems.

1.3 Objectives of the Study

In view of the problems of small scale industries, the primary

objective of the study is to evaluate the role of commercial banks

in financing small scale industries in Nigeria.

Other secondary objectives include the following:

9
i. To identify the problems encountered by the industrialist in

obtaining finance from commercial banks.

ii. To appraise the situation and make recommendation, as to

how to improve on the bank services.

iii. To highlight the extent to which the commercial banks have

helped finance small scale industries and problems

hindering such.

iv. To create attractive opportunities for investment of Nigerian

industry and provide outlets for production investment for

Nigerian savings.

v. To conduct other aspect of commercial banking operations

like acceptance of terms deposit and provision of loans to

Nigerians.

vi. To lay emphasize on the provisions of basic ingredients of

economic development necessary to finance enterprise,

managerial and technical assistance which are in short

supply in the rural areas. This study will help to define the

contributions of banking programmes in extending banking

services to every part of the country.

10
vii. To know the roles of commercial banks and suggested ways

of minimizing their problem of the financing of the small

scale industries in Nigeria. This study will help to promote

the financing of small scale industries of the country both at

rural and urban areas.

viii. This study will also help to make recommendations on how

best some of the commercial banks activities will be

handled.

1.4 Significance of the Study

The significance of the study includes:

i. To help Nigerian businessmen to hold on to their own

commercial fields.

ii. To make Nigerians operate in such a way as to give

confidence to work effectively in the commercial and

industrial fields. Industrialist will benefit because the

research project will reveal any problem relating to

relationship between commercial banks and the small scale

industrialist. When these problems are revealed it will aid

11
 small scale borrowers to ask for loan easily without any

problems.

iii. To help Nigerian establish industries and own properties

with the encouragement of commercial banks.

iv. To help individuals both entrepreneurs and investors to

benefit from loans advances, overdrafts and business

opportunities offered by commercial banks. Individuals will

also gain because when commercial banks give loans to

industrialist, it will help to act that the needs of the people

are provided if not fully but to an extent that a good number

of people will benefit.

v. To help potential researchers who have the same or related

topics to write on, and make use of this work. The research

will be of importance in that, it will provide data for future

studies on the subjects. Thus the study will be of benefit to

students who will like to research on related topics in future;

it will make their work easier because already a foundation

has been laid.

vi. Through this study, the government shall become aware of

the problems inherent in initiating such a project and avail

12
 themselves of such future problems in initiating other future

projects in the same line.

vii. This work or study shall also help the appropriate

authorities to ascertain the contributions and effectiveness

of commercialization of banks.

1.5 Limitations of the Study

This topic “The Impact of Bank Loan in Financing Small Scale

Enterprises” (A Case Study of UBA Plc, Awka Branch) is very

verse but for purpose of manageability and financial constraints,

it has therefore resisted or limited itself to some specific banks in

Awka, Anambra State.

In choosing this bank, the researcher has limited her research in

these areas of operation in the institutions that enhance

economic emancipation of Nigeria and use inference drawn to

apply to other development of financial institutions. This has

been so because the researcher assumed that all financial

institutions saddled with the sole responsibility of small scale

13
industry have the same goal and objective of enhancing small

scale industry.

1.6 Research Questions

The following research questions have been put forward to enable

the researcher draw conclusion:

i. What are the major constraints the small scale enterprises

face in obtaining loans from commercial banks?

ii. What are the roles of commercial banks to the growth of

small scale industries in Nigeria?

iii. In your opinion to what extent do you think that small scale

enterprises can grow without assistance from the

commercial banks?

iv. What roles do you envisage government will play to

encourage the small scale enterprise in Nigeria?

v. To what extent would small scale enterprises contribute to

reduction in unemployment among youths in the country?

vi. To what extent could small scale enterprise survive in

Nigeria in the midst of competitions in banking activities?

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1.7 Research Hypotheses

The following hypotheses have been put forward to help the

researcher determine result of this research work.

1. Ho: Small and medium scale enterprises in Nigeria do not

contribute to the growth of the economy in Nigeria.

Hi: Small and medium scale enterprises in Nigeria

contribute significantly to the growth of the economy in

Nigeria.

2. Ho: Small and medium scale enterprises have no

significant

relationship with employment programmes in the

country.

Hi: Small and medium scale enterprises have significant

relationship with employment programmes in the

country.

3. Ho: Small and medium scale enterprises have no

correlation

with poverty alleviation programme in the country.

15
 Hi: Small and medium scale enterprises have direct

correlation with poverty alleviation programme in the

country.

1.8 Definition of Terms

Small Scale: Different authors have different views of what a

small and medium scale industry stands for or mean. According

to Kerelu F.N (1988). A small scale industry is one whose paid-up

capital falls within the range of about N750.000.

The Nigerian Bank for Commerce and Industry (NBCI) which

currently plays a very active role in the promotion of small

industries defines a small scale industry as one employing up to

N500,000. Ezeije (1990).

In most cases, the varied definitions appear to be governed by the

interest of the perceived, the purpose of the definition the state of

development in which the definition is employed. Generally a

small business is defined as one which is owned, managed by one

or two persons, influenced by the family in decision making has

16
no undifferentiated organizational structure, market shares are

small and employ less than fifty (50) persons.

Role: For the purpose of this research, role should mean and

includes all parts played and exhibited by financial banks.

Loans: This is the transfer of fund from one economic entity to

another which must be repaid with interest over a stipulated

period of time.

Credit: This word credit comes from Latin word “Credo” meaning,

I believe, ability to command capital of another in return for a

promise to repay as specified in the future.

Finance: This is concerned with availability of money and capital

goods for investment in industries to boost production.

Industrialization: Could be defined as a strategy through which

more industries are encouraged to spring up.

Money: Money can be defined as anything, which is generally

acceptable in a given society or locality as a means of exchange

and for settlement of debt.

Short Term Loan: A source of fund which has a short period of

maturity.

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 CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE

2.1 Historical Background of Small Scale Business

Before the introduction of Nigerian Enterprise Production Decree

1972, most businesses both small and big were managed by

foreign experts. The main objective of this decree is to encourage

Nigerian indigenes to participate actively in managing and owning

businesses. This made both Federal and State Government to

establish industrial Development Centers, the objective of which

is to help the potential business lovers to acquire necessary skins

and knowledge that will help them to start their own business.

In Nigeria, as in many developing countries, small scale

industries are overwhelmingly in the hand of small holders. As

MC Mamara (1973) puts it "there are over 1000 million families

involved and more than 700 million individuals (in developing

countries)". The size of average is small and often fragmented. The

growth and survival of small-scale industries depends on the

amount of funding

18
and management of such firm. The small scale industries are

mainly in need of working capital financing of which the banks

are the best providers of such need.

According to Olusegun (1976) working capital financing is the

easiest to arrange; it is short term in nature and may take various

forms such as bank overdrafts, short term loans and suppliers

credit. The banks usually, on providing such loans expect the

borrower to demonstrate how the loan will be redeemed,

especially during the firm period of greatest liquidity. Although

some writers have laid the emphasis on working capital financing

as well, it should be noted that it is not the main solution to small

scale financing problem.

Thus, the Central Bank of Nigeria encourages the provision of

growth capital for industries by emphasizing in its yearly credit

guidelines, the need for banks to improve the maturity pattern of

their loans and advances to be of long term.

There are some writers who do not see small scale financing as a

major role of Commercial banks. According to Penwick, the need

19
for financing starts with the desire to spend. Spending and the

desire to spend by private individuals, business and government

lie at the heart of economics and thus financial activity. Hence

the crucial perquisite for profitable financial analysis is

uncultured understanding of the economics of the situation the

economic of what is being financed and why. It is when it is being

financed that they are able to assess whether to finance small

scale industries. But then it should be noted that what one views

as being important or reasonable may not be so with another and

it is for this, guidelines are issued by the federal government

through the Central Bank directives as regards the sectors to be

adequately financed. Financing as we see is an act of funding and

such funding can be internal or external.

