The subject matter of this research work is to evaluate the extent to which Small Scale entrepreneurs in Enugu have been able to obtain loans and raise finance from Nigerian Commercial Banks as a major source of finance to the economy. The main objective of the study is to establish the role of Commercial Banks in financing Small Scale Enterprises (SSEs) in Enugu

.A review of literature was done to ensure the conclusion of the study. Based on the analysis, Commercial Banks comply with the Central Bank of Nigeria (CBN) credit guidelines which stipulated that they should set aside 10% of their profit before tax for loan to Small Scale Enterprises (SSEs).Commercial Banks require feasibility report from SSEs before granting loan to them. Small Scale Enterprises do not provide proper feasibility studies due to poor level of education. The research concluded that for small scale enterprises to survive, there have to be a collective effort between them and banks. Also the government should engage more in the development of Small Scale Enterprises by creating and embarking on various incentives to encourage both Small Scale Enterprises and commercial banks.


Title Page i

Approval Page ii

Certification iii

Dedication iv

Acknowledgment v

Abstract vi

Table of Contents vii


Background of the study1

Statement of the Problem3

Objectives of the Study5

Research Question5


significance of the Study6

Limitations of the Study7

Definition of terms8


The meaning of Small Scale Enterprises9

Roles and Importance of Small Scale Enterprises (SSEs)12

Funding Needs and sources of Funds

For Small Scale Enterprises (SSEs) 15

The predominance of Small Scale Enterprises

In Nigeria 21

Problems facing Small Scale Enterprises in Nigeria24

Commercial Banks financing Small Scale Enterprises Under the New Central Bank of Nigeria (CBN)

Directive and its likely impact 31


Population of the Study36

Determination of Sample Size36

Instruments of Sample Size36

Primary Data37

Secondary Data37

Method of Data Collection37

Questionnaire Administration38

Interview Method38

Method of Data Presentation38


Data Presentation-Primary Data40

Presentation of Questionnaire Results in Percentages42

Statistical Tools53

Testing of Hypotheses53



Summary of Findings56



Suggestions for Further Research61

Bibliography 62

Appendices 65



The post-independence Nigerian government adopted the entrepreneurship government which constrained it to assume the role of entrepreneur and the urge to offset the economic neglect of the colonial government and that resulted in engaging in ambitious industrialization programmes.

When the Nigerian industrial Development Bank Limited (NIDB) was established in 1964 for the purpose of speeding up the industrialization process, its mandate was to promote industrial projects which were large enough to make applicable contribution to the national economy. However, the collapse of the oil boom in the early 1980’s exposed the inherent weaknesses of this importation of inputs resulted in large idle capacities, thereby creeping many gross domestic product (GDP) declined in the face of the strong national aspiration for the restructuring of the economy and reduction of the dependence on petroleum. Small and medium scale enterprises have since become the focus of national industrial policy.

In pursuit of self-reliance in a developing country particularly in Nigeria, the central government enacted a decree called “Enterprises promotion Decree” when there was need for small scale enterprises in the promotion of economic development. This has since been at the fore front of development strategies.

However, many developing countries have failed to adopt these strategies owing to their belief that it is a relatively slow process of industrialization. Without the development of small scale enterprises in Nigeria, the nation’s quest for industrialization will certainly remain forever at a slow pace.   It is the humble opinion of the researcher that further development on our business enterprises must add to the basic issue of creating linkage within the economy to begin to yield real inputs to our economic activities. Priority attention must therefore be given to those business enterprises for which domestic inputs could easily be produced. The objective should be to maximize the value added in their processing and manufacturing as final strong producer incentives to small scale enterprises are necessary not only to meet the food requirement but also to promote growing input supplier industrial growth.

The present economy constraints may well turn out to be a blessing in disguise to our small scale industry effort particularly for the dynamic manufacturing sector. For instance, the market determined exchange rate through Foreign Exchange Market with its resultant high cost of imported inputs may serve as an impetus for industrialist to intensify their search for loan substitute.

In 1971, the government of then East Central State statutorily enacted an edit establishing an office which was hitherto a sub-system of the ministry of commerce and industry to be known as fund for small scale industries Credit Scheme (FUSSI) to give credits to prospective investors to enable them establish, thus helping the country towards industrialization.

As at 1996 and 1999 respectively, banks’ loans and advances to small scale enterprises rose from ₦42,302.1 to ₦46,824.00 million. However the very slow rate of growth of the industrial sector, the inability of the sector to adequately provide and satisfy the needs of the economy, the over-dependence of the nation at large on foreign goods, pose a necessary course for concern. The means for helping small scale enterprises to acquire the much needed finance form the background of this research.


There is dearth of financial institutions which cater for long and medium term credit needs of businesses operating in the economy. Small scale enterprises are no exceptions to these, and they suffer a great deal for want of capital for development and expansion of the economic survival of the country. It cannot be over emphasized that they have moved from the subsistence level of pre-indigenization period to a position of importance in the country’s industrialization process.

