THE IMPACT OF BANK LOANS ON SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA

ABSTRACT

One of the problems of small and medium scale enterprises in Nigeria is the availability of funds to fund the business. Hence they depend on commercial banks for loans; the study examines the import of bank loans on small and medium scale enterprises in Nigeria. The study examines the relationship between bank loans on small and medium scale enterprises. This paper user a quantitive method with two hypotheses stated in null form the primary sources and simple percentages therefore recommend that bank loans improve the operation of small and medium scales enterprises in Nigeria.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Banks as business concern must make profits in order to study in business. They usually have a range of multi-product services, which they render to the public, which are of crucial concern to the public, enterprises, depositors and regulatory authorities. The main operation of banks is the lending of fund to other sectors of the economy through funds deposited by depositors. According to A. N Nwankwo (1987:164) he stated that: Lending is considered effective of it successfully resources the bankers obligation of maximum profitability to share holders and maximum liquidity to the depositors. This is because highly profitable lending, which also ensures liquidity for depositors may always be effective. Lending for commerce proposed may be considered effective in the profitability  and liquidity sense but may be ineffective in terms of maximum contribution to economic development. Similarly, lending to small-scale enterprises may be considered ineffective in the development sense. This effective lending in a development economy like Nigeria may be defined as that equation of lending which maximums the objective of liquidity and profitability and the economy’s objectives of development. In Nigeria, the need for small-scale enterprises when was not fully realized until the early eighties when government started laying emphasis on direct credit to small-scale enterprises. This was one of the main objectives of the economic reconstruction programme under the structural Adjustment Programme (SAP), which was meant to boast the level of economic activities in the economy. Under the monetary policy, the banks are to allocate 20% of their loan-able funds to small-scale enterprises. The banks that do not comply are to be penalized by the Central Bank Of Nigeria (CBN). However, the banks have undergone a lot of problem in gravity such loans.

They includes:

1. High rate of default
2. Amount spent of research and other portfolios as highly compared to the profit got from interest on the loans

iii. Most applicants do not have any form of collateral.

All these factors have contributed to the low level of bank lending to small-scale enterprises. Although, government policies in the terms of economic development is to stimulate the establishment and growth of small-scale enterprises, which contributes both directly and indirectly to economic growth and to enable Nigeria to participate on an increasing extent in the ownership. The government of Nigeria enterprises a same as of balanced growth and to payment positions, It is against that background that the expansion of banks lending to small-scale enterprises can be fully appreciated.

1.2 STATEMENT OF THE PROBLEMS

While provision of credit to small-scale enterprises has concerned policy makers in Nigeria, the result has not been encouraging compared to the huge amount of resources expended. Banks are very reluctant to give credit to small-scale enterprises. The rate of failure of small-scale enterprises in economic development cannot be neglected.

1.3 OBJECTIVE OF THE STUDY

The objective of this research is to analysis the impact of bank loans on small-scale enterprises.

1. To evaluate, the impact of bank lending on acquisition of technological skill and capability building of small-scale enterprises.
2. To identify the factors that affect bank lending to small-scale enterprises.
3. To determine the impact of bank lending to small-scale enterprises.
4. To find out technologies mostly used in bank in lending to small-scale enterprises.

1.4 RESEARCH QUESTION

The following research questions will guide this study

1. What is the impact of bank loans on technology skill and capacity building of small-scale enterprises.
2. What are the factors that affect bank lending on small scales enterprises?
3. What are the impacts of bank lending on small-scale enterprises?
4. What techniques are mostly used by bank in lending on small-scale enterprises?

1.5 RESEARCH HYPOTHESIS

Ho:   There is no significant impact on bank lending on small and medium scale enterprises.

Hi:   There is a significant impact on bank loan on small and medium scale enterprises.

Ho:   There are no factors that affect bank lending on small- scale enterprises

Hi:   There are factors that affect bank loans on small and medium scale enterprises

Ho: There is no impact of bank lending on small and medium scale enterprises

Hi:    There is impact of bank lending on small-scale enterprises

1.6 SIGNIFICANCE OF THE STUDY

The researchers consider the study very significant on the following basis.

Bank loans on small and medium scale enterprises particularly those with high contents of local value adders and providing them with technical services are matters to which we will devote great attention, In developing the economy of a nation, the development of small-scale enterprises are seen as an integral and fundament part of the nation’s broad policy of enterprises growth.

Small-scale business accounts for about eight percent of the total number enterprises in the country, thus what occurs in the sub-sectors to a large extent influences the other sectors of the economy. Therefore, the analysis of the research project will be useful to private individuals, the government and the general public as stated below;

1. The small-scale business and prospective investors have the version of small-scale business will be able to receive reinvent information, which will assist in managing the finance of small-scale business.
2. The commercial and merchant banks through this research will be in no doubt assisted to made useful impact for efficient performance.
3. The public will be aware of the problems and prospects of small-scale enterprises in a perspective that will widen the knowledge of the public in Nigeria.
4. Also the significant of this study will add to the existing literature about the constants and relevant fact, which will level to the improvement of the research problem.
5. The study would help the federal and state government to ensure that various government policies are implement and request for recommendation will be provided to enhance performance.
6. Finally, the research apart from being mandatory for the Higher National Diploma of Abia state Polytechnics, it will help to widen my academic horizon in the area of the subject matter.

1.7 DEFINITION OF TERMS

LENDING: The act of giving money. Lending is one of the most important functions of the bank.

LIQUIDITY: The state of owning things of value that can easily be changed into cash.

QUANTUM OF LENDING: A very small quantity of lending.

GOVERNMENT POLICIES: Government plans of action, statement of ideas etc, and proposal or adopted by a government for a particular purpose.

COLLATERAL: Property offered by somebody as a guarantee that he will pay the loan simply put, is what he will pay the  loan  simply put, is what one give out in case he does not provide what is given to him on credit.

PROFIT: Additional money gained in business that is the different between the amount spent and the amount earned.

PORTFOLIO: Here, I mean a set of investment owned by a person, bank etc.

DEVELOPMENT: The action or process where new enterprises are encouraged in order to create jobs for the unemployed. The process of being developing or developed.

BANK: The organization or a place that provide financial services. A place where money are kept for security reasons

REGULATORY AUTHORITY: Board establishment by government to ensure that its policies work in accordance with the law. They give orders and punish the offenders.

SMALL-SCALE: It can be seen as firms or companies with assets (including working capital but excluding land) not exceeding N750, 000 and paid employers up to 50 persons.