Role And Problems Of Financial Institutions To The Growth Of Small Scale Business
(A Study Of Union Bank Of Nigeria Plc, Owerri, Imo State)
Financial institutions play a critical role in supporting the growth of small-scale businesses by providing access to capital, financial services, and expertise. However, several challenges hinder their effectiveness in this regard. One primary issue is the stringent lending criteria imposed by financial institutions, which often make it difficult for small businesses to qualify for loans or credit. Additionally, high interest rates and collateral requirements further limit accessibility to funding, particularly for entrepreneurs with limited assets. Moreover, bureaucratic processes and lengthy approval times can discourage small businesses from seeking financial assistance from these institutions. Addressing these challenges is crucial to unlocking the full potential of small-scale businesses and fostering economic growth.
The purpose of this study is to x-ray the mobilization and channeling of fund to business sectors. The study is to access the contributions of the Nigeria banking industry to the growth of small and large scale business as well as the role of finance in enhancing the growth and development of small and medium scale business. This lies in identifying the major problems confronting these enterprises which are the issue of financing (fund). Also, the various sources of funds, which are available for the small scale enterprises, are also highlighted. The study involves a field survey; the required data were collected through primary and secondary data. Secondary data were collected from textbooks, newspapers, journals seminar papers and other publication that dealt with related subjects. Primary data were collected from various managers of small scale business.
Title Page
Approval Page
Dedication
Acknowledgment
Abstract
Table of Contents
CHAPTER ONE
1.0 Introduction
1.1 Background of the study
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Research questions
1.5 Significance of the study
1.6 Scope of the study
1.7 Limitations of the study
1.8 Definition of terms
CHAPTER TWO
2.0 Literature Review
2.1 Introduction
2.2 The regulatory institution within the financial system
2.3 The role of financial institution
2.4 Small scale business ownership
2.5 Ways to go into small scale business
2.6 Small business and the economy
2.7 Importance of small business
2.8 Merit of small scale business
2.9 Causes of small business failure
2.10 Government and small business enterprise
2.11 Funding problems of small scale business
2.12 Sources of funds
2.13 Roles of financial institution in small scale business
2.14 Nature and dimensions of small scale business
entrepreneurship
CHAPTER THREE
3.0 Research design and methodology
3.1 Introduction
3.2 Research design
3.3 Sources / Method of data collection
3.4 Population and sample size
3.5 Sampling techniques
3.6 Validity and reliability of measuring instrument
3.7 Method of data analysis
CHAPTER FOUR
4.0 Presentation and analysis of data
4.1 Introduction
4.2 Presentation and analysis of data
4.3 Interpretation of data
CHAPTER FIVE
5.0 Summary of findings, Conclusion and
Recommendations
5.1 Summary of findings
5.2 Conclusion
5.3 Recommendations
Bibliography
Appendices
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Financial institutions have a very great role to play in the growth of small business everywhere in the world but I will limit my discussion to their roles in Nigeria.
Financial institution could be seen as an institution which primary functions is collecting and giving out funds to individuals, firms, organizations etc for business purpose from the definition of financial institutions or its functions, one can see that financial institution could aid the growth of small scale business. How can this be done or achieved? What is the next question that could come to one’s mind it could be achieved by the financial institution giving out funds in form of funds? Overdrafts and aid etc on request from small scale business man or woman.
I will not forget to explain what a small business is, it can be viewed by different ways or views, a lot of factors are being considered before calling a business small scale business. Meaning what Mrs. Olu called small scale business might not be what Mrs. U.K may consider as small scale business.
Therefore, a small scale business has been explained by these few people and school of thought, Blott Lawrence 1973 defines small scale business to be any industry which is independently owned and operated and not dominant in its area of operation.
