Case Study of First Bank of Nigeria

This suggests that commercial banks have active developmental roles in the economy, such as allocating funds from the surplus to the spending units that are in deficit. In Nigeria, commercial banks are regarded as the primary source of funding for SMEs or, more accurately, for entrepreneurs. For instance, any industrial firm, no matter how big or small, will need money to start out and run effectively. This money will also be needed for new investments as well as for the capitalization, working capital, and rehabilitation needs of the enterprise. Therefore, policymakers in the public and private sectors have shown a keen interest in providing money to the industrial sector, particularly for SMEs. It is common knowledge that businesses rely on a range of funding sources.

THE ROLE OF DEPOSIT MONEY BANKS IN THE PERFORMANCE OF SMALL
SCALE ENTERPRISES IN NIGERIA: A CASE STUDY OF FIRST BANK OF NIGERIA
BY
OGUNSOLA TIMILEHIN OLUWOLE
MATRIC NO: NOU142803652
A PROJECT SUBMITTED TO THE DEPARTMENT OF ENTERPRENEURIAL AND
BUSINESS MANAGEMENT, FACULTY OF MANAGEMENT SCIENCE, NATIONAL
OPEN UNIVERSITY OF NIGERIA, IN PARTIAL FULFILLMENT OF THE
REQUIREMENTS FOR THE AWARD OF BACHELOR OF SCIENCE (B.Sc. HONS)
DEGREE IN ENTERPRENEURIAL AND BUSINESS MANAGEMENT
JULY, 2018

DECLARATION
I OGUNSOLA TIMILEHIN OLUWOLE do humbly declare that this research work entitled
THE ROLE OF DEPOSIT MONEY BANKS IN THE PERFORMANCE OF SMALL
SCALE ENTERPRISES IN NIGERIA is as a result of findings from my research efforts,
carried out in the Department of Entrepreneurial and Business Management, Faculty of
Management Sciences, National Open University of Nigeria. It was carried out under the
supervision of Dr. Adegunle. I further declare that, to the best of my knowledge, this work
contains no material previously published by another person or group except where due
acknowledgement has been made in the text and stands subject to plagiarism scrutiny.
___________________________________ __________________________________
Name/Signature Date
ii

CERTIFICATION
This is to certify that this research project entitled THE ROLE OF DEPOSIT MONEY
BANKS IN THE PERFORMANCE OF SMALL SCALE ENTERPRISES IN NIGERIA
was carried out by OGUNSOLA TIMILEHIN OLUWOLE in the Department of
Entrepreneurial and Business Management, Faculty of Management Sciences, National Open
University of Nigeria, Abuja, Nigeria for the award of Bachelor of Science Degree in
Entrepreneurial and Business Management.
_____________________ ______________________
Dr. Adegunle Adesina Date
(Ph.D)
iii

DEDICATION
This project is dedicated to Almighty God who gave me the privilege and the opportunity
to start and complete this program successfully.
iv

ACKNOWLEDGEMENTS
My unalloyed gratitude goes to God Almighty, my creator, who has been the source of
my strength and help me to reach this stage of my academic pursuit.
I express thanks to many people for their contributions and assistance especially Dr.
Adegunle my supervisor for your immense contributions amidst your tight schedules and fatherly
advice to make the research work a great success. Sincerely, you are a great supervisor with a
difference. I equally extend my regards to Professor Bandele M.O., Director NOUN, Ibadan
Study Centre and all the entire staff of National Open University of Nigeria (NOUN), Ibadan
study center especially Mrs. F. Adeoye (my faculty officer) and other staff in the Administrative
Unit for their understanding and encouragement all through the degree programme.
My greatest appreciation goes to my dear parent Mr/Mrs Ogunsola for their untiring
efforts, prayer and financial support. Also to Mr and Mr Oshin and to my entire siblings,
Ogunsola Oluwagbemiga Ike, Ogunsola Oyinkansola Funke, Ogunsola Daniel Aguda your
goodwill, love and maximum support is highly appreciated.
Indeed, I appreciate wonderfully the inspiration, encouragement and efforts of the
following friends, and coursemates: Mr Aigbevboile Ibraheem, Ajala Mayowa, Rasaq Semiu,
Yusuf Opeyemi, Ibidoja Oluwatoyin, Afonja Omotolawa Aldrat, Williams Oluwatoyosi,
Ogunbodede Olamide. I say big thanks for being there always for me.
May God Almighty bless you all (Amen)
v

ABSTRACT
This research examined the role of deposit money banks in the performance of small
scale enterprises in Nigeria a study of First Bank of Nigeria. Specifically, the study highlights the
different sources of finance available to small scale enterprises, it also examine the role of
deposit money banks in satisfying the financial needs of SMEs in Nigeria and finally it also
examine method to reduce formality needed for financing the entrepreneurs by deposit money
banks. A sample is a portion of the population selected for study. It is very important to select
sample size that will give sufficient fair representation of the population. There are two basic
way of making the sample size decision, one is by rule of thumb and the other one is by
calculated method. In this research work, the rule of the thumb was used for this research where
90 employees of total population were selected as the sample size. Simple random sampling was
used to select target individual from each stratum. The complete questionnaires were collected
serially, coded and analyzed sequentially a cording to the research questions. Tables were used to
present information to facilitate analysis, simple percentages where used while Chi -square was
used to test the hypothesis. The responses were of five-point scale which range from "strong
agreed to the undecided ". Thus; Strongly Agreed = 5 Agreed = 4 Undecided = 3 Disagreed = 2
Strongly Disagreed = 1. The findings of the research indicated that there is no significant
relationship between financing of small and medium scale enterprises and deposit money banks.
Furthermore, result indicated that there deposit money banks and lending to small scale
industries and also in meeting the needs of small and medium scale enterprises. It is
recommended that the government should be consistent in its industrial policies so as to enable
manufacturing firms to factor tariff measures into their trade decisions.
vi

TABLE OF CONTENTS
Page
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract vi
Table of Contents vii
List of Tables ix
CHAPTER ONE: INTRODUCTION
1.1 Introduction 1
1.2 Background to the study 2
1.3 Statement of the problem 5
1.4 Objectives of the study 6
1.5 Research questions 6
1.6 Statement of the hypothesis 6
1.7 Significance of the study 7
1.8 Scope of the study 7
1.9 Limitations of the study 8
1.10 Definitions of terms 8
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction 10
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2.1 Conceptual framework 10
2.2 Theoretical frame work 14
2.3 Literature on Subject Matters 15
CHAPTER THREE: RESEARCH METHODOLOGY
3.0 Area of the Study 34
3.1 Sources of Data 34
3.2 Sampling Techniques 36
3.3 Method of Data Collection 37
3.4 Method of Data Analysis 37
3.5 Reliability of the Instrument 38
3.6 Validity of Instrument 39
3.7 Limitation of Study 39
CHAPTER FOUR: DATA ANALYSIS, FINDINGS AND DISCUSSION
4.0 Data analysis, findings and discussion 40
4.1 Findings of the Study 40
4.2 Test of Hypothesis 47
4.3 Discussion of Findings 51
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 52
5.2 Conclusion 53
5.3 Recommendations 54
References 56
Appendix 61
viii

LIST OF TABLES
Table 4.1.1: Demographic Characteristics of Respondents based on Sex 40
Table 4.1.2: Demographic Characteristics of Respondents based on Marital Status 40
Table 4.1.3: Demographic Characteristics of Respondents based on Age 41
Table 4.1.4: Demographic Characteristics of Respondents based on Educational
Qualifications 41
Table 4.1.5: Demographic Characteristics of Respondents based on Working
Experience 42
Table 4.1.6: How would you rate the performance of deposit money banks in
financing small and medium scale enterprises in Nigeria? 42
Table 4.1.7: Have you ever needed advice on certain issues or information
concerning your organization? 43
Table 4.1.8: What sources do you obtain fund to run your business? 43
Table 4.1.9: Are there significant relationship between financing of small and
medium scale enterprises and deposit money banks? 44
Table 4.1.10: Do you have accounts into which business receipts are paid? 44
Table 4.1.11: Do you keep daily or weekly records of business transactions? 45
Table 4.1.12: Are there significant relationship between deposit money banks and
lending to small scale industries and also in meeting the needs of small
and medium scale enterprises? 45
Table 4.1.13: Would you say that the CBN also influence the bank lending policies? 46
Table 4.1.14: Do SMEs help to reduce incidence of unemployment in Nigeria? 46
Table 4.1.15: Do you have lending program for small and medium scale enterprises
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in your bank? 47
Table 4.2.1: Testing of the 1st Hypothesis 48
Table 4.2.2: Testing of the 2nd Hypothesis 50
x

