THE IMPACT OF BANK CREDIT FACILITIES ON THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES

THE IMPACT OF BANK CREDIT FACILITIES ON THE DEVELOPMENT OF SMALL AND MEDIUM ENTERPRISES

CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

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 capital income and output, SMEs create employment opportunities, enhance regional economic balance through industrial dispersal and generally promote effective resources utilization considered critical to engineering economic growth. However, the seminal role played by SMEs not with standing its development is everywhere constrained by inadequate funding and poor management. The unfavourable macro economic environment has also been identified as one of the major constraints which most times encourage financial institutions to be risk averse in funding small and medium scale business. The manufacturing sector (including macro, small and medium enterprises) is acknowledged to have huge potential for employment generation and wealth creation in any economy yet in Nigeria, the sector has stagnated and remain relatively small in terms of its contribution to GDP or to gainful employment. Activity mix in the sector is also quite limited dominated by import dependent processes and factors. Although there is no reliable data, impressive indicators show that capacity utilization in the sector has improved perceptibly in the period since 1999, but the sector is still faced with a numbers of constraints with lack of credit availability as the principal constraint credit is the largest element of risk in the books of most bank and failures in the management of credit risk, by weakening individual banks and in some cases, the banking system as a whole have contributed to many episodes of financial instability. A greater understanding of the nature of credit risk, leading to improved measurement and international financial system vis-à-vis the small and medium enterprises in the long –run-Generally, the stage of development and, thus the efficiency of the system varies among countries and changes over time in the same country. The more developed and sophisticated financial systems tend to be associated with the nature economics, while under-developed financial systems feature in developing economic. As a process, the financial system adjusts to changes in the real economy just as the economy responds to development in the financial sector. All over the world, size had become an importance ingredient for success, the banking sector included. In Nigeria every known regime recognizes the importance of promoting SMEs as the basic of the economic growth, as a result, several macro-leading institutions were established to enhance the development of SMEs. Such macro credit institutions include the Nigeria bank for commerce and industry (NBCI), national economic reconstruction fund (Nerfund), the people banks of Nigeria (PBN), the community banks (CB) and the Nigerian export and import bank (NEXIM), and the liberalization of the banking sector. This study attempts to find out how banks finance small and medium scale enterprises. A case study of Eni Store.

1.2  Statement of the Problem

In recognizing the importance of small and medium scale enterprises (SMEs) in accelerating the economic development of the nation, the federal and state government, through the monetary and fiscal policy of 1990, directed commercial and merchant banks to increase their minimum leading limit to the small and medium scale enterprises to 20 percent of their total credit outstanding. In strengthening their effort in this regard, the government latterly ordered that it should be increased

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