AN APPRAISAL OF COMMERCIAL BANKS FINANCING OF SMALL & MEDIUM SCALE ENTERPRISES
                 ABSTRACT
The study was carried out to appraise commercial banks financing of small and medium scale enterprises. Commercial banks were appraised because they possess high volume of money in the economy and are the first point of call to SMEs. The research’s objective aims at giving necessary advice based on findings on how commercial banks can give more support in financing to SMEs. The research hypothesis includes showing if commercial banks credit to SME are negatively related to the availability of collated security, if bank loans procedure and requirements are negatively related to SMEs access to loans and to know if awareness and information are negatively related to the SMEs access to bank loans. The research work is survey research, samples were drawn from five banks and twenty small scales business. The result of the empirical findings shows that commercial banks do finance SMEs but not fully and that SMEs can prevent limitations to their access to commercial banks credit. The findings of this research work include that commercial banks are the closest to small business or first point of call to source for funds, also many small business does not have any knowledge of how to source for fund from commercial banks. At the end of this research the researcher recommended that commercial bank stand to play a major role in financing SMEs in the economy as compared to other financial institutions, therefore they should actively play a major role in financing SMEs, also by extending medium term loans.
TABLE OF CONTENT                
CHAPTER ONE:    
Historical background of the study    -    -    -
Statement of research problem-    -    -    
Statement of Hypothesis    -    -    -    
Objectives of the Study    -    -    -    -
Research questions     -    -    -    -    
Significance of the study    -    -    -    -    
The scope of the study    -    -    -    -
Limitations of the study    -    -    -    -
CHAPTER TWO: LITERATURE REVIEW
Introduction    -    -    -    -    -    
The Concept of Small and Medium Scale
Enterprises    -    -    -    -    -    
Profile/Characteristics of SMEs    -    -    
Relevance of SMEs    -    -    -    -    
Constraints on Funding SMEs Operations in
Nigeria    -    -    -    -    -    -    -
Problems of SMEs    -    -    -    -    
The Nigerian Experience    -    -    -    -
Commercial Banks    -    -    -    -    -
Banks requirements for obtaining loan-    -    
Procedures and processes of loan collection
in commercial banks    -    -    -    -
Federal Government Initiation-    -    -    
CHAPTER THREE: RESEARCH METHODOLOGY
3.1    Introduction    -    -    -    -    -    -    
3.2    Research population    -    -    -    -    
3.3   The sample    -    -    -    -    -    -    
3.4   Research design    -    -    -    -    -    
3.5   Research method    -    -    -    -    -    
3.6   Method of data collection-    -    -    -    
3.7   Method of data analysis    -    -    -    -
CHAPTER FOUR:   PRESENTATION AND ANALYSIS OF DATA
Introduction    -    -    -    -    -        
Presentation and Analysis of Data    -    -
Testing of Hypothesis    -    -    -
Testing Hypothesis One    -    -    -    
Testing Hypothesis Two    -    -    -
Testing Hypothesis Three    -    -    -        
CHAPTER FIVE:     SUMMARY, CONCLUSION AND
RECOMMENDATIONS
Introduction    -    -    -    -    -    -    
Summary of Finding    -    -    -    -    -
Conclusion    -    -    -    -    -    -
Recommendations    -    -    -    -    -
Bibliography    -    -    -    -    -    -    -
Questionnaire    -    -    -    -    -    -    
LIST OF TABLES
Table 2.2.1:    Latest classification of small &
Medium Scale Enterprises    -    -    -
Table 2.8.1:    Commercial loan and Advances to small
and medium scale enterprises 2003-2007 -
Table 4.2.1:    Sex Distribution of Respondent: bank
Owners and SMGs     -    -    -    
Table 4.2.2:    Age Distribution of the Respondent:
Bank Staff     -    -    -    -    
Table 4.2.3    Academic Qualification: Bank Staff    
Table 4.2.4:    Department of Bank Staff    -    -    
Table 4.2.5:    Distribution of Respondent According
to length of Service/Operations Bank
Staffs and Operations        -        
Table 4.2.6:    Average sales: SMGs Owners     -    
Table 4.2.7:    Academic qualification:
SMGs Operation    -    -    -    
