THE ROLE OF DEPOSIT MONEY BANKS TO THE SMALL SCALE ENTREPRENEURIAL DEVELOPMENT IN NIGERIA

THE ROLE OF DEPOSIT MONEY BANKS TO THE SMALL SCALE ENTREPRENEURIAL DEVELOPMENT IN NIGERIA

ABSTRACT

The study examined the role of deposit money banks to the small scale entrepreneurial development in Nigeria with particular reference to kitchen 54, Nasarawa. The specific objectives of the study is to evaluate the extent to which small scale enterprises have been able  to obtain loans and advances from Nigerian deposit money banks; ascertain the problems facing deposit money banks in financing small scale enterprises in Nigeria and to identify problems encountered by small scale enterprises in obtaining funds from deposit money banks.  The study adopts the survey research design and Chi-square was used to test the research hypotheses. The findings of the study shows that that deposit Money Banks play significant role to the small scale entrepreneurial development in Nigeria. The study recommends that the deposit money banks should put more effort in financing entrepreneurs and small and medium scale business in other for their roles to be felt by the SMEs in terms of growth and development.

CHAPTER ONE

INTRODUCTION

1. Background of the Study

There is no doubt that banks and other financial institutions occupy strategic positions in the operation of Nigeria  economic system. The importance of these banks and other financial institutions are so encompassing that one may not imagine the functionability of the economic system without them (Oshiobugie & Okoh, 2015). This probably has been why government is always sensitive to the happenings in this important sector.

In an economy such as Nigeria, things have to be bought and paid for (for instance, an entrepreneur, buying raw materials from suppliers). Such transactions in modern times are usually done in many cases, through the bank credit transfer system because apart from the large amount of money that may be involved; there is also the need to consider the security of the money. It is for this reason that modern organizations (business and non-business alike) make use of banks and other financial institutions for many of their financial transactions. So, banks just act as intermediaries in many business transactions involving money (Afolabi, 2013).

Entrepreneurship development over the years has been facing problems of slow or stagnating development. This problem has continued to serve as a cog in the wheel of progress of the overall economic development in the country. This stampede of the growth of entrepreneurship in Nigeria is nowadays threatening to deprive the nation of the much needed benefits of poverty reduction, employment generation and wealth creation, which by implication should have set the country’s ball rolling for sustainable and growth and development (Lawal and Ijaiya, 2007).

One major problem, which is indisputable in all quarters, is the lack of sufficient fund to set up and run businesses (Onyeiwu, 2012). Lack of funds and access to credit facilities are significant obstacles to the development and sustainability of microenterprises that discourage those with entrepreneur skills. Small firms seeking bank loans face considerable credit constraints in that they receive credit much less frequently than larger ones. It is also known that many entrepreneurs would like to start up their businesses, but refrain from doing so due to the lack of credit to finance their initial or subsequent operations (Garba, 2013).

For any business to grow credit is essential; lack of credit is a barrier to the development and growth of the incomes of households and entrepreneurship. Access to credit enhances the adoption of new and more advanced technologies that will enable the rural household to expand their agricultural and non-agricultural enterprises, which in turn improve their income levels, and hence help in reducing their incidence of poverty (Abubakar, 2011). Despite the fact that credit has been recognized as an essential tool for promoting business, savings also plays an important role next to credit (Olaitan, 2006).

The deposit money banks which are main players in the financial systems of nearly every economy, have the potential to pull financial resources together to meet the credit needs of entrepreneurs, therefore, there is still a huge gap between supply abilities of the banks and the challenging needs of entrepreneurs. In Nigeria, the situation is even more predominant (Olutunla & Obamuyi, 2008) Also, it has been observed that entrepreneurs do not use formal means of financing as much as the large scale enterprises do.

The World Development Report indicated that small-scale business firms obtain only 19 percent of their financing needs as against 44 percent by medium and large scale enterprises from external sources in developing countries (World Bank, 2000). Entrepreneurs are often discouraged in sourcing for funds from the deposit money banks as they find accessing bank credit difficult. Abereijo and Fayomi (2005) note that the majority of deposit money banks loans who offered to entrepreneurs are often restricted to a period far too short to pay off any considerable investment. In addition, banks in many developing countries choose to lend to the government rather than private sector borrowers because the risk involved is smaller and higher returns are accessible (Levitsky, 2017). The main thrust of this study is to examine the role of deposit money banks to small scale entrepreneurial development in Nigeria.

1. Statement of the Problem

There is dearth of financial institutions which cater for long and medium term credit needs of businesses operating in the economy.

