EXAMINING THE IMPACT OF LOANS ON SMEs IN NIGERIA. (A Case Study of SME Customers in United Bank For Africa)

posted on September 7, 2018

EXAMINING THE IMPACT OF LOANS ON SMEs IN NIGERIA. (A Case Study of SME Customers in United Bank For Africa)

ABSTRACT

Small and Medium enterprises are the catalyst for economic growth in most economies thus, the fundamental objective of this study is to investigate the impact of loans on Small and Medium Enterprises (SMEs) in Nigeria. So that the ability of SMEs to develop positively and drive economic growth in the Nigeria will become real. Simple random sampling technique was employed in selecting the 100 SMEs that constituted the sample size of the research. Structured questionnaire was designed to facilitate the acquisition of relevant data which was used for analysis. Descriptive statistics which involves simple percentage graphical charts and illustrations was tactically applied in data presentations and analysis. The findings of the study reveal that significant number of the SMEs benefitted from the loans even though only few of them were capable enough to secure the required amount needed. Interestingly, majority of the SMEs acknowledge positive contributions of loans towards increasing their returns and sales thus placing them in the competitive arena. It is recommended that Banks should review their interest rate downwards and also share best practices with their SME customers especially on the efficient use of loans; this will boost their productivity and support SMEs in Nigeria.

CHAPTER ONE

INTRODUCTION

1.1 Introduction and Background

In Nigeria, available data from the Registrar General Department indicates that 90% of companies registered are micro, small and medium enterprises (Mensah, 2004). This target group has been identified as the catalyst for economic growth of the country as they are a major source of income and employment to many Nigeriaians. According to Mensah (2004) Small enterprises employ between 6 and 29 employees with fixed assets of $100 Thousand with Medium enterprises employing between 30 and 99 employees with fixed assets of up to $1 Million, Hallberg (2001) put forward that SMEs account for majority of firms in an economy and a significant share of employment. Like other countries of the world, SMEs in Nigeria have the tendency to serve as sources of livelihood to the poor, create employment opportunities, generate income and contribute immensely to economic growth. Small firms are the engines for economic development of several developed countries such as the US and Japan (Hallberg, 2001).

Developing countries such as Zimbabwe have also identified the potential of small firms to turn economies with negative growth into vibrant ones. For this reason, several governments in developing countries offer funding to small firms either directly or by guaranteeing the payment of such loans as lack of funding is cited as one of the major challenges faced by small businesses. Obert and Olawale (2010) argues that due to limited resources by governments, not all small firms receive funding from the government; therefore, the other option would be to go for bank loans Obert and Olawale (2010). Despite its increasing roles, access to credit by SMEs remains one major constraint to Nigeriaian SMEs. According to Augusto et al (2008), most large companies usually start as small enterprises, so the ability of SMEs to develop and invest becomes crucial to any economy wishing to prosper.