Role of Commercial Banks in the Performance of Small and Medium Scale Enterprise in Nigeria (a Case Study of First Bank Plc)
Chapter One
Researchย objectives
ย Generalย Objective
The general objective of the study was toย assess the contribution of commercialย banksย toย theย performance of small and medium scale enterpriseย inย Nigeria.
Specificย Objective
- To determine the relationship between credit determinant factors and Entrepreneurโ profitability.
- To examine the credit determinant factors effecting Entrepreneurโ profitability.
- To explore the challenges facing the SMEs towards
CHAPTER TWOย
LITERATUREย REVIEW
ย Theoreticalย Literatureย Review
ย Theย Concept ofย Smallย andย Microย Enterprisesย
According toย allbusiness.com (2010), the abbreviation SMEs occurs commonly inย the European Union and in International Organizations such as the World Bank, theย United Nations and the World Trade Organization. Also the term Small and Mediumย Scale Businesses (SMEs) is predominantly used in the United States of America. Theย European Union states traditionally have their own definition of what constitutesย SMEs. For instance, the traditional definition in Germany Limits Small and Mediumย Scale Enterprises to two hundred and fifty (250) employees while in Belgium, it isย limitedย toย oneย hundredย (100)ย employees.ย Recently,ย theย Europeanย Unionย hasย standardize the concept by categorizing enterprises with less than ten (10) employeesย as โmicroโ, those with fewer than fifty (50) employees as โSmallโ and those withย fewer than two hundred and fifty (250) employees as โmediumโ. In the United Statesย of America, any business with fewer than one hundred (100) employees is classifiedย as โsmallโ while medium scale business refers to a business with fewer than fiveย hundredย (500)ย employees (Oni,ย 2021).
In India, Micro and Small Enterprises play a pivotal role in the overall industrialย economy of the country. It is estimated that in terms of value, the sector account forย about 39% of the manufacturing output and about 33% of the total export of theย country.ย Alsoย inย Southย Africa,ย theย term Small,ย Mediumย andย Microย Enterprisesย (SMMEs)ย is usually used,ย whileย in Nigeria,ย the term Small andย Medium Scaleย Enterprises (SMEs) is generally used. From the foregoing, it can be deduced thatย Small and Medium Scale Enterprises are enterprises that have the capacity to employย at most five hundred (500) employees at a time and it has been proved to be the backย bone of every economy. The brain behind every successful Small and Medium Scaleย Enterpriseย isย entrepreneurshipย whichย inย theย wordsย ofย Olagunjuย (2004)ย isย an undertakingย inย whichย oneย isย involvedย inย theย taskย of creatingย andย managingย anย enterprise for a purpose. The purpose as further stated may be personal, social orย developmental. One who is involved in this task is called an entrepreneur. Also a lineย between an entrepreneur and business owners must be drawn. While business ownersย establish and manage their own enterprise for personal gains, entrepreneurs exploitย ideas that create a business that benefit them, the society and act as developmentalย weaponย (Berryย etย al,ย 2002).
The UNIDO defines SMEs in terms of number of employees by giving different classifications for industrialized and developing countries. The definition for industrialized countries is given as follows; a) Large – firms with 500 or more workers; b) Medium – firms with 100-499 workers; c) Small – firms with 99 or less workers and the classification given for developing countries is as follows; a) Large – firms with 100 or more workers; b) Medium – firms with 20-99 workers; c) Small – firms with 5-19 workers; d) Micro – firms with less than 5 workers (UNIDO, 1999). It is clear from the various definitions that there is not a general consensus over what constitutes the SME (Ayyagari et al, 2006). Definitions vary across industries andย alsoย across countries. Itย is importantย now toย examine definitions of entrepreneurship given inย the contextย ofย Europe,ย Ghanaย andย Southย Africa.
As presented in the Recommendation 2003/361/EC in Europe, the category of micro,ย small and medium-sized enterprises (SMEs) is made up of enterprises which employย fewer than 250 persons and which have an annual turnover not exceeding 50 millionย euro, and/or an annual balance sheet total not exceeding 43 million euro. To check ifย an entity is an SME the first step is to verify if it is an enterprise and if it fits to theย following three criteria: staff headcount, annual turnover and annual balance sheetย total. Theย main categories of entrepreneurship, based on their relations with other enterprisesย are autonomous โ by far the most common category โ a partner or linked enterprises.ย The calculationsย forย each of the three types of enterpriseย are differentย and willย ultimately determine whether the enterprise meets the various ceilings established inย the SME definition and later if or not benefits of special financing programs, createdย bothย byย theย Europeanย Unionย andย byย nationalย governmentsย (Europeanย Commission, 2003). The ceilings apply to the figuresย for individual firms only.ย A firm which isย part of larger grouping may need to include employee/turnover/balance sheet dataย from that grouping too. The main factors determining whether a company is an SMEย are: numberย ofย employeesย andย eitherย turnoverย orย balance sheetย total.
