CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

ABSTRACT

Small and medium enterprises are supposed to play a central role in the drive for economic development of the country. There is however a consensus' that these small and medium enterprises have largely failed to ·deliver on this score. Lack of access to credit from financial institutions has been identified as constituting the greatest clog in the wheel of progress for small and medium enterprises. This research work seeks to appraise the process of analysing credit requests on small and medium enterprises in. the Lagos Metropolis using Bank PHB as a case study. In carrying out this research study, questionnaire was used as the instrument and chi-square also was used for the testing of the hypothesis formulated with the use of non-parametric statistical techniques. The management and staff of Bank PHB PIc was used as the respondents which relevant question was structured to sought respondent's opinion on the credit analysis on small and medium enterprises by banks. It was recommended that a mechanism should be put in place whereby governments at various levels could guarantee SMEs loans availed by banks.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY: CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

According to Nwankwo (1990), since the first formal bank was established in 1656 in Sweden, the banking industry has always been a pervading institutional player in any given economy, being the only sector that thrives on other people's money. Although element of the practice of banking has always existed both In pre and post-colonial periods, the introduction of modern banking in Nigeria dates back to 1892 when the African Banking Corporation (ABC) came into existence, engaging in commercial activities. This bank was later changed to Bank of British West Africa (BBWA) in 1894, now the First Bank of Nigeria Plc. Other banks have since sprung up in the financial landscape offering a variety of innovative financial products to their ever-burgeoning clientele.

According to Enyinnaya (1991), granting of credits is one of the fundamental and basic functions of banks and other financial institutions. By their nature, banks intermediate between savers and users of funds, i.e., banks source funds from economic sectors with surplus funds in form of deposits, and disburse the same to economic units that need them for various purposes in form of credits or loans. Aside from providing the fiduciary responsibility on depositor's funds, granting of loans appears to be the next most important function of banks since this activity represents one of the key sources of income for banks generally. However, in considering requests for loans, income or profit motivations do not and should not prevent the lending financial institution from ensuring that the loan together with associated interest income is repaid fully and timely. One of the surest ways of ensuring that a credit facility together with its related interest income gets fully and timely repaid is through a thorough credit analysis. This analysis as basis for determining worthy customers to be availed credit facility is done for all categories of customers including individuals, corporate organizations, and in some instances, governments including its agencies and parastatal. In a profit driven market economy like ours in

Nigeria, the major borrowers are organizations in the private sector. Even amongst players in the private sector, the small and medium scale industries are rated as having a large appetite for credit. This is not surprising, as small and medium enterprises constitute an important segment partly due to the fact that the sub sector has been widely known as the backbone of many economies and their engine of growth and development.

1.2    STATEMENT OF THE PROBLEM

We had acknowledged the central role to be played by small and medium enterprises industries in the drive for economic development of the country. There is however a consensus those small and medium enterprises have largely failed to deliver on this score (Bunmi, 2002). The immediate past CBN Governor in a key note address at the national summit on "Revamping small and medium scale industries" organised by the Manufacturers Association of Nigeria (MAN) at the MAN House, Ikeja on March 04, 2004, laid this failure squarely on the absence of what he termed critical success factors including:

             i.        Competent entrepreneurship             ii.        Technical and managerial skills; as well as           iii.        Enabling environment for investment in small and medium scale industries.

He listed other constraints to include:

Poor access to money and capital markets. > High rate of enterprise mortality. Shortage of skilled manpower. Financial indiscipline. Lack of infrastructural facilities. Poor policy implementation. Poor management practices and low entrepreneurial skill base. Restricted market access. Overbearing regulatory and operational environment.

However, he singled out lack of access to credit from financial institutions as constituting the greatest clog in the wheel of progress for small and medium enterprises (Olowe, 1998). This research work seeks to appraise the process of analysing credit requests of small and medium enterprises by banks in the Lagos Metropolis using Bank PHB as a case study.

1.3     OBJECTIVES OF THE STUDY: CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

The objective of this is to examine the credit analysis on small and medium enterprises by banks with reference to Bank PHB. The specific objectives are:

1)   To determine the level of credit demanded by banks

2)   To examine the criteria emphasized in credit analysis on small and medium scale enterprises (SMES)

3)   To identify the credit monitoring and follow-ups for small and medium enterprises.

4)   To identify the average time fir the analysis and approval of credit

5)   To determine what can be done to reverse the trend identified in small and medicine scale enterprises.

1.4     RESEARCH QUESTIONS

(1)        What is the level of credit demanded by banks?

(2)        What is the criteria emphasis in credit analysis on small and medium scale enterprises (SMES)?

(3)        Does credit monitoring and follow-ups for small and medium scale enterprises worthwhile?

(4)        What is the average time for the analysis and approval of credit?

(5)        Is there a solution to the reverse of trend identified in small and medium scale enterprises?

1.5     RESEARCH HYPOTHESIS

The following hypotheses were formulated for the purpose of this study. They are as follows:

Hypothesis I

Hi:     There is a positive relationship between credit analysis and small and medium scale enterprises.

Ho:    There is a negative relationship between credit analyses and small and medium scale enterprises.

