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 capital income and output , SMEs create employment
opportunities, enhance regional economic balance through industrial dispersal
and generally promote effective resources utilization considered critical to
engineering economic and growth.
However, the seminal role played by SMEs
not withstanding it development is every where constrained by inadequate
funding and poor management. The unfavourable macro economic environment has
also been identified as one of the major constraints which most times encourage
financial institutions to be risk-averse in funding small and medium scale
businesses. The manufacturing sector(including micro, small and medium
enterprises) is acknowledged to have huge potential for employment generation
and wealth creation in any economy, yet in Nigeria, the sector has stagnated
and remains relatively small in terms of its contribution to GDP or the gainful
employment.
Activity mix in the sector is also quite
limited dominated by import dependent processes and factors. Although there is
no reliable data, imprecise indicators show that capacity utilization in the
sector has improved perceptibly in the period since 1999, but the sector is
still faced with a number of constraint with lack of credit availability as the
principal constraint. Credit is the largest element of risk in the books of
most banks and failures in the management of credit risk, by weakening
individual banks and in some cases, the banking system as a whole, have
contributed to many episodes of financial instability. A greater understanding
of the nature of credit risk, leading to improved measurement and international
financial system vis-à-vis the small and medium enterprises in the long run.
Generally, the stage of development and,
thus the efficiency of the system varies among countries and change overtime in
the same country. The more developed and sophisticated financial systems tend
to be associated with the nature economics. While underdeveloped financial
systems feature in developing economics. As a process, the financial system
adjusts to changes in the real economy just as the economy responds to
developments in the financial sector. All over the world, size had become an
important ingredient for success, the banking sector included.
In Nigeria every known regime
recognizes the importance of promoting SMEs as the basis of economic growth. As
a result, several micro-lending institutions were established to enhance the
development of SMEs. Such micro credit institutions include the Nigeria Bank
for commerce and industry (NBCI), National Bank of Nigerian (PBN) the community
banks (CB), and the Nigerian Export and Import Bank (NEXIM), and the
liberalization of the banking sector.
This study attempts to find out how
commercial banks finance small and medium scale enterprises taking Union Bank
of Nigeria plc as a case study. Union Bank of Nigeria’s rich history can be
traced to 1917 when it was first established as colonial bank Dco (Dominion,
colonial and overseas) resulting from its acquisition by Barclays Bank.
Following Nigeria’s
independence and the enactment of the companies act of 1968, the bank was
incorporated as Barclays Bank of Nigeria limited(BBNL, est. 1969).
Between 1971 and 1979, the bank went through a series of changes including its
listing on the NSE and share acquisition transfers driven by the Nigeria
enterprises promotion acts (1977 and 1977).
In 1993, in line with its
privatization/commercialization drive, the federal government divested by
selling its controlling shares(51.67%) to private investors. Thus, Union Bank became
fully owned by Nigerian citizen and organization all within the private sector.
During the central bank of Nigeria’s
(CBN) banking sector consolidation policy, union bank of Nigeria plc acquired
the former universal trust bank plc and broad bank Ltd and absorbed its one
time subsidiary, union merchant bank Ltd.
Following the banking crises in 2009 and
the intervention of the CBN via asset management company of Nigeria (AMCON),
the bank was recapitalized in 2012 with an injection of $500 million by union
global partners limited(UGPL), a consortium of local and international
investors. UGPL acquired 65% of the bank’s share holding and in the last
quarter of 2014, AMCON’S remaining 20% stake in the bank was acquired by Atlas
Mara. In compliance with CBN’S regulation 3, UBN is divesting of all non-core
banking subsidiaries, which aligns with our core banking business model. Union
bank, united kingdom(UBUK) will remain the only subsidiary of the bank.
Union ban k of Nigeria plc is a retail
and commercial bank with its headquarters located in the central business
district of Lagos, Nigeria.
There is also one branch outside the
country in London
which serves as a representatives of the bank of Nigeria to carryout its foreign
services. The staff strength of the bank is over seven thousand six hundred
constituting managerial, senior and junior staff.
One
of the main obligation of commercial banks in Nigeria and else where in the
maximum contribution to the economic development of the nation others are
maximum profitability owned to the shareholders and maximum liquidity owned to
the depositors.
This research work will concentrate on
the maximum contribution to the economic development of the nation, i.e through
financing SMEs by commercial banks. The analysis of the research problem will
thus pose some question like. Do commercial banks finance small and medium
scale enterprises adequately, if not what are the limitations.
The
following are the objectives of the study.
(1) To
determine the extent to which the lending process of banks relates to attitudes
of small scale business owners.
(2) To
examine the role of commercial banks in satifying needs of SMEs in Nigeria taking
union bank of Nigeria plc as a case
study.
(3) To evaluate
the extent to which small and medium scale enterprises access loan from Union
Bank Plc Abakaliki.
The
following are research questions
(1) How
does the attitude of SMEs, business owners relate to the method union bank plc
lend money to them.
(2) Does
money lend to small and medium scale business owner by union bank plc enhances
profitability in their business?
(3) Does
union Abakaliki comply with CBN policy in lending to SMEs business owners?
Base
on the formulated research question, the hypothesis are:
H0: There is no significant
relationship between bank lending to SMEs in Abakaliki and the attitude of the
business owners.
H1: There is no significant
relationship between lending to SMEs and profitability of the business owners.
H0: Union Bank plc Abakaliki does
not comply with the central bank of Nigeria credit guideline as it
affects lending to SMEs.
H2: Union bank plc Abakaliki comply
with the central bank of Nigeria
credit guideline as it affects lending to SMEs.
H0: That financing SMEs by
commercial Banks has been a failure in union plc Abakaliki
H3: That financing SMEs by
commercial banks has been achieve in union bank plc Abakaliki.
During
the 1960’s and early 1970’s most Nigeria engaged in
industrial
project did soon 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 bank
provide needed capital to small and medium 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 for future improvement of the present situation.
This
research work is intended to examine the financing of SMEs by with emphasis on
union bank of Nigeria plc. As seen in the earlier part of this chapter, the
importance of SMEs towards economic development of a nation cannot be over emphasized, the study
overs all kinds of industries, production processing, servicing, etc.
One
of the major limitation is carrying out this work is time.
There
is time constraint in carrying out this research work due to the fact that
there are other academic engagements like attending lectures, writing
assignment, test, etc. Another limitations of this, is that only UBN PLc is
used. The operation in this bank will certainly not represent the genuine
situation obtainable in other banks.
This can be as a result of different
policies or the financial capabilities in lending. However, UBN, PLC is chosen
because of its financial backing and this represent commercial banks that can
fulfil their obligation as seen in the earlier part of the chapter.
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