In Ghana,ย there haveย been various definitions given forย small-scale enterprisesย butย the most commonly used criterion is the number of employees of the enterpriseย (Kayanula and Quartey, 2000). In applying this definition, confusion often arises inย respect of the arbitrariness and cut off points used by the various official sources. Inย its Industrial Statistics, the Ghana Statistical Service (GSS) considers firms withย fewer than 10 employees as small-scale enterprises and their counterparts with moreย than 10 employees as medium and large-sized enterprises. Ironically, the GSS in itsย national accounts considered companies with up to 9 employees as SMEs (Kayanulaย and Quartey, 2000). In defining small-scale enterprises in Ghana, Steel and Websterย (1991), and Osei et al, (1993) used an employment cut-off point of 30 employees.ย Osei et al (1993), however, classified small-scale enterprises into three categories.ย These are: (i) micro – employing less than 6 people; (ii) very small – employing 6-9ย people; (iii) small –ย between 10 and 29 employees. A more recentย definition is theย one given by the Regional Project on Enterprise Development Ghana manufacturingย survey paper. The survey report classified firms into: (i) micro enterprise, less than 5ย employees; (ii) small enterprise, 5 – 29 employees; (iii) medium enterprise, 30 โ 99ย employees;ย (iv)ย large enterprise,ย 100ย andย more employees.
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In South Africa, the most widely used framework is the definition of the Nationalย Small Business Act 102 of 1996, which defines five categories of businesses. Theย definition uses the number of employees (the most common mode of definition) perย enterprise size category combined with the annual turnover categories, the grossย assets excluding fixed property. The definitions for the various enterprise categoriesย are given as follows; a) Survivalist enterprise: The income generated is less than theย minimum incomeย standard or the poverty line.ย Thisย category isย considered pre-ย entrepreneurial, and includes hawkers, vendors and subsistence farmers. (In practice,ย survivalist enterprises are often categorised as part of the micro-enterprise sector); b)ย Micro enterprise: The turnover is less than the VAT registration limit (that is, R150ย 000 per year). These enterprises usually lack formality in terms of registration. Theyย include, for example, spaza shops, minibus taxis and household industries. Theyย employย noย more than 5ย people; c)ย Very smallย enterprise:ย These are enterprisesย employing fewer than 10 paid employees, except mining, electricity, manufacturingย and construction sectors, in which the figure is 20 employees. These enterprisesย operate in the formal market and have access to technology; d) Small enterprise: Theย upperย limitย isย 50ย employees.
Small enterprises are generally more established than very small enterprises and exhibit more complex business practices; e) Medium enterprise: The maximum number of employees is 100, or 200 for the mining, electricity, manufacturing and construction sectors. These enterprises are often characterized by the decentralisation of power to an additional management layer (Berry et al., 2002). The National Smallย Business Actโs definitions of the different categories of business may be summarizedย asย setย outย inย Table 2.2ย below.
CHAPTER THREE
RESEARCHย METHODOLOGY
Researchย design
Caseย studyย researchย designย wasย used.ย Thisย involvesย collectingย empiricalย data,ย generally from only one or a small number of cases. It provides rich details aboutย those cases of a predominantly qualitative nature. A case study generally aims toย provide insightย intoย a particular situation and often stresses the experiences andย interpretations involved in the study. It uses direct observation to give a completeย snapshot of a case that is studied. It is useful when not much is known about aย phenomenonย (Saunderย etย al,ย 2003). Withย thisย design,ย theย researcherย isย ableย to interviewย theย respondentsย andย obtainย backgroundย recordsย andย administersย questionnairesย toย acquire quantifiableย dataย onย the subject.
Samplingย Procedures
Purposiveย sampling
A non probability sampling was employed by which purposive sampling method wasย to select the targeted UBA banks as it offers credit facilities including loan to entrepreneursย consideredย inย this study.