In an attempt to modernize many small scale enterprises, their standard of operation has moved into the capital intensive stage. The need in many cases is beyond the financial capability of the entrepreneurs who set up the business. The major alternative for the provision of such capital is the financial institutions and among the financial institutions operating in the country, commercial banks are the major sources of credit to the various sectors of the economy.

However, it is common knowledge that getting financial support from commercial banks has been grossly inadequate for budding indigenous entrepreneurs and even for those who have

been in the manufacturing business for a long term. Three types of credit are usually required by small scale enterprises. They include:

i. Short Term Loan: This type of credit is used to finance yearly operation until the product or proceeds from the industry are sold. The amount which is involved in this type of credit is usually small but lack of this type of credit is most accurately felt by small scale entrepreneurs who have little or no saving upon which to withdraw as they are mostly beginners.

ii. Medium Term Loan: This type of loan is for more than one year maturity period but not exceeding three to five years. This loan is mostly required for acquisition of inexpensive equipment with relatively short life span.

iii. Long Term Loan: This type of credit is necessary for acquisition of major industrial machines, improvement in industrial equipment, building and land: It is a type of loan that the maturity period is for quite a longer duration.

Small scale enterprises therefore can be a powerful instrument in bringing about a revolution in industrial practices and in firms productivity especially if supplied in sufficient quantity and used  effectively.

The study therefore identifies small scale entrepreneurial financing   by   commercial banks as a major role to entrepreneurial development because finance is just one of the major factors of production.


In view of the above problem of small scale entrepreneurship, the overall objectives of this study is to evaluate the role of commercial banks in financing small scale enterprises in Enugu.

The specific objectives are:

I. To evaluate the extent to which small scale enterprises in Enugu have been able to obtain loans and advances from Nigerian Commercial Banks, as major source of finance to the economy.

II. To ascertain the problems facing Commercial banks in financing small scale enterprises in Nigeria.

III. To identify problems encountered by small scale enterprises in obtaining funds from commercial banks.

IV. To determine the viability in small scale enterprises financing by commercial banks.

V. To appraise and evaluate the situation and make recommendations on how to improve on commercial bank provision of finance to small scale enterprises.


1. To what extent can small scale enterprises obtain loans and advances from Nigerian Commercial Banks?

2. What are the problems facing commercial banks in financing small scale enterprises in Nigeria?

3. What are the problems facing small scale enterprises in obtaining funds from commercial banks?

4. How viable is small scale enterprises financing by commercial banks?

5. How can commercial bank’s provision of finance to small scale enterprises be improved upon?


The hypotheses to be tested include:

Ho1: United Bank for Africa (UBA) does not comply with the Central Bank of Nigeria Credit Guidelines as it affects lending to small scale enterprises.

Ho2: Union Bank of Nigeria Plc. does not comply with the Central Bank of Nigeria Credit Guidelines as it affects lending to small scale enterprises. When commercial banks are not willing to comply with the credit guidelines of the central bank, it will be a hindrance for any institution to obtain loans or advances from the bank.


During the 1960’s and early 1970’s most Nigerians engaged in industrial project did so on subsistence level but now emphasis has shifted to the sophisticated and capital intensive enterprises. Annual policies of the Federal Ministry of Nigeria in recent years have been to ensure that commercial banks provide needed capital to small scale enterprises to help

improve their present state. The study therefore sets out to ascertain the extent to which commercial banks have performed the role and the findings will help make recommendations and suggestions for future improvement of the present situation.


In view of the current emphasis on industrialization of the country in order to reduce the country’s import bill from foreign countries, the study focuses attention on the evaluation of the ability of small scale entrepreneurs to obtain loans from the commercial banks to attain the needed level of productivity of their enterprises. The research covers selected small scale entrepreneurs in Enugu   State. For the period of three weeks.

Some of the difficulties encountered by the researcher were the unco-operative attitudes of many of the banks’ officials approached and some of the small scale entrepreneurs who misconstrued the essence of the study.

Another problem is that of lack of time on the side of respondents to answer the questionnaires in details coupled with the high fare of public transportation. This greatly increased the cost of production and limited the scope of areas covered by this study. Also difficulties were encountered in collecting data from the banks used   as   case study. Some of the questions in the questionnaire were not answered inspite of the university’s inscription on the questionnaire and the letter of authorization by the head of department attached to it as well as the detailed explanations given to them on

the need of the study. They insisted that some of the required information were confidential and should  not  be released.


1 Small Scale Enterprises

As defined in the Nigerian context, following the current official definition of industrial enterprises adopted by the 13th meeting of the National Council on Industry (NCI) Markudi, Benue State in July, 2001 as “an enterprise  with total capital employed of over

₦1.50m but not more than ₦50m, including working capital but excluding cost of land and or labour size of  11-100 workers.

2 Short term credit

This type of credit is a credit or loan that has maturity period that is less or more than one year. E.g. Personal loan.

3 Medium term credit

This is a type of credit or loan that has a maturity period of more than one year but not exceeding two years to be repaid back. E.g. loan required for temporary business requirement.

4 Long term credit

This type of credit matures in more than three years and above. It has a very long maturity period as agreed by the lender and the borrower. E.g. are business development loans and Bridging loans.



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