COL 101:    Non-Availability of collateral can
limit Access to Credit by SMGs     -    
COL 102:        Inadequate Collateral Hinders SMGs
Access to Loans    -    -    -    
COL 103:        Proper Collateral Security Qualities
SMGs for credit     -    -    -    -
COL 104:         Only Collateral Evaluated to Meet
up with value of loan can be Granted    -
COL 105:    Compliance with Government Minimum Requirement of Collateral Security
Enhances Access to Credit by SMGs    
FAC 101:    Banks are Unwilling to Meet the Credit Requirement of the SMEs.     -    -
FAC 102:    High Rate of Interest Rates Hinders SMEs
 From Accessing Commercial Banks Loans -
FAC103:     Stringent Procedures, Procedures and Documentations Discourages SMEs From Accessing Commercial Banks Loans    -
FAC104:         A Large Capital Outlay Requirement
by SMEs Discourages Commercial
Banks From Granting Loans    -    
FAC105:     The Need to Meet Business Regulatory Requirement That Are Not Readily
Available to SMEs Hinders Their Access
to Bank Loans    -    -    -    -
EFFORT101:     Availability of Awareness and Information
About Commercial Banks SMEs Sourcing
of Fund From Banks    -    -    -    
EFFORT102:     Inadequate Awareness and Information
About Commercial Banks SMEs Schemes
Can Limits Their Access to Loans     -    -
EFFORT103:     Information and Awareness Programs
Through The Media Can Motivate SMEs
to Source For Credit From Commercial       
Banks    -    -    -    -    
EFFORT104:     Information and Awareness Programs
Through Regular Publications ands
Seminar to the Undecided Entrepreneurs
Can Encourage SMEs to Source for Loans
From Commercial Banks    -    -    -    
EFFFORT105:     Government or Public Finance
Enlightenment Initiatives Can Enhances
SMEs Access to Credit From Commercial  -
Table 4.3.1:    Observed Frequencies for Hypothesis One -
Table 4.3.2:    Expected Frequencies for Hypothesis Two -
Table 4.3.3:    Contingency Table for Hypothesis Three -    
Table 4.3.2.1:    Observed Frequency for Hypothesis Two -    
Table 4.3.2.2:    Expected Frequency for Hypothesis Two
Table 4.3.2.3:    Contingency Table for Hypothesis Three -
Table 4.3.3.1:    Observed Frequency for Hypothesis Three -    
 Table 4.3.3.2:    Expected Frequency for Hypothesis Two -
Table 4.3.3.3:    Contingency Table for Hypothesis Three -
CHAPTER ONE
1.1    INTRODUCTION
The production of goods and services in the most efficient manner has continued to be the only viable and reliable option for development, growth and survival of any economy. The development of small scale enterprises (SME’s) is therefore an essential element of growth in Nigeria economy. SMEs not only contribute local capital formation and achieve high level productivity. It was however, observed that the major gap in Nigeria’s industrial development process in the past years was of the death of long-term finance of Small Scale Industries (SMI).
The commercial banks play a vital role in the financing of small scale business in Nigeria. They are the most common financial institution in Nigeria and happen to be the very first point of call for an entrepreneur who may be seeking for funds. However, the potential entrepreneur has been left to look for other means of financing his/her business because of the unfavorable macroeconomic environment has been identified as one of the major constraints which most times encourage financial institutions to be risk-averse in funding small and medium scale business.
But what efforts have been made by the apex regulatory body of the banking system, the Central Bank of Nigeria (CBN) as well as the commercial banks in achieving financing needs of the SMEs?
Much like the industrial policy itself, bank credits to industries in Nigeria has evolved through phases, reflecting the needs of the industrial sector as nurtured by each era of the evolving industrial policy. There have been various efforts put into the design and creation of funding schemes targeted at SMEs since the adoption of reliance on SMEs in the focus of the newly evolved national industrial policy, these included CBN credit guidelines allocating a stipulated minimum of credit to the preferred sectors including the SME. For instance in 1979/1980 fiscal years, the minimum stipulated percentage was 10% of total credit to indigenous borrowers, which constituted the SME. It was raised to 16 & 20 of total loans and advances in 1980 and 1989 respectively.
