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The subject matter of this research work is to evaluate the extent to which Small Scale
entrepreneurs in Enugu have been able to obtain loans and raise finance from Nigerian
Commercial Banks as a major source of finance to the economy. The main objective of the study
is to establish the role of Commercial Banks in financing Small Scale Enterprises (SSEs) in Enugu
.A review of literature was done to ensure the conclusion of the study. Based on the analysis,
Commercial Banks comply with the Central Bank of Nigeria (CBN) credit guidelines which
stipulated that they should set aside 10% of their profit before tax for loan to Small Scale
Enterprises (SSEs).Commercial Banks require feasibility report from SSEs before granting loan to
them. Small Scale Enterprises do not provide proper feasibility studies due to poor level of
education. The research concluded that for small scale enterprises to survive, there have to be a
collective effort between them and banks. Also the government should engage more in the
development of Small Scale Enterprises by creating and embarking on various incentives to
encourage both Small Scale Enterprises and commercial banks.
Title Page ——————————————————————————– i
Approval Page ————————————————————————- ii
Certification —————————————————————————- iii
Dedication —————————————————————————— iv
Acknowledgement ——————————————————————- v
Abstract ——————————————————————————- vi
Table of Contents ——————————————————————– vii
1.1 Background of the study —————————————————–1
1.2 Statement of the Problem ————————————————– 3
1.3 Objectives of the Study —————————————————— 5
1.4 Research Question ———————————————————— 5
1.5 Hypotheses ———————————————————————-6
1.6 significance of the Study —————————————————- 6
1.7 Limitations of the Study —————————————————– 7
1.8 Definition of terms ———————————————————— 8
2.1 The meaning of Small Scale Enterprises ——————————– 9
2.2 Roles and Importance of Small Scale Enterprises (SSEs) ———– 12
2.3 Funding Needs and sources of Funds
For Small Scale Enterprises (SSEs) ————————————— 15
2.4 The predominance of Small Scale Enterprises
In Nigeria ———————————————————————- 21
2.5 Problems facing Small Scale Enterprises in Nigeria —————– 24
2.6 Commercial Banks financing Small Scale Enterprises
Under the New Central Bank of Nigeria (CBN)
Directive and its likely impact ——————————————- 31
3.1 Population of the Study ————————————————— 36
3.2 Determination of Sample Size ——————————————- 36
3.3 Instruments of Sample Size ———————————————- 36
3.3.1 Primary Data ————————————————————– 37
3.3.2 Secondary Data ———————————————————– 37
3.4 Method of Data Collection ———————————————– 37
3.4.1 Questionnaire Administration —————————————- 38
3.4.2 Interview Method ——————————————————– 38
3.5 Method of Data Presentation ——————————————- 38
4.1 Data Presentation-Primary Data ————————————— 40
4.2 Presentation of Questionnaire Results in Percentages ———- 42
4.3 Statistical Tools ————————————————————- 53
4.4 Testing of Hypotheses —————————————————- 53
5.1 Summary of Findings —————————————————– 56
5.2 Conclusion ——————————————————————- 57
5.3 Recommendations ——————————————————– 58
5.4 Suggestions for Further Research ————————————- 61
Bibliography —————————————————————- 62
Appendices ————————————————————— — 65
The post-independence Nigerian government adopted the entrepreneurship government
which constrained it to assume the role of entrepreneur and the urge to offset the economic
neglect of the colonial government and that resulted in engaging in ambitious
industrialization programmes.
When the Nigerian industrial Development Bank Limited (NIDB) was established in 1964 for
the purpose of speeding up the industrialization process, its mandate was to promote
industrial projects which were large enough to make applicable contribution to the national
economy. However, the collapse of the oil boom in the early 1980’s exposed the inherent
weaknesses of this importation of inputs resulted in large idle capacities, thereby creeping
many gross domestic product (GDP) declined in the face of the strong national aspiration for
the restructuring of the economy and reduction of the dependence on petroleum. Small and
medium scale enterprises have since become the focus of national industrial policy.
In pursuit of self-reliance in a developing country particularly in Nigeria, the central
government enacted a decree called “Enterprises promotion Decree” when there was need
for small scale enterprises in the promotion of economic development. This has since been at
the fore front of development strategies.
However, many developing countries have failed to adopt these strategies owing to their
belief that it is a relatively slow process of industrialization. Without the development of small
scale enterprises in Nigeria, the nation’s quest for industrialization will certainly remain
forever at a slow pace. It is the humble opinion of the researcher that further development
on our business enterprises must add to the basic issue of creating linkage within the
economy to begin to yield real inputs to our economic activities. Priority attention must
therefore be given to those business enterprises for which domestic inputs could easily be
produced. The objective should be to maximize the value added in their processing and
manufacturing as final strong producer incentives to small scale enterprises are necessary not
only to meet the food requirement but also to promote growing input supplier industrial
The present economy constraints may well turn out to be a blessing in disguise to our small
scale industry effort particularly for the dynamic manufacturing sector. For instance, the
market determined exchange rate through Foreign Exchange Market with its resultant high
cost of imported inputs may serve as an impetus for industrialist to intensify their search for
loan substitute.
In 1971, the government of then East Central State statutorily enacted an edit establishing an
office which was hitherto a sub-system of the ministry of commerce and industry to be known
as fund for small scale industries Credit Scheme (FUSSI) to give credits to prospective
investors to enable them establish, thus helping the country towards industrialization.
As at 1996 and 1999 respectively, banks’ loans and advances to small scale enterprises rose
from ₦42,302.1 to ₦46,824.00 million. However the very slow rate of growth of the industrial
sector, the inability of the sector to adequately provide and satisfy the needs of the economy,
the over-dependence of the nation at large on foreign goods, pose a necessary course for
concern. The means for helping small scale enterprises to acquire the much needed finance
form the background of this research.
