CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Financing is the act of providing funds for business activities, making purchases or investing (Anderson, 2004). Financial institutions and banks are in the business of financing as they provide capital to businesses, consumers and investors to help them achieve their goals. According to a World Bank study, there are many Small scale enterprise in Nigeria which, despite their high potential, have been unable to access financing from existing institutions in the financial sector. Such situations may be due to the inability of the SME to offer sufficient loan collateral or to operational issues within the SME requiring more hands-on assistance than money deposit banks and leasing companies, for example, are normally able to provide (Bronson, 2006). Various sources of finances are available to the SMEs from banks, micro-finance, cooperatives, government instruments, international institutions and donors as well as personal finances.

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, small scale enterprises 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 small scale enterprises notwithstanding its development is everywhere constrained by inadequate funding and poor management.

In fact, many developing countries have attached high priority to the industrial sector in their developments plans possibly as a result of their attraction to many development theories that have tended to see industrialization as the gateway to modernization. Nigeria, like many of them, had on gaining political independence, adopted import-substitution as her industrialization strategy. This should not be surprising, because even as of today, most of the advanced countries are rich because they are industrialized. Industrialization portends a lot of disadvantages in modern economies. Incidentally the past polices and strategies failed to generate self-sustaining

growth largely because of their preference for the establishment of large scale firms to the detriment of small scale enterprises resources (human and material), lied largely idle in the face of mounting problems.

The definition of small-scale enterprises (SSEs) in Nigeria has changed over the years not only in consonance with the changing fortune of the country but also in accordance with the diversity of the Small and Medium Enterprises. Prior to 1992, different institutions in Nigeria adopted varying definitions of small enterprises. The institutions include the Central Bank of Nigeria (CBN), Nigerian Bank for Commerce and Industry (NBCI), Centre for Industrial Research and

Development (CIRD), Nigerian Association of Small-Scale Industrialists (NASSI), Federal Ministry of Industry (FMI) and the National Economic Reconstruction Fund (NERFUND). However, in 1992, the issue of conflicting definition was resolved with the establishment of National Council on Industry, which is now policy making organ for the sector in Nigeria. Among the conceptual issue that was resolved is whether Small-Scale Industry definition should include all economic activities such as trading, buying and selling or whether it should be restricted to productive industrial activities especially manufacturing. Accordingly, a clear distinction was made between small-scale enterprises consisting of trading, buying and selling activities and small-scale industries engaged in manufacturing industry.

One of the factors militating against the development of small-scale enterprises in Nigeria is lack of funding. This is so because, small-scale enterprises in Nigeria depends on owners equity (personal savings), borrowings from friends and relations, borrowing from government agencies, and borrowing from money deposit banks. Of all these funding sources, extensive studies have shown that the most reliable and effective source is bank loan to small-scale enterprises. However, it is speculated that the recent banking reforms and the current government interest to develop the small-scale enterprises through Bank of Industry (BOI), might have suitable impact on the small-scale industry.

Since the 1970s, therefore, developing countries have been compelled, in the face of problems, to look for alternative approaches to development. One of these approaches has been redirection of efforts and encouragement of small scale enterprises. There has been a lot work on the contribution of commercial bank in financing small scale industries in Nigeria, but the available few have given an in depth up-to-date, study of its operation. Most of the writers made immense contribution on topics related to this course of the study in wider horizon. In the Nigeria economy, attention has been drawn to the fact that small scale enterprises had received little attention where as they provide employment for approximately triple the number engaged large scale manufacturing as well as playing their roles of crucial importance to developing the economy. This is why it is important to reconsider the impact of Bank of Industry in the growth of the entrepreneurship sector. There have been numerous opinions and commentaries on the role Bank of Industry should pay in financing and advising the small scale enterprises since the federal government shift in policy with greater emphasis towards small scale business in the achievement of set-reliance.

1.2 Statement of the Problem

The bulk of small scale enterprise credit is said to come primarily from banks therefore institutional changes through government policy could have an adverse effect on small business credits availability (Gray abd Harde, 2006). This really has to be ascertained in the Nigerian situation, hence the challenge or problem of this study. For instance, government in past have tried through several intervention schemes to promote funding to small scale enterprises. The schemes which were designed to ensure continuous flow of fund to Small scale enterprises include; the Bank of Industry (BOI), the National Directorate of Employment (NDE), the Nigerian Agricultural Insurance Corporation (NAIC), the Community Banks (CBs) and the Family Economic Advancement programme (FEAP).

Despite these schemes, Small scale enterprises largely rely on commercial banks for fund, despite the fact that it is usually futile effort. However, the establishment of Bank of Industry is argued to have increased the smooth flow of funds to Small scale enterprises in Nigeria. Some studies have argued that bank of industry financing positive impact on the amount of credit available to small businesses. Strahan and Weston (1996) state that banks of industry are said to be major source of credits for small business outfit, unlike large firms which have access to the capital market, small scale enterprises rely on Government assisted financial sources.