One of the factors that led to the introduction of the Structural

Adjustment Programme in 1988 is to improve on the performance

of non-oil exports and to encourage many businessmen to look

inwards:- that is to engage in production of goods with mainly

local raw materials. This programme will help to reduce the

importation of goods and thereby conserve foreign exchange. In

20
order to realize this objective, the government instituted some

incentives to help especially small business manufacturers and

exporters to intensify their efforts towards producing goods and

services for export. These incentives include: Currency Retention

Scheme, Export Development Fund, Tax Relief on interest

Income, and rediscounting of short tern1 bills of export.

The introduction of the National Directorate of Employment in

Nigeria helps to train unemployed able bodied school leavers and

other Nigerians in modern techniques of agricultural production

and manufacturing. Acquisition of skills needed to become future

businessmen and women in small scale enterprise has increased

the activities of small scale business in Nigeria. The pace of

change in the business environment has accelerated and banks

have become increasingly conscious of the peculiar problems and

its grading importance to the Nigeria economic recovery and self-

reliance. As a result, banks are responding with added vitality on

the affairs of small scale business, the banks however do not fail

to evaluate a business. Proposition and determine its viability

more objectively before going into such firms. This is attributed to

21
the fact that the risk of doing business is high and returns can

hardly be predicted.

2.2 Importance of Small Scale

Enterprise/Industries

From the given background, a small scale industry is a means to

an end and not an end itself. Yet it is regarded as being of great

importance in the present state of our economic life. We shall

hereby examine the importance of small-scale industries from two

perspectives. Firstly we shall examine the importance of small-

scale industries to an individual and then the economy as a

whole.

1. To an individual:- An individual will have to establish a

small scale industry for the following reasons.

a. Profit Motive:- The individual would like to make as much

profit as he can from a small scale business. Hence

identification of a profit source will motivate one to establish

a small scale business.

b. Independence: This is more of a psychological reason than

any other thing. Certain individuals claim that they will

22
 enjoy a lot of independence running their own small-scale

business than when they are employed by any big corporate

organization.

c. Money Making:- An individual might like to establish a

small-scale business not because he just wants to make

profit or feel independent but to make as much money as he

can from small scale ventures. He simply wishes to be

identified as someone who has made money.

d. Source of Livelihood, Job and Investment:- One can earn

his living through a small scale industry. One might decide

to create job for himself and others by establishing a small

scale industry. One might like to be noted as an investor

with interest in various ventures. Hence, setting up of small

scale industry provides a means of investment.

2. To the Economy: The present day Nigerian economy stands

to benefit from the establishment of small scale industries.

a. Employment Creation: - This is one of the objectives of the

Nigerian industrial policy that was adopted. The policy

specified the establishment and promotion of small scale

industries as the basic tool for tackling the various forms of

23
 unemployment that has been witnessed in the country over

the past few years. In recent years, Nigerian government has

been experiencing serious unemployment problems. One of

the way fashioned out by the government to reduce this

problem is to encourage many individuals by giving them

certain incentives to establish small scale business

enterprises. Establishing small scale industries will in

addition develop in Nigeria a broader base of entrepreneurial

culture and desired level of trained labour and man-power.

In reality the small scale industries will absorb a

commendable percentage of the unen1ployed if encouraged

with vigor.

b. Acceleration of Economic Growth: The fact that small

scale enterprise is important for economic growth is not an

over-statement. They engage in one business or the other

providing services for the masses, these services help in no

small measure in improving living standards of the people.

c. Accelerate Large Scale Production: The small scale

business helps the big firms in distributing their goods and

services and also supply them with raw materials needed in

24
 their production. This is why most small scale businesses

are located in the cities where big businesses are located.

d. Skill Acquisition: Some of the big businesses in Nigeria,

started as small scale enterprises. Example is

Ekenedilichukwu Transport Company. This helps the

business owners to acquire more skills and experience that

could enable him or her manage big businesses. From this,

one can see that small scale business provides fertile ground

for practical Training and development for ambitious

managers who hope to manage bigger business in future.

e. Increased Export of Manufactured Goods:- With more

goods manufactured by these industries, there will be the

need to export some of the goods. However, Nigerian export

oriented production will become more competitive in the

world market.

f. Improving Technological Capacity: The extent and level of

technological development will largely depend on the level of

industrial development in the country. The establishment

and dispersal of these industries would therefore propel

Nigerian into embarking on technology researches at least to

25
 attain independence of the developed world for the

maintenance and growth of these industries and the society

as a whole.

g. Increase Private Sector Participation: With increased

establishment of small scale industries, private individuals

are given a wider opportunity of participating in the

economic activities in the country. This is because

individual entrepreneurs who man their various business

would also like to contribute tangibly or intangibly or both to

major economic policies that are made in the country. For

they constitute a pressure group.

2.3 Features/Characteristic of Small Scale Business

Enterprises

Small businesses have certain characteristics which distinguish

them from large scale businesses and which also justify separate

analysis of their role in development.

These characteristics/features may be summarized as follows:

1. Small scale business are many:- The number of small scale

business is usually many when compared with large scale

26
 business. This is because the amount of money required to

establish them is relatively small and there may be no legal

provisions to be fulfilled before they are set up.

2. Management usually the independent is manager is usually

the owner and thus is independent. This is unlike the large

scale businesses where the owners are different from

management and hence not independent.

3. There is no much specialization because the manager/

proprietor handles or supervises the financing, production,

marketing and personnel of the business.

4. The manager/proprietor does not raise short) medium and

long term capital needs of his business from the organized

financial market. Instead, he relies heavily on personal

savings) loans from friends, relatives or money lenders.

5. Small scale business has a small share of the market. The

entrepreneur continues his vision to the local community in

which he carries on his business, ignoring wider and more

distant markets.

27
6. The level of education of the owner is usually low with low

level of business consequent management, technical market

skills and information.

7. The rate of business mortality is high probably because of

strong mutual distrust which militates against formation of

partnerships or limited liability companies.

8. The firm has little or no accounting records. The small

business believes the owner that maintenance of book of

accounts and other business records is costly and

unnecessary.

9. The craft sub-sector is dependent heavily upon apprentice

labour. This is because it is cheap and as a result helps the

proprietor to survive in the highly competitive market with

small and irregular demands for the firm's products or

services.

2.4 The Major Forms of Financial Assistance

28
1. Personal savings:- It is natural that any time a person

wants to borrow money from anybody, the likely questions

should be how much do you have? And when will you repay

the loan? In business circle, we know that every business is

faced with risks. A person borrowing money to new business

owner always wants to be sure that such risks are shared by

the owner. That is the owner should be able to save up to

fifty percent of the total amount needed. The higher the

percentage of amount of the capital saved the better chances

of obtaining loan from the potential creditors because many

of them will take him serious.

2. Trade Credit: Trade credit is the financial assistance

provided by the businesses to the customers. This type of

assistance is more pronounced in supplying of inventory

which is always' being replaced. Manufacturers also extend

credit facilities to wholesalers with generous terms for

payment. One of this terms of payment includes sales

discount which encourages prompt payment which always

motivate the business owner to pay within the maximum

discount period. For example, if a N30,000 inventory can be

29
 purchased for N20,000. First payment and the balance to be

paid in 30 days, the manufacturer in this case has virtually

provided N10,000 of the required capital to the whole seller.

The whole seller has the chance of selling that inventory at a

profit and be able to payoff the balance of N10,000.

3. Loans from the Banks: One of the functions of commercial

banks is to make loans and advances available to both small

and large scale businesses. However, before loans are

granted, the customer must be able to provide reasonable

security. The bank 'charges interest on such loans. Banks

provide mostly short term loans to small scale businesses.

