THE EFFECT OF BANK RECAPITALIZATION ON THE PERFORMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA
ABSTRACT
This study was on the study of recapitalized commercial banks and their SME customers in Nigeria. This study was guided by the following objectives; to determine the relationship between Commercial Banks and the performance Small Business Entrepreneurs in Nigeria.To determine whether bank recapitalization led to increase in funds for financing SMEs.To examine the accessibility of Small and Medium Enterprise Equity Investment Scheme (SMEEIS) funds to SMEs. The study employed the descriptive and explanatory design; questionnaires in addition to library research were applied in order to collect data. Primary and secondary data sources were used and data was analyzed using the chi-square statistical tool at 5% level of significance which was presented in frequency tables and percentage. The respondents under the study were 60 SME ownersPort Harcourt branch.
The study findings revealed that there is a negative significant relationship between commercial banks and the performance of small business owners in Nigeria; based on the findings from the study, the Nigerian banks and indeed all stakeholders should improve on the funds made available to SMEs in Nigeria.
TABLE OF CONTENT
TITLE PAGE
CERTIFICATION
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
LIST OF TABLE
LIST OF FIGURES
CHAPTER ONE
1.1 INTRODUCTION
1.2 BACKGROUND OF THE STUDY
1.3 STATEMENT OF THE STUDY
1.4 RESEARCH QUESTIONT
1.5 OBJECTIVES OF THE STUDY
1.6 SIGNIFICANCE OF THE STUDY
1.7 STATEMENT OF THE HYPOTHESIS
1.8 JUSTIFICATION OF THE STUDY
1.9 SCOPE OF THE STUDY
1.10 DEFINITION OF TERMS
CHAPTER TWO – LITERATURE REVIEW
2.1 INTRODUCTION
2.2 SMALL AND MEDIUM ENTERPRISES EQUITY INVESTMENT SCHEME
2.3 BENEFITS OF BANK RECAPITALIZATION TO SMEs
2.4 CONTRIBUTION OF BANK RECAPITALIZATION IN THE PROMOTION OF SMEs
2.5 ADVANTAGES OF RECAPITALIZATION ON SMEs
2.6 DISADVANTAGES OF BANK RECAPITALIZATION ON SMEs
2.7 SOURCES OF FINANCING SMEs
2.8 THE GROWTH OF SMALL SCALE INDUSTRIES AND CONTRIBUTIVE SCHEME
2.9 DEVELOPMENT OF NIGERIAN MONEY DEPOSITE BANKS AND THE CONSOLIDATION OF THE SECTOR
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 INTRODUCTION
3.2 AREA OF STUDY
3.3 RESEARCH DESIGN
3.4 POPULATION OF STUDY
3.5 SAMPLE SIZE
3.6 SAMPLE/SAMPLING TECHNIQUE
3.7 RESEARCH INSTRUMENT AND INSTRUMENTATION
3.8 VALIDATION OF THE INSTRUMENT
3.9 ADMINISTATION OF THE STUDY
3.10 METHOD OF DATA ANALYSIS
3.11 LIMITATION OF THE STUDY
CHAPTER FOUR –DATA, ANALYSIS, FINDINGS AND DISCUSSION
4.1 DATA PRESENTATION AND ANALYSIS
4.2 RESEARCH FINDINGS
4.3 DISCUSSION OF FINDINGS
CHAPTER FIVE- SUMMARY, CONCLUTION, RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
5.2 CONCLUTION
5.3 RECOMMENDATION
5.4 PROPOSAL FOR FUTHER STUDIES
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Small and Medium Enterprises (SMEs) play a vital role in thedevelopment of national economy. Due to their importance and the crucial role they play in economic development and growth of the nation, much attention has been placed on financing of small and medium enterprises, since they are major contributors to the economy of Nigeria. These enterprises are drivers of the economy; therefore policyattention has to be given to them especially in developing economiesbecause of their impact on many sectors of the economy. Their impact isfelt in the following ways: Greater utilization of local raw materials,employment generation, encouragement of rural development, developmentof entrepreneurship, mobilization of local savings, linkages with biggerindustries, provision of regional balance by spreading investments moreevenly, provision of avenue for self employment and provision ofopportunity for training managers and semi skilled workers.
