This project evaluates the effect of bank recapitalization on the performance of small and medium scale enterprises in Nigeria. The study makes use of secondary data covering five years (2010-2014) from some selected banks in Nigeria that account for over 60% of the banking transaction in the country. In the pursuit of the research work, chi-square regression method was used; questionnaire was administered, data collected, analyzed and presented with the aid of tables and percentages. The work therefore, discussed the contribution of Deposit Money Banks to providing funds to small and medium enterprises as revealed in these data. It was discovered that commercial banks contribute to financing small and medium scale enterprises but their contribution has declined as the government through Central Bank of Nigeria directives abolished the mandatory bank’s credit allocations. Among other recommendations, the project recommends that commercial banks should trim down its stringent requirements so that SMEs can benefit from loan advances as large corporations do.
Keywords: Recapitalization, SMEs development, Bank performance.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of Research Problem
1.3 Objective of Study
1.4 Research Question
1.5 Hypotheses of the Study
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitation of the Study
CHAPTER TWO: LITERATURE REVIEW
2.2 Conceptual Framework
2.2.1 Nigerian Government’s Effort toward Development of SMEs in Nigeria
184.108.40.206 Small Scale Industries Credit Scheme (SSICS)
220.127.116.11 The Nigerian Bank for Commerce and Industry (NBCI)
18.104.22.168 The National Economic Reconstruction Fund (NERFUND)
22.214.171.124 National Economic Empowerment Development Strategies (NEEDS)
126.96.36.199 Small and Medium Enterprises Equity Investment Scheme (SMEEIS)
2.3 Theoretical Framework
2.3.1 The Concept of Small and Medium Scale Enterprises
2.3.2 Deposit Money Banks as Fund Providers in Nigeria
2.3.3 Problems Confronting SMEs Access to Fund
2.4 Empirical Review
2.4.1 Contribution of Bank Recapitalization in the Promotion of Small and Medium Ent.
2.4.2 Advantages of Recapitalization on SMEs
2.4.3 Disadvantages of Recapitalization on SMEs
2.5 Sources of Financing SMEs
2.6 The Growth of Small Scale Industries and Contributive Schemes
2.6.1 Central Bank of Nigeria Special Credit Program for Small Scale Enterprises
2.6.2 World Bank Facilities for Small and Medium Enterprises Loan
2.6.3 Community Banks
2.6.4 Small and Medium Enterprises Development Agency of Nigeria (SMEDAN)
2.7 Development of Nigerian Money Deposit Banks and the Consolidation of the Sector
CHAPTER THREE: RESEARCH METHODOLOGY
3.2 Research Design
3.3 Population and Sample of the Study
3.3.1 Population of the Study
3.3.2 Sample Size of the Population
3.3.3 Sampling Techniques
3.4 Method of Data Collection
3.5 Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.2 Hypotheses Testing
4.3 Research Findings
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
1.1 BACKGROUND OF THE STUDY
Small and Medium Enterprises (SMEs) play an important role in the development of the nation’s economy due to their importance and the vital role they play in economic development and growth of the nation. These enterprises are drivers of the economy; therefore policy and adequate attention need to be given to them especially in developing economies because of their paramount impact on many sectors of the economy.
Their impact is felt in the greater utilization of local raw materials, employment generation, encouragement of rural development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries and provision of regional balance by spreading investments more evenly, provision of avenue for self employment and provision of opportunity for training managers and semi skilled workers.(Olaitan, 2006).
About 70 percent of the population in Nigeria is engaged in the informal sector including agricultural production. The Federal and State governments have recognized that for sustainable growth and development to occur, the financial empowerment of the people is vital. When this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained, then positive multipliers will be felt throughout the economy. To give effect to these aspirations, various policies have been instituted over time by the Federal Government to improve rural and urban enterprise production capabilities.(Olaitan, 2006).
The central Bank of Nigeria on July 6th 2004, announced the recapitalization of banking sector from N2 billion to N25 billion with effect from 1st January 2006. This was with a view to make the sector internationally competitive, sound and to improve its ability to provide credit to all the productive sectors of the economy. In order to meet this obligation, banks embarked on strategies of merger and acquisition, floating of new shares and so on. At the end of the exercise, 25 better capitalized banks emerged.