1. Lack of Startup Capital: Small scale enterprises are no exceptions to these, and they suffer a great deal for want of capital for development and expansion of the economic survival of the country. It cannot be over emphasized that they have moved from the subsistence level of pre-indigenization period to a position of importance in the country’s industrialization process.
2. Lack of Collateral: In an attempt to secure loan from Deposit Money Banks in Nigeria small scale business entrepries are required to provide collateral which in most cases are not available thereby poses as a problem to access capital from the banks.
3. Lack of Financial Education: The need in many cases is beyond the financial capability of the entrepreneurs who set up the business. They also lack basic financial education which help them easily access capital from the Deposit Money banks such basic education including records keeping, operating a business account among others.

The study therefore examines the role of deposit money banks to the small scale entrepreneurial development in Nigeria.

1. Objectives of the Study

The main objective of this study is to examine the role of deposit money banks to the small scale entrepreneurial development in Nigeria.

The specific objectives are:

• To evaluate the extent to which small scale enterprises have been able  to obtain loans and advances from Nigerian deposit money banks.
• To ascertain the problems facing deposit money banks in financing small scale enterprises in Nigeria.
• To identify problems encountered by small scale enterprises in obtaining funds from deposit money banks. 

1. Research Questions
2. To what extent does  small scale enterprises have been able  to obtain loans and advances from Nigerian deposit money banks.
3. What are the problems facing deposit money banks in financing small scale enterprises in Nigeria.
4. What are the problems encountered by small scale enterprises in obtaining funds from deposit money banks. 
   1. Statement of Hypothesis

Ho: Deposit Money Banks does not play significant role to the small scale entrepreneurial development in Nigeria

H1: Deposit Money Banks play significant role to the small scale entrepreneurial development in Nigeria

1. Significance of the Study

The importance of the study is to seek and direct government effort, stimulate and promote economic growth, develop local technology and to also generate employment. No doubt that this work would be of benefit to a host of stake holders in the small-scale enterprise scheme, especially the owners (promoters) and employees of business organization, the students, the government, investing financial institution and the general public.

This study through its findings and recommendations will be significant in the following ways.

1. Policy Makers and Regulators in the Industry:  To policy makers and regulators in the industry, it will present a scheme, through its analysis that could assist them in formulating policies that will not only positively impact on banks’ performances but also remain relevant in the economy of Nigeria.
2. Bankers: To bankers in general, it will expose the relationship existing between Deposit Money Banks and the Development of Nigeria Economy.
3. Academicians: In the academic arena, this study will prove to be significant in the following ways: v It will serve as a body of reserved work and knowledge to be referred to by researchers.  It will add value and enrich other literatures on banks’ performances in Nigeria and the world at large. It will suggest ways of enhancing the performance of the banking industry in Nigeria and the entire Nigerian economy. This will in turn, boost development positively which is usually affected by banks and their activities.

1. Scope of the Study

The scope of this study is limited to the role of deposit money banks to the small scale entrepreneurial development in Nigeria. The study is further limited to Kitchen 54 in Nasarawa Local Government of Nasarawa State.

1. Limitation of the Study

This study was carried out successfully but while in the course of gathering data, the researchers were confronted with the mention and analyzed problems,

• Time Constraint: The researchers had no enough time to carry out their research as have been planned because this project write up was coincided with other academic activities such as attending lectures, doing assignments and test
• Financial Constraint: Due to the economic situation that things are hard to come by, fund frustrated the researchers, but was able to take control of it.
• Materials: The researchers had no sufficient materials as to lay hands on books on the research topic. Also, the Bank Officials visited were reluctant initially to give useful information until a repeated visit.

1. Operational Definition of Terms

Deposit Money Banks: Deposit money banks are resident depository corporations and quasi-corporations which have any liabilities in the form of deposits payable on demand, transferable by cheque or otherwise usable for making payments.

Small Scale Enterprises: As defined in the Nigerian context, following the current official definition of industrial  enterprises adopted by the 13^th meeting of the National Council on Industry (NCI)  Markudi, Benue State in July, 2001 as “an enterprise with total capital employed of over  ₦1.50m but not more than ₦50m, including working capital but excluding cost of land  and or labour size of 11-100 workers.

Short term credit: This type of credit is a credit or loan that has maturity period that is less or more than  one year. E.g. Personal loan.

Medium term credit: This is a type of credit or loan that has a maturity period of more than one year but  not exceeding two years to be repaid back. E.g. loan required for temporary business  requirement.

Long term credit: This type of credit matures in more than three years and above. It has a very long  maturity period as agreed by the lender and the borrower. E.g. are business  development loans and Bridging loans.