In Nigeria, credit has been recognized as an essential tool for promoting small and Micro Enterprises (SMEs), hence the need for recapitalization of commercial banks in Nigeria. Bank recapitalization which was effective from 2006 is aimed at making Nigerian banks stronger and better in-order to finance all sectors of the economy including the major drivers of the economy-Small and Medium Scale Enterprises. About 70 percent of the population is engaged in the informal sector or in agricultural production. The Federal and State governments have recognized that for sustainable growth and development, the financial empowerment of the people is vital. If this growth strategy is adopted and the latent entrepreneurial capabilities of this large segment of the people is sufficiently stimulated and sustained, then positive multipliers will be felt throughout the economy. To give effect to these aspirations various policies have been instituted over time by the Federal Government to improve rural and urban enterprise production capabilities (Olaitan 2006)
The central Bank of Nigeria on July 6th 2004, announced therecapitalization of banking sector from N2 billion to N25 billion with effectfrom 1st January 2006. This was with a view to make the sectorinternationally competitive, sound and improves its ability to provide creditto all the productive sectors of the economy. In order to meet thisobligation, banks embarked on strategies of merger and acquisition, floatingof new shares and so on. At the end of the exercise, 25 new banks emerged.
It was hoped that the consolidation will make the banks stronger to beable to provide large amount of funds to productive sectors of the economywhich is largely dominated by Small and Medium Enterprises, therebymaking them grow into large firms with enough resources to contribute tothe economic development.
Also, in December 2005, the CBN introduced new Micro-financePolicy (MFP) which was designed to be public and private sector driven.
The purpose of the policy was to strengthen community banks in order forthem to be able to grant collateral and non collateral loans to financemicroeconomic activities in the economy. The policy also aims at providingmany people with access to financial services who otherwise will have noaccess to these services.
Small and Medium Enterprises as said earlier have a crucial role toplay in the development of an economy, they are training grounds for localentrepreneurs, they encourage local savings and ensure equitable distributionof wealth thereby reducing rural- urban migration of human resources.
To this end, government should collaborate with private sector inorder to create an enabling and conducive environment for SME’S in orderto contribute positively towards the development of the economy.
1.2 STATEMENT OF PROBLEM
Bank fraud, poor lending and credit management practices in the Nigerian banking sector forced the Central bank of Nigeria to revisit the capital structure of commercial banks in Nigeria. These among other thingsled the Central Bank of Nigeria (CBN) to give a directive that all banksshould recapitalize from N2 billion to N25 billion with effect from 1stJanuary 2006.
This development led to various financial activities in the Nigerian financial sector with most banks initially opting for additional source of fund from the capital market via floating of shares. Most banks at this stage started inviting members of the public to acquire new shares in-order to meet up with the new minimum capital directed by the central bank of Nigeria. Notwithstanding, some banks were not capable of raising the new minimum capital by themselves, hence the need for mergers and consolidation of banks, reducing the total number of banks in Nigeria to twenty five (25).
However, the consolidation of the banking sector presented new challenges tothe banks which require more efforts to control cost and increase theirefficiency; this in turn has effect the volume of credit facilities granted to small and medium scale enterprises in Nigeria. A study conducted by Iloh et al (2012) reveals the gap between deposit money bankdeposits (DMBD) and commercial bank lending to SMEs from year 2000 upward (the year that saw theend of merchant banks). There is a wide margin between the two variables and while deposit moneybank deposits rose very high, commercial bank lending to SMEs declined from 2004 to 2010. The gapbetween commercial bank deposits and its lending to SMEs reveals the shift in focus from lending toSMEs to lending to major investors (customers). One is made to ask, while the banking sector is said todrive any economy, has Nigerian commercial banks neglected SMEs, which is vital for the growth anddevelopment of the Nigerian economy? Notwithstanding, it is interesting to note that community/Microfinance bank (CMFB) lending to SMEs moved in the same trend with its bank deposit. This implies that ascommunity/microfinance bank deposits increased, it’s lending to SMEs increased. Regardless of thedirect impact of community/microfinance bank on SMEs, SMEs still cry for lack of funding and lending toSMEs in Nigeria is still poor. This is so because their capital, reserve and deposit are very small andinsufficient to meet the needs of small and medium entrepreneurs.