That is the loan should be repaid within one year. They can

grant intermediate and long term capital to small businesses

depending on the performance and stability of that

business. The banks also provide overdraft to small

business. In this case, the business owners are allowed to

draw up to a certain amount in excess of what they have in

their accounts

4. Loans from Friends and Relations: Many new business

owners do not like borrowing money from friends and

30
 relatives to start business but it still remains one of the

ways of generating funds to start new business. Some of new

business owners often are encouraged by their friends,

parents and well wishers who give one form of help or the

other to get the business started. This source of raising

funds to small business is not without its problems. The

parents and friends who supply loans to the business

overtime interfere with the activities of the business.

Combining family or social relationship with business may

not augur well with the operations of the business. The

problem situation can be alleviated if the terms of loans are

clearly on how to recover the loan if it becomes delinquent,

should be well understood.

5. Entering into Partnership: If the new business owner

does not want to borrow money either from the banks or

friends and relatives, another option open to him is to take a

partner or partners. In case the partners do not want to take

part in the running of the business, they just hold full

partner status because of their initial investment in the firm.

The duties, responsibilities and rights of each partner must

31
 be dearly stated in the partnership agreement. Let us

assume at this point that the new partner needs N500,000,

to start a new business but is able to save the sum of

N200,00, he is faced with the problem of how to raise the

balance of N300,000. Let's also assume that new business

owner does not want loan from anybody. He may decide to

look for partners who are willing to contribute the total sum

of N300,000 to make up the sum of N500, 000 for the initial

take off of the business.

6. Selling of Shares: Many small business owners are not

aware that both small and big firms can be in .corporate

form. But most small firms have only one issue of stock,

which is common stock. But as the business grows, it may

issue preferred stock. The preferred stock is different from

common stock because the holder of the preferred stock

normally gives up the right to vote in exchange for priority of

dividends.

2.5 Problems of Small Scale Industries in Nigeria

32
1. Under Capitalization: Money matters are not matters of

fancy, virtually all business need capital for its operations

and growth. But many of the small scale business units are

under capitalized. They have limited sources of finance and

this creates problem buying merchandize of not

independently at best price, inadequate qualities and

quantities cum varieties. This problem of finance is in three

dimensions; the need for start up capital, working capital

and expansion capital. Commercial banks which were

expected to be the launch pad for the development of small

scale industries through the provision of loans have failed to

give adequate support to them. Stiff collateral security

demanded by banks often means that small scale

industrialists are unable to meet these provisions

consequently losing the chance to obtain loans. In addition,

high interest rates charged on loans have scared off

potential small scale entrepreneurs. Banks on their own

part, have argued that they are discouraged to lend to this

sub-sector since many potential and existing small scale

enterprises draw up feasibility reports that are not viable,

33
 lack of managerial skills and do not maintain adequate

financial or accounting records about their businesses. High

percentage of default on repayment of loans is among the

reasons that led to this sub-sector to be regarded as a high

risk area for lending purposes.

2. Poor Business Accountability: The financial problem of

small scale enterprises is rarely only financial. Often it is

only a symptom, the diagnosis of which reveals other

weaknesses. Business finance and stock are mixed up with

personal financial and stocks required for personal needs.

Cash and stocks are taken at will for personal use whenever

the need arises without accounting for such withdrawals.

This makes it difficult to assess the operating results of the

business and at times starves the firm of its liquid

resources.

3. Poor Record Keeping: Some small scale industrialists

believe that the maintenance of book of accounts and other

business records is costly and unnecessary. They feel they

can differ from the keeping of notes on important business

transactions such as amounts due to be paid to suppliers

34
 and amounts due from customers. Some feels that keeping

proper account is inviting trouble from the tax authorities

while some others feel that keeping records will be a source

of leakage of business secrets to others. The success of the

business depends on proper planning. Planning is possible

only when data is available. Infact, many small scale

business operators do not understand the intricacies of

main training adequate business records or of preparing

financial statements. Financial data may be available but

the managers may lack the necessary knowledge of

appreciation of their values to interpret and use them

effectively.

4. Lack of Enterprise: This relates to lack of experience in the

line of business which small scale business owners enter.

They may have experience in one line of business and not in

another due to his unfamiliarity with the specific problems

of the particular new line of business.

5. Lack of Business Knowledge: Knowledge consists of facts

and theories that enable people to understand phenomenon

35
 and to sol.ve problems. These are habits, trial and error,

authority, traditions, institutions, expert opinions, personal

experience, education and induction. A small scale business

owner who has not acquired enough knowledge about

business may likely fail if he enters into it.

6. Poor/Wrong Location: Where a business is sited is called

its location. The factors which usually affect the location of

business include nearness to raw materials, market, source

of power, access to supply of labour and transport facilities

etc. Too often a location is selected for some superficial

reasons such as the availability of building to rent or buy,

closeness of the facility to ones home etc. These factors do

not account for business success. Good location is extremely

important as a factor of business success. Poor location has

caused the down fall of many small scale enterprises. One

mistake some people make is to rent store in a location that

has a history of failure. They often feel they will be able to

turn the situation around.

7. Inadequate Planning: Planning is defined as determining in

advance what to do, how to do it, who to do it and even why

36
 you should do it. It encompasses setting objectives as well

as making day to day decisions on how these objectives can

be achieved. It involves the determination of both ends and

means. Therefore, planning a business begins with

gathering and evaluating data on resources requirements,

operation costs, potential markets and sales, competition,

suppliers’ relevant government regulations etc.

Unfortunately, however, without paying attention to

planning business, thus, fails. Even when they plan, the

tendency is that they concern themselves only with short

term plan, while they shy away from long term plan.

8. Unplanned Expansion:- Once a business becomes

successful, there is a tendency to expand it in order to make

it grow bigger. However, there is a limit to which small scale

business would grow, beyond which it becomes

unproductive or inefficient if appropriately planned

expansion was not carried out. Therefore, expanding rapidly

sucks up solely needed working capital. It is therefore quite

easy for a business to expand itself right out of business.

Too often businesses that have good chance of making it fail

37
 because of liquidity problems caused by unplanned

premature expansion.

9. Inadequate Credit Control:- A common Problem facing

small scale business owner is whether or not to extend

credit. These firms that do not grant credit must protect

against the practice of extending too much credit. But at

times, some of them possess poor credit granting practices.

Credits extended to friends and relations are often times too

hard to collect in terms of need. This therefore increases the

financial predicament of the small scale business owner.

10. Incompetence of Management: The major hazard of a

small scale business is the incompetence of management. A

small scale business owner may not know all the

management principles and theories, his management

practice and as such his management may jeopardize his

business. He may not posses the leadership qualities, be

unwilling to delegate authority, lack appropriate human

relations, ability and may not posses the appropriate skills

of management.

38
11. Lack of Proper Inventory Control: Since the small scale

business manager is a generalist, he may lack an

understanding of the importance of proper inventory control.

An inadequate inventory means that goods are unavailable

for delivery to customers when they are demanded; or too

large an inventory which creates problems such as the

owner's money being tied or wasted through spoilage and

lack of proper stock of goods that are in high demand. This

may affect sales negatively and hence the income of the

business. Income for the business is generated by sales and

without income the business collapses.

2.6 The Roles of Banks in Financing Small Scale Enterprise

A small scale industry could be financed either through the

banks or funds raised personally by the entrepreneur. Funds

raised personally by the entrepreneur can be through savings,

gifts, and borrowings. Funds to be raised through banks the

industrial and development banks, and Nigeria Industrial

Development Banks (NDB). Many financial institutions are

involved in entrepreneurship development in Nigeria in many

39
ways. Some of them are set up by government for specific

functions while others are set up by private organizations. Their

main functions are to provide funding relief from financial

consequences of uncertainty and advisory services for business

enterprises, public or private. Through them, the government

plays the role of financial companies. Some of these institutions

include: Nigerian Bank for Commerce and Industry (NBCI),

Nigerian Agricultural and Co-operative Banks (NACB), Nigerian

Industrial Development Bank (NIDB), Peoples Bank of Nigeria

(PBN), the Commercial Banks and Merchant Banks etc.