Snowball/Referralย sampling
Snowย ball/referralย samplingย wasย utilizedย toย identifyย respondentsย whoย meetย theย criteria as SME owners and through this method 85 SMEs were obtained. The reasonย behind its justification is that the first respondents who accessed the loan helped theย researcher toย identify others whom they knewย did the same until the researcherย collectedย sufficientย dataย fromย themย (Bailey,ย 1989).
CHAPTER FOURย
DATA ANALYSIS AND RESULT PRESENTATION
Demographicย Characteristicsย ofย Respondents
This study intended to collect data from male and female as well as married andย unmarried as respondents. Also the study intended to look on the age of respondentsย and their education level. The characteristics of respondents were involved to revealย the relationship of these characteristics on engaging in SMEs undertakings. Based onย the study results, the greater number 80% of respondents were males. This result is inย line with other studies which reporting that failure rates for female owned firms areย higher than those of males. The tendency has handicapped by limited to access toย finance, stringent collateral requirements and womenโs double duties (Riding andย Swift,ย 1990;ย Evans,ย 2000).
The results from the study in Table 4.1 show that 90.6% of the respondents wereย married. This result is in line with the report Uttaro (2002) that married individualsย are more likely to engage into entrepreneurs than unmarried respondents. Also the result hasย supportedย byย studyย carriedย byย Dessalegnย (2008)ย whichย showsย thatย marriedย respondents had more relatively networks and better access to entrepreneurship thanย unmarried. Impliedly the results depicting that married respondents demanding toย engageย inย SMEsย moreย thanย unmarriedย respondents.ย Thisย couldย beย toย theย factย that married respondents has more family responsibility the fact force them in one way orย anotherย toย increaseย theirย incomeย towardsย meetingย theirย familyย responsibilities.
CHAPTER FIVE
CONCLUSIONSย ANDย RECOMMENDATIONS
ย Conclusions
ย The analyses of the socio-economic characteristics of the respondents depicts thatย majority of entrepreneurs were in the middle age hence, can be active engage inย SMEs undertakings. Also the study revealed that, the level of literacy was very highย among the respondents as about 70.6% of total respondents had secondary levelย education. This education is considered a good base for adopting and implementingย newย innovations easily.
Furthermore, the findings of this study revealed that, the amount of loan provided by UBA bank has both significant relationship and contribution to profits gained annually by SMEs. Although business management trainings would contribute higher income gains, this study revealed insignificant contribution regardless of a maximum of four trainings offered per year to most of entrepreneurship. Shortages in human resources development, bank financial restrictive regulations particularly on rates and collateral also lack of market information were areas reported to hamper SMEs towards profitability. No matter how long an enterprise had been in business, entrepreneurial skills were still a problem to more profit generation.
ย Recommendations
Basedย onย studyย findings thisย studyย recommends that;
- In order to ensure higher profits, the bank should provide higher amounts ofloanย to entrepreneursย withย low interest
- Business management trainings ย should be regularly provided to cope withย the changing business situations, but more importantly should be relevant toย the firms anย enterprise
- SMEs should employ well trained and skilled personnel or consider the costsofย humanย resourceย developmentย (trainings)ย inย theirย generalย operationย costs for more entrepreneurial skills as well as customer care. This will contributeย to more gains as new items will be produced and will create an attractiveย environmentย to
- Since loan is the only facility to profit, the commercial bank should relax itsrestrictive regulations which may discourage borrowing and offering moreย creditย facilitiesย forย SMEsย inย Anambra
- Itisย importantย forย smallย businessย ownersย toย seekย andย maintainย goodย relationships with credit providers like banks and other financial institutions.ย Adding to this is the importance of small firms not only considering loans asย to increase equity, but also they should be ready to opt for selling equity orย part ownership of the business. This will improve the issue of in-access toย financesย andย capital
- SMEs owners need to seek first an adequate knowledge of business beforeengaging into doing any kind of business idea they have. Small businessย owners can do this by enrolling into training programmes and courses onย businessย administrationย conductedย byย variousย educational institutions.
- Thegovernment should invest in research and development so as to exploreย whatย canย beย doneย toย improveย theย smallย firmโsย situationsย eitherย byย lookingย into what other developing countries have done or by coming up with newย This in general will help in improving the challenges faced by smallย businessesย inย theย country
Recommendationย forย furtherย research
This study focused on the assessment of the contribution of commercial banks to theย performance of small and medium scale enterpriseย inย Anambraย State.ย Apartย fromย thisย itย observedย theย followingย relevantย issues thatย needย furtherย research:
- Further research should assess the relationship between financial management practices and SME
- Further research should assess the contribution of social networking of entrepreneurship to venturing of new
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