HINDRANCES TO BANK CREDIT EXTENSION TO SMALL SCALE BUSINESSES IN NIGERIA

CHAPTER ONE

Small Scale business is the pivot which drives free enterprise system, generates a great deal of energy, innovates and creates employment opportunities for millions of Nigerians. The definition of Small Scale Business depends on the criteria for determining what is “small” and what qualifies the nature of “business”. A Business, as commonly known is any venture with the sole motive of making profit. There are different criteria used to distinguish between large and small scale businesses.

According to Hatten (2006:4) Business Organization can be classified according to the number of employees, sales revenue, the total value assets, the value of owner’s equity and the industry within which the business operates.

Essien (2007:5) added that businesses can also be classified based on the tangibility of what the organization produces. Products of some businesses are physical and thus, can be seen, touched, tasted, smelled or heard. Such include cars, watches, cloths, toothpaste, furniture, etc Also some businesses produces intangible products such product are: Financial Services, Hospitability Services, the services of Doctors, Lawyers, Hairdressers, Stewards, Teachers, Barbers etc.

In Nigeria the most common criterion for classifying business is the size of the business. Essien (2007:7) emphasized that the indicators of business size in Nigeria are; capital or asset based and the number of workers employed.

According to Obitayo (1991), the Centre of Industrial Research and Development (CIRD) at the Obafemi Awolowo University, Ile Ife, defined a Small Scale Business as a business that has total assets in capital equipment, plant and working capital not exceeding N250,000.00 and employing not more than 50 full time Workers.

A small scale business has also been defined as “One which is independently owned operated, and not dominant in its Field”. Using the Definition, over 85% of the business in Nigeria are small, these small firms are found in manufacturing wholesale, retailing, service industries, building and civil engineering, construction, transportation, communication and finance. There is virtually no field of human endeavor in Nigeria where one does not find small businesses (Nwachukwu, 2005)

According to Onuoha (1994:18) the history of small scale business has been with man for ages. The fact that individual do not possess the resources for a bigger enterprises have resulted to small scale businesses flourishing in the economy. Its scope and nature have also been broadened, ranging from the petty trading in the streets to the large proportion of private limited liability companies that are usually described as being family business. They have almost dominated the entire spectrum of commercial activity and collectively, they employ more workers than the entire public sector. Many of these businesses are managed by their owners or at least the owners of substantial proportion of the equity capital.

Traditionally, the major function of bank credit to small scale businesses has been to finance working capital most of the financial need of the small scale enterprises rest heavily on the financing of working capital and some of its current Assets; what to use the funds for, where to get the funds, and how to use the funds. The funds represent the life blood of every successful business entity. Finance maintains such a critical position in all business organization and the neglect of its position in the organization may lead to business failure, inability to finance turnover for maximization of profit etc (Ezejulue, 1988:179).

Despite the various gain or importance of bank credit to Small scale businesses, the small scale businesses still find it difficult to access the credit. Reasons for this include lack of collateral of Security, lack of good financial record amongst others. These serve as Hindrances for the Small Scale Business from accessing the credit. Thus, this work will study the Hindrances to Bank Credit Extension to Small Scale Business in Nigeria.

Small scale businesses have become important contributors to the Nigeria Economy. The World Bank survey on access to funds of Nigerian firms and businesses has confirmed that banks are reluctant to provide loans to small scale businesses (World Bank, finance report, 2003). Despite the role played by the sector, small scale businesses have experienced many hindrances that have inhibited the realization of their full potential.

This is study will focus on the following specific objectives:

1. To identify the roles of small scale businesses in the economy.
2. To ascertain the function of bank credit in small scale businesses in Nigeria.
3. To analyze factors that determines extension of bank credit to small scale businesses in Nigeria.
4. To examine the effect of bank credit in small scale businesses in Nigeria.

This study aims at providing to the following research question:

1. What are the roles of small scale businesses in the economy?
2. What are the functions of bank credit in small scale businesses in Nigeria?
3. What are the factors that determine extension of bank credit to small scale businesses in Nigeria?
4. What are the effects of bank credit in small scale businesses in Nigeria?

In outlining the hindrances to bank credit extension to small scale businesses in Nigeria the following hypothesis will be formulated and verified in the case of the research work.

1. Ho: Bank Credit has no significant effect on small scale business in Nigeria.
2. Ho: Small Scale businesses have no significant effect on the economy.
   • SIGNIFICANCE OF THE STUDY

This research work will on its completion reveal the importance of Bank credit extension to small scale businesses in Nigeria thereby spurring the interest of financial institution and government in providing adequate funding schemes to the small scale businesses.

Apart from being a necessary condition for the award of Bachelors of science degree in Banking and Finance and contributing to the knowledge of the researcher, the study will also help students, lecturers of the university of Uyo and other universities, individuals and institutions who might which to conduct further research on the Hindrances to bank credit extension to small scale businesses in Nigeria.

• ORGANISATION OF THE STUDY

This research work is of five chapters namely, Chapter one (Introduction), Chapter Two (Related Literature Review), Chapter Three (Research Methodology), Chapter Four (Data presentation, analysis and interpretation), Chapter Five (Summary, Conclusion and Recommendation).

This research work is conducted to discuss the hindrances to bank credit extension to small scale businesses in Nigeria, it is difficult to ascertain the total number of small business in Nigeria.

This research work will be limited by the extent of the available data (primary and secondary), secrecy on the part of some respondent, as well as the time interval allowed for completion of the study and financial constraint.

1. Bank: The oxford advanced learners dictionary defines the word “Bank” as an organization or a place that provides a financial service. A place where customers keep their money safely and it’s paid out on demand.

• Credit: Credit means different things to different people but in business a credit means buying or borrowing in the promise to repay at a later date. In any credit arrangement there is a creditor(a person, bank, store, an institution, or a company to whom money is owed) and a debtor(the person who owes money) in book-keeping credit is the sum of money due to an individual or institution(Wilkinson, 2007:92)
• Bank Credit: This is the amount of credit available to the company or individual from the banking system. It is the aggregate of the amount of fund financial institution that is bank are willing to provide to an individual or organization.
• Lending: This is the act of giving money to somebody or organization on the condition that they pay it back over a period of time and pay interest on it. (Sampson, 2005)
• Hindrances: The oxford Advanced learners Dictionary defines the word “Hindrance” as a thing or person that restrict or to prevent or delay the process of something or somebody.
• Extension: the act of stretching out, enlargement in breadth or continuation of length of time
• Extension of Bank Credit: This is a written engagement or the part of the creditor, allowing a debtor further time to payback a debt.
• Small Scale Business: is a business that is independently owned and operated, may be in form of sole proprietorship, partnership, limited liability company or cooperative society, is not dominant in its field of operation, and meet certain standards of size in terms of number of employees, annual receipts, asset base or capital(Onuoha, 1998:5).