The Role Of Commercial Banks In Financing Small Scale Business

The Role Of Commercial Banks In Financing Small Scale Business



Small-scale business has been an important element in this country’s drive towards a self reliant economy. This is based on the legalization that small-scale enterprises are desirable worldwide; hence, it is an avenue for reducing the rate of unemployment in the country and thereby contributing to the Gross Domestic Product (GDP) of the nation. In the developed countries today, technological advancement was due to the establishment of small-scale business and industries.

Small-scale enterprises are considered as a pivot for technological takeoff and self reliance of any nation. In the commercial world, there are various kinds of business undertakings. These business activities range from the private enterprise to public corporation. According to Central Bank of Nigeria Monetary policy and programmes, circular to commercial and merchant banks define small-scale business as:

Those with annual turn over not exceeding 500000. According to the Industrial Research Unit of university of Ife defined a small-scale business as One whose principal assets in capital equipment, plant and working capital are less than 250000 and employing fewer than 50 (fifty) full time worker.


In Nigeria and perhaps throughout the world, the importance of small-scale business cannot be over emphasized.

However, the small-scale enterprise sub-sector is seriously affected by structural problem. These include inadequate capital, ‘Infrastructural deficiencies, Lack of technological knowledge and local market. These problems have hampered the development of small-scale business in Nigeria.

Another problem is the massive unemployment, rural-urban migration, poverty and over dependence on the foreign countries. The increasing relation of the fact that the engine of development of the country is to be found within the country’s capacity.

The rationales for advocating small-scale industrialization is that capacity requirement are small and there for within the reach of indigenous entrepreneurs. Small-scale industries create employment, use of more local raw materials and use of low level of technology.


A study into the impact and contribution of commercial banks in financing small-scale business in Nigeria is important. In view of the contribution commercial banks make to the development growth of any nation’s economy, the specific aims and objectives of this research hopes to address issues as:

1. To examine the impact and contribution of commercial banks in financing small-scale business Nigeria

2. To explore further ways of supporting small-scale business in Nigeria

3. Identify the major obstacle militating against the development of small-scale business in Nigeria.


The researcher has related in his research topic that is “The Role of Commercial Banks In financing Small-Scale Business” and can now come up with the following questions to be answered in the course of this research

1. Is there any need for commercial banks to finance small scale business?

2. Do commercial banks encounter problems in providing finance for small scale business?

3. Has commercial banks improve the nature and operation of small-scale business?

4. Is there any significant role small-scale business play to the development of the nation economy?


Ho: Commercial banks do not make any significant contribution towards the financing of small-scale business.

Hi: Commercial banks contribute significantly towards the financing of small-scale business in Nigeria.


This research work is designed to cover the contribution of commercial banks in financing small-scale business in Nigeria. But due to the large number of commercial banks in the country, the study is restricted to United Bank for Africa (UBA) Nasarawa branch only.


The importance of the study is to seek and direct government effort, stimulate and promote economic growth, develop local technology and to also generate employment. No doubt that this work would be of benefit to a host of stake holders in the small-scale enterprise scheme, especially the owners (promoters) and employees of business organization, the students, the government, investing financial institution and the general public.


The owners or promoters of a business organization are free to approach any bank of their choice for the purpose of accessing these cheap funds that does not attract interest It encourages them by igniting development and promotion of entrepreneurship skills. Banks become partners as equity shareholders of the company and their technical and financial expertise are exhibited for the business to grow.


Employees are all interested in their wage settlement in the sense that with more working capital at the disposal of the organization. It would mean a favourable opportunity for higher productivity at the same time the profitability of the firm would increase and in effect guarantee the job security of the employee.


The government or policy maker seem to be the major beneficiary as a result that sound management policy affect good governance and attract the maximum support of the government. As capacity building in the economy improves, the productivity increase thereby improving the standard of living of the citizenry and reduce the nation’s social problems such as insecurity due to youth restiveness.


The overall interest of the general public is the testing point of every economic tool and are also expected to benefit as good policies affects the public positively and vice versa.


The study proves more difficult than earlier anticipated; at the beginning of this research work limited difficulties were encountered. However, during the course of the study more problems were encountered. One of the problems encountered was with regards to the nature of respondents. In some cases it was difficult to meet the manager and were there was success in meeting them in person it was difficult for them to give prompt attention to the researcher. Another problem encountered was fear entertained by some respondent that the government would use the information obtained from them one clay. This was particularly experience during oral interview of the respondents.


CAPITAL: According to Anyeale (1993) in his book titled “comprehensive economics” defines capital as the wealth or property that can be used to produce more wealth. It also refers to the fund invested in a business.

BANK: Section 61 of Bank and Other Financial Institution Decree (BOFID) defines a bank as the business of receiving deposit on current account, savings account and other similar account, paying or collecting cheque drawn by or paid in by customers, provision of finance or such other business as governor may by order publish in the gazette designate as banking business.

COMMERCIAL BANK: According to Osubor J. U. in his book “Business Finance and Banking in Nigeria” commercial banks are a nations most important financial institution in the sense that their performance of services are unique and are distinguished from other forms of financial institution.

FINANCIAL INSTITUTION: Ekeziel ES (1993), “The Element of Banking” defines financial institution as an institution that provide funds to organization to meet their financial obligation.

FUND MANAGER: These are companies set up and registered with
Securities and Exchange Commission (SEC) and Corporate Affairs Commission for the purpose of managing investment in viable small-scale industries on behalf of banks.

SCHEME: This is the policy reform introduced by the government to carry out equity investment under the small-scale industries.


Aina,T.A and AT Salau (1991), “The challenges of Sustainable Development in Nigeria”, Ibadan nest publication.

Anderson, D (1982), “Small scale industry in developing countries” New jersey: John Wiley and sons publisher Anyaele, J.U. (1991), “Comprehensive Economics”, A Johnson publishers LTD, Surulere Lagos.

Ekezie, ES (1993), “The element of banking” Africana Feb-publisher LTD Onitsha Nigeria

Osubor, J.U (1984), “Business Finance and Banking In Nigeria” New Africana publisher Co ltd Owerri.

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