CHAPTER ONE
1.1 Introduction
Small and medium scale enterprises (SMEs) are seen as instruments for reducing the
poverty level affecting the country and improving the economy of Nigeria. Therefore the need
for SMEs growth in Nigeria is beyond question. Studies by the International Finance Corporation
(IFC) show that approximately 96% of Nigerian businesses are SMEs compared to 53% in the
US and 65% in Europe, they contribute approximately 1% of GDP compared to 40% in Asian
countries and 50% in the US or Europe (Oyelaran - Oyeyinka, 2012). The question as to why the
SMEs in Nigeria, are not contributing to the growth of the economy as they should like in other
countries now arises. Small and medium scale enterprises earn their funds from various sources
like personal savings, family and friends, loans and professional money lender such as deposit
money banks and institutions like National Directorate of Employment, National Economic
Reconstruction Fund and other Small and medium scale enterprise schemes. Despite all the
above mentioned sources of finance, financial constraint is still put as the major problem of
SMEs.
The Banking System is very important for any nation because it is the pivot of socio-
economic development of any economy Terungwa, (2016). This implies that commercial banks
have active developmental roles to play in the economy such as mobilizing fund from the surplus
to the deficit spending units. Commercial banks are considering as the main source of finance for
SMEs or rather entrepreneurs in Nigeria. Akabueze, (2007) assert that Finance has been seen as a
critical element in the growth and development of SMEs. For instance the commencement and
efficient performance of any industrial enterprises be it small or large will require the provision
of funds for its capitalization, working capital and rehabilitation needs, as well as for the creation
xi

of new investments. Provision of funds to the industrial sector, particularly, for the SMEs has,
therefore, been of prime interest to policy-makers in both the public and private sectors. It is a
known fact that firms depend on a variety of sources for their finances. These include external
and internal, formal and informal sources Aruwa (2009).
1.2 Background of the Study
The satisfaction of any government is the triumph of an advanced level of development in
such a way that its citizens would derive natural accessory to governance. However, for a nation
to be in a phase of development there must be some prerequisites, which include socio-political
and economic stability.
Practitioners and scholars have long believed that small and medium scale enterprises
(SME's) performance are very critical to the development of any economy. The important role
SMEs play in the development of the economy of any nation is even more evident when the
economy of developing nations like Nigeria is considered. The performance and growth of
SME's is a major driver and indices for the level of industrialization, modernization,
urbanization, gainful and meaningful employment for all those who are able and willing to work.
It also encourages income per capital, equitable distribution of income, and the welfare and
quality of life enjoyed by the citizenry according to Aremu and Adeyemi (2016).
The Nigerian economy is dominated by SME's in agriculture, manufacturing, commerce
and industry services. Hence, the historical background of SME's in Nigeria can be traced back
to 1946. Ever since, SME's have gained prominence and mention as a seed bed of innovations,
inventions and employment generation or creation (Aremu and Adeyemi, 2016). SMEs in
Nigeria are seen as the backbone of all economies and are a key source of economic growth,
dynamism and flexibility. Hence, SME's play a very important part of the Nigerian economy as a
xii

study by the IFC show that approximately 96% of Nigerian businesses are SME's. SME's
represent about 90% of manufacturing and industrial sector in terms of number of enterprises in
Nigeria however, in spite of the fact that the SME's constitute more than 90% of Nigerian
businesses, their contribution to GDP is proven to still be considerably very low (Oyelarin-
Oyeyinka, 2015).
Therefore due to the non-delivery of satisfactory results from SME development, the
Nigerian government enacted laws governing the conduct and financing of SME's by other
sectors of the economy and not solely the government alone. The government imperatively
identified other institutional arrangements that could provide a more satisfactory financing to
SME's. One of such institutions was the deposit money banks (DMB's).As a result, it became
imperative for DMB's in the country to dedicate a certain percentage of their resources to the
financing of SME'S in Nigeria.
DMB's which are also known as commercial banks are financial institutions that provide
financial services such as the acceptance of deposits and the granting of loans facilities to their
varied customers. Accordingly, they act as financial intermediaries to channel depositors' money
to firms and individuals who seek loan facilities. Their importance as a catalyst to economic
growth/development is widely recognized by both monetary and development. The financial
system of Nigeria is dominated by the banking sector especially the DMB's which provides the
foundation for the development of financial system. Their credit component constitutes a major
link between the monetary sector and the real sector of the Nigerian economy. This is to say that
deposit money banks are inseparably linked to economic growth and development of any nation.
Nigerian DMB's have always played a key role in the promotion and development of SMEs.
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However, this promotional engagement is often neglected since policy makers in the
banking industry often see SME's as simply a channel for poverty alleviation and rural
development.
For both developing and developed countries, small and medium scale firms play
important roles in the process of industrialization and economic growth. Apart from increasing
per capita income and output, SMEs create employment opportunities, enhance regional
economic balance through industrial dispersal and generally promote effective resource
utilization considered critical to engineering economic development and growth. However, the
seminal role played by SMEs notwithstanding its development is everywhere constrained by
inadequate funding and poor management. The advantages claimed for Small and Medium
Enterprises (SMEs) are various, including: the encouragement of entrepreneurship (Safiriyu and
Njogo, 2017; Ayozie and Latinwo, 2015; Ayesha, 2012); the greater likelihood that SMEs will
utilize labour intensive technologies and thus have an immediate impact on employment
generation theycan usually be established rapidly and put into operation to produce quick returns
(Salami, 2008);Finance has been viewed as a critical element for the development of SMEs.
Firms depend on a variety of sources for their finance which includes internal and external;
formal and informal. However, the relationships among these sources and their effects on
investment remain unclear in the literature. But in Nigerian context, this crucial source of finance
for Small and Medium Scale Enterprises is apparently non -functional (Kadiri, 2017).
Typically, SMEs face higher transactions costs than larger enterprises in obtaining credit.
Lee (2009) further argues that poor management and accounting practices have hampered the
ability of SMEs to raise finance. Information asymmetries associated with lending to small-scale
borrowers have restricted the flow of finance to SMEs (Berger and Udell, 2009).
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1.3 Statement of the Problem
Small and medium enterprises have not made the desired impact on the Nigerian
economy in-spite of all the efforts and support of succeeding administrations and governments
gives a cause for concern. The expectation has been that, after the initial take off of the small
scale enterprises, the business should be able to raise funds from the formal sector especially
MFIs or banking industries to expand its operations.
This has not been the case for a number of reasons (Sule, 2006; Inang and Ukpong, 2006;
Iniodu and Udomesiet, 2009);
 The perception of small and medium enterprises as high risks;
 Inability of the SMEs to prepare acceptable or viable banking business plans;
 Poor record keeping, especially of financial operations which at times make the entrepreneur
draw money than expected from the business either for personal or family use;
 Discriminatory cultural practices which at times make it impossible or difficult for women to
borrow or own assets or land titles;
 Weak capacity on the part of banks to down-scale their lending to SMEs; and
 High transaction cost of small and often segmented loans.
The study will examine problems associated with the role of deposit money bank sin financing
small scale industry in Nigeria. It will give information on the possible areas for in provident.
Furthermore, the study will help deposit money banks to assess and appraisal their role in
financing small scale industry in Nigeria.
Moreover, suggestions and recommendations made in this paper will help policy makers
formulate new economic policies maintain or modify the existing one. It will equally serve as
guidelines to researchers who may wish to decide with this study in the future. It will also help
xv

small scale entrepreneurs to make sufficient preparation in their request for credit assistance. It
will guide the entrepreneurs in making credits demands that are compliance with government
monetary policy.
1.4 Objective of the Study
The main objective of the study is to examine the role of deposit money banks in the
performance of small scale enterprises in Nigeria. Other specific objectives are:
i. To highlight the different sources of finance available to small scale enterprises;
ii. To examine the role of deposit money banks in satisfying the financial needs of SMEs in
Nigeria;
iii. To examine method to reduce formality needed for financing the entrepreneurs by deposit
money banks.
1.5 Research Questions
a) What are the different sources of finance available to small scale enterprises?
b) What are the roles of deposit money banks in satisfying the financial needs of SMEs in
Nigeria?
c) What are the methods to reduce formality needed for financing the entrepreneurs by deposit
money bank?
1.6 Statement of the Hypothesis
Hypothesis One
H0: There is no significant relationship between Financing of small and medium scale
Enterprises and Deposit Money Banks.
H1: There is significant relationship between Financing of small and medium scale Enterprise
and Deposit Money Banks.
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Hypothesis Two
H0: There is no significant relationship between deposit money banks and lending to small
scale industries and also in meeting the needs of small and medium scale Enterprises
H1: There is significant relationship between deposit money banks and lending to small scale
industries and also in meeting the needs of small and medium scale Enterprises
1.7 Significance of the Study
In the modern times, industrial production requires the procurement of equipment,
machineries and other inputs. The capital required in procuring the requirements in limited in
supply and very few industrialists have access to it.
Considering the type of collateral security required by the banks which must be fulfilled
before granting loans. Since Deposit Money Banks act as intermediaries between surplus and
deficitor as a bridge between scattered pockets of savers and the business community desirous of
loans for investment, at the end of this research work the following will be attained;
 SMEs industrialist will be able to know some sources of finance and choose amongst them
the best.
 Deposit Money Banks will know how effective and efficient they have been towards
economic development.
 Deposit Money Banks will be able to make some adjustments in their lending processes.
1.8 Scope of the Study
The scope of the study is an appraisal of Deposit Money banks in the performance of
small scale enterprises in Nigeria, a case study of First Bank Nigeria.
xvii

Deposit Money banks adhere strictly to the rule of secret; in banking thus they refused to release
information. It will guide the entrepreneurs in making credit demand that are compliance with
government monetary policy.
Finally it will help the entrepreneurs to display competence in preparing justification for
their project; it is rear to see most of them coming up with cash projections, projected balance
sheets.
1.9 Limitations of the Study
The effects of economic bottleneck and social infrastructure on the performance of the
small and medium scale industries are identified so as not to underline their real contribution to
economy in both economic and industrial development terms.
Since most small scale industries, are owned by private individuals, they usually feel reluctant or
refuse to make their data public hence it may be difficult to get a well-rounded conclusion.
This research study is also projected to be limited by time and cost constraint.
1.10 Definition of Terms
1. Small scale enterprises or industries: Any enterprises with a minimum assets base of N200
million excluding the land and working capital and with the number of staff employed not
less than 10 or more than 300.
2. Deposit Money banks: Banks are financial firms or division of larger firms that accepted
deposit subject to withdrawer on demand and invest part of these deposits in interest bearing
loans and investments. They are profit making, banks organized on a joint stock basis that is
the purpose of their establishments to make profits for their owners the shareholders
3. Industrial Development Center: Provide management, technical, consultancy and
extension services for the small scale.
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4. Indigenization Decree: A decree that stipulates that most business become, at least 60
percent owned by Nigerians.
5. Merchant banks: Merchant banks on like deposit money banks are whole banks owned by
individuals are grouped of individuals their customers are mainly corporate bodies and
deposits corporate bodies sums of N50,000 and above, they accept medium and long term
deposits and give medium long term loan and advances.
6. Performance: Is not a single technique, rather it is the term used for a variety of technique
by which supervisors, peers, sub-ordinates, and the individual employee themselves rate,
rank or describe the employees work effectiveness. It is a process in which bosses regularly
volute and report on the performance attainments, abilities, potentials, for future development
and other qualities of their development and other qualities of their organization sub-
ordinate.
7. Sole Proprietorship: Is a business owned and conducted by one person presumably assisted
by one or more persons for intakes wife and children.SS/CS small scale industry credit
scheme.
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CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter is the review of related literature; this is where the researcher review
concepts and theories to give clear understanding of the subject and to see through the tested
results.
2.1 Conceptual Framework
2.1.1 Concept of SMEs
The term Small and Medium Scale Enterprises (SMEs) has no generally established
definition. Musa (2013) noted that definition and criteria for classification of an enterprise as
small, medium or large varies from one country to another, depending on whether it is developed
or developing country. A small business for example to one country may be a large-scale
business to another. SMEs in Nigeria, as defined by Small and Medium Industries Equity
Investment Scheme (SMIEIS), are enterprises with a total capital employed not less than N1.5
million, but not exceeding N200 million, including working capital, but excluding cost of land
and/or with a staff strength of not less than 10 and not more than 300.
The 1992 Review by the National Council on Industrial Standards have defined Small
and SMEs as enterprises with total cost of (including working capital but excluding cost of land)
above 31 million but not exceeding 50 million with a labour size of between 11 and 100
employees. Bamidele (2012) postulated that SMEs are usually small own or family managed
business with its goods and services being basic and also SMEs also tend to lack the organization
and management structure, which characterize large-scale entrepreneur (LSE) and Urban SMEs
tend to be more structured than their rural counterpart. Aluko (2007) defines SMEs as those
xx

