Roles And Problems Of Financial Institutions To The Growth Of Small Scale Business
(A Case Study Of Union Bank Of Nigeria Plc Enugu)
Financial institutions play a crucial role in shaping the trajectory of small-scale businesses by providing essential financial services and support. These institutions, encompassing banks, credit unions, and microfinance entities, serve as the lifeblood of entrepreneurial endeavors. They facilitate access to capital, enabling small businesses to fund their operations, invest in expansion, and navigate economic uncertainties. Moreover, financial institutions offer a diverse array of financial products, including loans, credit lines, and investment options tailored to the unique needs of small enterprises. However, despite their pivotal role, these institutions also pose challenges to the growth of small-scale businesses. Issues such as stringent lending criteria, high-interest rates, and bureaucratic procedures can hinder entrepreneurs’ access to funds. Additionally, economic fluctuations and market uncertainties can impact the stability of financial institutions, indirectly affecting the support they provide to small businesses. Striking a balance between the facilitation of financial growth and addressing the challenges posed by these institutions is imperative for fostering a conducive environment for the sustainable development of small-scale businesses.
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Scope of the study
1.5 Research hypothesis
1.6 Significance of the study
1.7 Limitations of the study
1.8 Definition of the terms
References
CHAPTER TWO
LITERATURE REVIEW
2.1 The nigerian financial system: an overview
2.2 The regulatory institutions within the financial system.
2.3 The role of financial institutions.
2.4 Small scale business ownership.
2.5 Nature and dimensions of small scale business
2.6 Ways to go into small business
2.7 Small business and the economy
2.8 Importance of small scale business.
2.9 Merits of small scale business
2.10 Causes of small business failures
2.11 Government and small business enterprises.
2.12 Funding problems of small scale business
2.13 Source of funds
2.14 Roles of financial institution to the growth of small scales business.
Reference
CHAPTER THREE.
RESEARCH DESIGN AND METHODOLOGY
3.1 Research design
3.2 Area of the study
3.3 Population of the study.
3.4 Sample and sampling procedure
3.5 Instrument for data collection
3.6 Validation and reliability of the instrument
3.7 Method of data collection
3.8 Method of data analysis
Reference.
CHAPTER FOUR.
DATA PRESENTATION AND ANALYSIS
4.1 Distribution and return of questionnaires
4.2 Presentation and analysis of data.
4.3 Testing of hypothesis
Reference.
CHAPTER FIVE
FINDINGS, CONCLUSION AND RECOMMENDATIONS.
5.1 Discussion of findings.
5.2 Conclusions.
5.3 Implications of research findings.
5.4 Recommendations.
5.5 Suggestions for further research.
Bibliography
Appendix
INTRODUCTION
1.1 BACKGROUND OF THE STUDY.
Financial institutions have a very great role to play in the growth of small scale business everywhere in the world but I will limit my discussion to their roles in Nigeria.
Financial institutions could be seen as an institutions which primary function is collecting and giving out funds to individuals, firms, organizations etc. for business purposes.
From the definition of financial institution, or its function, one can see that financial institution could aid the growth of small scale business. How can this be done or achieved? That is the next question that could come to one’s mind. It could be achieved by the financial institutions giving out funds in form of loans, overdraft, grants and aids etc on request from small scale business man or woman.
I will not forget to talk about or explain what a small scale business is. A small scale business could be talked about or explained by different people in different ways.
And in their different views, a lot of factors or things is being considered before calling a business small scale business. What am saying in essence is that, what Mr A calls small scale business might not be what Mr. B calls small scale business. Therefore a small scale is business is being 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 (C.E.D) of the united States defines small scale business of having at least two of the underlisted characteristics:
(a) Managers are also owners.
(b) Area of operation mainly local
(c) Owner supply capital and
(d) Small in size within the industry.
1.2 STATEMENT OF THE PROBLEM.
1. Small scales industries are 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 banks are not helping matters because their condition for giving loans are not easily met and the small scale industry owners are unable to provide their request with well structured and circulated feasibility studies.
3. The inability of the banks to support the entrepreneurs through loan and other instruments such as leasing of equipment result 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 CBN guidelines and the attendant. Lack of collateral securities from the entrepreneurs created additional problems of inability to procure and unitize capital from Union Bank Plc.
1.3 PURPOSE OF THE STUDY
The reason for the study of the roles and problems of financial institutions to the growth of small scale business is that it helps individuals, small scale business owners and all the sundries to be informed of the roles of financial institutions to the economy and at the same time so that they can take an advantage of the roles and develop themselves, their families and the nation at large. These roles include giving of loans, advances, overdrafts, grants and aids and advisory services. The roles when utilize properly by small scale business owners help in the growth of their businesses.
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 problems affect the smooth running of financial institutions because ties up capital that would have been used for further development of the sector. Government regulations or policies also affects also affects financial institutions because, government might make a policy to correct certain abnormalities in the economy. The policy might affect their profit as such it constitutes a problem.
1.4 SCOPE OF THE STUDY.
The research was to determine the roles and problems of financial institutions to the growth of small scale business in Nigeria. The research carried out in-dept 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 country’s export bill from foreign countries and unemployment the study focuses attention on the evaluation of small scale industries that obtains loan from the Union Bank of Nigeria Plc to attain 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 (N500,000.00)
1.5 RESEARCH HYPOTHESIS
HYPOTHESIS 1
Ho. Union Bank Nigeria Plc would not accommodate small scale entrepreneurs in their priority sector for provision of funds for procurement of machinery and other equipment.