Hypothesis II

Hi:     There is a relationship between the average time for the credit analysis and approval of credit

Ho:    There is no relationship between the average times for the credit analysis and approval of credit

1.6     SIGNIFICANCE OF THE STUDY: CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

This study will be significant in the following ways:(project topics   final year project topics )                                                 

It will serve as a source of enlightenment to those who may be uninformed about credit analysis for small-scale industries. The study will serve as codified material for credit analysis for small ­scale industries. It is expected that small-scale industries will learn useful lessons from the conclusions of the research. It is also hoped that the result of this study would be of great assistance to other researchers.

1.7     RESEARCH METHODOLOGY

The methodology to be used in this research work would be survey method through the administration of questionnaire as the instrument. The data gathered are primary data and would be analyzed using the following statistical technique:

(1)        Simple percentage: It will be used to analyze the bio-data section and the subject matter itself.

(2)        Chi-square: This will be used to analyze the data and test the operational hypothesis formulated, non-parametric test statistic with the use of statistical package for social scientist to analyze and compare the calculated and the expected to arrive at a reasonable conclusion.

1.8     SCOPE AND LIMITATIONS OF THE STUDY: CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

The study is intended to have an over view of lending generally. It shall delve into various forms of lending and how lending decisions are made. Special emphasis will be made on the procedure adopted by banks in analysing credit requests from small-scale enterprises. This is with a view to identifying the reasons for the high rejection rate presently the lot of small-scale industries.

The work of some authors and researchers would be incorporated in the literature review and finally, recommendations will be made based on the conclusions.

A major limitation was time constraint, which could have inadvertently affected the depth of the study. Restrictions to access to information, where available, were also experienced, and certain cases of outright unavailability of relevant information were also observed. However, a great deal of thoroughness was employed in the use of available data and information.

Another limitation was the inability to study all the mega banks that resulted from the recently concluded consolidation exercise, hence the need to select and do a special analysis of Platinum Habib Bank Plc.

Worthy of mention is the fact that that apart from above mentioned limitations; the researcher also experienced financial handicaps, which greatly determined the volume of research work.

1.9     ORGANIZATION OF THE STUDY: CREDIT ANALYSIS ON SMALL AND MEDIUM ENTERPRISES IN LAGOS METROPOLIS (A CASE STUDY OF BANK PHB PLC.)

Chapter one will provides the introductory part of the study coupled with the sub-headings such as statement of problems aim and objectives, research questions, research hypothesis, significance of study, scope and limitation of study, methodology, work plan and operational definition and terms.

Chapter two provides the interactive review and the related study of the past scholars and writers on the topic will also be considered.

Chapter three intends to give the research design, instrument for data collection, population and sample, sampling technique and limitation of the methodology.

Chapter four present of data and analysis. Here the data gathered from questionnaire administration will be highlighted, presented and interpreted alongside with the hypothesis formulated.

Chapter five is the concluding part of the research work, which includes the summary of finding, recommendations, suggestion for further studies and conclusion.

1.10   DEFINITION OF TERMS

Bank: A financial institution licensed by Central Bank of Nigeria for collection of deposits and rendering of banking related financial services to the general public.

Credit Analysis: Aims at ensuring that the loan together with appropriate interest will be repaid as they fall due.

Term Loans: are given to customers to buy items that are of long term in nature. These assets include plant, machines, furniture and fittings, motor vehicles and land/buildings.

Overdraft: is given to bank customers to finance the purchase of stock of raw materials or finished goods, finance debtors, and pay for wages, rent, electricity, water rates and other general expenses.

Small And Medium Enterprises: a small-and-medium-scale firm is defined as any enterprise with a maximum asset base of ~200 million, excluding land and working capital, with the number of staff employed by the enterprise not less than 10 and not exceeding thirty.

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How To Write Chapter Three Of Your Research Project (Research Methodology)

  • Methodology In Research Paper


    Chapter three of the research project or the research methodology is another significant part of the research project writing. In developing the chapter three of the research project, you state the purpose of research, research method you wish to adopt, the instruments to be used, where you will collect your data, types of data collection, and how you collected it.

    This chapter explains the different methods to be used in the research project. Here you mention the procedures and strategies you will employ in the study such as research design, study design in research, research area (area of the study), the population of the study, etc. You also tell the reader your research design methods, why you chose a particular method, method of analysis, how you planned to analyze your data.

    Your methodology should be written in a simple language such that other researchers can follow the method and arrive at the same conclusion or findings.

    You can choose a survey design when you want to survey a particular location or behavior by administering instruments such as structured questionnaires, interviews, or experimental; if you intend manipulating some variables.

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    Method vs Methodology

    I think the most appropriate in methods versus methodology is to think in terms of their inter-connectedness and relationship between both. You should not beging thinking so much about research methods without thinking of developing a research methodology.

    Metodologia or methodology is the consideration of your research objectives and the most effective method and approach to meet those objectives. That is to say that methodology in research paper is the first step in planning a research project work.

    Design Methodology: Methodological Approach

    Example of methodology in research paper, you are attempting to identify the influence of personality on a road accident, you may wish to look at different personality types, you may also look at accident records from the FRSC, you may also wish to look at the personality of drivers that are accident victims, once you adopt this method, you are already doing a survey, and that becomes your metodologia or methodology.

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    The following subjects may or may not be in the order required by a particular institution of higher education, but all of the subjects constitute a defensible in metodologia or methodology chapter.

    Click here to complete this article - How To Write Chapter Three Of Your Research Project (Research Methodology)

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