enterprises employing up to fifty (50) workers or less than excluding household enterprise. Small
business is a business that is privately owned and operated with a small number of employees
and relatively low volume of sales. Small-scale businesses are normally owned corporation,
partnerships or sole proprietorship. The legal definition of ''small'' varies historically, by country
and by industry but generally has fewer than 100 employees.
Kadiri (2012) established that SMEs serves as a catalyst for employment generation,
national growth, poverty reduction and economic development. SMEs world over can boast of
being the major employers of labour if compared to the major industries including the
multinationals. Oluba (2014) summarized the contribution of SMEs to an economy, especially
developing ones as: Greater utilization of raw materials, employment generation, encourage of
rural development, development of entrepreneurship, mobilization of local savings, linkages with
bigger industries, provision of regional balance by spreading investments more evenly, provision
of avenue for self-employment and provision of opportunity for training managers and semi-
skilled workers.
Kadiri (2012) noted that past efforts at providing solution to unemployment problem
facing developing nations of the world are often faced with stiff opposition sometime right from
beginning. Examining the contributions of small and medium scale enterprises to employment
generation in Nigeria using the Binomial Logistic Regression Analysis the result revealed that
the sector was unable to achieve this goal due to its inability to obtain adequate business finance
for the sector. It was observed that virtually all the SMEs that were sampled relied on the
informal sources of finance to start their business. As a way out, the study suggests the need for
the integration of the activities of the formal with that of the informal financial institutions.
However, acknowledging the role of commercial bank credit in an economy various banking
xxi

reformed has been established by the monetary authority in Nigeria in enhancing credit
accessibility. The overall intentions of these reforms have been to ensure financial stability so as
to influence the growth of the economy and also enhance bank to play critical role of financial
intermediation in provision and accessibility of credit in the Nigerian economy.
Dada (2014) noted that the consistently repeated complaint of SMEs about their problem
regarding access to finance is highly relevant constraint that endangers the development of the
sector in Nigeria and investigating the effect of commercial banks’ credit on SMEs development
employing Ordinary Least Square (OLS) technique to estimate the multiple regression models.
The findings revealed that commercial banks credit to SMEs and the saving and time deposit of
commercial banks exert a positive and significant influence on SMEs development proxy by
wholesale and retail trade output as a component of GDP, while exchange rate and interest rate
exhibit adversative effect on SMEs development. The study concluded that adequate savings
should be mobilized from the public by emphasizing more on saving and that government should
encourage banks to lend to SMEs by providing guarantee, interest rate subsidies and other
incentives.
Afolabi (2013) evaluated the effect of SMEs financing on economic growth in Nigeria
between 1980 and 2010 the study employed Ordinary Least Square (OLS) method to estimate
the multiple regression models. The estimated model results revealed that SMEs output proxy by
wholesale and retail trade output as a component of gross domestic product and commercial
banks’ credit to SMEs exert positive and significant impact on economic development proxy real
gross domestic product while lending rate is found to exert negative effects on economic growth.
Mohammed (2014) examined the necessity and strategies of re-positioning commercial banks in
order to enhance the productive capacities of SMEs employing the Error Correction Model
xxii

(ECM) and Co-integration Test the results showed that there was co-integration between re-
positioning of commercial banks and capacities of SMEs to deliver products/services and also
there was significant dispersion resulting from lending conditions and macroeconomic variables.
He concluded that the previous Global Financial Crisis really brought with it economic hazards
leading to Banking Sector Crises. It was recommended that government should relax the
conditions for lending offered by the Commercial Banks through the Central Bank, revitalize the
Capital Markets and Prioritize the SME in order to contribute to Economic Growth.
Ayyagari, Beck and Demirguc-Kunt, (2013) recognized SMEs as instruments of
economic growth and development. The growing recognition of this fact has led the World Bank
group on SME’s sector to ensure that it is the core element in its strategy to foster economic
growth, employment generation and poverty alleviation. At the 13th Council meeting of the
National Council on Industry held in July, 2001 Micro, Small and Medium Enterprises (MSMEs)
were defined by the Council as follows:
i. Micro/Cottage Industry
An industry with a labour size of not more than 10 workers, or total cost of not more than
N1.50 million, including working capital but excluding cost of land.
ii. Small-Scale Industry
An industry with a labour size of 11-100 workers or a total cost of not more thanN50
million, including working capital but excluding cost of land.
iii. Medium Scale Industry:
An industry with a labour size of between 101-300 workers or a total cost of over N50
million but not more than N200 million, including working capital but excluding cost of land.
xxiii

iv. Large Scale
An industry with a labour size of over 300 workers or a total cost of over N200 million,
including working capital but excluding cost of land.
2.2 Theoretical Framework
The theoretical framework adopted for the paper involved the bank capital channel model
and the capital constraint model. Also adopted in this work, is the Lifecycle approach and the
Pecking-order theory that attempts to explain small-firm financial structuring.
2.2.1 Bank Capital Channel Model
The lending behaviors of bankers to entrepreneurs are greatly highlighted by this model
as it concerns capital adequacy requirement. The model looks at interest rate volatility as a
determining factor to their financial treatment, particularly when their credit offer is shrinked
down by the strength of their capital-base. The implication is that, often, as interest rates
increases, the funding cost of banks’ external funding also increase, thereby reducing profit
tendencies. When this happens the bankers are forced to reduce their credit issue, especially
when there is capital-base constraint.
2.2.2 The Lifecycle Approach
This approach according to Weston and Brigham (1991) was conceived around the
platform of speedy growth and poor access to capital market. SMEs are perceived to be starting
out by exploring only the owners’ resources. Whether or not the firms could make it
subsequently, the threat of insufficient capital would later surface, and then the tendency to resort
to other sources of funds would emerge.
The dynamic small firm prefer to choose between curtailing its growth to keep in line
with its minimally generated funds, get an expensive stock market quotation, or desires an almost
xxiv

impossible volume venture capital according to Weston, J and E. Brigham, Mgt Finance,
Hindgale: Dryden Press, 1991).
2.2.3 The Pecking Order Theory
This theory stipulated by S.Myer (1994), asserts that most firms met their financial needs
in an order of hierarchy, firstly by the use of internally generated funds, secondly borrowing in
form of debt and thirdly by generating funds through equity. Commonly, this practice is
predominant in Small Firms and implies the inverse link between profitability and borrowings.
2.3 Literature on Subject Matter
2.3.1 Small and Medium Scale Enterprises in Nigeria: A Brief Review
In every economy small and medium scale enterprises is seen as a cardinal instrument of
economic growth and development either in developed or developing nations. Several studies
have confirmed this. (Ogujiuba; et. al 2009, Onugu; 2010, Ihua; 2014) Data from the federal
office of statistics in Nigeria affirmed this importance when it revealed that about 97% of the
entire enterprises in the country are SMEs and they employed an average of 50% of the working
population as well as contributing to 50 percent of the country industrial output. Ariyo (2009)
and Ihua (2014) infer that SMEs in Nigeria are not only catalyst of economic growth and
development, but are also the bedrock of the nation’s economic growth. Although small business
activities had existed since the period of independence in Nigeria, however, conscious effort on
small and medium scale enterprise as instrument of economic and national development started
in 1970-1979 When Nigeria adopted the policy of indigenization through its national
development plan programme. The development plan articulated the need for the Nigerian
economy to be self reliant through industrialisation, entrepreneurial development, employment
generation and development through increasing export trade. (NDP, 1990) The federal
xxv

government singled out small and medium scale enterprises as the key area of intervention. This
was premised on the government desire of giving support to small scale industries in the country
as a measure of meeting up with its commitment to the development plan and the indigenization
policy. The intention was that it would be a reaction against the dominance of the economy by
the international capitalist entrepreneur and on the account that revitalizing small and medium
scale enterprise would enhance the capacity of the indigenous capitalist class, as a potential
player in economic growth and national development.
In its intervention effort, government promulgates different regulation for the basis of
protecting the small scale industries. Some of the regulations include Nigeria Enterprises
Promotion No. 3 of 1977, Patent Right and Design Act No 60 of 1979 Custom Duties (dumped
and subsided goods Act No. 9 of 1959, Industrial Promotions act No. 40 of 1979, Industrial
development Tax Act No. 2 of 1971 among others (Alawe, 2009). Apart from the promulgated
act government supported SMEs through favorable investment policies, institutional and fiscal
policies, protective business law and financial incentives to encourage the national development
and indigenization policy which small and medium scale are very central to. Several micro
lending institutions were established to enhance the capacity and development of small and
medium scale enterprises. Such microcredit institutions include Nigeria Bank for commerce and
industry (NBCI) National Economic Reconstruction Funds (NERF) People`s Bank of Nigeria
(PBN) Community Bank (CB) National Export and Import Bank (NEIB) and the liberalization of
the banking sector to enhance the banking institutions for effective participation in the growth
and capacity building of small and medium scale enterprises (Ogujiuba; et. al 2009).
Government also established Raw Materials and Research Development Council
(RMRDC) of finance and research institutions in 2001, the research report of this institution is
xxvi

