Full Project-APPRAISING COMMERCIAL BANK ACTIVITIES IN THE FINANCING OF SMALL- SCALE BUSINESS IN NIGERIA

ABSTRACT

Small scale industrialist encounter a lot of difficulties in getting access of learnable funds from the banks for working capital expansion

The problems of sourcing funds from the banks became more acute with the present state of the economy. The need to ensure the survival of small scale industries man unstable economic environment gave rises to this study.

The study was carried out by administering sixty questionnaire on small scale industrialist. To get better response from the respondents, the questionnaires were supports by interview method

The results of the study indicate that

Banks insistence on full compliance with the loan requirement has not encouraged small-scale industries interest in seeking bank loans.

Most small-scale industrialist do not present feasibility study of their project to the banks in order to convince them of the viability of the project

Small-scale business enterprises are financed mainly with initial capital from services other than the banks.

In essence, the study will enhance bank willingness to a small scale industrialist and for potential investor to discuss their financial problems with the banks Edo State.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The small scale businesses were not accorded significant importance in Nigeria. Until 1975 when the federal government realized that its industrialization strategy of import substitution only resulted in the setting up of large – scale businesses.

This category of business is capital intensive and labour saving in its operations.

Due to the capital intensive nature of the businesses, technical man powers were resulted from abroad as experts. The result effect is that mot of the value added to production in Nigeria was repatriated in the form of dividends, profit and royalties. It is against this background that the Nigeria federal government and the various states government though it important that if there must be industrialization based on principle of self reliance , small scale businesses must be given a prime place.

However, it was not unit the third national development plan of 1975 to that the programmes for the development of small scale business were explicitly spelt out as the creation of employment opportunities mobilization of local resources mitigation of rural urban migration and more over distribution of industrial enterprises in different parts of the state. However, inadequate credit facility has been a major impediment in the development of small scale business in Edo state. for this reason, many of them are either proprietary on partnership and so cannot obtain funds from the commercial banks.

As a result of this inability they are either starved of fund or at best obtain on extremely infavourable terms from sources other than financial institutions like money lending societies that societies etc.

The problem of finance hinders them from operating profitably in a competitive market, to over come this problem, the federal and states governments set up small scale businesses credit schemes and gave guidelines to commercial banks to increase their lending to these categories of business.

STATEMENT OF THE PROBLEM

Every business whether small or large scale requires a substantial dose of capital to take off and for them to grow and remain in business.

It is the realization of this therefore, that the government has over the ages made effort to see that small scale businesses get adequate funds from lending institutions. However, available reports have shown that actual lending to small scale businesses by the commercial banks is far below that target set by the monetary authorities. This lack of courage shown by the commercial banks towards lending to small scale business sometime lacks the necessary collateral to attract credit and they are considered by leaders as high risk ventures. In 1989, the world Bank summed up the problems of small scale businesses as follows.

Small scale business in both industrial and development countries have difficulties in obtaining financial assistance from banks and other financial institution. Indeed studies have shown that most small scale businesses start their lives without any institutional help.

The entrepreneur usually obtains the small amount of finance, he needs from his own saving or from relatives and friends. However, small –scale businesses find it difficult to grow without the opportunity to borrow from commercial banks. To solve this problem, the commercial banks adopt a careful strategic approach in extending medium to long term financing which always attracts high interest rate.

This in itself constitutes a stringent condition for promoter or investors other problems which have negative impact on the development of this sub –sectors be side the financial dilemma includes imperfect knowledge of existing credit facility by the small scale industrialist, inadequate technical and economic counseling or lack of qualified personnel to manage the business. It is in an attempt to give some sight to government efforts that the research problem will raise the following question.

Why do small scale business find it difficult to fund from commercial banks in Edo state?

Why are activities of major financial institutions to ascertain their level of commitment as well as determining why there is gap in their credit delivery system to small scale businesses in Edo State.

Are government policies on interest and exchange rate and credit facilities guidelines consistent with the objectives of the small scale business in Edo State?

OBJECTIVES OF THE STUDY

Over the years successive governments of this country both federal and states have been coming up with policies which are gered towards making the country self-reliant.

Under this dispensation, the survival and growth of the small scale business in Edo state have always been given the front row positions, considering their immense economy. The government in a bid to see that the small scales business are adequately financed, came up with certain policies such as making it mandatory for all banks to reserve at least sixteen percent of their total small scale business. However, it is disappointing note that all efforts by the government have managed to fall short of their set sub objective for various reason.

It is in light of this therefore that this research has its objectives to high the following points.

The problem which small-scale business face in sourcing for funds from banks especially commercial bank in Edo state.

To find out it the aims and objectives of setting up the scheme and being achieved.

Identify the operational problems of the credit scheme and finally.

To proffer possible suggestion on how to make the commercial bank financing at small scale business operate more efficiently

RESEARCH HYPOTHESIS

An hypotheses is a tentative statement about the population parameter which is either true or false. The following are the research hypotheses.

Ho: Banks do not significantly provide initial capital to small scale business

Hi: Banks always provide initial capital to small scale business.

Ho: financial institution in Edo state have not been encourage small scale enterprises.

Hi: financial institution in Edo state have been encouraging small scale enterprise

Ho: government policies on interest, exchange rate and credit facilities guideline are not consistent with the objective of the small scale business in Edo state.

Hi: government policies on interest, exchange rate and credit facilities guideline are consistent with the objectives of the small scale business in Edo state.

SIGNIFICANCE OF THE STUDY

It is agreed that various long term and short term financial instruments hold different policy implication for management and possibilities for profitability and bankruptcy coupled with the each that they are differently suited to dynamic business environment. The situation therefore, calls for a programmatic reappraisal of the financing eases in Edo state.

This research study intends to identify the various sources of long–term financing used by small scale businesses in Edo state as considering the limitation of each source. The study will also endeavour to compare and post listing financing patterns of the small scale businesses with a view to revealing the benefit associated with them. It is also to induce management thinking in exploring other sources of financing other than the traditional ones available to them.

At a time like this when the country is trying to find the world and knowing the invaluable role, the small scale businesses will play it, this goal is to be achieved, no effort to ensure that the small scale businesses are adequately and properly financed will be considered too small. It is in recognition of this therefore, that this study is fashioned to serve as a contribution to and managers of small scale businesses in Edo state and how no effectively utilize the pool of resources available in the commercial banks.

SCOPE AND LIMITATION OF THE STUDY

The methods that will be employed in getting relevant data for this research work are state below

Interview of the important personnel of the selected enterprises.

Use of relevant text books articles in journal and newspaper

Structured questionnaires will be use in procuring useful information from the workers and to management or personnel of the enterprises.

The population size of this study will include a small scale enterprises in Nigeria and the sample will consist of small scale enterprises in Edo state, the sampling method.

This is because the sample size (small scale enterprise in Edo state) is easily assessable by the the researcher.

Method of data analysis

The data analysis method to be used in the study will be percentage frequency analysis and the chi–square statistics.

More on this will discussed in chapter three of this research work.