The Role Of Banking In Nigerian Industry Development Finance Essay

Finance has been identified in many concerns studies as one of the most of import factors Determining the endurance and growing of little and average endeavors ( SMEs ) in both development And developed states ( UNCTAD,1995,2001 ; SBA,20000 ) .Access to finance allows SMEs to set about Productive investings to spread out their concerns and to get the latest engineerings, therefore guaranting their fight and that of the state as a whole. Ill working fiscal systems can earnestly sabotage the microeconomic basicss of a state, ensuing in lower growing in income and employment. Despite their dominant Numberss and importance in occupation creative activity, SMEs traditionally have faced trouble in obtaining formal recognition or equity. This is because the adulthoods of commercial Bankss loans extended to SMEs are frequently limited to a period far excessively short to pay off any ample investment.Moreover, Bankss in many developing states have traditionally lent overpoweringly to the authorities, which offered less hazard and higher returns ( Levistsky,1997 ) .Such patterns have crowded out most private sector borrowers and increased the cost of capital for them. The state of affairs is every bit prevailing in Nigerian economic system where commercial Bankss frequently prefer to impart to authorities, trade in foreign exchange ( FOREX ) , and funding purchasing and merchandising such penchants were competently put by a banker in Nigeria that ‘the Bankss are non a charity, therefore why should they take the hazards with SMEs when they can do good money elsewhere ” .These penchants and inclinations of the commercial Bankss have exacerbated the deficiency of funding for SMEs.Moreover the traditional commercial Bankss and investors have been loath to serve SMEs for a figure of well-Know grounds, which include the followers:

( 1 ) SMEs are regarded by creditors and investors as bad borrowers due to deficient assets and low capitalisation, exposure to market fluctuations and high mortality rates ;

( two ) Information dissymmetry originating from SMEs deficiency of accounting record, unequal fiscal statements or concern programs make it hard for creditors and investors to measure the creditworthiness of possible SMEs proposals: and

( three ) High administrative /transaction costs of loaning or puting little sums do non do SMEs financing a profitable concern. As a consequence, commercial Bankss are by and large biased toward big corporate borrowers, who provide better programs, have recognition evaluations, more dependable fiscal information, better opportunities of success and higher profitableness for the Bankss. When Bankss do impart to SMEs, they tends to bear down them a committee for presuming hazard and use tougher showing steps, which drives up costs on all sides. Last, there is besides the job of insider loaning and /or cronyism, which diverts finance off from SMEs.The authoritiess of Nigeria and with the aid from international fiscal establishments have tried to turn to the jobs of high dealing costs and hazards by making subsidized recognition coders and /or supplying loan warrants. Examples of these are little graduated table industries recognition strategy ( SSICS ) , Nigerian bank for commercialism and industry ( NBCI ) , National Economics Reconstruction Fund ( NERFUND ) , World Bank Loan Scheme ( SME 1 & A ; 11 Loan Scheme ) , The purpose was to supply either long-run recognition or specialized services to the SMEs.However, these undertakings have frequently fostered a civilization of non-repayment or failed to make the mark group or achieve fiscal ego sustainability. The fiscal policies pursued were of interventionism with governerments act uponing the recognition flows through a system of subsidies, involvement ceilings, policy-based recognition allotments etc.But Bankss lacked the inducement to increase their efficiency or to develop their capacity for hazard appraisal and monitoring of loans, which contributed to a general impairment in the quality of banks’portfolios.This paper attempts a reappraisal of the recent advanced attack to SMEs funding in Nigeria, Which is put in topographic point by the bankers ‘ commission in Nigeria, that is, Small and medium industries Equity Investment Scheme ( SMEIS ) .The paper besides tries to propose how to better entree to finance through this advanced mechanism by the bing and possible industrialists.

In our attempt to make this documents is structured into five subdivisions. While subdivision 1 is an introductory portion, subdivision 11 give the debut on equity and venture finance. In subdivision 111, the paper reviews the recent development in SMEs funding in the universe and the lesson that can be learnt in general, and the SMIEIS enterprises in Nigeria in particular.Furthermore, subdivision four reviews the jobs and chances of SMIEIS in Nigeria and makes suggestions for its successful execution bases on the best patterns in other states subdivision V concludes the paper.


The function of capital in endeavor growing and development has been recognized over the old ages and good documented in literature. Capital is needed for the constitution of new concerns every bit good as the enlargement, modernisation and variegation and bing ones.Although, there is grounds that there are many constrictions in the growing and development of endeavors in Nigeria such as troubles in local sourcing of natural stuffs. Capital insufficiency, hapless managerial and proficient and cognize how every bit good as substructure lacks, the job of long-run financess and working capital has pre-eminence. In acknowledgment of this in order to turn to the job, assorted attempts and policies have been put in topographic point. One of the developmental function of the commercial banking fiscal establishment in the state is to ease the flow of finance to the destitute countries of the economic system.


In order to analyze these issues, the undermentioned research inquiries have been raised:

( I ) .What are the features of the SMEs with mention to the educational background of the operators, their preparation and experience earlier shiping on the concern, the type of concern they operate, and the size of the endeavor?

