An Evaluation of the Role of Commercial Banks in Financing Small and Medium Scale Enterprises (SMEs): Evidence from Nigeria

Abstract

In this study an attempt was made to evaluate the role of commercial banks in financing small and medium scale enterprises in Nigeria. There is absolutely no doubt that small and medium scale enterprises play a pivotal role and contributes tremendously to the economic growth and development of many developing economy including Nigeria, but survival of Small and medium scale enterprises is often hampered by access to finance which key players were making attempt to solve. The objective of this study is to evaluate the extent to which commercial banks in Nigeria play their role in solving financing needs of small and medium scale enterprises. The study employed secondary data which use the ratio of loans to Small and Medium Scale Enterprises by commercial banks as a percentage of their total credit for the period between 1991-2012.The study utilize paired sample t-test and significance of ratio of loans to Small and Medium Scale Enterprises was tested to access the performance of Small and Medium Scale Enterprises Equity Investment Scheme by banks to provide finance to Small and Medium Scale Enterprises. The result shows that commercial banks loans even with the equity scheme introduction do not make significance positive impact on loan disbursement to finance SMEs. It is recommended that Nigerian commercial banks should embrace risk-averse behavior in respect of loans to SMEs, interest rate should be review for SMEs loans by Central bank of Nigeria and increase SMEEIS contribution by commercial banks. Specialized bank should be established by government to finance SMEs; it should also provide adequate infrastructural facilities in the country and address present security challenges so as to make Nigeria conducive for SMEs to operate.

Access to Debt Finance and Performance of Small and Medium Enterprises

“…The known sources include equity share capital, reserves and surplus, preference share capital, debts, debentures, and others, such as long term sources of finance (Okeke, 2019). SMEs have limited sources of finance because according to the nature of their businesses, they can only use owner savings, loans from family and friends, and debts sources, but equity financing is not attractive to them as it is too demanding and compliance costs are high (Gololo, 2017). The limited sources of finance for SMEs compromises their growth aspirations (Afande et al, 2015;Atiase et al, 2018).…”

Bank Credit Accessibility and Performance of Smes in Kwara State, Nigeria: A PLS-Sem Analysis

“…The result support the a-priori expectation and the findings of the study corroborates with the study of Oluitan (2014), Ayuba and Zubairu (2015), Dalhat and Hassan (2016) and Abosede et al (2017) where they found significant positive relationship between access to credit and SMEs performance. However, Imafidon and Itoya (2014), Ubesie et al (2017), Owolabi and Nasiru (2017) and Ibrahim (2017) reported negative significant relationship between access to credit and the performance of SMEs. This might be due to geographical, population and sample size or construct of the study peculiarities.…”

“…Globally, a lot has been said and written on the role of SMEs in the advancement of any economy. In the same token, government in Nigeria has focused on SMEs by formulating policies aimed at enhancing the performance and growth of the sector (Eniola & Entebang, 2015;Ibrahim, 2017).…”

Small and medium scale enterprises and economic growth in Nigeria

“…Supply lending theory was postulated by Ibrahim (2017). The stance of the theory is that , the presence of financial institutions and their provision of financial resources and services in before demand for such resources enhances efficient allocation of resources from surplus units to deficit units.…”

“…Historical evidences showed that before the end of 19th century, SMEs served as the pillar of economies in Europe (Aremu & Adeyemi 2011). However, the advent of Industrial revolution, which brought about mass production, reduced the contribution of SMEs to economic growth in comparison to large enterprises (Ibrahim, 2017). The contribution of SMEs to Gross Domestic Product ( GDP) in Nigeria in the last five years is forty-eight percent (According to Bureau of Statistics, 2022).…”