THE ROLE OF COMMERCIAL BANKS IN FINANCING SMALL MEDIUM ENTERPRISE (SME) IN NIGERIA

A CASE STUDY OF FIRST BANK PLC

   ABSTRACT

The research provides an assessment of the role of commercial banks in financing SME in Nigeria. IT provides a conceptual and theoretical appraisal of SMEs, the roles and significance of SMEs towards the development of the economy as well as the impact of commercial banks in financing of SMEs in the economy.

INTRODUCTION

SMEs definition depends mainly on the level of development of the country. In most developed market economies like the United States of America, UK and Canada, the definition criterion adopted a mixture of annual turnover and employment levels. SMEs exist in the form of sole proprietorship and partnership, though some could be registered as limited liability companies and characterized by ; simple management structure, informal employer/ In Nigeria, the small and medium industries Enterprises investment scheme (SMIEIS) defines SMEs as any enterprise with a maximum asset base of N200 million excluding land and working capital and with a  number of staff employed not less than 10 or more than 300 .The federal ministry of commerce defines SMEs as firms with a total investment (excluding cost of land but including capital) of up to N750,000, and paid employment of up to fifty persons, Employee relationship, labour intensive operation, simple technology, fusion of ownership and management and limited access to capital.

CHAPTER 1

1.1            BACKGROUND OF THE STUDY

Small medium enterprises (SMEs) are considered the backbone of economic growth in all countries. They play an important role in Nigerians economic growth, as they constitute 97.2% of the companies in Nigeria .They also contribute to national development by positively influencing the distribution of income in both functional and nominal terms. In emphasizing the importance of SMEs ,Rogers,2014, stated; they enhance  capacity building as they serve as entrepreneurial training avenues ; they  create more employment opportunities; per unit of investment because of their labour intensive operations; they achieve a much more relative high value added operations because they  are propelled by basic economic activities that depend mostly on locally sourced raw materials; they provide feeder industry services as they serve as major suppliers of intermediate goods and components to large-scale industries as well as major agents for the distribution of final products of such industries; they provide opportunities for the development local skill and technology acquisition through adaptation. Despite the catalytic role of SMEs in the economic emancipation of countries, some of their major operational challenges in Nigeria include financial problems. About 80% of small and medium enterprises are stifled because of poor financing.

The research intends to appraise the impact of commercial banks in the financing of SMEs in Nigeria, with a case study of first bank plc.

1.2            STATEMENT OF THE PROBLEM

Despite the significant role of SMES, they are largely affected by lack and insufficiency of funds to operate and expand their businesses. In view of this commercial banks in Nigeria play financial roles towards meeting the capital and operational  funds required by SMES

1.3    RESEARCH     QUESTIONS

1.        What is the nature and roles of SMEs?

2.        What is the nature of the financing problem of SMEs?

3.        What is the role of commercial banks in financing SMEs in Nigeria?

4.        What constitute the financing options of first bank to SMEs in Nigeria?

1.4    OBJECTIVE OF THE STUDY

1                   To appraise the nature and roles of SMEs in Nigeria

2                   To determine the role of commercial banks in financing SMEs in Nigeria

3                   To appraise the role of first bank in financing SMEs in Nigeria

 

1.5            SIGNIFICANCE OF THE study

The study shall highlight the significance of SMEs to the economy

The study shall analyze the roles of commercial banks in financing SMEs in Nigeria

The study shall provide financing options offered by first bank plc to SMEs in Nigeria.

The study shall serve as a veritable source of information to managers and consultants

1.6            STATEMENT OF HYPOTHESIS

1                   H0        SMEs  is not significant to the economy

H1        SMEs is significant to the economy

2                   H0        The financial challenge in SMEs is high

H1        The financial challenge in SMEs is low

3          H0        The impact of first bank in financing SMEs is low

            H1        The impact of first bank in financing  SMEs is high

1.7            SCOPE OF THE STUDY

The research shall appraise the role of commercial banks in financing  SMEs in Nigeria.

It shall elucidate the nature and significance of SMEs as well as analyze the financing challenges of SMEs in Nigeria.

1.8            DEFINITION OF TERMS

SME:

In Nigeria, the small and medium industries Enterprises investment scheme (SMIEIS) defines SMEs as any enterprise with a maximum asset base of N200 million excluding land and working capital and with a number of staff employed not less than 10 or more than 300. The federal ministry of commerce defines SMEs as firms with a total investment (excluding cost of land but including capital) of up to N750,000, and paid employment of up to fifty person, employee relationship, labour intensive operation, simple technology, fusion of ownership and management and limited access to capital.