It is high time commercial banks rise up to their duty and encourages SME’s to enable growth and development of the economy and to bring about hope for new graduates and individuals who have great business ideas but without finance and job opportunities on hand to save earnings on their own.
1.2    STATEMENT OF RESEARCH PROBLEM
The banking industry is the major source of funds and its contribution to the success of SMEs through the provision of loan and advances could be packaged in any of the following ways:
Overdraft facilities
Medium term finance
Long term finance
Lease finance
Contingent liability financing
Import and export finance.
Allegations about that the banks’ lending to SMEs have been minimal and non sustaining. This is in spite of CBN direct involvement in loan policy guidelines to commercial banks. While finance is obviously not the only problem militating against the development of the SME sector, it is certainly the most formidable. Like any other investment in the real sector of the economy, investment in SMEs is relatively bulky because of the need for fixed assets such as land, civil works, buildings, machinery and equipment and movable assets. Moreover, empirical studies have shown that the incidence of the extra outlays required to compensate for deficiencies in the supply of the basic utilities is relatively heavier on SMEs than large enterprises.
However, the knowledge of this great need in the economy is still very much needful. Commercial banks can really make a huge impact on the economy by being more supportive than ever. Could it be lack of collateral security, standard business plan, good business idea, expert managerial skill that has hindered the commercial banks from extending finance to SMEs?
It is against this background that the research problem is to review commercial banks activities in financing small and medium scale business.
1.3    STATEMENT OF HYPOTHESIS
Hypothesis acts as a beacon that lights the pathway of every serious research. In this study our hypotheses presented in the null form are as follows:
Ho1:    Commercial Banks credit to SMEs are negatively related to the availability of collateral security.
Ho2:    Banks loan procedure and requirements are negatively related to SMEs access to loans.
Ho3:    Awareness and information are negatively related to the SMEs access to bank loans.
1.4    OBJECTIVES OF THE STUDY
The objective of this study is to identify the challenges faced by commercial banks in financing small and medium scale business (SMEs) and how these problems can be solved. The study also intends to discover the factors that have militated against SMEs from accessing loans and finance from commercial banks.
1.5    RESEARCH QUESTIONS
Is the requirement of collateral security by commercial banks reducing the accessibility of SME’s from approaching them?
Are there factors that militate against banks credit to SMEs?
Are there efforts made by commercial banks to provide awareness and information about how SMEs can finance their business?
What are the factors that hinder SMEs from accessing commercial banks?
1.6    SIGNIFICANCE OF THE STUDY
This study undertake an appraisal of commercial bank’s role in financing of small business and also to create the required awareness among small business owners of what are needed to be able to secure the necessary fund.
There is no doubt that the result of the research will be useful to all small business owners in Nigeria by equipping them with survival strategies in a period of economic depression.
This study will also be useful to other developing countries potential investors and other individuals like young graduates wishing to establish small business firm will also find this study useful.
Above all, policy makers will find the study useful to be able to assist small business owners. By the end of this study, the information gap which is ascertained as the cause of financial problem would have been bridged or closed or reduced to the barest minimum.
1.7    THE SCOPE OF THE STUDY
The study will cover some selected small scale businesses in Benin-City which will include manufacturing services, fabrication, woodworks, sole proprietorship, partnership, etc.
However, it is necessary to re-emphasize that besides commercial banks small business can obtain short or long term finance from different other sources, some of which are institutions.
Nevertheless, to define properly the line between the subject matter of the study and those other sources of finance if is hereby stated that this research effort has been confined to the activities of commercial bank, in financing of small-scale business.
1.8    LIMITATIONS OF THE STUDY
No study is perfect in a study of this nature. There are set backs that militate against a comprehensive compilation of facts and figure. This research work is not an exception, I knowledge the methodological imperfection of the work as a result of these major limitations:
This study has been affected by the unwillingness of the business owners and the bank to supply the needed information.
This study has been affected by time constraint as every attempt is made to conclude it within the required time.
The response rate, the attitudes and nature of the respondents is also a major limitation to the study.
The accuracy of the information supplied also affects the study.