useful to SMEs and business organization in their product choice decision, product development
delivery strategies to increase SMEs business effectiveness and efficiency. To complement this
effort, government also created some polytechnics and university to provide manpower scheme
and also set up some manpower training institutions. Such as Centre for Management Studies,
(CMD) Administrative Staff College of Nigeria (ASCON) Industrial Training Institute (ITF) etc.
(Ogechukwu; 2011) A number of recommendations and findings of these institutes and centre
were geared towards developing small and medium scale enterprises.
In addition to this, the government through the bankers’ forum at the initiative of CBN as
an interventionist strategy also established small and medium industry equity investment scheme
(SMIEIS) in 2001. This scheme requires bank to set aside 10 percent of their profit before tax to
fund SME in an equity participation framework. In 2002, government further intervened to
enhance the capacity of SMEs through direct policy as consisting of direct investment and the
establishment of more SMEs, promotion institution agencies (technological development
institutions, credit lending institutions, technical and management institutions and the
provisioning of infrastructures such as industrial estate, nationalization of foreign firms and
provision of incentives and subsidies for the promotion of small and medium scale companies
(Alawe 2009) In 2004 a survey conducted by manufacturer association of Nigeria revealed that
only about 10percent of industries run by its members are fully operational. Similarly Joshua
(2013) contends that about 70percent of the small and medium scale enterprises in Nigeria are
between operational or on the verge of folding-up, while the remaining 30 percent operate on
low level capacity and are vulnerable to folding up in the nearest future In 2009, the constraint
was further compounded by a sharp drop of manufacturing to GDP of 4.19 percent while
industrial capacity utilization dropped to 48.8percent (National Bureau of Statistics, 2009). This
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portends danger for the Nigeria economy given the fact that manufacturing industries are critical
agent of real growth and development for the country. According to Mike (2015) “the debris of
dilapidated manufacturing facilities across the country is the outcome of years of harsh
operating conditions”. He averred that in spite of the small and medium industries equity
investment scheme, funding as post a serious threat to SMEs. He therefore concluded by saying
30percent of SMEs have closed down, about 60percent are ailing and only 10percent operate at a
sustainable level.
2.3.2 Overview of Small and Medium Scale Enterprises
According to allbusiness.com (2015), the abbreviation of small and medium scale
enterprises (SMEs) occurs commonly in the European Union and in International Organizations
such as the World Bank, the United Nations and the World Trade Organization. Also the term
Small and Medium Scale Businesses (SMEs) is predominantly used in the United States of
America. The European Union states traditionally have their own definition of what constitutes
SMEs. For instance, the traditional definition in Germany Limits Small and Medium Scale
Enterprises to two hundred and fifty (250) employees while in Belgium, it is limited to one
hundred (100) employees. Recently, the European Union has standardize the concept by
categorizing enterprises with less than ten (10) employees as ‘micro’, those with fewer than
fifty (50) employees as ‘Small’ and those with fewer than two hundred and fifty (250)
employees as “medium”. In the United States of America, any business with fewer than one
hundred (100) employees is classified as “small” while medium scale business refers to a
business with fewer than five hundred (500) employees.
In India, Micro and Small Enterprises play a pivotal role in the overall industrial economy of the
country. It is estimated that in terms of value, the sector account for about 39% of the
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manufacturing output and about 33% of the total export of the country. Also in South Africa, the
term Small, Medium and Micro Enterprises (SMMEs) is usually used, while in Nigeria, the term
Small and Medium Scale Enterprises (SMEs) is generally used. From the foregoing, it can be
deduced that Small and Medium Scale Enterprises, are enterprises that have the capacity to
employ at most five hundred (500) employees at a time and it has been proved to be the back
bone of every economy.
The brain behind every successful Small and Medium Scale Enterprise is
entrepreneurship which in the words of Olagunju Y. (2009) is an undertaking in which one is
involved in the task of creating and managing an enterprise for a purpose. The purpose as further
stated may be personal, social or developmental. One who is involved in this task is called an
entrepreneur. Also a line between an entrepreneur and business owners must be drawn. While
business owners establish and manage their own enterprise for personal gains, entrepreneurs
exploit ideas that create a business that benefit them, the society and act as developmental
weapon.
2.3.3 The Growth of SMEs and the Contributive Schemes in Nigeria
Sanusi (2009), Kayode (2006) and Hassan (2008), mentioned various schemes that have
contributed to the growth of Small and Medium Scale Enterprises in Nigeria. The industries
credit scheme (ICS) was introduced in 1971 as a revolving grant by the federal and state
governments in Nigeria to assist in meeting the credit needs of SMEs on a relatively more liberal
condition than in private leading institutions.
2.3.3.1 The Nigeria Bank for Commerce and Industry (NBCI)
The Nigeria Bank for commerce and Industry was established jointly by the federal
government of Nigeria and the Central bank of Nigeria (CBN) in 1978 as the apex institution for
xxix

Financing Small and Medium Scale Enterprises. The rationale for establishing the bank was to
bring financial discipline to bear and to hopefully ensure a more efficient utilization of scarce
financial resources for the development of viable Small and Medium Scale Enterprises. Bank
was also vested with the power to administer the federal ministry to commence and industry’s
special funds for small and medium scale Enterprises under a soft loan agreement.
2.3.3.2 The Central Bank of Nigeria special Credit Programme for Small and Medium
Scale Enterprises (SMEs)
The Central Bank of Nigeria is the principal agent for implementing government financial
and monetary policies and has over the year introduced a number of schemes for promoting
improved access to credit for industrial development particularly in Small and Medium Scale
Enterprises. The thrust of the schemes according to Bullion and CBN (2002) can be grouped into
three, in line with Central Bank guidelines for Small and Medium Scale Enterprises under the
bank’s monetary policy guidelines of 1988.
i. Credit guideline in respect of loans to Small and Medium Scale Industries:
In 1970, the Central Bank of Nigeria expanded its credit guidelines to incorporate Small
and Medium Scale Enterprises with effect from January 1971. With the directive, at least
10% of bank loans and advances were allocated to Small and Medium Scale Enterprises.
ii. In April 1980, loans and advances available to Small and Medium Scale Enterprises rose
from 10% to 20% in January, 1991. It was also clearly stated that stringent penalties await
those who disregard the directive.
iii. Central Bank rural banking programme started in Nigeria in 1977 when the first phase
(1977 - 1980) was introduced. The essence of this programme is to reduce the problems of
poor access to credit by rural sector operators of Small and Medium Scale Enterprises. At
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the initial stage, a total of two hundred (200) rural branches were to be established and at
that time, there were only twenty one (21) commercial banks in the country. By the end of
June, 1980, a total of one hundred and eighty eight (188) of such proposed branches were
established. The second phase of the programme took off in January, 1981 to December
1984 during which two hundred and sixty six (266) rural branches were established and
between 1985 to 1986. As more pressure came from the Central Bank, additional nineteen
(19) branches were established. The third phase was cumulated to push the number of
branches to seven hundred and fifty six (756) at the end of 1988.
2.3.3.3 World Bank facilities for Small and Medium Scale Enterprises:
In order to further promote the growth of Small and Medium Scale Enterprises in Nigeria
the federal government of Nigeria also negotiated additional financial assistance from the World
Bank to complement other sources of funds available to small and medium scale Enterprises.
This resulted into a loan of $270 million which was managed directly by Small and Medium
Scale Enterprises apex unit within the Central Bank.
Also the establishment and recapitalization of Micro Finance Banks further ease the
provision of funds for Small and Medium Scale Enterprises particularly in villages. Objectives
for which micro finance banks scheme was established include the following according to Ana I.
(2013).
i. To enhance service delivery by micro finance institutions to Micro, Small and Medium
Scale Enterprises (MSMEs).
ii. To contribute to rural transformation.
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2.3.4 Benefits of Small Scale Enterprises
In Nigeria every known regime recognizes the importance of promoting SMEs as the
basis of economic growth and sustainable development. In a developing economy like Nigeria,
the commitment to the development of SMEs is an effort towards the development of the whole
economy. Kpelai, (2014) as cited in Terungwa, (2016) asserts that SMEs are the engine room for
the growth of any developing economy, because they form the bulk of business activities in
developed and developing economies like Nigeria. According to (Udechukwu; 2008; Ayesha;
2012; Ayozie and Latinwo 2015; Sirifiyu and Njogo; 2016) SMEs encourage entrepreneurship
development and employment generation. On the other hand, Salami, (2008) view SMEs benefit
as accelerating the achievement of wider economic and socio-economic objectives, includes
poverty alleviation. The potential benefits of SMEs to any economy include contribution to the
economy in terms of output of goods and services; creation of jobs; provision of a vehicle for
reducing income disparities; development of a pool of skilled and semi-skilled workers as a basis
for future industrial expansion, among others.
According to Philip, (1999) at a national conference on small and medium scale enterprises
development held at Ibadan “small scale enterprises are said to be bedrock of any national
industrial development especially in a typical developing country like ours.” The role small and
medium scale enterprises play in a developing economy is so vast and enormous that they cannot
ordinarily be neglected. This was noticed in countries like India, Pakistan, Indonesia,
Bangladesh, Japan, China, U.S.A, Taiwan and South Korea to mention just a few, where small
and medium scale enterprises (SMEs) contributes in the agro-based sub-sector, textile
manufacturing, leather and leather products sub-sector etc. In some of these countries, small and
medium scale enterprises are funded and operated by single family employing more than 60
xxxii

