CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The impact of recapitalized banks and their sme customers in Nigeria

Small and medium businesses (SMEs) are critical to the impact of recapitalized banks and their sme customers in Nigeria and the growth of a country’s economy. Because of their relevance and the critical role they play in the nation’s economic development and progress, small and medium firms have received a lot of attention, as they are key contributors to the Nigerian economy. Because these businesses are economic drivers, governmental attention must be paid to them, particularly in developing economies, where their impact on many sectors of the economy is significant.

Greater usage of local raw materials, creation of jobs, support of rural development, growth of entrepreneurship, mobilization of local savings, links with larger businesses, and provision of regional balance by spreading investments more fairly are all examples of their impact. Credit has been acknowledged as an important tool for boosting small and micro enterprises (SMEs) in Nigeria, necessitating the recapitalization of commercial banks in the country.

Bank recapitalization, which began in 2006, aims to make Nigerian banks stronger and better able to finance all sectors of the economy, particularly the economy’s main drivers, small and medium-sized businesses. Approximately 70% of the population is employed in the informal economy or agriculture. The federal and state governments have acknowledged that people’s financial empowerment is critical for long-term prosperity and development. Positive multipliers will emerge if this growth approach is implemented and the latent entrepreneurial talents of this significant portion of the population are suitably developed and nurtured.

On July 6th, 2004, the Nigerian Central Bank stated that the banking sector would be capitalized from N2 billion to N25 billion with effect from January 1, 2006. This was done in order to make the sector more internationally competitive, stable, and capable of providing credit to all of the economy’s productive sectors. Banks used merger and acquisition methods, as well as the floatation of additional shares, to meet this duty. The exercise resulted in the formation of 25 new banks.

It was thought that the consolidation would strengthen the banks, allowing them to contribute substantial sums of money to the productive sections of the economy, which are mostly dominated by Small and Medium Enterprises, allowing them to grow into larger businesses.

STATEMENT OF PROBLEM

The Central Bank of Nigeria was obliged to examine the capital structure of commercial banks in Nigeria due to bank fraud, bad lending, and credit management procedures in the country’s banking sector. Among other things, the Central Bank of Nigeria (CBN) issued a regulation requiring all banks to increase their capital from N2 billion to N25 billion as of January 1, 2006.

As a result of this growth, the Nigerian financial industry has seen a variety of financial activity, with most banks first opting for extra funding from the capital market via the flotation of shares. At this point, most banks began soliciting members of the public to purchase new shares in order to meet the new minimum capital requirements set by Nigeria’s central bank. Despite this, several banks were found to be insolvent.

Since the year 2000, there has been a difference between deposit money bank deposits (DMBD) and commercial bank lending to SMEs (the year that saw the end of merchant banks). There is a significant difference between the two variables, and while deposit money bank deposits increased dramatically between 2004 and 2010, commercial bank lending to SMEs decreased. The disparity between commercial bank deposits and lending to SMEs suggests a change in concentration away from SMEs and towards major investors (customers).

While the banking sector is said to drive any economy, one may wonder if Nigerian commercial banks have overlooked SMEs, which are critical to the country’s growth and development. Regardless, it’s worth noting that community/microfinance bank (CMFB) lending to SMEs is on the rise.

OBJECTIVES OF THE STUDY

The study’s main goal is to look into the consequences of bank recapitalization on small and medium-sized businesses in Nigeria. The study’s specific goals are as follows:

Determine the link between the performance of Nigerian Small Business Entrepreneurs and Commercial Banks.

To see if bank recapitalization resulted in an increase in money available to finance SMEs.

The purpose of this study was to see if SMEs could receive financing from the Small and Medium Enterprise Equity Investment Scheme (SMEEIS).

RESEARCH QUESTIONS

The researcher devised the following study questions in order to fulfill the above-mentioned goals:

What is the relationship between Nigerian commercial banks and high-performing small company owners?
Does bank recapitalization help SMEs get more funding?
Small and Medium Enterprise Equity Investment Scheme Funds: How accessible are they to SMEs?

RESEARCH HYPOTHESIS

In accordance with the study’s objectives and research questions, the following hypotheses are proposed:

Ho: In Nigeria, there is no significant link between the performance of commercial banks and the performance of small business owners.

Hello: In Nigeria, there is a strong link between commercial banks and the performance of small business owners.

Ho: Recapitalization of banks has not resulted in an increase in money available to SMEs.

Hi: Funds to SMEs have increased as a result of bank recapitalization.

Ho: Funds from the Small and Medium Enterprise Equity Investment Scheme are difficult to assess for SMEs.

Hi: SMEs can quickly assess money from the Small and Medium Enterprise Equity Investment Scheme.

SIGNIFICANCE OF THE STUDY

Without well-targeted programs to eliminate poverty by expanding people’s access to tools of production, particularly credit, robust economic growth will be impossible to achieve. Microfinance services would considerably raise the latent capacity of disadvantaged entrepreneurs, allowing them to engage in economic activities and become more self-reliant; increase employment prospects, increase household income, and build wealth.

However, in Nigeria, the absence of necessary financial support from microfinance institutions to microbusiness operators in Lagos state has become a big concern. As a result, policymakers will find this study useful in determining the impact of microfinance on small-scale investors. In addition, the findings of this study will aid future research in the field.

SCOPE OF THE STUDY

The focus of this study is on Nigeria’s recapitalized commercial banks and their SME customers. However, while there are many commercial banks with a large number of SME customers, the study is limited to Mainstreet Bank’s Osun branch and a few of its SME clients.

LIMITATION OF THE STUDY

The study’s principal limitations were time and funding constraints. Money became a problem for the researcher because he couldn’t afford the cost of reaching out to more banks. The researcher was also involved in other school activities, limiting the amount of time he could devote to the subject.

DEFINITION OF TERMS

An economy is defined as the total sum of value-added product and service transactions between two agents in a given location, whether they are individuals, organizations, or states. The production, distribution, or trade, and consumption of restricted products and services between two agents, who might be individuals, enterprises, organizations, or governments, constitute an economy.

Acquisitions and Mergers: Mergers and acquisitions (abbreviated M&A) are a type of corporate strategy, corporate finance, and management that involves the buying, selling, dividing, and combining of different companies and similar entities in order to help an enterprise grow quickly in its sector or location of origin, or in a new field or location, without the need for a subsidiary, other child entity, or a joint venture.
recapitalization recapitalization recapitalization recapitalization recapitalization

REFERENCE

L. Olaitan, L. Olaitan, L. Olaitan, L. An empirical assessment of Nigerian corporations’ corporate strategies. 45-75 in Journal of African Business, 2(2).
V. C. Iloh, 2012. The Impact of Bank Consolidation in Nigeria on Small and Medium-Sized Businesses. Longman Nigeria Plc is based in Lagos.L. Olaitan, L. Olaitan, L. Olaitan, L. An empirical assessment of Nigerian corporations’ corporate strategies. 45-75 in Journal of African Business, 2(2).
V. C. Iloh, 2012. The Impact of Bank Consolidation in Nigeria on Small and Medium-Sized Businesses. Longman Nigeria Plc is based in Lagos.

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