1.3 OBJECTIVES OF STUDY
The primary objective of the study is to examine the effects of bank recapitalization on small and medium scale enterprises in Nigeria. Specific objectives of the study are:
1. To determine the relationship between Commercial Banks and the performance Small Business Entrepreneurs in Nigeria.
2. To determine whether bank recapitalization led to increase in funds for financing SMEs.
3. To examine the accessibility of Small and Medium Enterprise Equity Investment Scheme (SMEEIS) funds to SMEs.
1.4 RESEARCH QUESTIONS
In-order to achieve the above stated objectives, the researcher formulated the following research questions:
1. What is the relationship between commercial banks and the performance small business entrepreneurs in Nigeria?
2. Does bank recapitalization increase funding for SMEs?
3. How accessible are Small and Medium Enterprise Equity Investment Schene Funds to SMEs?
1.5 HYPOTHESIS OF THE STUDY
The following hypotheses are formulated in line with the objectives and research questions of the study:
1. Ho: There is no significant relationship between Commercial bank and the performance of Small Business Owners in Nigeria.
Hi: There is a significant relationship between Commercial banks and the performance of Small Business Owners in Nigeria.
2. Ho: Bank Re-capitalization has not led to the increase of funds to SMEs
Hi: Bank recapitalization has led to the increase of Funds to SMEs
3. Ho: Small and Medium Enterprise Equity Investment Scheme funds are not easily assessable to SMEs
Hi: Small and Medium Enterprise Equity Investment Scheme funds are easily assessable to SMEs
1.6 SIGINIFICANCE OF THE STUDY
Robust economic growth cannot be achieved without putting in place well focused programmes to reduce poverty through empowering the people by increasing their access to factors of production, especially credit. The latent capacity of the poor entrepreneurs would be significantly enhanced through the provision of microfinance services to enable them engage in economic activities and be more self-reliant; increase employment opportunities, enhance household income, and create wealth.
However, the lack of required financial support from the microfinance banks to Micro Business operators in Port Harcourt state has become a major concern in Nigeria. Hence, this study shall be relevant to policy makers in the areas of finding out the impact of micro financing on the small scale investors. Also, this study shall enhance further research in the subject area.
1.7 SCOPE OF THE STUDY
The scope of this research work is the recapitalized commercial banks and theirSME customers in Nigeria. However, due to the fact that there are manySME’s in Nigeria, the research is limited toSME owners in Port Harcourt.
1.8 LIMITATIONS OF THE STUDY
Time and financial constraints were the major limitations of the study. Since the researcher could not afford the cost of reaching out to more banks, money became a challenge. The researcher was also engaged in other school activities which also limited the time used for the project.
1.9 DEFINITION OF TERMS
⦁ Economy: An economy is the total sum of product and service transactions of value between two agents in a region, be it individuals, organizations or states. An economy consists of the ⦁ economic system, comprising the ⦁ production, ⦁ distribution or ⦁ trade, and ⦁ consumption of limited ⦁ goods and ⦁ services between two agents, the agents can be individuals, businesses, organizations, or governments.
⦁ Mergers and Acquisitions: Mergers and acquisitions (abbreviated M&A) is an aspect of corporate strategy, corporate finance and ⦁ management dealing with the buying, selling, dividing, and combining of different ⦁ companies and similar ⦁ entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture.
⦁ Recapitalization: Recapitalization is a sort of corporate reorganization involving substantial change in a company's ⦁ capital structure.
⦁ SMEs: Small and Medium Enterprises
⦁ SMEEIS: Small and Medium Enterprise Equity Scheme
REFERENCES
⦁ Olaitan, L. 2006. An empirical evaluation of the corporate strategies of Nigerian companies. Journal of African Business, 2(2), 45-75.
⦁ Iloh V. C. 2012. The Effect of Bank Consolidation on Small and Medium Scale Enterprises in Nigeria. Port Harcourt: Longman Nigeria Plc.
.