For any entrepreneur sourcing for fund and enough funds cannot

be mobilized from friends and relations, the next thing that comes

to mind is to try the banks. The Commercial Banks for instance

are the centres of the leading marketing and make the greatest

number and variety of loans. The commercial banks are the

creators of credits in the economy but they are very conservative

in lending. The commercial banks look at many things apart from

the ability of entrepreneur to provide the needed collateral and

may be interested in having a general view of the proposed

40
business by looking at the feasibility report, the experience of the

entrepreneur, his personal credit records, profit potentials etc.

NIGERIAN BANK FOR COMMERCE AND INDUSTRIES (NBCI)

Nigerian Bank for Commerce and Industries was established in

October 1973 to finance the process of indigenization of the

nations economy with a capital of N50 million; the bank first

function is entrepreneurship development by giving assistance to

indigenous businessmen who obtain funds in the form of loans of

equity to acquire the ownership interest of aliens in business

activities. Potential entrepreneurs were able to obtain funds from

the banks to buy up shares or buy the entire business activities

in schedule I and II. Nigerian Bank for Commerce and Industries

assists business by providing consultancy services in

identification of viable projects. Entrepreneurs who want to

change into another line of business can be assisted by NBCI to

identify projects that can be profitable and this usually minimize

the risk of business failure. The bank also assists the

entrepreneur in the preparation of well researched and

articulated feasibility reports. After deciding on a particular

41
business idea, the next thing is to begin to gather facts and

figures to enable you take a decision as to which way to go. This

state of fact-finding aimed at determining the business profit

potentials and return on investment is called feasibility study. It

is therefore necessary to carry out a feasibility study before

committing any money.

THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK (NIDB)

This bank was established in 1964, owned jointly by the Federal

Government and the Central Bank of Nigeria through the

reconstruction of the investment co-operation 'of Nigeria, which

had been in operation since 1959.

The Main Functions' of the Bank are as Follows:

i) The bank provides medium and long term fund for both

public and private sector establishment.

ii) Identification of investment bottle-neck in the economy,

thereby helping to determine investment priorities for both

government and private sector entrepreneurs.

42
iii) They offer consultancy services by giving financial, technical

and managerial ad vice to companies in the public and

private sector.

iv) Supervising the implementation of project finance by

obtaining progress report on the project and visiting the

projects and visiting the projects sites. In this way, the bank

makes sure that the loans given are not directed to other'

non economic ventures. To achieve this, the bank has

inspection and supervision department.

v) It is also involved in the promotion and would 'help the

entrepreneurs to invest in profitable viable ventures.

COMMERCIAL BANKS

Commercial Banking institutions in Nigeria can be classified into

two: the purely indigenous banks owned 100% by Nigerian

Government and individual and the mixed banks with a majority

of indigenous share holders at least 60% equity and majority

foreign interest. As Nigerian law does not allow the establishment

of foreign banks with a majority foreign interest (Femi, 1986).

43
1. Extension of Credit Facilities

Nigerian commercial banks function as other commercial banks

in other free enterprises economies. Their primary function is the

extension of credit to worthy borrowers. They are vehicles for

implementing government national development plan. In making

credit facilities available to industrialists or entrepreneurs they

are rendering great social service. The commercial' banks make

funds

available for general development in all aspects of the economy.

Types of Credit Facilities

Commercial banks are more interested in producing short term

loan facilities to their customers. These can be in the form of:

i. Loan Account: The loan is mainly used by entrepreneurs or

other individuals to supplement what they already have. The

amount granted is generally small and it is payable in the

shortest possible time.

ii. Overdraft: Commercial Banks also lend funds to their

customers on overdraft, and funds advanced on this basis

are in theory, repayable on demand, while interest is

44
 payable on the outstanding balance on a daily basis and

generally granted to business customers, larger, medium,

small scale enterprises.

2. Business Advisory Service

The main aim of this advisory service is to assist small business

customers to develop their business in such a way that they can

attract bank finance, entrepreneurs are taught how to introduce

simple record keeping and accounting their operation.

Area of Finance:- It is necessary for the commercial banks to

properly examine the area to which the fund being demanded by

the small scale business is to be employed. The cash needs for

meeting up operational cost and administration expenses have

already been mentioned and need not to be over emphasized.

Until then however, at the start up of business, there is need for

equipment, plant, machines and free or lease-hold premises for

the business. This is an area the bank needs to provide the basic

finance for the entrepreneur.

Funds to be provided by the banks will also cover that which can

be used for the purchase of raw material for a manufacturing

45
company, there is the use for adequate provision of funds for

materials replenishment. It is necessary to determine the record

point so as to make the required purchase. The bank has the role

of ascertaining these from the feasibility report being presented

by the entrepreneur. There is need for the finance in the

distribution of manufactured goods through the wholesellers or

directly to the retailers. This distribution channels income to high

transport cost. Funds provided by the commercial banks can be

used by offsetting these cost. The distribution cost here includes

the advertising and other pronl0tional and marketing cost. Before

the distribution of the manufactured goods, the production

processes require finance even up to the final stage. The finance

required here is for maintenance of production equipment and

service cost. This will also include the packaging cost and

trademarks. It is necessary for the commercial banks to examine

these areas of finance to ensure provident use of their funds and

success of small scale business. However, the commercial banks

have to specify the conditions for making these funds available to

the small business.

46
Conditions of Finance:- Feasibility and viability report for a loan

to be extended to any small business, the commercial banks

must scrutinize the cash flows on which the feasibility and

viability of the industry project is based. The feasibility study

being conducted on the project service to determine the

practicability of the venture. In order words it serves to show how

attainable the objective of the industry is. The viability of the

industrial projects refers to the financial worth of the project. The

bank cannot in any venture projects unrealizable returns. The

bank demands evidence for feasibility and viability. The feasibility

and viability report are often a bundle of assumptions and

presumptions, and to materialize means that the object of the

project might be equally marked. The need for these reports

arises during the early stages of the business.

Qualities of the Entrepreneurs: The commercial banks

scrutinize the capacity, character, integrity and collateral

securities of the prospective borrowers for advances to be made to

him, the threat of capacity has to do with his age, mental fitness

and alertness and ability to enter into a contract with the

provisions of the laws of the land. The character threat has to do

47
with his business mind of dealing with issues. It is essential to

ascertain that the entrepreneur is not a difficult person. It is

equally essential that commercial banks have to ascertain the

goodwill the entrepreneur has built for himself over the years

both in the business and the entire society. For a new

entrepreneur this quality may not be necessary but the

entrepreneur could have built a good reputation in some other

ways, academically, socially or otherwise. Another issue worth

scrutinizing is the extent of financial involvement of the

entrepreneur at the time to seek for the commercial bank loan.

Ability of the entrepreneur to convince the commercial bank of his

state in the business would ginger the commercial bank to aid

him considering all of the above stated conditions and qualities.

Additionally, ability of the entrepreneur to present a tangible or

worthwhile collateral security will enable the commercial bank to

finance his business. This is very essential when the

entrepreneur is yet to establish a high reputation in his

environment considering the newness of his business.

Position of the Business:- The commercial banks will finance a

business that is at a fairly good position or have prospects of

48
attaching a fairly good position. This is viewed from the balance

sheet of one business in the past years of operations. The bank in

addition will want to satisfy itself as to the continued profitability

of the business. The business must be seen not only as profit

making but also as that of an increasing annual profits from year

to year.

