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1.1 BACKGROUND TO THE STUDY
The Small and Medium Scale Enterprises play a critical role in economic development. Small and Medium Scale enterprises provide jobs for between a third and half of the labour force in many economies (Udechukwu, 2003). In developing countries, Small and Medium Scale enterprises contribute to the alleviation of poverty. Small and Medium Scale firms also form a pool from which larger firms may grow. The ability of Small and Medium Scale firms to grow depends in part on the efficiency with which capital is channeled towards them. The smallest firms present unique challenges for capital markets. They have high birth and mortality rates, and their owners often have few assets, which can be used for collateral. The desired loans are generally of small size. Given administrative costs, traditional collateral based lending may not be profitable.
The link between access to capital and the foundation and growth of firms has been examined in the literature from many angles. Evens and Jovanovic (1989), Holtz-Eakin, et. al. (1994a. 1994b) and Blanchflower and Oswald (1998), among others, use household labour surveys to examine the importance of capital constraints as a barrier to entry into self-employment. Taking a macro-level approach, Levine (1997) reviews the evidence for the importance of financial development on firm growth and economic development more broadly using country level data. Theorists have also examined the issue of credit constraints and business startups. Aghion, Caroll, et al. (1999) develops some simple frameworks and review empirical literature on the importance of credit constraints in economies characterized by high levels of income inequality.
Support for enterprise involves both real services and the provision of information about technology flows within national boundaries among enterprises, and institutions. For this reason, government policies in developing and advanced industrial countries alike have evolved a battery of measures to assist small and medium scale enterprises in the technological change process. However, significant market segmentation in underdeveloped countries gives certain categories of enterprises greater access to funds. For instance, large firms are more likely than Small and Medium Scale firms, to obtain loans, (Oyeyinka, 2003). Even then this kind of access may be limited to routine operation type technological activities.
In Africa, Small and Medium Scale enterprises are an integral part of the industrial system, yet they do not count in official statistics and as such they rank low in priority for state support. Resources for innovative research and development (R & D) and training are not easy to obtain. Capital market and skills market failures, which are more pronounced in poor countries has led governments of such countries to formulate policies to selectively channel funds to less favoured group of firms. They have set up specialized economies, private Research and Development Institutions (RDIs) are practically non-existent, and publicly funded laboratories are often isolated from productive enterprises.
1.2 STATEMENT OF THE PROBLEM
Financial systems play fundamental roles in development and growth of the economy. The effectiveness and efficiency in performing these roles, particularly the intermediation between the surplus and deficit unit of the economy, depends largely on the level of development of the financial system. It is to ensure its soundness that the financial sector appears to be the most regulated and controlled by the government and its agencies.
The Small and Medium Scale Industry 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, Activity in the sector is also quite limited dominated by import dependent processes and factors. 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 constraints with lack of credit availability as the principal constraint.
1.3 STATEMENT OF THE RESEARCH QUESTIONS
This research work shall be guided by the following research questions:
(a) What role does Union Bank of Nigeria Plc play in the financing of Small and Medium Scale enterprises in Nigeria?
(b) What are the major constraints faced by Union Bank of Nigeria Plc in financing of Small and Medium Scale enterprises in Nigeria?
(c) What measures could be adopted by Union Bank of Nigeria Plc to improve the financing of Small and Medium Scale enterprises in Nigeria?
(d) What are the policy initiatives by the government to help Union Bank of Nigeria Plc in financing Small and Medium Scale enterprises?
1.4 STATEMENT OF THE RESEARCH HYPOTHESES
The hypotheses to be tested in the course of the study are stated below:
(a). Union Bank of Nigeria Plc policies have not contributed significantly to improve the financing of Small and Medium Scale enterprises.
(b). Union Bank of Nigeria Plc policies have no sufficient credit facilities, to grant loans to Small and Medium Scale enterprises in Nigeria.
(c). Government policies have not significantly impacted on Union Bank of Nigeria Plc measures of financing Small and Medium Scale enterprises
1.5 OBJECTIVES OF THE STUDY
The main objective of this study is to assess the role of Union Bank of Nigeria Plc in the promotion of Small and Medium Scale enterprises thereby taking into consideration various conditions such as economic, political, social, psychological etc. under which Small and Medium Scale enterprises are encouraged to operate. In so doing, the researcher intends giving an in-depth information and analysis on the various strategies through which Small and Medium Scale enterprises can be developed and encouraged. Other specific objectives of the study are to:
(i). To identify the role played by Union Bank of Nigeria Plc in the financing of Small and Medium Scale enterprises in Nigeria and whether that role has been optimal.
(ii). To identify the major constraints faced by Union Bank of Nigeria Plc in financing of Small and Medium Scale enterprises in Nigeria.
(iii). To identify the measures adopted by Union Bank of Nigeria Plc to improve the financing of Small and Medium Scale enterprises in Nigeria.
(iv). To identify the policy initiatives by the government to help Union Bank of Nigeria Plc in financing of Small and Medium Scale enterprises.
1.6 SCOPE OF THE STUDY
This research covers the area of promoting Small and Medium Scale enterprises, playing attention to the role of Union Bank of Nigeria Plc and other external factors that can affect positively the growth and promotion of Small-Scale enterprises.
The research intends to study the essential problems encountered by Small and Medium Scale enterprises and suggest ways by which they can be adequately and efficiently financed. The empirical investigation of the promotion of Small and Medium Scale enterprises in Nigeria by Union Bank of Nigeria Plc shall cover the periods between 2001 to 2008. That is pre-consolidation period (2001-2004) and post-consolidation period (2005-2008). This study intends to restrict itself to Union Bank of Nigeria Plc.
1.7 SIGNIFICANCE OF THE STUDY
Small and Medium Scale enterprises in Nigeria rely largely on own savings, not only to grow but also to innovate, firms often need real services support and formal finance assistance, failing which under-investment in long term capabilities (training and R&D) may result, (Oyeyinka, 2003).
Besides finance, there are critical elements (including: knowledge, skill and experience of staff, capacity and quality of internal and managerial leadership; external infrastructure and the incentive system at the micro and macro levels) that are lacking within technology support institutions themselves. These undermine the effectiveness of their support to Small and Medium Scale enterprises. This study is significant because it would help to evaluate the operations of a vital segment of the industrial sector- Small and Medium Scale enterprises, which have been identified as having very high potential in promoting economic growth and development. The evaluation shall be done with special focus on their financing support and needs thereby adding to the existing literature on the subject matter.
1.8 DEFINITION OF TERMS
(a). CBN: Means Central Bank Of Nigeria
(b). OECD: Means Organization for Economic Cooperation and Development.
(c) SMEs: Means Small and Medium Scale Enterprises
(d) SSICS: Means Small Scale Industries Credit Scheme
1.9 PLAN OF THE STUDY
The study is divided into five Chapters:
Chapter one essentially introduces the study, highlights the objectives, research questions, scope and significance of the study.
Chapter two review literature in realization of the need for a thorough and theoretical framework.
Chapter three discuss method of data research, sources of data and techniques of data analysis.
Chapter four answers to the research questions, statement of hypotheses, presentation and analysis of data and lastly.
Chapter five draws summary of major findings conclusions and recommendations.
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