percent of the population. The role and importance of these firms according to Philip, in any
nation are as follows:
 They Form Starting Point For Industrialization Which Calls For The Establishment Of
Industries Of All Types And Sizes: for instance, Microsoft company may be a software giant
today, but it started off in typical SME fashion, as a dream developed by a young student
with the help of family and friends, Bill Gates were able to take it to the market place where
it is today.
 Small And Medium Scale Enterprises Provide Employment Opportunity Per Unit Of Capital
Invested Because They Are Generally Labour-Intensive: Globally, employment generation is
one of the most important reasons for promoting the development of SMEs. This more so in
the developing countries in which a large proportion of the labour force is unemployed. many
countries benefits from employment of small and medium scale enterprises, ranging from 45
per cent (manufacturing sector only in Australia to 79.3 per cent in Switzerland (World Bank,
2008) In addition, the study showed that recent gains in employment in the US, U.K.,
Germany and Spain were almost confined to small firms, employing fewer than 20% workers
(World Bank, 2008). In Nigeria, the small and medium scale enterprises sub-sector has been
expanding, especially since the mid-1980s, following the prolonged recession in the
economy which forced many large enterprises to lay off large proportions of their workforce.
The sector accounts for about 70 per cent of industrial employment (World Bank, 1995).
Also, the agricultural sector, which largely consists of SMEs, employs over 60 per cent of the
nation’s work force.
 They Aid Large-Scale Industries by Manufacturing Raw Material Inputs and Generally Acts
as a Catalyst to Them, And Helps Expand the Nation Output Thereby Generating the Desire
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to Build a Healthy Industry Base: In many middle-income economies small and medium
scale enterprises contribute substantially to the national output. In India for example, the
small scale industry sub-sector alone, excluding medium enterprise, accounted for 40 per
cent of total industrial output and 35 per cent of total exports in 1998. The sub-sector
produces over 75,000 products (India, 2000). In Nigeria, however, the output of the sector is
low. Although the SME sector as a whole account for about 70 per cent of total industrial
employment, its contribution to manufacturing output is estimated at only 10-15 per cent,
indicating very low contribution.(CBN, 2010)
 They Are Often The Sources Of New Ideas And Invention That Is, They Help To Form
Technological Base Where They Start Operating As Small Unit Innovating Indigenous
Goods And Services To Suit Our Particular Needs Using Local Resources, Product,
Equipment And Manpower: All economies have transited from household artisan industries
over time to the modern industrial set-up which has witnessed phenomenal upgrading in
skills, machinery and equipment, and management practices. Historical evidence indicates
that most of today’s giant corporations began as very small firms. These include Guinness of
Dublin and Philips international of the Netherlands; as well as Sonny and Honda of Japan.
Developing countries can learn from the experience of these giants and create a conducive
environment that will enable small and medium scale enterprises to adapt imported
technologies, modernize their process and grow to become large corporation.
 Promotion of Even Development and Reduction of Income Disparities: The promotion of
SMEs development aids the dispersal and diversification of economic activities, and induces
even development in a country or region. This is because SMEs need relative small seed
capital to start operations and their raw materials are widely dispersed in most countries. In
xxxiv

addition, their processing technologies and management styles are simple, making
investment in the sector affordable to the ordinary people in the society.
 They Generally Source Their Raw Materials Locally Thereby Conserving Foreign Exchange:
Small and medium scale Enterprises (SMEs) are known for their creativity in the utilization
of local raw materials, that do not require high level technology to process. In Nigeria for
instance, SMEs are concentrated in such enterprises as food processing, textiles, wood works,
leather products, soap and detergent sub-sector etc that require simple technology and the
raw material are in abundance. The enterprises also recycle discarded by-products of large
firms as primary inputs in their own production processes.
 They Are Less Vulnerable In Period Of Depression And This Have Greater Degree Of
Flexibility Than Large Scale Industries: This is due to the fact of smaller unit of operation
because most of them are sole proprietorship and the manager or proprietor controls all the
enterprise activities.
 Their Establishment Provides An Increase In The Revenue To The State And Local
Government Areas Which May Be Used To Provide Social Amenities: Through various
forms of taxes, including personal and company income taxes, SMEs contribute to increasing
government revenues in Nigeria.
 Presently in Nigeria, the small and medium scale enterprises contributes immensely to the
Nigerian economic growth and development, because the sub-sector employed a large
number of Nigerian citizens and this made them to utilized local raw materials in their
production process. The Nigerian government having realized the importance of SMEs has
since developed financing avenues to help cater to their financing needs so as to keep them
xxxv

liquid however the policy implementation of this financing need is a matter of great concern
to researchers, practitioners and even policy makers.
2.3.5 The Role of Banking Sector in Financing SMES
The banking sector- specifically commercial banks and specialized banks- have several ways
to get involved in SMEs finance, ranging from the creation or participation in SMEs finance
investment funds, to the creation of a special unit for financing SMEs within the bank. Banking
Sector services provided to SMEs, take various from, such as:
 Short term loans compatible with SMEs business and income patterns
 Repeated loans, where full repayment of one loan brings access to another, and where the
size of the loan depends on the client’s cash flow
 Very small loans or bank overdraft facilities are also appropriate for meeting the day-to-day
financial requirements of small businesses
 Factoring and invoice discounting, asset finance (including commercial mortgages), and
equity finance, all being within the framework of a customer-friendly approach. In providing
all these services, it is recommended that banks take into consideration
 That outlet is located close to entrepreneurs.
 To use extremely simple loan applications.
 To limit the time between application and disbursement to a few days
 As well as to develop a public image of being approachable to low-income people.
2.3.6 SMEs in the Contemporary Nigerian Society
The performance of small scale businesses over time has proved it to be the backbone of
most economies around the world today. The Nigerian economy is not different. SME merits
cannot be ignored because if boosted, has the potency to improve the economic status of the
xxxvi

nation. Its impacts flow through all sectors of the economy, including employment, innovations,
financing, loan credit operations, and others. The Nigerian economy seems to be growing, yet
there is need for SMEs operations to be boosted, so as to make Nigeria a top and leading
economy in Africa as well as the world at large. A functional operation of SMEs in any economy
has tremendous potentials for breakthroughs in such areas as the creation of jobs and reduction
of the volume of unemployed workforce. Debelen et al (2000) believe that the Nigerian economy
has what it takes to lead economically in the whole of West Africa due to the fact it is the most
populated country within the region and endowed with well trained workforce.
2.3.7 The Posing Hurdles Facing SMEs in Nigeria
There are lots of controllable and less controllable hurdles that SMEs operators face in
course of running their businesses. These hurdles or challenges are not far from common
constraining business factors like unfavourable political regime policy, poor credit facility, and
conducive business environment to mention but few. The aforementioned factors amongst others
have been the major draw backs to the improvement and development of SMEs operations in
most economies of the world.
2.3.7.1 Financial Hurdles and Drawbacks of SMEs
Initial investment fund is now a widespread issue to take note of as most businesses
operators complain vehemently about as they lack the needed capital to finance viable business
venture that has the potency to boost the economic performance of a nation’s economy.
The banking institutions in their mode of operation most times seeks for the surest form of
financial security, if they must grant loan credits to business operators that vehemently need
funds. However, as the nature of the SMEs is, in most cases, they tend to be deficient in meeting
up the demands of the bankers. This in fact is a major challenge to SMEs in Nigeria today. Most
xxxvii

scholars view this phenomenon as a deliberate act of apathy towards small business operators by
the bankers. While others still argues that sometimes, the problem of small business owners’
inability to access finance easily stems from them.
2.3.7.2 Infrastructural Hurdles of SMEs in Nigeria
Every form of business survives within a given enabling environment. Small business
also can do well is in an economy if and only if they operates within these environment.
Infrastructures are like well-functioning telecommunication devices, well-structured road
networks; constant water supply etc. They are the needed platforms upon which business
operations can function maximally. Omotola (2013) in his work contributed immensely in this
area of infrastructure. He pointed out that the reason behind the collapse of most SMEs outlets is
the much expenditure cost associated with power supply in the Nigerian context.
2.3.7.3 Inconsistent Government Policies
When government policies are not effectively or efficiently reliable as a result of frequent
volatility in policy formation, the tendencies for failures of SMEs operations becomes more
pronounced. The reason is that these policies were originally intended to catalyzed and engine
economic activities that will enhance SMEs operations in Nigeria, a negative outcome is the case
if the set policies keeps changing and thus will not yield positive result as expected by the policy
makers. More so, it is also observed that when the budget is amended and approved, it
implementation is slow as a result of administrative measures, thus slowing investment plans;
payment of taxes and tariffs of SMEs. The investment environment have been threatened and
rendered unpredictable and uncertain for SMEs operators.
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2.3.7.4 Internal Problem of Small and Medium Scale Enterprise
As we progress on the causal interactions between SMEs and it surrounding financial
environment, we would also see some of the challenges facing the small scale enterprise may
also stem from the internal structure or setting. It however would not be strange if found out that
some SMEs are actually struggling with internal problems. Scanning through available literatures
on this reveals that the likely internal problems faced by SMEs could be categorize into
controllable (such as the structure of the organisation, the channels of production, production
skills and know-how as well as market relation) and uncontrollable (such as availability of basic
infrastructures). But as regarding the aspect of the work, these internal problems have their major
pointers towards the controllable internal problems. To buttress this point, Basil (2010), Omotola
(2013) and Fatai (2015) in their work also pointed out that the internal problems lies between
inefficient management methods, poor functional accounting methods and system, insufficient
manpower, unclear organizational set up, poor entrepreneurial innovative and initiating skills,
improper strategic business plan, lack of financial discipline and the existence the monster of
corruption.
2.3.8 The Relevance of SMEs to the Economy
The tidings of capital account liberalization and globalization has contributed to the
offshoot SMEs establishment in the economy of Nigeria. SMEs creation will foster economic
growth and generate a large volume of employment opportunities thereby aiding the government
to alleviate the present rate of poverty in Nigeria. Thus, the government ought to also assist
SMEs activities in the Nigerian economy if it really seeks manpower development and
considerable distribution of wealth.
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2.3.9 Problems of Small and Medium Scale Enterprises in Nigeria
It is worrisome that despite the incentives, favorable policies and regulations and
preferential support by government aimed at improving small and medium scale enterprises,
SMEs, has performed below expectation in Nigeria. While the challenges associated to small and
medium scale enterprises and their failure has been widely acclaimed. Some of these include
lack of planning, inimical government regulations, poor marketing strategies, poor technical
know-how, and lack of capital (Aftab and Rahim 2002, Ekpeyong 2003, Onugu 2005,
Ogechukwu 2011). Yet some of the challenges of the SMEs are induced by the operating
environment (government policy, globalization effects, financial institutions etc) others are
functions of the nature and character of SMEs themselves. (Onugu, 2005)
The association of Nigerian development finance institutions in 2004 issued a statement
in relation to why SMEs performs poorly in Nigeria. Truly, finance is usually a constraint to
SMEs, while this may be true empirical evidence shows that finance contributes to only about 25
percent of the success of SMEs (Ogujuiba et. al 2009). Thus the creation of other appropriate
support system and enabling environment are indispensable for the success of SMEs in Nigeria.
In Nigeria most SMEs are folding up or lack competitiveness because they lack the much require
financial capacity to prosecute their manufacturing concern.
Most of these enterprises cannot access loan on a long and short term basis. In a World
Bank report in 2001, it was reported that almost 50 percent of micro, 39 and 37 percent of the
small and medium scale firm are financially constrained in Nigeria as oppose to 25 percent of the
very large firm. (World Bank, 2006) The implication of this shows that small and medium scale
enterprises are either discriminated against or cannot access funds at the credit market. In
addition to this, the financial stringent attached to loan and credit also discourage industries from
xl