2.7 Advantages of Banks as Sources of Finance to

Industrialist

In considering the type of financial assistance that can be

obtained from banks and other financial institutions, I will like to

state right from the on-set that banks and the government

operate from different pedestals. Most banks are privately owned

institutions which have profit maximization as their main goal in

business in contrast, government financing is usually

developmental in nature and therefore has the advantage of good

terms, low interest, low equity or little or no collateral security.

Banks, as a source of finance for industrial advantage includes:

49
a) The fact that the bank deals with money and all kinds of

business on a full time basis, shows it is in a better position

to provide expert advice to the industrialist in particular

business and general business trends.

b) Borrowing from a bank as opposed to a government source,

for instance may be better for your credit rating because

banks are more reliable to give unbiased opinions on their

clients rating than public institutions.

c) Banks have the largest breath, that is more types of loan,

than other institutions as banks can structure any kind of

facility to meet the specific needs of their clients.

d) Banks offer many business services, including credit

references on customers or potential customers, financial

investment and estate advisory service loans, discounting

customers accounts and note payable, payment of freight

invoices cheque reconciliation services and payroll

accounting services.

50
2.8 Disadvantages of Banks as Source of Finance to Small

Scale Enterprise

a) Banks are generally conservative when considering loans.

b) The technical requirement, spread, financial projected

budget of presenting a loan can be seen quite frustrating to

the daunting, even uninitiated and on a related note.

c) Because banks are highly regulated by the government and

still need to be profitable they have to be careful that their

loans do not fail. Banks therefore have very detailed and

tough requirements which borrowers often regard as

laborious.

51
 CHAPTER THREE

3.0 RESEARCH DESIGN AND METHODOLOGY

3.1 Introduction

This chapter examines the techniques used for the purpose of

obtaining the essential information and the sources of data used

in this research project, "The Role of Commercial Banks in

Financing Small scale Industries in Nigeria". It will carefully state

the procedure and extent of performance used in analyzing the

data obtained.

3.2 Research Design

In any formal research work, there is need for the development of

a detailed plan. Research design according to Baridam (1990) is

the framework of plan that is used in collection of the analysis of

data from a study. It ordinarily refers to the plan or structure of

any aspect of the research procedure. According to F. Wiliams

(1981) research design has been defined as a plan completely

determined before any data is collected for obtaining a sample

from a given population. Research design is basically how the

structured research was carried out. It is the plan and structure

52
of the investigation conceived so as to obtain answer to the

research questions.

According to Obodoeze (1996) research design "is the plan or

approach the researcher had agreed to use in solving the research

problem" that is, the specification of procedure for collecting and

analyzing the data necessary to help solve the research problem.

Really, it is simply an indication of the methods and procedures

of gathering needed information. Thus, in this study the basic

research designs employed are analytical and descriptive in

nature, employing questionnaire and making use of observations.

Their uses are based on the relevance, accuracy, simplicity and

clarity of information gathered. The research shall adopt a

descriptive approach, which involves the normal gathering,

analysis and interpretation of a set data so as to explain the

underlying factors that surround the problems that triggered off

the research.

53
3.3 Area of the Study

Considering the large size of the banking sector in Awka, this

study falls within the United Bank for Africa Plc, located in Akwa

metropolis from where the data and information about the topic,

under investigation could be obtained.

3.4 Population of the Study

Population can be defined as the whole set of objects or

individuals about which a statistical investigation is carried out.

It comprises the group about which you want to obtain

information concerning a particular thing. Based on this,

Obodoeze (1996) moved further to explain that basic issues in

defining the population is who and what is to be surveyed.

Nwude (1998) saw population as the totality of any group,

persons, objectives which is defined by some unique attributes.

But in our context, population is a specific group of people, firms,

conditions, attitudes etc that forms the focal point of this study.

According to Maduegbuna (2006). “Population refers specifically

to the boundaries of coverage. The aggregate items or persons or

54
respondents from whom data significant to the study were

collected”.

Therefore the determination of the population including sample

size is involved in this study. The random sampling or sampling

population will be used to collect data from "UBA of Nigeria Plc,

Awka branch" and also with the use of questionnaire

administration to the bank officials of the UBA of Nigeria Plc,

Awka branch and its customers. The bank officials and

customers represent the accessible target groups that cover the

population of interest. It is believed that they would yield reliable

data taken as a proof for the actual responses from the required

respondents.

The study population comprises the staff and customers of the

investigating bank, which consist of UBA 1. (STB), UBA 2 (main

UBA), UBA 3 (CTB). Now the total number of staff and customers

in the three branches is 127 and 49,000 respectively. The

sampling size would generally be derived from the Yaro Yaman's

formula as follows:

55
 N

n = 1 + N(e)2

where N = population

n = sample size

e = 5% level of significance (0.5)

1 = constant

3.4 Sources of Data Collection

The sources of data collection of this study are secondary and

primary sources. The primary source of data is the data collected

from their origin which helps conclusion to be drawn. This

method is more expensive than the secondary data collection. But

it shows more so, that the data of this kind is more relevant and

reliable to the issue at hand. Primary data can be achieved

through the use of interviews and questionnaire.

On the other hand, secondary data collection are collected from

the sources subsequent to the origin having been analyzed and

published within or outside the organization with the intension of

56
solving the problem at hand. This type includes published articles

in Journals, seminars, papers, textbooks etc.

3.5 Questionnaire Designs

On the questionnaire design, effect was made by the researcher to

structure the question into simplified and systematized choice of

Yes or No questions. Choice questions give the respondents the

opportunity of making choice among alternative options available.

3.6 Method of Data Analysis

In analyzing the data collected, appropriate figures were used to

represent the data collected from personal interviews and

questionnaire. Then the figures were tabulated so that they can

be easily understood and properly interpreted. It deals with the

analysis of the data collected, so in analyzing the questionnaire,

percentage method of data analysis was adopted. This is because,

if the percentage rises, the information acquired can be

confidently believed to be true. The simple percentage formula

which was used in the analysis of the research questions is

shown below,

57
 F x 100
N 1

Where;

F = Frequency

N = Cumulative frequency

100 = percentage

The rationale for choosing the technique was to make for clarity of

purpose, understanding and interpretation to any inquirer.

3.7 Statistical Technique

The statistical technique used here to test the hypothesis is the

chi - square (X2). It is a statistical method commonly used in both

the social and management sciences. This is used to test whether

the discrepancies between the observed frequency (Oi) and the

expected frequency (Ei) are significant or whether they may

reasonably be attributed to chance.

x2 ca1 = ∑(oi-ei)2
ei

Where;

Oi = Observed frequency

Ei = Expected frequency

58
X2 cal = Chi-square calculated

Where Ei = RT x CT
GT

Where;

RT = Row Total

CT = Column Total

GT = Grand Total

X2 table is computed using a level of significance of 5% (0.05) at

an appropriate degrees of freedom.

Level of significance = 5% (0.05)

DF = (R-l) (C-l)

The observed values were compared with the expected values in

order to test whether the hypothesis will be accepted or rejected

at 5% level of significance. The expected values at 5% level of

significance is given below.

X2 0 (0.05v)

Where V = degrees of freedom and

V-(r-l) (c-l)

Where

R = row

59
C = column

Based On the values of the expected values and the observed

values, conclusions were drawn.

3.7.1 Decision Rule

(1) Reject Ho if X2 cal > X2 table

Reject the null hypothesis (Ho) if the calculated value of the

chi-square is greater than the tabulated value.

(2) Accept Ho if x2 cal < X2 table

Accept the null hypothesis (Ho) if the calculated value of the

chi-square is less than the tabulated value.

