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

Foreword

1.1 Research background

The growth of industrial sectors in any economy is achieved through interdependence and interrelationships between different business units. Growth was defined as a numerical increase in a country’s productive activity. This is an increase in the amount of naira-worthy commodities produced in all sectors of the economy. SMEs are a subsector of the industrial sector and play an important role in industrial development (Ahmed, 2006). SMEs are recognized as the true engine of accelerating economic growth. According to Ettah (2004), they are of great importance for the localization of the industrial sector, the creation of employment opportunities, the use of local raw materials, and the development of local skills and workers necessary to support large enterprises. In addition, investment projects are more likely to be located in rural areas, correcting development imbalances between regions through the dispersion of investment projects (Ettah, 2004). It also has the potential to create synergies through its back-and-forth connections with large companies.

Despite this important role played by SMEs, academics feel that the sector’s potential has not yet been fully realized (Ihyembe (2000), Ojaide (1999), Levy (1993), Cookie (2001)). The reasons for this situation are manifold. Afolabi (2013) found that financial bottlenecks, explained by high lending rates, high lending requirements, lack of entrepreneurial skills, and lack of sufficient credit for SMEs, were caused, among other things, by poor project documentation. I found that it was due to the bank’s reluctance to give credit. One of the major problems facing SMEs in Nigeria is insufficient collateral from SME operators.

Therefore, from the above, we can conclude that most of the problems faced by SMEs in Nigeria are due to the sector’s inadequate lending and financing. A credit was defined by Aryeety (1996) as an amount granted with a promise to repay both principal and interest at a specified future date. His NDIC (1990), cited by Ugwu (2010), defined credit as including all loans, advances, overdrafts, commercial papers, bank drafts, bills of exchange, discounted leases and guarantees.

Financing for SMEs is entrusted to deposit banks. Other than the provision of credit, Anyanwu, Oaikhenan, Oyefusi & Dimowo (1997) identified other roles played by deposit money banks to include encouragement of savings, provision of capital needed for development, encouragement of trading activities through the use of cheques, encouragement of investment, provision of managerial advice to SMEs industrialists who do not engage the services of specialists and rendering financial advice. Ironically, deposit money banks that ought to perform these functions to enhance the sector’s role in the economy have been accused of charging arbitrary rates on the services provided to the sector (see Victor & Eze, 2013 and Okafor 2011). This study is therefore meant examine the role played by deposit money banks on the growth of the SMEs in Yakurr Local Government Area, Cross River State, Nigeria.

SMEs are faced with many problems ranging from financial constraint, explained by high lending rates, high loan requirements, lack of adequate credit for SMEs, traceable to the reluctance of banks to extend credit to them, to lack of entrepreneurial skills, illiteracy, bad roads network, infrastructural decay, multiple taxation, to mention but a few.

The results of the forgoing are eminent, high cost of production, high prices, use of obsolete technology and crude methods of production, poor product quality, lack of funds for research and development and above all a drastic drain in the sector’s capacity to perform as a wheel that drives industrialization. to reduce the negative

1.2 Problem Description

More than 55 years after becoming an independent nation, Nigeria has suffered from a great many epileptic-type economic conditions rather than being the African economic and political giant its founding fathers intended. These persistent factors include endemic corruption, poverty, lack of good resource management, weak fiscal policy, greedy banker machinations, greed of bank directors, lack of proper oversight of Apex Bank, social political strife, government instability, and poor governance. Therefore, 55-year-old Nigeria remains a “toddler” in almost all aspects of national development, which is a very worrying situation.

There are daily reports of Nigerian banks cheating customers through various fees and practices. Customers often complain and shout for appropriate regulatory intervention. Unfortunately, their complaints seem to have fallen on deaf ears. Encouraged by inaction by financial regulators, government overspending on capital projects that do not contribute directly to GDP, crude practices and indifference, many Nigerian banks are now resorting to more exploitative practices. Categories of such predatory banking are being unfolded daily.

When a customer gets credit from a bank, they usually set the negotiated loan rate based on the current rate approved by Apex Bank. Borrowers must be notified of interest rate changes unless otherwise agreed. However, in Nigeria, lending rates are rarely negotiated, and when rates are adjusted upwards by the Central Bank of Nigeria (CBN), the average bank adds the new interest rate to outstanding loans without informing the borrower. (Okafor, 2011). Ironically, the same bank hides the fact that it has lowered its lending rate from its largely uninformed customers, thereby exposing them to an illegally high interest rate regime. Unfortunately, some greedy banks take advantage of the gullibility and ignorance of their illiterate customers to make huge profits through illegal fees and sharp deals that work against their customers’ overall interests. .

The amounts that bank tellers present to potential borrowers as total costs during loan negotiations often drive them crazy once they get the bait. During loan processing, Nigerian banks charge borrowers both a “processing” fee and an “administration” fee, which overlap. Again, they charge their borrowers and corporate clients more than they would pay a lawyer to look up a property or company’s books. We believe that the interest rate reported to CBN under Section 23 of the Act is different from what most banks charge their customers.

At some point in the past, bank fraud, poor lending to small and medium enterprises, and unfavorable credit management practices in Nigeria’s banking sector forced the Central Bank of Nigeria to rethink the capital structure of Nigeria’s commercial banks. rice field. These, among other things, led the Central Bank of Nigeria (CBN) to issue a decree, effective January 1, 2006, that all banks should be recapitalized from his N2 billion to his N25 billion. connected. Consolidation would make banks stronger, allowing them to lend more money to the productive sectors of the economy that are largely dominated by small businesses, thereby diverting them to large firms with adequate resources. expected to grow. Contribute to economic growth and development. This development has led to a variety of financial activities in Nigeria’s financial sector, with most banks initially opting for additional sources of funding through capital markets through the issuance of shares. Most banks started inviting at this point.

However, some banks were unable to raise the new minimum capital on their own. Thus, the need for bank mergers and consolidations has reduced the total number of banks in Nigeria to 23. However, banking sector consolidation has presented banks with new challenges and required greater efforts to control costs and increase efficiency. These have impacted the amount of credit facilities offered to small and medium enterprises in Nigeria. One of Iloh et al. (2012) shows the difference between small and medium enterprise bank deposits (DMBD) and commercial bank lending since 2000 (the year commercial banks came to an end). There is a large gap between the two variables, with deposits at deposit-taking banks growing very sharply, while commercial bank lending to small and medium enterprises (SMEs) declined from 2004 to 2013.

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

Therefore, in order to get out of this economic and development quagmire, policy makers and experts in Nigeria must continue to search for workable strategies of interventions that will catalyze the development process in Nigeria. Of late or recently, Nigeria policy makers and experts in and outside government, including members of the organized private sectors, seem to agree that, the catalytic process must start with the urgent setting up and empowering of as many small and medium scale enterprises (SMEs) as possible in Nigeria. This is because available facts, figures and cases and trends in global economic development have shown that SMEs indeed hold the key to the development of developing nations like Nigeria

1.3 Objectives Of The Study

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

The specific objectives include:

To examine the relationship between deposit money 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 policies on SMEs growth Nigeria.

1.4 Research Hypothesis

To attain the above objectives, three null hypotheses were formulated thus:

Ho:
Deposit money banks credit does not relate significantly with the growth of SMEs in Nigeria. Ho:
Combined taxation has not had a significant impact on the growth of Nigerian SMEs.