accessing credit from the bank. This factor has largely undermined the capacity of small and
medium scale enterprises in Nigeria. Even where SMEs can access the loan, it is usually a short
term loan and what SMEs required in building capacity is a long term loan which can be rolled
on investment overtime. This issue has generated heated debate between the SMEs operator and
the Banks.
While SME operator have been claiming that Bank requesting stringent conditions and
terms of approval, the Bank on the other hand had claimed that SMEs operators don’t present
bankable projects. Nevertheless, Ogujuiba et. al (2009) in a report on SMEs claimed that 20
percent of SMEs have reported being constrained in receiving long term loan. This has forced
SME to use their internal financing which is usually unsustainable and vulnerability of SME as a
result of low capital base. Even at the establishment of the second tier security market of the
Nigerian stock exchange as a palliative measures to solve the financial problem of SMEs, most
SMEs shunned it because of the tight procedure and administrative bottleneck in the assessment
of credit facilities.
Olaitan (2006) says that credit has been recognized as an essential tool for promoting
Small and Medium Enterprises (SMEs) in Nigeria. He continues to say that about 70 percent of
the population is engaged in the informal sector or in agricultural production. The Federal and
State governments in Nigeria have recognized that for sustainable growth and development the
financial empowerment of the rural areas is vital, being the repository of the predominantly
economically active but poor; in the society and in particular the SMEs. If this growth strategy is
adopted and the latent entrepreneurial capabilities of this large segment of the people is
sufficiently stimulated and sustained, then positive multipliers will be felt throughout the
economy. To give effect to these aspirations various policies have been instituted over time by
xli

the Federal Government to improve agricultural production capabilities, positively channel the
potential of SMEs to enhance their standard of living and to put the sector in the front burner of
Government’s development strategy.
In his study of “finance for small and medium scale enterprise: Nigeria’s agricultural
credit guarantee scheme fund”, Olaitan (2006) explains that community banking concept was
introduced into the Nigeria financial landscape. They provide banking and financial services for
the rural economies and micro-enterprises in the urban centers and are structured on communal
ownership.
The first community bank in Nigeria, Alheri Community bank now Alheri Micro Finance
Bank in Tudun Wada Local Government Area of Kaduna State, started its operations on the 31st
of December 1990. There were five hundred and four community banks by May 2004, preceding
the year of capitalization and the emergence of micro finance banks. He also mentioned the rural
banking policy, which compelled commercial banks to open a specified number of branches in
rural areas, which was implemented in the 1980s and early 1990s. Over 700 rural branches were
opened before the programme was discontinued as a result of the introduction of community
banking/micro finance banks.
The CBN recognised micro finance as an important tool for poverty alleviation as they
were fundamentally designed to provide fund to empower the micro and small entrepreneurs
along the value chain of the Nigeria economy. The CBN wanted to see sustainable financial
services available to those who don’t have access to formal financial resources. Microfinance
institutions are important in achieving this objective and are being promoted to be commercially
viable through an appropriate policy and regulatory framework. From this guidelines have been
xlii

developed for microfinance institutions and other micro finance service providers. It is also
important for the microfinance sector to gain both public and donor confidence (Olaitan, 2006).
xliii

CHAPTER THREE
RESEARCH METHODOGY
3.0 Area of the Study
First Bank of Nigeria, sometimes referred to as First Bank, is a
Nigerian multinational bank and financial services company headquartered in Lagos It is the
biggest bank in Nigeria by total deposits and gross earnings. It operates a network of over 750
business locations across Africa, the United Kingdom and representative offices in Abu Dhabi,
Beijing and Johannesburg set up to capture trade-related business between geographies. The
bank specialises in retail banking and has the largest retail client base in Nigeria. In 2015, The
Asian Banker awarded First Bank the Best Retail Bank in Nigeria award for the fifth consecutive
year.
The Nigerian banking business operates nationally, with an active customer base of over
10 million, and employs over 7,000 staff. First Bank operates along four key Strategic Business
Units (SBUs) – Retail Banking, Corporate Banking, Commercial Banking and Public Sector
Banking. It was previously structured as an operating holding company before the
implementation of a non-operating Holding Company structure (FBN Holdings) in 2011/2012.
3.1 Sources of Data
Both primary and secondary sources of data were adhered to on the course of this study
and the attitude and responses of those interviewed were noted.
3.1.1 Primary Sources of Data
The primary sources of data are the sampling or study unit from which information is
obtained on a first hand basis. It is very important to note here that the researcher did not adopt
any rigid method in the collection of data; rather the data for the research were collected in
xliv

response to the requirements of the research problem. Creativity and judgment also played a vital
role at this stage of the project, bearing in mind the final judgment will be partly constrained be
the type and value of information collected. The primary data were gathered from the following
sources:
a. Oral interview: Personal interviews were conducted in addition to the questionnaires which
were duly administered. The information obtained through the oral interview was use in cross
checking the responses to the questionnaire. It either affirmed or disproved the data collected.
b. Unstructured interviews: Unstructured interviews were also collected out through informal
discussions with various staff members at different levels of operations.
c. Actual field investigation: The researcher was privileged to see the annual reports in order
to fully comprehend their performance as well as its reporting style.
3.1.2 Secondary Sources of Data
Library and internet materials provided the bulk of the secondary research data collected
by the researcher. These resource materials were used to review extensively the facts and the
reporting components of First Bank Nigeria Plc. For the purpose of obtaining these secondary
data the following academic libraries and website were used:
1. Wikipedia.com
2. Google.com
3. The Library
In summary these sets of data gathered which includes:
- Data from and interview, internet and library materials
- Data from the compilation of other related research work previously conducted
The data gathered was used at three different stages as follows:
xlv

- In anticipation of these data, the question on the questionnaires were design in order to
ensure that the respondents will confirm these data
- The data also formed the basis upon which the review of related literature was carried out
- They also formed part of the analysis that will be carried out in chapter four which led to
conclusion which was later arrived at in chapter five.
3.2 Sampling Techniques
A sample is a portion of the population selected for study. It is very important to select
sample size that will give sufficient fair representation of the population.
There are two basic way of making the sample size decision, one is by rule of thumb and the
other one is by calculated method. In this research work, the rule of the thumb was used for this
research where 90 employees of total population were selected as the sample size.
Simple random sampling was used to select target individual from each stratum. The complete
questionnaires were collected serially, coded and analyzed sequentially a cording to the research
questions. Tables were used to present information to facilitate analysis, simple percentages
where used while Chi -square was used to test the hypothesis. The responses were of five-point
scale which range from "strong agreed to the undecided ". Thus; Strongly Agreed = 5 Agreed = 4
Undecided = 3 Disagreed = 2 Strongly Disagreed = 1
The model specification for this analysis is a Chi-square, is a sample of statistic. It is computed
as follows:
X2 = S (O-E) E
Where O= Observed Frequency
E =Expected frequency
A degree of freedom (df) is obtained using the formula
xlvi

D.F. = (r -1) (c-1) a =0.05
Where r = number of rows in the contingency table.
Throughout this work the level of significance adopted is 0.05.
Decision Rule: Reject if X 2c > X2a otherwise accept Hi.
3.3 Method of Data Collection
Collection of data refers to the research instruments used by the researcher to collect
whatever data needed. The research instruments used in this research include: questionnaires,
internet, interviews and library research. Questionnaires were employed by the researcher
because it is most practical, economical and easiest way of obtaining information about events.
They also helped in collecting information that are valid interview schedule was made use of by
the researcher because of its usefulness in following up on unexpected result in order to validate
other method or problem motivation of respondents and their reasons for responding the way
they did. The primary data gathered were effectively and extensively employed in the next
chapter to test the formulated hypothesis.
3.4 Method of Data Analysis
The chi-square (X2) statistical was employed in testing hypothesis. The chi-square (X2) is
a sample statistical measure used in testing hypothesis concerning the signification of any
difference between a set of observed frequency (o) of a sample and a corresponding set of
expected of theoretical frequency (E).
Osuala (1982) Observed that it is repented by the following formula.
X2 = (O-E)
E
Data in which the chi-square test is to be applied are arranged in a contingency table.
xlvii