3.7.2 Validity of the Test

From definition, validity can be seen as the extent to which a

measuring process is free from both systematic and random I

error. To what extent does the research measure the instrument

or what it is designed to measure. To ensure that the project

supervisor went through the questionnaire to ensure that the

questions were properly formulated to suit the study. The content

validity approach was used by the researcher. It is sometimes

addressed as "face validity" because it allows critical evaluation

60
by experts. Therefore, the information provided by this method

could not be prejudiced against the information supplied hence

the data collected was not in doubt or invalid. But the

information is valid and reliable.

61
 CHAPTER FOUR

4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 Introduction

This research project is concerned with the impact of bank loans

on small scale and medium scale enterprises in Nigeria. The

study has so far highlighted and discussed some major issues

including the significance of the study, method of collecting data

and the hypotheses upon which the data collected were presented

and analyzed.

This chapter therefore focuses on how the various data collected

were presented, analyzed and interpreted. This is to enable the

researcher provide answers to the research questions and reduce

the answers to interpretable forms so that the results of the

variables could easily be understood.

4.2 Analysis of Distributed Questionnaire

The researcher distributed items of questionnaire between the

staff of UBA Nigeria Plc, Awka Branch and to the investors that

make up the customers of the bank.

62
 The researcher distributed 127 (one hundred and twenty seven)

items of questionnaire to the staff of the United Bank for Africa,

Awka Branch. The size of the customers of the bank was reduced

to a sample size of 397 customers using the statistical sampling

technique. Based on this, 397 items of questionnaire were

distributed to the 397 customers representing the entire

customers of the bank.

Table 4.1 shows an analysis of the distributed questionnaire and

the returns of the completed questionnaire from these groups of

respondents.

Table 4.1: Analysis of Distributed Questionnaire

Respondents Questionnaire Completed Questionnaire % of Response

Customers 397 357 40 68.1

Total 524 466 58

The table above reveals that 109 staff of UBA, Awka branch

returned the completed questionnaire while 18 did not return

theirs. On the other hand, 357 customers returned the completed

63
questionnaire while 40 did not return, for various reasons

adduced by them.

Thus, analysis was based on the 109 members of the staff of UBA

and 357 customers that returned the completed questionnaire.

This represented 20.8% and 68.1% of the respondents

respectively.

4.3 Test of Hypothesis

The hypothesis formulated for this study was used to find out if

they would actually hold when faced with empirical evidence. It

was used to determine whether to accept the hypothesis or not

based on the outcome of the test. In the test of hypothesis, tables

were developed for each hypothesis. Thereafter, the chi-square

tool of analysis was used to test the hypothesis.

In using the chi-square (x2) distribution for the test, the null

hypothesis for each hypothesis was stated and the level of

significance was put at 0.05 or 5% level while the degrees of

freedom (df) were dependent upon the number of observations.

The formula for the chi-square (X2) test is given below

64
 X2 = E(fo - fe)2
fe

Hypothesis One

Question 6 and 9 of the questionnaire for both United Bank for

Africa (UBA) staff and the customers respectively relate to

question bordering on if small scale enterprises in Nigeria do

contribute to the growth of the economy. This is congruent with

hypothesis one which states, small scale enterprises in Nigeria do

not contribute to the growth of the economy.

Table 4.2: UBA Staff

Options No. of Responses Percentage (%) of

Responses

Yes 80 73

No 29 27

Total 109 100

Sources: Distributed Instrument

From the above table, 80 respondents representing 73% of the

UBA staff agreed that small scale enterprises in Nigeria do

contribute to the growth of the economy, while 29 respondents

representing 27% did not agree.

65
Table 4.3: UBA Customers

Options No. of Responses Percentage (%) of

Responses

Yes 330 92.4

No 27 7.6

Total 357 100

Source: Distributed instrument

From the above table, 330 respondents representing 92.4% of the

UBA customers agreed that small scale enterprises in Nigeria do

contribute to the growth of the economy, while 27 respondents

representing 7.6% of the customers disagreed.

Table 4.4: Respondents

Options UBA Staff Customers Total

Yes 80 330 410

No 29 27 56

Total 109 357 466

66
Table 4.5: Test of Statistic

fo Fe fo-fe (fo-fe)2 (fo-fe)2/fe

80 95.9 -15.9 252.8 2.64

330 314.1 15.9 252.8 0.8

29 12.1 15.9 252.8 19.3

27 42.9 -15.9 252.8 5.9

∑ = 28.64

Calculated chi-square (x2) values is 28.64

Degrees of freedom (df) = (r-1) (C-1)

= (2-1) (2-1)

=1x1=1

The critical value X2t under 0.05 level of significance = 3.84

Decision Rule

Accept Ho if the calculated chi-square (x2) value is less than the

critical value (x2t), and if otherwise reject.

Thus, since x2 is greater than x2t, i.e. 28.64>3.84, He will be

rejected while Hi will be accepted. This implies that small scale

enterprises in Nigeria do contribute to the growth of the economy.

67
Hypothesis Two

Questions 8 and 10 of both UBA staff and customers

questionnaire respectively state thus; Do you think that small

scale enterprises have any significant relationship with

employment programmes in the country? This is in line with

hypothesis two which states that small scale enterprises have no

significant relationship with employment programmes in the

country.

Table 4.6: UBA Staff

Options No. of Responses Percentage (%) of

Responses

Yes 89 81.7

No 20 18.3

Total 109 100

Source: Distributed instrument

The table above shows that 89 respondents representing 81. 7%

of the UBA staff agreed that small scale enterprises have

significant relationship with employment programmes in the

68
country while 20 respondents representing 18.3% of the staff did

not agree.

Table 4.7: UBA Customers

Options No. of Responses Percentage (%) of

Responses

Yes 250 70

No 107 30

Total 357 100

Source: Distributed instrument

The table 4.7 above shows that 250 respondent representing 70%

of the UBA staff agreed that small scale enterprises have

significant relationship with employment programmes in the

country while 107 respondents representing 30% of the staff did

not agree.

Table 4.8: Respondents

Options UBA Staff Customers Total

Yes 89 250 339

No 20 107 127

Total 109 357 466

Source: Distributed instrument

69
Table 4.9: Test of Statistics

fo Fe fo-fe (fo-fe)2 (fo-fe)2/fe

89 79.3 9.7 94.1 1.2

250 259.7 -9.7 94.1 0.36

20 29.7 -9.7 94.1 3.2

107 97.3 9.7 94.1 0.97

∑ = 5.73

Calculated chi-square (x2) values is 5.73

Degrees of freedom (df) = (r-1) (C-1)

= (2-1) (2-1)

=1x1=1

The critical value X2 t under 0.05 level of significance = 3.84

Decision Rule

Accept Ho if the calculated chi-square (X 2) value is less than the

critical value (X2t) and if otherwise reject.

Therefore, since X2 is greater than x2t, i.e. 5.73>3.84, the null

hypothesis (Ho) will be rejected while the alternative (Hi) will be

accepted. This implies that small enterprises have significant

relationship with employment programmes in the country.

70
Hypothesis Three

Both questions 7 and 11 of the questionnaire distributed to the

UBA staff and customers respectively states thus, Does the small

scale enterprises have any correlation with poverty alleviation

programme in the country? This question is congruent with

hypothesis three which states; small scale enterprises have no

correlation with poverty alleviation programmes in the country.

Table 4.10: UBA Staff

Options No. of Responses Percentage (%) of

Responses

Yes 65 59.6

No 44 40.4

Total 109 100

Source: Distributed instrument

The table above shows that 65 respondents representing 59.6% of

the UBA staff agreed that small scale enterprises have a

correlation in poverty alleviation programmes in the country while

44 respondents representing 40.4% did not agree.

71
Table 4.11: UBA Customers

Options No. of Responses Percentage (%) of

Responses

Yes 270 75.6

No 87 24.4

Total 357 100

Source: Distributed instrument

Table 4.11 above shows that 270 respondents representing 75.6%

of the UBA staff agreed that small scale enterprises have

correlation with a poverty alleviation while programmes 87

respondents representing 24.4% of the staff did not agree.

