The Role Of Money Deposit Bank In Financing Small And Medium Enterprises In Nigeria

The Role Of Money Deposit Bank In Financing Small And Medium Enterprises In Nigeria

Chapter One

Preface

Background To The Study

The growth of the artificial sector of any frugality is achieved through the interdependence and interaction among colorful business units. Growth has been defined as the numeric increase in the productive conditioning of a country. It’s an increase in the quantum of goods produced by all sectors of an frugality in naira value. SMEs aresub-sectors of the artificial sector and they play pivotal part in artificial development( Ahmed, 2006). SMEs have been linked as veritable machines that accelerate profitable growth. According to Ettah( 2004), they’re veritably vital for the indigenization of the artificial sector, creation of employment openings, application of original raw accoutrements and development of original technology and man power demanded to feed large scale enterprises. They also correct imbalances in development among regions through the distribution of investment systems since they can more readily be located in the pastoral areas( Ettah, 2004). In addition, they’ve capabilities for generating multiplier goods through the process of forward and backward liaison with large scale enterprises.

Irrespective of these vital places play by SMEs scholars believed that the sector’s full eventuality has not been fully exploited( see Ihyembe( 2000), Ojaide( 1999), tax( 1993) and Cookey( 2001),). The reasons for this situation are numerous. Afolabi( 2013) noted that fiscal constraint, explained by high lending rates, high loan conditions, lack of entrepreneurial chops, lack of acceptable credit for SMEs, traceable to the disinclination of banks to extend credit to them owing, among others to poor attestation at design proffers as well as shy collateral by SMEs drivers constitute some of the major problems of SMEs in Nigeria.

It could thus be inferred from the anteceding that utmost of the problems faced by SMEs in Nigeria evolved as a result of shy credit and backing of the sector. Credit has been defined Aryeety( 1996) as the quantum extended out with a pledge to repay both the star and interest at a quested future date. NDIC( 1990) as cited by Ugwu( 2010), defined credit to include the total of all loans, advances, overdraft, marketable papers, bankers ’ acceptance, bills blinked parcel and guarantee.

The responsibility of furnishing credit to SMEs is placed on deposit plutocrat banks. Other than the provision of credit, Anyanwu, Oaikhenan, Oyefusi & Dimowo( 1997) linked other places played by deposit plutocrat banks to include stimulant of savings, provision of capital demanded for development, stimulant of trading conditioning through the use of cheques, stimulant of investment, provision of directorial advice to SMEs industrialists who don’t engage the services of specialists and rendering fiscal advice. Ironically, deposit plutocrat banks that ought to perform these functions to enhance the sector’s part in the frugality have been indicted of charging arbitrary rates on the services handed to the sector( see Victor & Eze, 2013 and Okafor 2011). This study is thus meant examine the part played by deposit plutocrat banks on the growth of the SMEs in Yakurr Local Government Area, Cross River State, Nigeria.

SMEs are faced with numerous problems ranging from fiscal constraint, explained by high lending rates, high loan conditions, lack of acceptable credit for SMEs, traceable to the disinclination of banks to extend credit to them, to lack of entrepreneurial chops, ignorance, bad roads network, infrastructural decay, multiple taxation, to mention but a many.

The results of the abstaining are prestigious, high cost of product, high prices, use of obsolete technology and crude styles of product, poor product quality, lack of finances for exploration and development and over all a drastic drain in the sector’s capacity to perform as a wheel that drives industrialization. To reduce the negative impact of lack of backing on SMEs performance, the CBN in its prudential guidelines frequently consider the interest of the SMEs by taking deposit plutocrat banks to channel a certain chance of their loan portfolio to SMEs. The question that readily comes to mind is has CBN sweats really increased deposit plutocrat banks credit to SMEs?

Statement Of The Problem

For further than 55 times since Nigeria came an independent nation, it has been suffering from so numerous epileptic profitable situations that have left her as a grossly underdeveloped country, rather of the profitable political mammoth of Africa which its founding fathers intended it to be. similar patient factors include aboriginal corruption, poverty, lack of good operation of coffers, weak fiscal policy, sharp dealings of greedy bankers, covetousness of bank directors, lack of proper oversight of the Apex Bank, social conflicts, insecurity of government and bad leadership. Hence, at 55, Nigeria has remained a “ toddler ” in nearly every sector of her public development and this is a veritably worrisome situation.

