THE ROLE OF
COMMERCIAL BANKS IN FINANCING SMALL MEDIUM ENTERPRISE (SME) IN NIGERIA
A CASE STUDY
OF FIRST BANK PLC
ABSTRACT
The research provides an assessment
of the role of commercial banks in financing SME in Nigeria. IT provides a
conceptual and theoretical appraisal of SMEs, the roles and significance of SMEs
towards the development of the economy as well as the impact of commercial
banks in financing of SMEs in the economy.
INTRODUCTION
SMEs definition depends mainly on the
level of development of the country. In most developed market economies like
the United States of America, UK and Canada, the definition criterion adopted a
mixture of annual turnover and employment levels. SMEs exist in the form of
sole proprietorship and partnership, though some could be registered as limited
liability companies and characterized by ; simple management structure,
informal employer/ In Nigeria, the small and medium industries Enterprises
investment scheme (SMIEIS) defines SMEs as any enterprise with a maximum asset
base of N200 million excluding land and working capital and with a number of staff employed not less than 10 or
more than 300 .The federal ministry of commerce defines SMEs as firms with a
total investment (excluding cost of land but including capital) of up to
N750,000, and paid employment of up to fifty persons, Employee relationship, labour
intensive operation, simple technology, fusion of ownership and management and
limited access to capital.
CHAPTER 1
1.1
BACKGROUND OF THE STUDY
Small medium enterprises (SMEs) are
considered the backbone of economic growth in all countries. They play an
important role in Nigerians economic growth, as they constitute 97.2% of the
companies in Nigeria .They also contribute to national development by
positively influencing the distribution of income in both functional and
nominal terms. In emphasizing the importance of SMEs ,Rogers,2014, stated; they
enhance capacity building as they serve
as entrepreneurial training avenues ; they
create more employment opportunities; per unit of investment because of
their labour intensive operations; they achieve a much more relative high value
added operations because they are
propelled by basic economic activities that depend mostly on locally sourced
raw materials; they provide feeder industry services as they serve as major
suppliers of intermediate goods and components to large-scale industries as
well as major agents for the distribution of final products of such industries;
they provide opportunities for the development local skill and technology
acquisition through adaptation. Despite the catalytic role of SMEs in the
economic emancipation of countries, some of their major operational challenges
in Nigeria include financial problems. About 80% of small and medium
enterprises are stifled because of poor financing.
The research intends to
appraise the impact of commercial banks in the financing of SMEs in Nigeria,
with a case study of first bank plc.
1.2
STATEMENT OF THE PROBLEM
Despite
the significant role of SMES, they are largely affected by lack and
insufficiency of funds to operate and expand their businesses. In view of this
commercial banks in Nigeria play financial roles towards meeting the capital
and operational funds required by SMES
1.3 RESEARCH
QUESTIONS
1.
What is the nature and roles
of SMEs?
2. What
is the nature of the financing problem of SMEs?
3. What
is the role of commercial banks in financing SMEs in Nigeria?
4.
What constitute the financing options of first bank to SMEs in Nigeria?
1.4 OBJECTIVE OF THE STUDY
1
To appraise the nature and roles of SMEs in Nigeria
2
To determine the role of commercial banks in financing SMEs
in Nigeria
3
To appraise the role of first bank in financing SMEs in
Nigeria
1.5
SIGNIFICANCE OF THE study
The
study shall highlight the significance of SMEs to the economy
The
study shall analyze the roles of commercial banks in financing SMEs in Nigeria
The
study shall provide financing options offered by first bank plc to SMEs in
Nigeria.
The study shall serve as a veritable source of information to
managers and consultants
1.6
STATEMENT OF HYPOTHESIS
1
H0 SMEs is not significant to the economy
H1 SMEs is significant to the economy
2
H0 The financial challenge in SMEs is high
H1 The
financial challenge in SMEs is low
3
H0 The
impact of first bank in financing SMEs is low
H1 The
impact of first bank in financing SMEs
is high
1.7
SCOPE OF THE STUDY
The
research shall appraise the role of commercial banks in financing SMEs in Nigeria.
It shall elucidate the nature and significance of SMEs as
well as analyze the financing challenges of SMEs in Nigeria.
1.8
DEFINITION OF TERMS
SME:
In Nigeria, the small and medium industries Enterprises
investment scheme (SMIEIS) defines SMEs as any enterprise with a maximum asset
base of N200 million excluding land and working capital and with a number of
staff employed not less than 10 or more than 300. The federal ministry of
commerce defines SMEs as firms with a total investment (excluding cost of land
but including capital) of up to N750,000, and paid employment of up to fifty
person, employee relationship, labour intensive operation, simple technology, fusion
of ownership and management and limited access to capital.