Table 4.12: Respondents

Options UBA Staff Customers Total

Yes 65 270 335

No 44 87 131

Total 109 357 466

Source: Distributed instrument

72
Table 4.13: Test of Statistics

fo Fe fo-fe (fo-fe)2 (fo-fe)2/fe

65 78.4 -13.4 179.6 2.3

270 256.6 13.4 179.6 0.69

44 30.6 13.4 179.6 5.9

87 100.4 -13.4 179.6 1.8

∑ = 10.69

Calculated chi-square (x2) values is 10.69

Degrees of freedom (df) = (r-1) (C-1)

= (2-1) (2-1)

=1x1=1

The critical value X2 t under 0.05 level of significance = 3.84

Decision Rule

Accept Ho if the calculated chi-square (x2) value is less than the

critical value (x2t) and if otherwise reject.

Therefore, since x2 is greater than x2t, i.e. 10.69>3.84 we reject

the (Ho) and accept (Hi). This means that small scale enterprises

have correlation with poverty alleviation programmes in the

country.

73
4.4 Summary of Data Presentation and Analysis

In accordance with the statistical test carried out on the

hypothesis formulated, the following facts hold;

1) It has been proved by empirical test that small scale

enterprises in Nigeria do contribute to the growth of the

economy. This implies that the small scale enterprises are

very vital to economic growth of the company. The

government fiscal policies should recognize small scale

enterprises and provide enabling environment that makes

them to contribute to both economic and industrial growth

of Nigerian economy. It has been proved scientifically that

small scale enterprises are correlated with poverty

alleviation programmes of the government.

2) In hypothesis two, the null hypothesis which states that

small scale' enterprises have no significant relationship with

employment programmes in the country was proved wrong

after the test was carried out. Small scale enterprises have a

significant relationship with the employment progran1mes

in the country. In the sense that the more there is small

scale establishment, the more employments are created in

74
 the country. The small scale industries have some shock

absorber which bigger organizations do not have in

providing job opportunities to the youths. In consequences;

government is advised to develop side by side, big and small

organizations for the betterment of the country.

3) Meanwhile, in hypothesis three. The null hypothesis which

states that small scale enterprises have no correlation with

poverty alleviation programmes in the country was proved

wrong after the test was carried out. Small scale enterprises

are seen as a machinery for reducing poverty by creating

self employment opportunities in the country, thereby

increasing the living standard of the people. Government

should encourage school leavers by advancing loans and

other grants to them to enable them start off business

especially where they have inherent flairs.

75
 CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS

5.1 Introduction

This is the concluding part of this research project. It therefore

focused on the summary of findings, conclusion and

recommendations based on the data presentation and analysis

and in relation to some reviewed literatures.

This research work was prompted by the need to discover the

impact bank loans have on small and medium scale enterprise in

Nigeria (a case study of UBA Plc Awka branch). The data, and

information generated by the investigation of United Bank for

Africa Plc Awka branch were subjected to analysis from which

conclusions were drawn.

5.2 Summary of Findings

5.2.1 Findings Associated with the Financial Institution

The high state of enthusiasms among small business and in some

cases, the lack of financial integrity among the operators of small

76
scale industries are inhibitous even to an enterprising banker.

'There is no exaggeration when loans to small scale industries are

termed" high risk and are accorded low priorities in the lending

scheme of the banking sector. It is now uncommon for small scale

borrowers to tailor project reports to the requirements of lending

banks. On the other hand, lending banks and finance houses,

generally lack adequate number of qualified professional staff

who can evaluate loan application with objectivity and also

monitor business performance and provide professional advice on

a continuous basis.

Once loans are given, hardly does the banker take sufficient

interest in the affairs of the business beyond adopting legal action

for loan recovery when matters have generated. Before then, the

bankers continue to perform their bureaucratic roles of

administrators, sending notice of recovery of interests and

reminders to follow the notice and default notices of penal

interest rates.

77
5.2.2 Findings Associated with the Government

The role of small scale industries in the manufacturing sector and

the overall development of the economy cannot be

overemphasized. Therefore, the promotion of the growth of such

industries in order to increase their contribution to the economy

is a problem facing the government and such problems are;

i. Whenever government funds have been borrowed, the

default rate of repayment is high because of political

connections of the borrowers or because the loan was

extended without proper appraisals. Also the borrowers are

reluctant to pay because they regard such .loan as their own

share of the "National Cake".

ii. Due to lack of adequate number of trained officers, enormity

of business performance of the enterprises to which loan

have been given have not been properly done.

5.2.3 Findings Associated with the Small Scale Enterprises

i. The proprietors or owners of the small scale enterprises are

people of average means with no specialized skills or

expertise. Because of financial constraints, they are unable

78
 to hire the services of specialists on part time or full time

basis.

ii. Another feature is that the small scale proprietors do not

share their problems with others nor do they seek good

professional advice in order to find a solution to their

problems. Even when the bank officer tries to intervene, they

become evasive to the bankers call to discuss their business.

iii. Some of the small scale industrialists do not know how to

keep a proper books of account and even when they

remember, they believe that such record keeping is costly

and unnecessary, some feel that keeping proper records of

account is inviting trouble from the said authorities while

some feel that keeping records will be a source of leakage of

business secrets to other.

iv. Due to improper sense of management, small scale

managers dip hands into the finance and stock of their

business for private use without accounting for such

withdrawals. This makes it difficult to assesses the

operating result of the business and at times starves the

firms of their liquid resources.

79
5.3 Conclusion

It has been established that commercial banks provide the bulk

of credits to all sectors of the economy, but the level of their

lending to small scale industries has not been encouraging. This

can be attributed mainly to lack of confidence the commercial

banks have on the ability of indigenous small scale entrepreneurs

who on the other hand caused by some dishonest ones among

them.

The indigenous small scale industrialists on their own part also

help to contribute to their own misfortune. Many of them nl.ake

their mode of operations look suspicious to outsiders because of

the way they keep record of their operations. Many of them fail to

realize that the commercial banks have a duty to depositors, to

pay them whenever they demand their deposits. But whatever the

case might be, the commercial banks should increase their level

of financing of small scale industries, be it short medium and

long term.

The government should help keep the pace and development of

the second tier securities market. This will be of immense value to

80
up and corning viable small scale industries that want to be

enlisted in the stock exchange market. Being enlisted in the stock

exchange market without necessarily relying on the commercial

banks. This will also help the commercial banks willingly to lend

to such industries to easily ascertain their financial position.

5.4 Recommendations

Having highlighted the problems and short comings of the small

scale enterprises in Nigeria, the researcher wishes to put forward

the following recommendations for consideration and appropriate

actions.

1. Federal, State and local governments should implement

relevant policies in the Nigerian industrial policies and thus

provide a conducive environment for the operation of small

scale enterprises in Nigeria.

2. The government has to provide banks with a conclusive

economic condition to provide finance to small scale

industries. Different arms of the government should assist

to finance small scale industries, and to reduce the burden

81
 placed on small scale industries to reduce the burden placed

on commercial banks presently.

Another options that will help the small scale industries will be to

encourage commercial banks to extend credit facilities to small

scale enterprises.

i. To conduct feasibility studies before implementing any

business proposal;

ii. To utilize professional assistance from management

consultants, legal practitioners and bankers etc.

iii. To improve business knowledge through training, education

and development.

iv. Again small business entrepreneurs should utilize loans for

the purpose for which the loan was made. This however will

enable them not only repay the loan plus interest but would

encourage commercial banks to extend more loans in the

future.

The following suggestions could be utilized for the benefit of small

scale industries;

1. Technical and Managerial Assistance:- The commercial

banks can ensure minimum risk of loan by providing

82
 technical and managerial resources of various kind to their

small scale enterprise customers. This could embrace and

also assist them in project preparation, implementation,

financing and management. At the same time, small scale

enterprises can avail themselves of such services as

provided by the government at the industrial development

centre.