H1. Union Bank Nigeria Plc would accommodate small scale entrepreneurs in their priority sector for provision of funds for procurement of machinery and other equipment.
HYPOTHESIS 2
Ho: Union Bank Nigeria plc would not provide financial assistance to entrepreneurs without collateral securities.
H1: Union Bank Nigeria plc would provide financial assistance to entrepreneurs without collateral securities.
1.6 SIGNIFICANCE OF THE STUDY
Financial institutions play a very significant5role in the growth of small scale business. The roles they play includes:
i. Giving of loans to small scale business.
ii. Giving of overdraft
iii. They render business advisory services.
I. GIVING OF LOANS TO SAMLL SCALE BUSINESS:
This is one of the roles played by financial institutions in the growth of small scale business. They give loans to small business man or woman on request. This aids the small scale businessmen can now perform better compares to when they has small capital.
II. GIVING OF OVERDRAFT.
Financial institutions allow small scale businessmen that have a savings account deposit to withdraw from their accounts more than they have if they wish. This excess allows or enables the capital at hand to increase. The addition of the excess fund to the main amount withdrawn would aid the small scale businessmen to plan better than they would have done if they withdraws the main fund he has in his account.
III. THEY RENDER BUSINESS ADVISORY SERVICES.
Financial institutions render advisory services to small businessmen. This advisory services they render aids the small scale business who acts upon the advise rendered. It aids them to grow in business. Small scale businessmen are thought how to introduce simple record keeping and accounting in their operations. 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 this services have reported significant success.
1.7 LIMITATIONS OF THE STUDY.
Like in any other human activities the study has its limitations and constraints.
High cost of materials and increase in transportation fare, scarce financial resources have constituted a constraint to the study.
Time considerations and distance involved in collecting the primary data is another limitation of the study. This is because the time lag between the end of course work and the submission of the project is greatly inadequate.
Moreover, interview , attitude of respondents constituted a constraint on the researcher as some respondents gave inaccurate information or failed to return their questionnaires.
1.8 DEFINITION OF TERMS
1. BANK
A financial institution that keeps custody of valuables such as money, gold, jewelries etc. for customers. They charge customer for their services.
2. ENTREPRENEUR.
The one who conceives the idea of a business, runs the business, bears the risk and enjoys profit or loss.
3. FINANCIAL INSTITUTIONS.
Are institutions responsible for collecting and giving out funds to individuals, firms, organization etc. for business purpose.
4. GRANT.
It is a financial assistance by financial institutions or government which is not repayable.
5. LOAN
Financial assistance rendered by financial institutions to borrowers. It is payable and collateral is required before financial institution can grant the loan.
6. MANAGER.
One who adopts a process for running the affairs of a business.
7. OVERDRAFT.
It is a kind of loan granted by banks, but before this loan is granted, the person who wants the loan 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
8. SMALL SCALE BUSINESS.
A business in which the managers are the owners, area of operation mainly local, owners supply capital and small in size within the industry.
Roles 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 various financial services and support. However, they also face several challenges that can affect their ability to effectively contribute to the growth of these businesses. Let’s explore the roles and problems of financial institutions in relation to small-scale business growth:
Roles of Financial Institutions:
Access to Capital: Financial institutions, such as banks, credit unions, and microfinance institutions, provide access to capital through loans and credit lines. Small businesses often lack the necessary funds to start or expand, and these institutions help bridge the gap.
Financial Services: They offer a range of financial services, including savings and checking accounts, payment processing, and insurance, which help small businesses manage their finances efficiently.
Advisory Services: Some financial institutions offer advisory and consulting services to help small businesses with financial planning, budgeting, and investment decisions.
Risk Management: Financial institutions provide tools and products, like insurance and derivatives, to help small businesses manage financial risks associated with fluctuations in interest rates, currency exchange rates, and commodity prices.
Financial Literacy Programs: Many financial institutions organize workshops and training programs to enhance the financial literacy of small business owners, enabling them to make informed financial decisions.
Problems Faced by Financial Institutions:
Credit Risk: Small-scale businesses often have a higher risk of defaulting on loans due to their limited financial resources and market volatility. Financial institutions must carefully assess and manage this risk.
Regulatory Compliance: Financial institutions are subject to strict regulations and compliance requirements, which can be costly and time-consuming. Compliance challenges may deter them from serving small businesses effectively.
Information Asymmetry: It can be challenging for financial institutions to assess the creditworthiness of small businesses due to limited financial data and information asymmetry. This can lead to higher interest rates or loan denials.
Lack of Collateral: Many small businesses struggle to provide sufficient collateral to secure loans, making it harder for them to access financing from traditional financial institutions.
Market Segmentation: In some cases, financial institutions may focus more on larger clients who generate higher revenues, leaving smaller businesses underserved.
Technology Barriers: Outdated technology and inadequate digital infrastructure can hinder financial institutions’ ability to provide efficient and accessible financial services to small businesses.
Economic Conditions: Economic downturns and recessions can increase the default rate among small businesses, leading financial institutions to become more risk-averse and reduce lending to this sector.
Interest Rate Risk: Financial institutions may face interest rate risk when offering fixed-rate loans to small businesses if market interest rates change significantly.
To overcome these challenges and support the growth of small-scale businesses, financial institutions may need to develop specialized products, improve risk assessment models, collaborate with government agencies and nonprofit organizations, and invest in technology to streamline their operations and enhance their reach. Policymakers can also play a role in creating a conducive regulatory environment to encourage financial institutions to serve small businesses more effectively.