The Committee for Economic Development (CED) of the United State defined small scale business of having at least two of the under-listed characteristics.
a. Manager and also owners
b. Owners supply capital
c. Small in size within the industry
1.2 STATEMENT OF THE PROBLEM
1. Small scale industries are not capable to source capital easily from Union Bank Plc and this problem prevents entrepreneurs from procurement of machinery and equipment required for production.
2. The bank are not helping matters because their conditions for giving loans are not easily met and the small scale industries owners are unable to provide their request with well structured and circulated feasibility studies.
3. The inability of the bank to support the entrepreneurs through loan and other instruments such as leasing of equipment in low capital utilization volume of production, provision of services and sales.
4. The loan granted suffers additional problems of high interest rates and the burden creates higher probability of default in repayment of loans.
5. The rapid policies of banks contrary to C.B.N guidelines and the attendant lack of collateral securities from the entrepreneurs created additional problems of inability of procure and utilize capital from Union Bank Plc.
1.3 PURPOSE OF THE STUDY
The reason for the study of the function of financial institution in small scale business is that it help individuals, small scale business owners and all the sundries to be informed of the role of financial institution to the economy and at the same time that they can take an advantage of the role and develop themselves, their families and the nations at large. These roles include giving loans, advanced overdrafts, grants and aids and advisory services. The roles when utilize properly by small business owner help in the growth of their business. Financial institutions have some problems they are confronted with too. These problems include borrowers not paying back at stated time, government policies and regulations etc. This problem affects the smooth running of financial institution because tied up capital that would have been used for further development of the sector. Government regulation or policies also affects financial institution because, government might make a policy to correct certain abnormalities in the economy. The policy might affect their project as such it constitutes a problem.
1.4 RESEARCH QUESTIONS
By answering the following question, the objective of this study would be achieved.
1. What are the functions of financial institution in small scale business?
2. Doe financial institutions provide loans and advance to small scale owners?
3. Do small scale businesses have enough funds finance their business?
4. Are smaller scale businesses aware of banking facilities available to them?
5. Does small scale firm have access to bank and other sources of funds?
1.5 SIGNIFICANCE OF THE STUDY
The financial institutions play a very significant role in the growth of small scale business. The roles they play include:
1. Giving of loans to small scale business
2. Giving of overdraft
3. They render business advisory services.
Giving of Loans to Small Scale Business: This is one of the role plays by financial institution in the growth of small scale business. They give loans to small business man or woman on request. This aids the small scale business men to perform better compared t when they have small capital.
Giving of Overdraft: Financial institution allows small scale business men have a savings account deposit to with draw from their accounts more than they have if they wish. This excess allows or enables the capital at hand to increase, the additions of the excess fund to the amount withdraw would aid the small scale businessmen to plan better than they would have done if they withdraws the main fund he has in his accounts.
They Render Business Advisory Services: Financial institution render advisory services to small businessmen. This advisory service they run render aids the small scale business who acts upon the advice rendered. It aids them to grow in business. Small scale businessmen are thought how to introduce simple record keeping and accounting in their operation. This is because, most business concerns do not keep accurate record of their business and this can lead to business failure. Banks or financial institutions providing the services have reported significant success.
1.6 SCOPE OF THE STUDY
The research was to determine the function institution in small scale business in Nigeria. The research carried out in-depth study on the operations of financial institutions to the growth of the said industries.
Due to the current emphasis on the industrialization of the industry in order to reduce countries export bill from foreign countries and unemployment, the study focuses attention on the evaluation of small scale industries that obtains the needed heights and capacity. The research covers selected small scale industries in Enugu.
Small scale industries as used in this study are those indigenously owned fully by Nigerians and with an annual turnover not exceeding five hundred thousand naira (N500,000).
1.7 LIMITATIONS OF THE STUDY
Like in any other human activities the study has its limitations and constraints. High cost of materials resources has constituted a constraint to the study. Time consideration and distance involved in collecting the primary data is another limitation of the study. This is because the time lag between the ends of course works and the submission of the project is greatly inadequate.
