THE CONTRIBUTION OF COMMERCIAL BANK TO SMALL SCALE INDUSTRIES

THE CONTRIBUTION OF COMMERCIAL BANK TO SMALL SCALE INDUSTRIES

(A case study of United Bank for Africa Plc)

ABSTRACT

The research work titled “The Contribution of Commercial Bank in Small Scale Industries” a case study of United Bank for Africa (UBA)” is aimed at rating the role commercial banks contribute to the financing of small scale industries. Questionnaires was administered and it was deduced that small scale industries aids self-reliance and promote employment opportunities but the stringent collateral require posed a great challenges as available funds is needed for the establishment, and development of small scale industries. Based on the finding, recommendations were suggested of which government should provide incentives that will help banks reducing the interest rate on load so as to stimulate and encourage entrepreneurs.

CHAPTER ONE

1.1   INTRODUCTION

Small scale business has been an important element in this country drive towards a self-reliance economy.

This is based on the realization that small scale enterprise are desirable worldwide, hence, it is an avenue for reducing the role of employment in the country and thereby contributing to the gross domestic product (GDP) of the nation.

In the developed countries today, technology advancement was due to the establishment of small scale enterprise or industries. Small scale enterprises are considered as a pivot for technology take off and self-reliance of any nation.

In the commercial world, there are various kinds of business undertaking. The business activities range from the private enterprise to public corporation. A small scale enterprise is defined as business which is independent small and localized, most small scale business is operated by private individuals.

As a result of the immense contribution of commercial banks to the development of small scale business in Nigeria, there is need for the government to be seriously involved by providing the needed resources, supervision and enabling environment for it to thrive.

1.2   BACKGROUND OF THE STUDY

The successive development plans of Nigeria have laid emphasis on the attainment of self-reliance. The need for this national objective is because much is expected from individuals from the view point of providing employment opportunities self-reliance in basic food and material production high per capital income, foreign exchange earnings and the production of industrial raw materials.

Okporobie (1989), observes that Nigerian small scale industries continued to decline despite the called priority given to the sector.

However, the discovery by the central bank that this policy was not enough by itself lead to the central bank request with effect from 1970/80 that all commercial bank must reserve a proportion of the minimum credit allocation to indigenous borrowers for small scale Nigeria enterprise. The target prescribed in 1979 was ten percent (10%) which subsequently rose to sixteen percent (16%).

Even though available data showed that performance of commercial banks against this directive has been disappointing. The central bank intends to spare no effort in ensuring that bank fully couple without compromising the smooth functioning of the nation banking system.

He observed also, that without the development in our industrialization must address the basic issues of creating linkage without the economy to begin to produce real input to our small scale industrial activities.

Nzewi and Ozo (1985), observed that empirical evidence indicate that strong producer incentives to small scale industrialist are necessary, not also only to meet the for requirement but also to provide growing input supplies and demand as a foundation for sustained industrial growth.

Ekenyong and Nyong (1992), observed that small scale enterprise are regarded as an organic part of a viable structure for the attainment of meaningful economy development in developing economic like Nigeria.

They are significantly more cost effective in bringing about development than large enterprises because of the perceived linkage and multiplier effect which small scale enterprise, have on the performance of the economy and economic growth in general.

Osengameh (1989), observed that the strength that make small scale enterprise more emendable for assistance areas as following:

1. Personal commitment of the proprietor whose life saving usually from tat startup capital.
2. Low initial capital outlay requirement.
3. Amenability of business advisory service because of their small size which make them more responsive to improve suggestion.

Olashore (1987), observed that time firm four main sources of enterprises financing open to small scale industry in Nigeria are:

1. Formal financial institution such as commercial bank, merchant banks, insurance companies and the development banks.
2. Informal financial landlords, credit and saving associations, friends and relations, personal saving and
3. Other financial scheme, NERFUND, NEXIM.

In 2001, there was an introduction of small and medium industries equity investment scheme (SMEs) in which N359 million was set aside to date by bank under small and medium industries equity investment scheme.

Through UBA, small and medium scale enterprise (SME) development, the banks has remained, in forefront of SMEs financing, nation was extended to the SMEs as at 31^st March, 2004. Small scale industries is any industry, not exceeding N750,000 including working capital but exceeding cost of land.

It is also defined by center for industrial research and development of Obafemi Awolowo University, Ile-Ife as those industries whose total asset in plan, equipment and working capital do not exceed N250,000 with not more than 50 employees.

