THE ROLE OF MONEY DEPOSIT BANKS IN FINANCING SMALL SCALE BUSINESS

Abstract

This study is on the role of money deposit banks in financing small scale business. The total population for the study is 200 staff of UBA in Nasarawa state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made up human resource managers, accountants, customer care officers and marketers were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies

 CHAPTER ONE

INTRODUCTION

• Background of the study

Small-scale business has been an important element in this country’s drive towards a self-reliant economy. This is based on the legalization that small-scale enterprises are desirable worldwide; hence, it is an avenue for reducing the rate of unemployment in the country and there by contributing to the Gross Domestic Product (GDP) of the nation. In the developed countries today, technological advancement was due to the establishment of small-scale business and industries. Small-scale enterprises are considered as a pivot for technological takeoff and self-reliance of any nation. In the commercial world, there are various kinds of business undertakings. These business activities range from the private enterprise to public corporation. According to Central Bank of Nigeria Monetary policy and programs, circular to commercial and merchant banks define small-scale business as: Those with annual turnover not exceeding 500000. According to the Industrial Research Unit of university of Ife defined a small-scale business as One whose principal assets in capital equipment, plant and working capital are less than 250000 and employing fewer than 50(fifty) full time worker. 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, 2012; Ayozie and Latinwo, 2010; Ayesha, 2007); the greater likelihood that SMEs will utilize labour intensive technologies and thus have an immediate impact on employment generation they can usually be established rapidly and put into operation to produce quick returns (Salami, 2003); 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, 2012). Typically, SMEs face higher transactions costs than larger enterprises in obtaining credit. Lee (2004) 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, 2004). The bulk of Deposit Money Banks’ lending to industries is working capital which goes to well entrenched blue-chip enterprises which have enough bargaining power to negotiate better borrowing terms. This study assesses the impact of poor financial support, business environment and managerial skills on the growth and survival of SMEs in Nigeria.