Moreover, interview, attitude of respondents constituted a constraint on the research on the research as some respondents gave inaccurate information or failed to return their questionnaires.
1.8 DEFINITION OF TERMS
Bank: A financial institution that keeps custody of valuable such as money, gold, jewelries, etc for customers. They charge customers for their services.
Entrepreneur: The one who conceives the idea of a business runs the business, bears the risk and enjoys profit or loss.
Financial Institution: Are institution responsible for collecting and giving out funds to individuals, firms organization etc for business purpose.
Grant: It is financial assistance by financial institution or government which is not repayable.
Loan: Financial assistant rendered by financial institution to borrowers. It is payable and collateral is required before financial institution can grant the loan.
Manager: One who adopts a process for running the affairs of the business.
Overdraft: It is a king of loan granted by banks, but before this loan is granted, the person who wants the loans must have an account in the bank. It is a situation where an account holder in a bank withdraws above the amount he has in his account.
Small Scale Business: A business in which the managers are the owner’s areas of operation mainly local owner’s supply capital and small in size within the industry.
SHARE PROJECT MATERIALS ON:
Role And Problems Of Financial Institutions To The Growth Of Small Scale Business:
Financial institutions play a crucial role in the growth of small-scale businesses by providing them with the necessary funding and financial services. However, there can also be challenges and problems associated with the interaction between financial institutions and small businesses. Let’s explore both aspects:
Role of Financial Institutions:
- Access to Capital: Small businesses often lack the capital required for expansion, purchasing equipment, or hiring additional staff. Financial institutions such as banks, credit unions, and microfinance institutions provide loans, credit lines, and other financing options that allow these businesses to invest in growth opportunities.
- Financial Services: Financial institutions offer various services such as checking accounts, savings accounts, and electronic payment systems. These services help small businesses manage their cash flow efficiently and conduct transactions smoothly.
- Risk Management: Financial institutions provide insurance products and risk management strategies that protect small businesses from unforeseen events such as property damage, liability issues, and business interruptions.
- Expertise and Advice: Many financial institutions offer advisory services to small businesses, assisting them in making informed financial decisions, managing debt, and planning for future growth.
- Technology and Innovation: Financial institutions often develop and provide technological solutions like online banking, mobile payment apps, and digital lending platforms, which enhance the convenience and accessibility of financial services for small businesses.
Problems and Challenges:
- Limited Access to Credit: Small businesses, especially startups, might face challenges in obtaining loans from traditional financial institutions due to their limited operating history, lack of collateral, or perceived higher risk.
- High Interest Rates: Even if small businesses can access credit, the interest rates might be relatively high, increasing the cost of borrowing and potentially affecting the profitability of the business.
- Stringent Requirements: Financial institutions often require extensive documentation and collateral, which can be difficult for small businesses to provide. This creates barriers for those without sufficient assets or a well-established credit history.
- Risk Perception: Financial institutions sometimes view small businesses as riskier ventures, leading to more cautious lending practices and potentially limiting the amount of credit extended to them.
- Lack of Financial Literacy: Small business owners might not have a strong understanding of financial concepts, making it challenging for them to navigate the complex landscape of financial products and services.
- Inflexible Loan Terms: Small businesses might need more flexible repayment terms, especially during periods of fluctuating revenue. However, financial institutions might have rigid repayment schedules that don’t align with the business’s cash flow.
- Bias and Discrimination: There have been instances of bias or discrimination in lending decisions, where certain demographics or types of businesses face obstacles due to factors unrelated to their creditworthiness.
- Size Disparity: Small businesses often have different needs than larger corporations, but financial institutions might offer standardized products that don’t cater well to their unique requirements.
In conclusion, while financial institutions play a crucial role in supporting the growth of small-scale businesses, there are challenges that need to be addressed to ensure equitable access to funding and financial services. Efforts to increase financial literacy, develop tailored financial products, and reduce bias in lending decisions can contribute to a more conducive environment for small business growth.