COMMERCIAL BANK LENDING TO SMALL AND MEDIUM SCALE ENTERPRISES (A CASE STUDY OF UNION BANK OF NIGERIA PLC, ENUGU)
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Various criteria had been used to define small and medium scale enterprises in different countries of the world. In Nigeria, small and medium scale enterprises are defined as those in the industrial sector, which exclude general commerce, whose total capital investment does not exceed N2.5 million (including land and working capital or whose maximum turnover is N12.5 million annually).Commercial Bank Lending
These enterprises are very essential and important for the economic development of any economy. They serve as sources of raw materials for the large-scale enterprises, channel of employment and for rural development. As a result, the monetary authorities through the Central Bank of Nigeria (C.B.N.) credit guideline directed the commercial banks to give a certain percentage of their total assets to the small and medium scale enterprises as credit.Commercial Bank Lending
The project aims at examining the extent the commercial bank have completed with the guideline in providing credit to the small and medium scale enterprises, if they have complied, how adequate are the financial assistance and what the impediments on their way are. At the end suggestions will be made for improving or increasing credit facilities to the sector.
The main source of material of this project is primary sources such as interviews.Commercial Bank Lending
Data analysis does not go into statistical theorems and methods but based on simple comprise and percentages.
Bases on the analysis, finding emerged, recommendations for improvement of credit faculties to the small and medium scale enterprises made and finally conclusion drawn.Commercial Bank Lending.
1.1 BACKGROUND OF THE STUDY
The important role played by small-scale industries in developing economics has been increasingly realized over the past years. Not only are they important for the vitality of the business sector, they also play a major role in terms of employment creation, income generation and output growth. But in order to play their role in future, there is need for researchers and policy makers to identify this role and constantly interact to bring about a sustainable policy framework for industrial development methods to have maximum effectiveness, they must include methods specifically adapted for work with small industries.
Stanley and Morse (1965) identified three types of policies towards SSI’s development, namely passive, protective and developmental. A passive policy is one of neglect, resulting from indifference, lack of information, or lack of leadership. A protective policy is designed to defend existing small enterprises against competition from large and modern industries,. The developmental approach to small-scale industries promotion has as its objective the creation of economically viable enterprises which on their own feet without perpetual subsidy can make a positive contribution to the growth of real income and therefore to better living standards. Policy instruments that can be used to achieve developmental policy objectives include the following:
– The provision of industrial advisory services.
– The training of entrepreneurial managers and supervisory personnel.
– Provision of developmental finance.
The policy instrument identified above are by no means exhaustive. However, these are the main problems areas identified by researchers of SSI’s. Financial constraints have been identified by researchers as the most threatening challenge (Mashly and Stanley 2008). The small-scale industries were not accorded significant importance in developing countries (Africa) until 1975 when the various government realized that its industrialization strategy of import substitution only resulted in the setting up of large-scale industries. This category of industries is capital intensive and labour saving in the operations. Due to the capital intensive and labour saving in the operations. Due to the capital-intensive nature of the industries, technical manpower was recruited from abroad as experts.
The resultant effect is that most of the value added to production in these developing countries was repatriated in the form of dividends, profit and royalties. It was against this background that the Nigerian government and the various state government now through it important if there must be industrialization based on principle of self-reliance. Small-scale industries must be given prince of place. However, it was not until the third national development plan of 1975-1980 that the programmes for the development of small-scale industries were explicitly spelt out. The creation of employment opportunities mobilization of local resources, mitigation of rural-urban migration and more distribution of industrial enterprises in different parts of the state.
Nonetheless, inadequate credit facilities has been a major impediment in the development of small-scale industries all around the world, for this reasons, many of them are either proprietary on partnership and so cannot obtain funds from commercial banks. As a result of this inability, they are either starved of fund or at best obtain fund on extremely unfavourable terms from source other than financial institutions like money lending societies, thrift societies etc. the problems of finance hinders SSI from operating profitable in a competitive market. In order to arrest the situation, the federal and state governments set up small-scale industries credit schemes and gave guidelines to commercial banks to increase their lending to these categories of industries.