BANKS FINANCING OF SMALL AND MEDIUM-SCALE ENTERPRISES 2000-2007 (A Case Study Of Imo State)

ABSTRACT
The main objective of this study is to show significant effect of cashflow on financing, examine the problems encountered by banks in financing small and medium scale Enterprises, ascertain the need for financing Nigerian manufacturing industries, improving funding to SMEs and to proffer solutions as to way forward. The study examined the current literature including the sources like journals, seminar, textbooks, bulletins and other sources. These were extensively used to draw incisive inferences for the conclusion of this study adopted. From the analysis and testing of the results of various primary data collected, the researcher concluded that cash flow was a major problems of banks in financing the SMEs.
Management contributed in financing the SMEs by banks from the above findings, the researcher proffered several recommendations including:
1. The private sector in Nigeria should be empowered. 
2. The current and financing liberalization and international programme of government be vigorously pursued. 

CHAPTER ONE

1.0 INTRODUCTION 
1.1 GENERAL OVERVIEW OF THE STUDY 
In recent years, the manufacturing industry has grown slower than other sectors. These manufacturing industries which comprises of small and Medium Scale Enterprises, are relied upon for the state and country’s economic survival for import substitution. There is a broad consensus today that Small and Medium Enterprises (SMEs) play a critical role in economic development. Indeed, all through history, private sector have almost always emerged from SMEs acorns. 
The principal activity of SMEs is to ensure that resources are fully employed for efficient and effective production which enhances the standard of living of people in the state and country as a whole, utilizing primary products (raw materials) to produce secondary products which form the back bone of industrialists activities. These products which when effectively utilized foster economic transactions and as such enhance the balance of payment in the economy. 
The manufacturing industry touches our daily lives since the products (raw materials) converted into finished goods create substitution for imported goods abroad which in turn generate employment and income for the citizenry, but with the economy of a state going through a difficult period due to non-challant attitudes of banks in financing SMEs, these objectives cannot be achieved by SMEs. Banks prefer to pay the penalties imposed on them by the monetary authorities (CBN) to financing manufacturing industries. 
The plan ahead through efficient financing by some banks and effective checks by some government representatives to ensure that the money granted to them (SMEs) will not be jeopardized by inefficient management. The impromptu attitudes of banks’ financing of SMEs is a problem to the sector, Imo State and the Nigerian economy as a whole. It has been alarming proportion over the years and could be on the increase in the future if effective moral suasion control and schemes is neglected by CBN. 
This study therefore focuses among other issues the problems encounted by banks, which hamper their financing of SMEs, and this is mostly the cashflow position of industrialists (SMEs). The cashflow position of SMEs also militates them from further application for credits and financial supports from various financial institutions.

1.2 STATEMENT OF PROBLEM
The fact remains that whereas SMEs hold out huge promise for economic development, the difficulties they face limits this developmental impact.
1. The inability of small and Medium Scale Enterprises to achieve their goals as a result of poor funding has slowed down the pace of development in the state.
2. The cashflow positions of industrialists (SMEs) and its significant effects on financing them by banks has become so muddy that a safe and sound banking cannot be assured nor guaranteed.
3. That the inconsistency in monetary and fiscal policies of Imo State and the economy has impeded the growth of SMEs in the state. 
4. Most small and Medium Scale Enterprises in Imo State experience dearth of infrastructure base like water which are basic facilities needed by them and are essential for industrial development.
5. That Nigeria as a whole is faced with incessant internal uprisings, coup d’etat and insecurity thereby creating an atmosphere of fear and insecurity and discouraging investment in industry in the states and country at large.

1.3 OBJECTIVES OF THE STUDY
The major objective of this study is to show the significant effect of cashflow on financing of Small and Medium Scale Enterprises in Imo State, and others will include:
1. To critically examine the problems encountered by banks in financing Sm all and Medium Scale Enterprises. 
2. To ascertain the need for financing the state manufacturing industries. 
3. To improve funding of SMEs by banks in Imo State. 
4. To profer solution as to the way forward.