There are diurnal reports of how Nigerian banks rip off their guests through colorful charges and practices. frequently, guests complain and cry out for applicable nonsupervisory intervention. Unfortunately, their complaints feel to fall on deaf cognizance, because they’re ignorant of any positive nonsupervisory action in response thereto. inspired by fiscal nonsupervisory inactivity, government overspending in capital systems that aren’t directly profit- yielding to the GDP, crude practices and incuriosity, numerous Nigerian banks now engage in further exploitative practices. The orders of similar raptorial bank practices are unfolded daily.

typically, when a client secures a loan from a bank, the ultimate fixes a negotiated lending rate, grounded on the prevailing interest rate approved by the Apex Bank. Any change in the interest rate should be brought to the notice of the borrower, except else agreed. In Nigeria, still, the lending rate is infrequently negotiated, and when it’s reviewed overhead by the Central Bank of Nigeria( CBN), the average bank automatically applies the new rate to the outstanding loan without notifying the borrower( Okafor, 2011). Ironically, the same bank hides the fact of any downcast review of the lending rate from its substantially oblivious guests, thereby immorally subjugating the guests to a advanced interest governance. Unfortunately, some greedy banks play on the gullibility and ignorance of their illiterate guests to make fabulous gains through illegal charges and sharp dealings against the overall interest of the client.

frequently, what the bank staff presents to a prospective borrower, during loan accommodations as the total charges, come hydra- headed formerly he quaffs the bait. While recycling loans, Nigerian banks put on borrowers both “ processing ” and “ executive ” freights which are duplicates. Again, they charge borrowers and commercial guests advanced than what they pay the counsel to conduct quests at land and company registries. We believe that the interest rates Nigerian banks display at their services and report to CBN per section 23 of the Banks and other Financial Institutions Act are different from what utmost of them put on guests.

Bank fraud, poor lending of SMEs and credit mismanagement practices in the Nigeria banking sector eventually in the once forced the Central Bank of Nigeria to readdress the capital structure of marketable banks in Nigeria. These, among other effects, led the Central Bank of Nigeria( CBN) to give a directive that all banks should recapitalize from N2 billion to N25 billion with effect from January 1, 2006. It was hoped that the connection would make the banks stronger so as to be suitable to give larger quantities of finances to productive sectors of the frugality, which is largely dominated by small and medium enterprises, thereby making them grow into large enterprises, with enough coffers to contribute to profitable growth/ development.

This development led to colorful fiscal conditioning in the Nigerian fiscal sector, with utmost banks originally concluding for fresh source of finances from the capital request via floating of shares. utmost banks, at this stage, started inviting members of the public to acquire new shares in order to meet up with the new minimal capital directed by the Central Bank of Nigeria.

Notwithstanding, some banks weren’t able of raising the new minimal capital by themselves; hence the need for incorporating and consolidating of banks redounded to reducing the total number of banks in Nigeria to twenty- three( 23). still, the connection of the banking sector presented new challenges to the banks which needed further sweats to control cost and increase their effectiveness. These, in turn, affected the volume of credit installations granted to small and medium- scale enterprises in Nigeria. A study conducted by Iloh et al( 2012) reveals the gap between deposit plutocrat bank deposits( DMBD) and marketable bank lending to SMEs from time 2000 overhead( the time that saw the end of trafficker banks). There’s a wide periphery between the two variables, and while deposit plutocrat bank deposits rose veritably high, marketable bank lending to small and medium enterprises( SMEs) declined from 2004 to 2013.

also, Joshua( 2008) contends that about 70 of the small and medium scale enterprises in Nigeria are between functional and are on the range of folding up, while the remaining 30 operate on low position capacity and are vulnerable to folding up in the nearest future.

thus, in order to get out of this profitable and development quagmire, policy makers and experts in Nigeria must continue to search for workable strategies of interventions that will beget the development process in Nigeria. Of late or lately, Nigeria policy makers and experts in and outside government, including members of the organized private sectors, feel to agree that, the catalytic process must start with the critical setting up and empowering of as numerous small and medium scale enterprises( SMEs) as possible in Nigeria. This is because available data, numbers and cases and trends in global profitable development have shown that SMEs indeed hold the key to the development of developing nations like Nigeria

Objects Of The Study

The major ideal of this study is to assess The part Of Money Deposit Bank In Financing Small And Medium Enterprises In Nigeria An Empirical Study

The specific objects include

To examine the relationship between deposit plutocrat banks credit to SMEs and the growth of SMEs in Nigeria;

To assess the effect of multiple taxation on the growth of SMEs in Nigeria;

To determine the effect of programs on SMEs growth Nigeria.

Exploration Thesis

To attain the below objects, three null suppositions were formulated therefore

Ho Deposit plutocrat banks credit doesn’t relate significantly with the growth of SMEs in Nigeria.

Ho Multiple taxations have no significant effect on the growth of SMEs in Nigeria.

Ho Government programs don’t affect the growth of SMEs in Nigeria.