( two ) what are their beginnings of financess ( formal or informal establishments ) ?

( three ) Is there any relationship between the two markets as shown in the service they provide, e.g.are these two markets complementary, competitory, Manichaean, or is one a replacement for the other?

( iiii ) How have authorities policies affected the development of SME s and their beginnings of financess?


Assorted research methodological analysiss possibly used to spot the needed consequence, for any research would practically be declared void and nothingness without the use of optimal research techniques to endorse up the consequence. For this research two methods shall be used to accomplish the coveted consequence.

Questionnaires would be administered to determine both quantitative and qualitative analysis of informations therefore procured.

Personal interviews will be conducted so as to ease procurance of qualitative informations in an indifferent mode so as to enable farther informations analysis for efficiency and effectivity.

Library research methods would be used by the perusing and examination of assorted books, manuscripts, diaries, publications, periodicals and other proceedings both published and unpublished records related to both authorities and private organisations, which would be farther subjected to intensive informations excavation to secure the necessary informations, with the authorised and attested permission of the necessary organisation involved.


This is a questionnaire bases from which is designed, dwelling of different set of inquiries, sent to respondents for completion to garner information for analysis to be able to prove the relevant research inquiries and hypothesis. frequently times the inquiries are standard inquiries in other to offer fixed options to the respondents, and the responses will be limited to the given alternatives.Ad-additionally, free response analysis was besides used in which respondents ‘give replies to inquiries are they deem fit or appropriate.

Beginnings of investing finance for little graduated table industries in Nigeria

Relationship between capital base figure of employees

Financing beginnings and type of concern

How make you rate SME industry development in Nigeria?

Educational background of SME operators

Features of respondent companies which failed

Respondents degree of consciousness of authorities recognition installations


The questionnaires developed shall be precise, and to the point to ease the easy apprehension of the mark forces so as to avoid ambiguity and redundancy. The information collected from the participants with regard to questionnaires will be subjected to intense informations excavation and the value informations. Hence collected shall be converted to its several numerical signifier. The reaction times or the figure of aggressive Acts of the Apostless would be the illustration of quantitative informations which shall enter the figure of times, recalled by the participants involved in the surveies made. The reading of questionnaires shall stress the declared experiences of the participants in conformity to their relation to people they work with and the environment they work in. It besides involves direct citations from the participants, as most frequently the direct citations tend to be most telling. The information hence collected from the questionnaires shall be subjected to intense statistical proficient analysis, which enable us to determine the degree of uncertainness as good.Appropriate trials would find the consequences obtained which should visualise the correlativities between the dependant and the independent variables. similar parametric quantities would be used with regard to personal interviews every bit good. which would be conducted under controlled environments with the formal and informal permission of the governments and the interviewee involved. Recordings both sound every bit good as ocular will be made to obtain unadulterated direct information from the interviewees, with anterior permissions so as to ease pure, direct, indifferent and unfiltered informations from the people involved, which would be farther subjected to intensive informations excavation and examination to obtain valuable informations subjective to the analysis and demands of this research.

Library research shall be intensively used in this research as it ‘s the primary beginning of information subjective to the demands and parametric quantities of this research. Necessary permissions shall be obtained in order to ease quotation marks from assorted published every bit good as unpublished periodicals and diaries. Digital library installations shall besides be used to the optimal extent to easy derive entree to publications published abroad.

The cyberspace shall be most extensively used to mention assorted scenarios and researches performed in other geographical locations so as to compare and formalize information and research findings


In decision, it can be noted that sustainable economic growing is strongly related to the rate of endeavor creative activity and proficient invention. Vigorous endeavor creative activity depends on a state ‘s entrepreneurial civilization and the easiness with which concerns can be started and financed. We therefore reviewed in this paper a figure of inventions used by fiscal establishments in other parts of the universe to ease SME finance particularly the venture capital funding local fiscal establishments in developed states, which have been peculiarly successful in functioning the SME market, have found that it is extremely profitable. Their scheme Is to better their nucleus competences by following sophisticated recognition techniques such as recognition marking, beef uping direction and information systems and developing extremely efficient automatic procedures, efficient selling and distribution, and developing close attempts to client.Hence, I believe that these inventions could be widely applied to developing states like Nigeria, where the conditions for SME development are frequently much less favourable.


Erin Marion Kauffman Foundation ( Online )

& lt ; URL: hypertext transfer protocol: // & gt ; ( accessed 20-04-09 )

Journal of concern and public policy 2007, ( Online ) & lt ; URL: hypertext transfer protocol: // & gt ; ( accessed 22-04-09 )


Bank of Nigeria SMEEIS, ( 2006 )

& lt ; URL: hypertext transfer protocol: // % 20SMEEIS % 20GUIDELINES.PDF & gt ; ( accessed online 02-04-09 )

African e-Index SME entree and use across 14 African states 2006 ( Online )

& lt ; URL: hypertext transfer protocol: // % 20access % 20and % 20usage % 20in % 2014 % 20african % 20countries.pdf & gt ; ( accessed 30-03-2009 )

Levitsky, Jacob. 1997. “ Guarantee Schemes for SMEs –