1.4 RESEARCH HYPOTHESIS 
For the purpose of this research effort, the following shall be tested at the end of which the result will either be confirmed or rejected. 
Hi: Cash flow position has a significant effect on the banks’ financing of SMEs.
Hi: Significant relationship exists between management and financing of SMEs.

1.5 SCOPE OF THE STUDY
The study will cover the period from 2000-2007. Again, there is time and financial constraint in that only two banks and some registered industries were used. These may not provide the general basis for credit management on the whole.
There also existed data collection problem due to dearth of co-ordination between data collection agencies, insufficient coverage, too much delay in publishing of data due to non-challant attitude to work on the part of most data collectors.

1.6 SIGNIFICANCE OF THE STUDY
This study of Banks financing of Small and Medium Scale Enterprises (SMEs) was carried out because insufficient fund have hindered the activities of this small businesses thereby disrupting the economy of the state. Since SMEs are one of the pillar of the economy, the researcher wants to find out the reasons why failed in supporting SMEs, if they have; what conditions are attached, and the researcher believes by so doing it will go a long way in benefiting both the banks, up coming researchers (students) and the economy at large.

1.7 LIMITATION OF THE STUDY
The researcher encountered some constraints during the course of this research work. 
The most difficult problem I encountered is that of the Owner of Small and Medium Scale Enterprises refusal to fill the questionnaires. 
Some of the Small and Medium Scale Enterprises find it very difficult to disclose the precise amount given to them by the financial institution in Imo State.
Another problem is limitation of some fundamental credit policies of banks that are not disclosed. But inspite of all these, the researcher was able to complete the research work.

1.8 DEFINITION OF TERMS 
BANK: A bank is defined as a corporation or one who accepts money on current account and collects cheques for customers. 
BORROWING: This means taking or collecting money from a person or a bank and agree to pay back to them at a stated time. 
BUSINESS: This refers to any gainful activity, which might either be commercial, financial or productive engaged for personal development or emotional gain. In this study, it is used to define the activities of Small Scale Enterprise in Imo State and their importance. 
CASH FLOW: This is the movement of money into and out of business as goods and services are bought and sold. 
CREDIBILITY: Being able to be trusted, the quality that somebody or something has, that makes people trust or believe them. 
COLLATERAL: This is a property or something valuable that are promises to give or gives to somebody to hold as security till one pays back money borrowed. 
ENTREPRENEUR: Is a person who makes money by starting or running business especially when this involves taking financial risk. 
ENTERPRISE: This is simply a company or a business. 
GOVERNMENT POLICY: This can be defined as those government activities that are geared towards the regulation of business organization but in this context, it is those government activities geared towards the regulation of Small Scale Enterprises financing.
FINANCING: It is the act of supporting or creating subsidiaries to a firm or an organization to boost its development and production, which can be done through equity participation on loan. 
INDUSTRY: This in this context refers to various Small Scale forms that produce goods and those that render services which are being assessed in terms of their performance in relation to output. 
INDUSTRIALIST: It is refers to a person who owns or runs a large factory or industrial company.
INVESTMENT: Money put in a thing or project because it will be useful or helpful. 
MEDIUM SCALE ENTERPRISE: This is any enterprise with a maximum asset base of N200 million excluding land working capital and with the number of staff employed by the enterprise not less than 10 and not more than 300. 
SECTOR: A part of a particular area especially of a country’s economy. 
SMALL SCALE ENTERPRISE: This can be defined as an enterprise or business whether registered or unregistered that creates utility.
SCHEME: Is a plan or system for doing something or organizing something. 
STRUCTURE: This is the way in which the parts of something are connected together, arranged or organized. 
TRANSACTION: Is a piece of business that is done between people especially as an act of buying and selling.