There is dearth of financial institutions which cater for long and medium term credit needs of
businesses operating in the economy. Small scale enterprises are no exceptions to these, and
they suffer a great deal for want of capital for development and expansion of the economic
survival of the country. It cannot be over emphasized that they have moved from the
subsistence level of pre-indigenization period to a position of importance in the country’s
industrialization process.
In an attempt to modernize many small scale enterprises, their standard of operation has
moved into the capital intensive stage. The need in many cases is beyond the financial
capability of the entrepreneurs who set up the business. The major alternative for the
provision of such capital is the financial institutions and among the financial institutions
operating in the country, commercial banks are the major sources of credit to the various
sectors of the economy.
However, it is common knowledge that getting financial support from commercial banks has
been grossly inadequate for budding indigenous entrepreneurs and even for those who have
been in the manufacturing business for a long term. Three types of credit are usually required
by small scale enterprises. They include:
i. Short Term Loan: This type of credit is used to finance yearly operation until the product
or proceeds from the industry are sold. The amount which is involved in this type of credit is
usually small but lack of this type of credit is most accurately felt by small scale entrepreneurs
who have little or no saving upon which to withdraw as they are mostly beginners.
ii. Medium Term Loan: This type of loan is for more than one year maturity period but not
exceeding three to five years. This loan is mostly required for acquisition of inexpensive
equipment with relatively short life span.
iii. Long Term Loan: This type of credit is necessary for acquisition of major industrial
machines, improvement in industrial equipment, building and land: It is a type of loan that
the maturity period is for quite a longer duration.
Small scale enterprises therefore can be a powerful instrument in bringing about a
revolution in industrial practices and in firms productivity especially if supplied in
sufficient quantity and used effectively.
The study therefore identifies small scale entrepreneurial financing by commercial
banks as a major role to entrepreneurial development because finance is just one of the
major factors of production.
In view of the above problem of small scale entrepreneurship, the overall
objectives of this study is to evaluate the role of commercial banks in financing small
scale enterprises in Enugu.
The specific objectives are:
I. To evaluate the extent to which small scale enterprises in Enugu have been able
to obtain loans and advances from Nigerian Commercial Banks, as major source of
finance to the economy.
II. To ascertain the problems facing Commercial banks in financing small scale enterprises
in Nigeria.
III. To identify problems encountered by small scale enterprises in obtaining funds
from commercial banks.
IV. To determine the viability in small scale enterprises financing by commercial
V. To appraise and evaluate the situation and make recommendations on how to
improve on commercial bank provision of finance to small scale enterprises.
1. To what extent can small scale enterprises obtain loans and advances from Nigerian
Commercial Banks?
2. What are the problems facing commercial banks in financing small scale enterprises in
3. What are the problems facing small scale enterprises in obtaining funds from commercial
4. How viable is small scale enterprises financing by commercial banks?
5. How can commercial bank’s provision of finance to small scale enterprises be improved
The hypotheses to be tested include:
Ho1: United Bank for Africa (UBA) does not comply with the Central Bank of Nigeria
Credit Guidelines as it affects lending to small scale enterprises.
Ho2: Union Bank of Nigeria Plc. does not comply with the Central Bank of Nigeria Credit
Guidelines as it affects lending to small scale enterprises. When commercial banks are not
willing to comply with the credit guidelines of the central bank, it will be a hindrance for any
institution to obtain loans or advances from the bank.
During the 1960’s and early 1970’s most Nigerians engaged in industrial project did so on
subsistence level but now emphasis has shifted to the sophisticated and capital intensive
enterprises. Annual policies of the Federal Ministry of Nigeria in recent years have been to
ensure that commercial banks provide needed capital to small scale enterprises to help
improve their present state. The study therefore sets out to ascertain the extent to which
commercial banks have performed the role and the findings will help make recommendations
and suggestions for future improvement of the present situation.
In view of the current emphasis on industrialization of the country in order to reduce
the country’s import bill from foreign countries, the study focuses attention on the
evaluation of the ability of small scale entrepreneurs to obtain loans from the
commercial banks to attain the needed level of productivity of their enterprises. The
research covers selected small scale entrepreneurs in Enugu State. For the period of
three weeks.
Some of the difficulties encountered by the researcher were the unco-operative
attitudes of many of the banks’ officials approached and some of the small scale
entrepreneurs who misconstrued the essence of the study.
Another problem is that of lack of time on the side of respondents to answer the
questionnaires in details coupled with the high fare of public transportation. This greatly
increased the cost of production and limited the scope of areas covered by this study.
Also difficulties were encountered in collecting data from the banks used as case
study. Some of the questions in the questionnaire were not answered inspite of the
university’s inscription on the questionnaire and the letter of authorization by the head
of department attached to it as well as the detailed explanations given to them on
the need of the study. They insisted that some of the required information were
confidential and should not be released.
1 Small Scale Enterprises
As defined in the Nigerian context, following the current official definition of industrial
enterprises adopted by the 13th
meeting of the National Council on Industry (NCI)
Markudi, Benue State in July, 2001 as “an enterprise with total capital employed of over
₦1.50m but not more than ₦50m, including working capital but excluding cost of land
and or labour size of 11-100 workers.
2 Short term credit
This type of credit is a credit or loan that has maturity period that is less or more than
one year. E.g. Personal loan.
3 Medium term credit
This is a type of credit or loan that has a maturity period of more than one year but
not exceeding two years to be repaid back. E.g. loan required for temporary business
4 Long term credit
This type of credit matures in more than three years and above. It has a very long
maturity period as agreed by the lender and the borrower. E.g. are business
development loans and Bridging loans.


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