To calculate the theoretical or expected each of the observed frequency the procedure is as
follows, the row total multiplied by the corresponding column total all divided by the overall
number of cases (N)
E.g. a = Na X Ni
N
Where Na = row total
Ni = column total
N = total number of cases
The chi-square formula is represented by
X2 = (O-E)2
E
If the computed X2 value is greater than the critical value obtained from the X2 table at a
particular degree of freedom (df) and level of confidence or significance, the null hypothesis
being tested is rejected and the alternative is accepted. It would then be held that the relationship
or association being in target is statistically significant at that degree of freedom and level of
significance.
3.5 Reliability of the Instrument
Two set of questionnaires were used in collecting the primary data for the research work.
The questionnaires were constructed in such a way that questions were neither leading question,
ambiguous nor embarrassing. They were specific and mostly short questions.
Furthermore, to ensure that correct and accurate information was supplied after the preparing the
questionnaires. It was sent to the respondent the
xlviii

3.6 Validity of Instrument
After preparing the questionnaires it was sent to the student supervisor after dictating the
mistakes, it was sent back to the researcher for corrections after that, it was sent to the project
supervisor who then confirmed that the questionnaires are valid
3.7 Limitation of Study
However, there are constraint imposed on the researcher this includes the following.
a. Time: a study of this nature needs a relatively long time during which information for
accurate or at least near accurate inferences could be drawn. The period of the study was
short, hence time posed as a constraint to the researcher.
b. Cost: The researcher would have extent the survey to areas. But limitations here included
cost of transportation to source for materials and cost of typesetting the already completed
work.
c. Dearth (Scarcity) of statistical data: Lack of statistical data from our financial
institutions like central bank of Nigeria (CBN) ministry of financial and economic
development, commercial and merchant bank posed constraints. Deposit money banks
adhere strictly to the rule of secret; in banking thus they refused to release information.
xlix

CHAPTER FOUR
DATA ANALYSIS, FINDINGS AND DISCUSSION
4.0 Data analysis, findings and discussion
In this chapter, the data collected from questionnaire are presented, analysed and
tabulated. Ninety questionnaires were prepared and distributed to the respondent drawn from
lower, senior and management staff of First Bank of Nigeria.
The analysis were carried out using simple percentage method, the hypothesis will be analyse
using the chi-square based on the analysis of the relevant questions.
4.1 Findings of the Study
Table 4.1.1: Demographic Characteristics of Respondents based on Sex
Options No of Response Percentage (%)
Male 41 45.6
Female 49 54.4
Total 90 100
Source: Fieldwork, 2018
Table 4.1.1 above shows that 41 representing 45.6% of the respondents were male while
49 representing 54.4% of the respondents were female.
Table 4.1.2: Demographic Characteristics of Respondents based on Marital Status
Options No of Response Percentage (%)
Single 52 57.8
Married 38 42.2
Total 90 100
Source: Fieldwork, 2018
l

Table 4.1.2 above shows that a total number of 52 staffs representing (57.8%) are single
while the total numbers of 38 staffs representing (42.2%) are married.
Table 4.1.3: Demographic Characteristics of Respondents based on Age
Options No of Response Percentage (%)
Below 30 42 46.7
31 – 40 30 33.3
41 and above 18 20
Total 90 100
Options No of Response Percentage (%)
HND, B.Sc. B.A. 35 38.9
OND/NCE 40 44.4
SSCE, GCE 15 16.7
Total 90 100
li

Source: Fieldwork, 2018
The above Table 4.1.4 shows the total numbers of 35 respondents representing (38.9%)
are B.Sc., B.A. and HND holders, 40 respondents representing (44.4%) are OND and NCE
holders while 15 respondents representing (16.7%) of the educational qualifications are WASC
and GCE holders.
Table 4.1.5: Demographic Characteristics of Respondents based on Working Experience
Options No of Response Percentage (%)
Below 5 39 43.3
5 – 9 years 43 47.8
10 years and above 8 8.9
Total 90 100
Source: Fieldwork, 2018
The Table 4.1.6 above shows that total of 39 respondents representing (43.3%) has put in
less than 5 years in working experience, 43 of the respondents representing (47.8%) have put in
between 5 and 9 years while 8 respondents representing (8.9%) have put in more than 10 years of
working experience.
Section B
Table 4.1.6: How would you rate the performance of deposit money banks in financing small
and medium scale enterprises in Nigeria?
Options No of Response Percentage %
Good 37 41.1
Satisfactory 28 31.1
Poor 15 16.7
lii

Very Poor 10 11.1
Total 90 100%
Source: Fieldwork, 2018
From the above table it was shown that 37 of the respondent representing 41.1% agreed
that the rate of performance of deposit money banks in financing small and medium scale
enterprises in Nigeria is good while others have different options.
Table 4.1.7: Have you ever needed advice on certain issues or information concerning your
organization?
Options No of Response Percentage %
Yes 40 44.4
No 50 55.6
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 40 respondents representing (44.4%) agreed that they have
needed advice on certain issues or information concerning your organization why the rest
disagreed.
Table 4.1.8: What sources do you obtain fund to run your business?
Options No of Response Percentage %
Personal savings 40 44.4
Retained earnings 20 22.2
Relations and friends 15 16.7
Loans from banks 10 11.1
Government 5 5.6
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Total 90 100%
Source: Fieldwork, 2018
From the above table it was shown that 40 of the respondent representing 44.4% say that
personal savings is the sources they do obtain fund from to run their business while others have
different options.
Table 4.1.9: Are there significant relationship between financing of small and medium scale
enterprises and deposit money banks?
Options No of Response Percentage %
Yes 46 51.1
No 44 48.9
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 46 respondents representing (51.1%) agreed that there are
significant relationship between financing of small and medium scale enterprises and deposit
money banks why the rest disagreed.
Table 4.1.10: Do you have accounts into which business receipts are paid?
Options No of Response Percentage %
Yes 40 44.4
No 50 55.6
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 40 respondents representing (44.4%) agreed that they do have
accounts into which business receipts are paid why the rest disagreed.
liv

Table 4.1.11: Do you keep daily or weekly records of business transactions?
Options No of Response Percentage %
Yes 80 88.9
No 10 11.1
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 80 respondents representing (88.9%) agreed that they keep
daily or weekly records of business transactions why the rest disagreed.
Table 4.1.12: Are there significant relationship between deposit money banks and lending to
small scale industries and also in meeting the needs of small and medium scale enterprises?
Options No of Response Percentage %
Yes 63 70
No 27 30
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 63 respondents representing (70%) agreed that there
significant relationship between deposit money banks and lending to small scale industries and
also in meeting the needs of small and medium scale enterprises why the rest disagreed.
lv

Table 4.1.13: Would you say that the CBN also influence the bank lending policies?
Options No of Response Percentage %
Yes 70 77.8
No 20 22.2
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 70 respondents representing (77.8%) agreed that the CBN also
influence the bank lending policies why the rest disagreed.
Table 4.1.14: Do SMEs help to reduce incidence of unemployment in Nigeria?
Options No of Response Percentage %
Yes 65 72.2
No 25 27.8
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 65 respondents representing (72.2%) agreed that SMEs help
to reduce incidence of unemployment in Nigeria why the rest disagreed.
lvi

Table 4.1.15: Do you have lending program for small and medium scale enterprises in your
bank?
Options No of Response Percentage %
Yes 58 64.4
No 32 35.6
Total 90 100%
Source: Fieldwork, 2018
The above table shows that 58 respondents representing (64.4%) agreed that they do have
lending program for small and medium scale enterprises in their bank why the rest disagreed.
4.2 Test of Hypothesis
With special reference to the purpose of this study, the following shall be tested using the
chi-square.
Hypothesis One
H0: There is no significant relationship between financing of small and medium scale
enterprises and deposit money banks.
H1: There is significant relationship between financing of small and medium scale enterprise
and deposit money banks.
The hypothesis can be tested by using table 4.1.9 where a total of 46 respondents representing
(51.1%) agreed that there are significant relationship between financing of small and medium
scale enterprises and deposit money banks why the rest disagreed.
Test Statistics:
Formula X2 = ∑ (oi – ei)2
lvii

ei
Where X2 = Chi-Square
Oi = Observed frequency
Ei = Expected frequency
Assumption:
The level of significance used is 5%. That is 0.05
Degree of Freedom:
The degree of freedom is given as thus;
DF = (R – 1) (C – 1)
Where, R = Rows
C = Columns
DF = (2 – 1) (2 – 1)
DF = 1 x 1
= 1
NOTE: The value of 1 at 0.05 significant level is 3.841 using the chi-square table.
Thus: The critical value is given as X2 is 3.841.
Table 4.2.1: Testing of the 1st Hypothesis
o e o – e (o – e)2 (o – e)2
e
46 45 1 1 0.02
44 45 -1 1 0.02
90 0.04
Comparing the test statistics with critical value 0.04 < 3.841
lviii

Decision Rule: Since the calculated value of X2 is lesser than the critical value 3.841, the null
hypothesis which states that there is no significant relationship between financing of small and
medium scale enterprises and deposit money banks is accepted and the alternative hypothesis
which states that there is significant relationship between financing of small and medium scale
enterprise and deposit money banks is rejected.
Conclusion: There is no significant relationship between financing of small and medium scale
enterprises and deposit money banks.
Hypothesis Two:
H0: There is no significant relationship between deposit money banks and lending to small
scale industries and also in meeting the needs of small and medium scale enterprises
H1: There is significant relationship between deposit money banks and lending to small scale
industries and also in meeting the needs of small and medium scale enterprises
The hypothesis can be tested by using table 4.1.12 where a total of 63 respondents representing
(70%) agreed that there significant relationship between deposit money banks and lending to
small scale industries and also in meeting the needs of small and medium scale enterprises why
the rest disagreed.
Test Statistics:
Formula X2 = ∑ (oi – ei)2
ei
Where X2 = Chi-Square
Oi = Observed frequency
Ei = Expected frequency
lix