1.3   STATEMENT OF THE PROBLEM

The problem of credit to small scale industries may not necessarily be as a result of financing insufficiently but rather for some other reasons among which are:

Insufficient preparation on the part of small scale entrepreneur in their request for credit assistance and information gaps as to range of funding institution and scope of services available in those institutions.

Moreover, servicing of small business account is relatively experiencing risky and difficult to monitoring with low turnover of account.

However, the parishioners in the sector of small scale industry do not display competence in preparing justification for their project. They are based on personal rudimentary information and speculation. At times when they seek the advice of consultants, the outcome that are made figures project based on assumption which are most of their times unrealistic as a result such proposal are not rightly rejected by banks.

There are suitable when credit demands in this sector are not in compliance in this government monetary policy and credit guidelines which must be adhered to be banks.

The researcher identifies these problems and considers it necessary to carry out study on them.

1.4   OBJECTIVES OF THE STUDY

        The objectives of the study include:

1. To ascertain the extent to which the UBA bank of Nigeria Plc has helped to finance small scale industries.
2. To identify the problems encountered by small scale industrialist in obtaining finance from UBA bank of Nigeria Plc.
3. To evaluate various measures introduced to boost industrial production and its financing and how this has affected realization of the set goals.
4. To determine the causing changes in small scale industrial financing by UBA bank of Nigeria Plc.
5. To make suggestion and recommendation based on the data generated by the study.

1.5   RESEARCH QUESTION

In the course of the research work, the researcher were able to ask questions which were understood to have assisted in gathering relevant information, below are some of the question:

1. To what extent has the UBA bank of Nigeria Plc helped to finance small scale industries?
2. What are the problems encountered by the small scale industrialist in obtaining finance from UBA bank of Nigeria?
3. What are the various measure introduced to boast industrial production and its financing and how this has affected the realization of the set goals?
4. What are the causes of change in small scale industrial financing by UBA bank of Nigeria Plc?
5. Does any linear relationship exist between lending to small scale industries and economic recovery and self-reliance on the economic?

1.6   SIGNIFICANCE OF THE STUDY

The study will highlight problems associated with the role of commercial banks in financing small scale industry in Nigeria; it will give information on the possible areas for improvement.

Furthermore, the study will help commercial banks to access and appraise the roles in financing small scale industry in Nigeria, moreover suggestion and recommendation made in these project will help policy makers formulate new economy policies maintain or modify the existing ones.

It will also help small scale entrepreneur to make sufficient preparation in their request for credit allowance, it will guide the entrepreneur in making credit demands that are in compliance with government monetary policy. It also help the entrepreneur to display competence in preparing justification for their project, it will equally serve as a guideline to researcher who may wish to research on this study in the future.

1.7   SCOPE OF THE STUDY

The scope of the study is the contribution of commercial bank to small scale industry in Nigeria. A case study of United Bank for Africa (UBA) of Nigeria Plc. It does not cover the role of commercial bank in financing medium and large scale industries.

1.8   STATEMENT OF HYPOTHESIS

H_o:   There is no significance relationship between lending to small scale industries and economic recovery and self-reliance.

H_i:    There is significance relationship between United Bank for Africa (UBA) of Nigeria Plc lending to small scale industries and economic recovery and self-reliance.

1.9   LIMITATION OF THE STUDY

The constraints impose on the researcher while carrying out this project includes:

1. Time: Study of this nature needs a relatively long time during which information and inference could be drawn. The period of this study was short, hence time pose as a constraint to the researcher.
2. Cost: The researcher would have extended the survey to areas but limitation here includes cost of transportation to source for materials.
3. Scarcity of statistical data: Lack of statistical data from our financial institution like Central Bank of Nigeria (CBN).
4. Ministry of financial and economic development and commercial banks pose a constraint. Commercial bank adhere strictly to the rule of secret, in banking terms they refuse to release information.

1.10 DEFINITION OF TERMS

1. Small scale industry: Any industry with capital not exceeding N750,000 including capital but excluding cost of land. These are business that requires few people to run the management of the business.
2. Commercial bank: A financial institution that acquires deposit from saving surplus unit and give out loan to saving deficit unit.
3. Industrial development center: Provide management technical, consultancy and extension service for the small scale.
4. Indigenization decree: A decree that stipulate that most business become at least sixty percent (60%) owned by Nigeria.
5. Sole proprietorship: It is a business owned and controlled by one person presumably assisted by one or more person.
6. C5: Small scale industry credit scheme, the C5 are: Capital, Capacity, Collateral, Condition and Capital.