2. Rural Banking:- In other to make available to small scale

enterprises sector, the banks and government should make

use of rural banking programme. The branches of each

commercial bank in the rural community should be given a

free hand to take certain advances to rural small scale

enterprises. They should be able to act as management

consultants, identifying problems and suggesting solutions.

3. Saving Scheme:- The commercial banks should encourage

saving schemes for small scale sector with their

programmes.

4. Insurance Scheme:- The federal government has

established an insurance scheme to protect the hazard

interest in industrial production, this should also be

83
 extended to small scale industrial sector. It will encourage

commercial banks to lend both medium and long term

funds.

5. In Small Scale Enterprise Lending Risk:- In other to

reduce the risk in small scale industrial lending, the Central

Bank of Nigeria and the government can do more than they

are currently doing by broaden the credit guarantee

schemes. A number of procedures can be adopted such as

discount and multiple discount rates.

84
 BIBLIOGRAPHY

Anyanwu, J.C. (1993). “Monetary Economics” Theory, policy and

institutions. Onitsha, Hybrid Publisher Ltd.

Botton, J.E. (1972). Report on the Committee on Inquiry on small

firms.

Ekezie, E.S. (1997). The Element of Banking Money, Financial

Institutions and Market. Onitsha, African Fep Publishers Ltd.

Ezeh, A.J. (1999). Fundamentals of Small Business Management.

Enugu, Glamic Books.

Ile, N.M. (2001). Entrepreneurship Development; the Nigerian

perspective. Enugu, Chiezugo ventures.

Maduegbuna, A.N. (2006). Research Methodology; Basic Issues ad

Techniques. Awka, ScoA Heritage Systems.

85
Megginson, Byrd, Scott (1997). Small Business Management, An

Entrepreneur's Guild to Success; Rob Zwettler, The McGraw-Hill

Companies, Inc.

Nwaegerue, N.S. (2005). Financing small and Medium Scale

Enterprises; The Challenging Role of Financial Institutions; An

Article Published in Journals of Business Studies and Research,

vol. 2. No. 1

Nwana, L.E. (1995). Fundamentals of Small Scale Business

Management. Onitsha, Onwubiko Prints Ltd.

Obodoeze, F.O. (1996). Research Methodology Academic. Enugu

Publishing Company.

Ojemba, G.A. (2000). Small Scale Business Management. Enugu,

Iyke venture Production Ltd.

Okenwa, Ugbo (2001). Management Theory and Practice. Oko

Polytechnic Press Ltd.

86
Olji, J. (1990). Business Research Methodology. Enugu, Meteson

Publicity Company.

Osuala, E.C. (1982). Introduction to Research Methodology.

Onitsha, Africana First Publishers Ltd.

Ozo, Odo, Ugwu (1999). Introduction to Project Writing for Business

and Financial Studies. Enugu, Sunmy Enterprises.

87
 APPENDIX A

Department of Entrepreneurship

And Business Management

Faculty of Management Sciences.

National Open University of Nigeria.

Dear Sir/Madam,

I am a final year student of the above named institution,

currently carrying our research on the topic “The Impact of Bank

Loans on Small and Medium Scale Enterprises in Nigeria (A Case

Study of UBA Plc, Awka Branch)”.

Your response will be on immense assistance to the achievement

of this objective. The research is purely an academic exercise and

information provided will be utilized and treated as such.

Thanks.

Onuh, Kennis C.

88
 QUESTIONNAIRE FOR STAFF

This questionnaire is specifically designed for both the top

management staff and operational staff and is meant to test the

hypotheses for the topic "THE ROLES OF COMMERCIAL BANKS

IN FINANCING SMALL SCALE INDUSTRIES IN NIGERIA" All

information provided should be treated with absolute

confidentiality.

SECTION A (DEMOGRAPHIC DATA)

PLEASE THICK (√) WHERE NECSSARY AND ONLY

One of the boxes you considered most appropriate.

1. What is your gender?

Male Female

2. Which age group do you belong? 25-30 30-35

35-40 40 and above

3. What is your academic qualification? MSC MBA

BSC OND WASC

4. For how long have you been in the banking industry?

1-5yrs 6-10yrs 11yrs and above

89
5. What is your position in the bank? Accountant

Finance manager Control manager

Cashier Others (specify) ____________________

SECTION B

Please kindly indicate your answer by ticking in the space

provided below.

1. Do you consider the activities of commercial banks

necessary?

YES NO

2. Has there been any change (s) in the function (s) of the

institution since its establishment?

YES NO

3. If yes is it a structural change?

YES NO

4. Is there any role played by this bank in financing small scale

industries?

YES NO

5. Are the roles played by this bank in financing small scale

industries helpful enough in sustaining the industries?

YES NO

90
6. Do you think roles played by commercial banks can help the

economy grow?

YES NO

7. Are there any disadvantages in commercial banks financing

the small scale industries?

YES NO

8. Do the disadvantages relate to collaterals?

YES NO

9. It is generally believed that commercial banks are not

disposed in financing small scale industries, is this true?

YES NO

10. Do you rate the services of UBA as first class type?

YES NO

11. Do the regulatory control activities of CBN affect the

operations of this bank?

YES NO

12. In your opinion, do you think modern technology is helpful

to this bank? YES NO

13. Do the operation of this bank add any value to your

transactions with it? YES NO

91
 APPENDIX B

Department of Entrepreneurship

And business Management

Faculty of Management Sciences.

National Open University of Nigeria.

Dear Respondent

I am a final year student of the above named institution and

currently carrying our research on the topic “The Impact of Bank

Loans on Small and Medium Scale Enterprises in Nigeria (A Case

Study of UBA Plc, Awka Branch)”Anambra State.

Your response will be of immense assistance to the achievement

of this objective. The research is purely an academic exercise and

information provided would be valued and treated confidentially.

Your cooperation is highly solicited.

Thanks.

Onuh, Kennis C.

92
 QUESTIONNAIRE FOR CUSTOMERS

This questionnaire is specifically designed for the customers of

UBA Plc, Awka branch. It is meant to test the hypothesis for the

Topic “THE IMPACT OF BANK LOANS ON SMALL AND MEDIUM

SCALE ENTERPRISES IN NIGERIA”. All information provided

should be treated with absolute confidentiality.

Section A

Please tick (√) where necessary and only one of the boxes you

considered most appropriate.

1. What is your gender?

Male Female

2. Which age group do you belong?

25-30 30-35 35-40 40 and above

3. What is your academic qualification?

MSC/MBA BSC OND WASC

4. For how long have you been the customer of the bank?

1-5 6-10 10 years and above

93
SECTION B

Please kindly indicate your answer by ticking in the space

provided below.

1. Do you consider the activities of commercial banks

necessary?

YES NO

2. Has there been any change(s) in the function(s) of the

institution since its establishment?

YES NO

3. If yes is it a structural change?

YES NO

4. Is there any role played by this bank in financing small scale

industries?

YES NO

5. Are the roles played by this bank in financing small scale

industries helpful enough in sustaining the industries?

YES NO

6. Do you think roles played by commercial banks can help the

economy grow?

YES NO

94
7. Are there any disadvantages in commercial banks financing

the small scale industries?

YES NO

8. Do the disadvantages relate to collaterals?

YES NO

9. It is generally believed that commercial banks are not

disposed in financing small scale industries, is this true?

YES NO

10. Do you rate the service of UBA as first class type?

YES NO

11. Do the regulatory control activities of CBN affect the

operations of this bank?

YES NO

12. In your opinion, do you think modern technology is helpful

to this bank?

YES NO

13. Do the operations of this bank add any value to your

transactions with it?

YES NO

95
96