It was hoped that the consolidation will make the banks stronger to be able to provide large amount of funds to productive sectors of the economy which is largely dominated by SMEs, thereby making them grow into large firms with enough resources to contribute to the economic development.
Also, in December 2005, the CBN introduced new Micro-finance Policy (MFP) which was designed to be public and private sector driven. The purpose of the policy was to strengthen community banks in order for them to be able to grant collateral and non collateral loans to finance microeconomic activities in the economy. The policy also aims at providing many people with access to financial services that otherwise will have no access to these services.
SMEs has said earlier have a crucial role to play in the development of an economy, they are training grounds for local entrepreneurs, they encourage local savings and ensure equitable distribution of wealth thereby reducing rural- urban migration of human resources.
To this end, government should collaborate with private sector in order to create an enabling and conducive environment for SME’S in order to contribute positively towards the development of the economy.
1.2 STATEMENT OF RESEARCH PROBLEM
Evidence has shown that the Nigerian economy is undergoing several transformations. Bank fraud, poor lending and credit management practices in the Nigerian banking sector forced the Central bank of Nigeria to revisit the capital structure of commercial banks in Nigeria. The greatest impetus on the effect of bank recapitalization on the performance of SME in Nigeria is as a result to changes, banks strives to become more competitive and resilient to shocks as well as reposition their operations to cope with challenges of the increasing globalised banking system.
However, the consolidation of the banking sector presented new challenges to the banks which require more efforts to control cost and increase their efficiency; this in turn has affect the volume of credit facilities granted to Small and Medium Scale Enterprises in Nigeria.
The banking sector is said to drive any economy, has Nigerian commercial banks neglected SMEs which is vital for the growth and development of the Nigerian economy? Notwithstanding, it is interesting to note that Microfinance bank lending to SMEs moved in the same trend with its bank deposit.
This implies that as microfinance bank deposits increased, it’s lending to SMEs increased. Regardless of the direct impact of microfinance bank on SMEs, SMEs still cry for lack of funding and lending to SMEs in Nigeria is still poor. This is so because their capital, reserve and deposit are very small and insufficient to meet the needs of Small and Medium Entrepreneurs.
1.3 OBJECTIVES OF STUDY
The primary objective of the study is to examine the effects of bank recapitalization on the performance of SMEs in Nigeria. Specific objectives of the study are:
- To determine the relationship between increase in capital of Deposit Money Banks and the performance of small and medium scale Enterprises in Nigeria.
- To determine whether bank recapitalization led to increase in funding for SMEs.
1.4 ESEARCH QUESTIONS
In-order to achieve the above stated objectives, the researcher formulated the following research questions:
- What is the relationship between increase in capital of DMBs and the performance of SMEs in Nigeria?
- Does bank recapitalization of DMBs increase funding for SMEs?
1.5 HYPOTHESES OF THE STUDY
The following null hypotheses are formulated in line with the objectives and research questions of the study:
- Ho1: There is no significant relationship between increases in capital of DMBs and the performance of Small Business Owners in Nigeria.
Ho2: There is no significant effect between SMEs increase and DMBs funding.
1.6 SIGINIFICANCE OF THE STUDY
The effect of bank recapitalization on the performance of SMEs cannot be over emphasized in as such robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their funds for business. The latent capacity of the poor entrepreneurs would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant; increase employment opportunities, enhance household income, and create wealth.
However, the lack of required financial support from the microfinance banks to Micro Business operators in Kaduna state has become a major concern in Nigeria. Hence, this study shall be relevant to policy makers in the areas of finding out the impact of micro financing on the small scale investors, will create economies of scale and efficiency which is invariably will impact positively on economic growth. Also, this study therefore focused on the evaluation of possible challenges and prospects of effect of bank recapitalization on the performance of SMEs in the Nigerian economy.
1.7 SCOPE OF THE STUDY
This research work is the Effect of Bank Recapitalization on the Performance of Small and Medium Scale Enterprises in Nigeria. The scope of the study is from 2010 to 2014, which focuses on the Financial
Management sector of some selected Financial Institutions.
The area of this study is Kaduna state since the Deposit Money Banks to be used have branches in Kaduna metropolis.