Assumption:
The level of significance used is 5%. That is 0.05
Degree of Freedom:
The degree of freedom is given as thus;
DF = (R – 1) (C – 1)
Where, R = Rows
C = Columns
DF = (2 – 1) (2 – 1)
DF = 1 x 1
= 1
NOTE: The value of 1 at 0.05 significant level is 3.841 using the chi-square table.
Thus: The critical value is given as X2 is 3.841.
Table 4.2.2: Testing of the 2nd Hypothesis
o e o – e (o – e)2 (o – e)2
e
63 45 18 324 7.2
27 45 -18 324 7.2
90 14.4
Comparing the test statistics with critical value 14.4 > 3.841
Decision Rule: Since the calculated value of X2 is greater than the critical value 3.841, the null
hypothesis which states that there is no significant relationship between deposit money banks
and lending to small scale industries and also in meeting the needs of small and medium scale
enterprises is rejected and the alternative hypothesis which states that there is significant
lx

relationship between deposit money banks and lending to small scale industries and also in
meeting the needs of small and medium scale enterprises is accepted.
Conclusion: There is significant relationship between deposit money banks and lending to small
scale industries and also in meeting the needs of small and medium scale enterprises.
4.3 Discussion of Findings
The company employed more female workers than the male workers, also the company
considered single workers than that of married workers. The company considered higher level of
qualifications more than lower level of qualifications. From the information gathered 41.1%
agreed that the rate of performance of deposit money banks in financing small and medium scale
enterprises in Nigeria is good. However, 44.4% say that personal savings is the sources they do
obtain fund from to run their business. Also (88.9%) agreed that they keep daily or weekly
records of business transactions. Findings show that there is no significant relationship between
financing of small and medium scale enterprises and deposit money banks. And finally, findings
show that there is significant relationship between deposit money banks and lending to small
scale industries and also in meeting the needs of small and medium scale enterprises.
lxi

CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
5.1 Summary
The general objective of this study was to analyze the role of deposit money banks in the
performance of small scale enterprises in Nigeria a case study of First Bank Nigeria. Other
specific objectives were to; highlight the different sources of finance available to small scale
enterprises, examine the role of deposit money banks in satisfying the financial needs of SMEs in
Nigeria and examine method to reduce formality needed for financing the entrepreneurs by
deposit money banks.
Simple random sampling was used to select target individual from each stratum. The
complete questionnaires were collected serially, coded and analyzed sequentially a cording to the
research questions. In this research work, the rule of the thumb was used for this research where
90 employees of total population were selected as the sample size. The chi-square (X2) statistical
was employed in testing hypothesis. The chi-square (X2) is a sample statistical measure used in
testing hypothesis concerning the signification of any difference between a set of observed
frequency (o) of a sample and a corresponding set of expected of theoretical frequency (e).
The study reveals that they have needed advice on certain issues or information
concerning your organization. It was also revealed that they keep daily or weekly records of
business transactions. Also findings show that CBN also influence the bank lending policies. The
research also reveals that there is no significant relationship between financing of small and
medium scale enterprises and deposit money banks. Finally findings shows that there is
significant relationship between deposit money banks and lending to small scale industries and
also in meeting the needs of small and medium scale enterprises.
lxii

5.2 Conclusion
The economic rationale for credit to small and medium scale enterprises (SMEs) is
indisputable as earlier views of small and medium scale enterprises was seen to have
progressively become a major factor in economic development of many countries of the world.
This study has empirically brought to light pivotal role of deposit money banks’ credit to growth
of small and medium scale enterprises, which in turn accelerate economic growth and
development. In addition, the finance led growth postulation for growth and development of an
economy through mobilization and allocation of financial resources to deficit economic unit is
valid in Nigeria. Although studies have assessed this subject matter, this study should be not an
ultimate result on the nexus between banks’ credit and small and medium scale enterprises
growth, rather a motivation for the development new ideas by scholars to emphatically and
unambiguously assist banks to improving credit to the private sector as a way of achieving the
vision of Nigeria to be among the top twenty economy in the world..
Conclusively, this research work makes useful contribution to knowledge by appraising
the various means of deposit money banks in the performance of small scale enterprises in
Nigeria. It explicates the importance of SMEs performance of banking sector. It gives a proper
insight of what the banking sector entails of the economy.
Banking sector globally are identified to be major key players in the financial industry
that have positively affected individuals, business organization, other financial institution, the
government and the economy at large through services they offer and the function they perform
in the economy. Finally, despite the effectiveness of the sector, it still suffers some setbacks.
This means that the banking sector and their activities still have a long way to go in providing
lxiii

new services for good customer relationship, better financing schemes and development in the
Nigerian economy.
5.3 Recommendations
There is no way Nigeria can achieve sustainable funding of small and medium scale
enterprises by commercial banks and other agencies such as NERFUND, NIDB etc established
for the funding purposes until both the external and internal problems of SMEs are solved. Banks
react to the stimulus of the macroeconomic environment and as long as the environment remains
conducive, banks will continue to exhibit risk-averse behavior irrespective of the programs put in
place to address this problem including the SMIEIS program that was already highlighted. The
following recommendations in my opinion will help improve the growth and development of the
SMEs:
1. The government should be consistent in its industrial policies so as to enable manufacturing
firms to factor tariff measures into their trade decisions.
2. The government should provide adequate infrastructural facilities like electricity, roads and
water supply for the SMEs as this will reduce the high cost of doing business. This will
encourage banks to fund the SMEs as their investment will be recouped.
3. The government should regard SMEs should regard SMEs as the ‘eggs’ that hatch big
businesses. Apart from the adequate incentives in (2) above, the government should support
SMEs by bulk purchasing their products and retailing them both for the domestic market and
for exports.
4. To facilitate their access to bank credits, the government should be issuing LPOs to the
SMEs and payment should be made promptly to the SMEs as this will encourage their
growth and the banks can also accept such contract papers as collateral.
lxiv

5. On the issue of the internal problems of the SMEs like poor management practices, high rate
of business failure, poor account standards, shortage of skilled manpower and financial
indiscipline, the government should set up small business management assistance agencies
manned by highly skilled and dedicated workers with the view of tackling these problems.
The agencies should complement the provision of credit by insuring its efficient use through
training and counseling of the small and medium scale entrepreneurs.
6. The banks should target potential borrowers for its core operations and form them into
groups. Then soft loans should be made available to these SMEs, repayable within a
specified period before others in that strategic group can benefit from the scheme. The idea is
that with this system, a subtle pressure from other SMEs that are members of this strategic
core is mounted on the benefiting group to repay so that others can benefit from the scheme.
This will no doubt introduce healthy capitalization among SMEs through factoring the
credibility of the borrowers.
7. The need for capitalization of the banks cannot be overemphasized as capitalization
influences the way banks react to GDP shocks. Also, the credit supply of well capitalized
banks is less pro-cyclical. This indicates that well capitalized banks are not risk-averse.
Moreover, well capitalized banks can better absorb temporarily financial difficulties on their
borrowers and preserve long term lending relationships.
8. If (7) above is achieved, the mega banks such as Union Bank should play a more active role
in actualizing the objectives of SMIEIs by setting up separate desks to manage the funds and
vigorously pursue the idea as with any other bank product and undertaking studies aimed at
attracting foreign investors scanning overseas markets and monitoring developments that
have implications for the sector.
lxv

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APPENDIX
NATIONAL OPEN UNIVERSITY OF NIGERIA
lxx

DEPARTMENT OF ENTREPRENEURIAL AND BUSINESS MANAGEMENT
FACULTY OF MANAGEMENT SCIENCE
Department of Entrepreneurial and
Business Management,
National Open University of Nigeria
University Village, Plot 91, Cadastral
Zone, Nnamdi Azikwe Express Way
Jabi-Abuja.
Dear Respondents,
Research Questionnaire
This questionnaire is designed to investigate the “The Role of Deposit Money Banks in the
Performance of Small Scale Enterprises in Nigeria, A Case Study of First Bank Nigeria”. You
are kindly required to assist in supplying necessary information as stated below, for the
enhancement of this research work, please be rest assured that any information supplied is
strictly for academic purposes and your sincere response would be highly appreciated and treated
in confidence, thank you for your anticipated support.
Thanks for your co-operation
Yours Faithfully,
Ogunsola Timilehin Oluwole
INSTRUCTION: Please tick the appropriate response or fill in with the appropriate word(s) as
applicable. Please note that the information you supply in this questionnaire will be used for
lxxi

research purpose, and all the information will be treated with confidence.
SECTION A: Personal Data
1. Sex: Male ( ) Female ( )
2. Marital Status: Single ( ) Married ( )
3. Age: Below 30 ( ) 31-40 ( ) 41 and above ( )
4. Educational Qualification: H.N.D/B.Sc./B.A. ( ), OND/NCE ( ), SSCE/GCE ( )
5. Years of Experience: Below 5 ( ), 5 – 9 years ( ), 10 years and above ( )
SECTION B
Instruction: Please tick ( ) in the appropriate box to signify your choice of answer
1. How would you rate the performance of commercial banks in financing small and medium
scale enterprises in Nigeria? Good ( ), Satisfactory ( ), Poor ( ), Very Poor ( )
2. Have you ever needed advice on certain issues or information concerning your organization?
Yes ( ), No ( )
3. What sources do you obtain fund to run your business? Personal savings ( ), Retained
earnings ( ), Relations and friends ( ), Loans from banks ( ), Government ( )
4. Are there significant relationship between financing of small and medium scale enterprises
and deposit money banks? Yes ( ), No ( )
5. Do you have accounts into which business receipts are paid? Yes ( ), No ( )
6. Do you keep daily or weekly records of business transactions? Yes ( ), No ( )
7. Are there significant relationship between deposit money banks and lending to small scale
industries and also in meeting the needs of small and medium scale enterprises? Yes ( ), No (
)
8. Would you say that the CBN also influence the bank lending policies? Yes ( ), No ( )
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9. Do SMEs help to reduce incidence of unemployment in Nigeria? Yes ( ), No ( )
10. Do you have lending program for small and medium scale enterprises in your bank? Yes ( ),
No ( )
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