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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.




Title Page                                                                                                                                i

Declaration                                                                                                                              ii

Certification                                                                                                                            iii

Dedication                                                                                                                              iv

Acknowledgements                                                                                                                v

Abstract                                                                                                                                  vi

Table of Contents                                                                                                                   vii

List of Tables                                                                                                                          ix


  • Introduction 1
  • Background to the study 2
  • Statement of the problem 5
  • Objectives of the study 6
  • Research questions 6
  • Statement of the hypothesis 6
  • Significance of the study 7
  • Scope of the study 7
  • Limitations of the study 8
  • Definitions of terms 8


2.0       Introduction                                                                                                                10

2.1       Conceptual framework                                                                                               10

2.2       Theoretical frame work                                                                                               14

2.3       Literature on Subject Matters                                                                                     15


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


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


5.1       Summary                                                                                                                     52

5.2       Conclusion                                                                                                                  53

5.3       Recommendations                                                                                                      54

References                                                                                                                  56

Appendix                                                                                                                    61


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

in your bank?                                                                                                     47

Table 4.2.1: Testing of the 1st Hypothesis                                                                              48

Table 4.2.2: Testing of the 2nd Hypothesis     


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 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 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.

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).

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 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:

  1. To highlight the different sources of finance available to small scale enterprises;
  2. To examine the role of deposit money banks in satisfying the financial needs of SMEs in Nigeria;
  • To examine method to reduce formality needed for financing the entrepreneurs by deposit money banks.
    • Research Questions
  1. What are the different sources of finance available to small scale enterprises?
  2. What are the roles of deposit money banks in satisfying the financial needs of SMEs in Nigeria?
  3. 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.

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.

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.
  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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