In spite of the roles play by Small scale enterprises in the Nigeria economy, the sub-sector has continued to suffer from the other numerous of problems. The main problems of this research are lack of access to finance due to delay in granting approval and or non-availability of information/material to enable bank process request immediately and lack of collateral security. Other problems include associated with the study are; social and environmental, problems due to high rate of business failure as the result of poor resources and infrastructure base a state of economy, attitudinal disposition of Nigeria towards made-in-Nigeria goods, low educational background and lack of management and entrepreneur skill. It is against this backdrop that the researcher intends to investigate the impact of Bank of Industry financing on small scale enterprises in Kaduna metropolis. The main identified gap that necessitated this study is the perceived problem of inadequate financing from bank of industry in Nigeria to Small-scale enterprises.

1.3 Research Questions

The following are the research questions for this study:

1.      What is the impact of the lending process of Bank of Industry on financing of small scale enterprises in Kaduna Metropolis?

2.      How do problems encountered by Bank of Industry in administering loans affect financing of small scale enterprises in Kaduna metropolis?

3.      Does Bank of Industry loan contribute to the financing of small scale enterprises in Kaduna Metropolis?

1.4   Research Objectives

The main objective of the study is to examine the impact of Bank of Industry in Financing of small scale enterprises in Kaduna metropolis. The specific objectives of the study are to:

1.      Determine the impact of the lending process of Bank of Industry on financing of small scale enterprises in Kaduna Metropolis.

2.      Identify how the problems encountered by Bank of Industry in administering loans affect financing of small scale enterprises in Kaduna metropolis.

3.      Determine whether Bank of Industry loan contributes to the financing of small scale enterprises in Kaduna Metropolis.

1.5 Hypotheses of the Study

The following are the formulated null hypotheses for the study.

H01: Lending process of Bank of Industry has no significant impact on financing of small scale enterprises in Kaduna Metropolis.

H02: The problems encountered by Bank of Industry in administering loans have no significant effect on financing of small scale enterprises in Kaduna metropolis.

H03: There is no significant relationship between employees’ self-efficacy and their   performance.

1.6 Significance of the Study

This researcher would be of invaluable benefit to both the financial institution and small scale industries in Nigeria, as well as the counties policy makers who have desire to place Nigerian on a sound economic and industrial footing. When this research is concluded, it would have contributed to the study of knowledge already pilling on the issue of small scale enterprise financing in Nigeria.

The study will also assist the government in determining the facts on the ground regarding small scale enterprise financing by Bank of Industry as well as areas that proper regulations or reforms are required, for example in area of accountability, transparency of process and  punishment for loan defaults. It will also assist the government to make better policies that can favor the development of the small scale industry of the economy.

The results of this study will offer valuable insights to investors, donors and providers of financing services in the monitoring of their activities and both that of loan officers in Bank of Industry with the institutions’ managers for overall evaluation and assessment of their impact in achieving the organizational objectives.

Finally, since it is the aspiration of our national policy on education to train our youths to be self reliant or self employed after school, this study will therefore stimulates their zeal to involve in the establishment of Small scale enterprise by showing them the process involve in obtaining loan. It is also very important to investigate this issue by reconciling data with empirical reality of loan administration process by Bank of Industry. Therefore, this study will be specifically significant to the following group of persons:

Management of the Bank of Industry; as the decision making authority in banks lies in the hands of managers. Therefore, this research will enable management to understand what must be done in order to act in the best interest of small scale enterprises in processing and disbursing of loans.

Investors and Potential Investors; the major beneficiaries of successful loan disbursement are owners of small scale enterprise otherwise called investors or entrepreneurs. Therefore, this research will contribute along with other similar literatures available in this area of study in enhancing value maximization on the effect of Bank of Industry financing of small scale enterprises in Nigeria.

Essentially, this research intends to contribute significantly to the volume of literature available in this area of study. In academics, the unknown is never exhausted, as the list of what we do not know could go on forever. Therefore, as a contribution in this area, recommendations about the impact of Bank of Industry financing of small scale enterprises in Kaduna will be studied. Localizing the research to the Kaduna environment is particularly important in this research.

1.7 Scope of the Study

The scope of this study is to examine the impact of Bank of Industry financing of small scale enterprises in Kaduna metropolis. The loan processes will be examined to determine whether they contribute to financing of small scale enterprises. The study will be limited to small scale enterprises that have participated in any of the Bank of Industry Loan products within Kaduna metropolis.  The time scope will cover the period between 2015 to 2017, since this was the period when bank of industry came up with loan packages that directly affect small scale enterprises.

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