1.1 Introduction
Financial institutions occupy a vital position and play a lendable role in the economy of the nation. Their major purposes are proper mobilization of find as well as provision of capital for industrial development, which is aimed at enhancing economic growth and development. In the early year of banking operation in Nigeria, banks performed their intermediary function by giving loan mainly on individual basis (i.e separately) but as the country entered the threshold of development and more investment opportunities opened up, industrialist started demanding large sums of money which is provided by bank on medium or long term basis.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
Financial institutions have a very great role to play in the growth of small scale business everywhere in the world but I will limit my discussion to their roles in Nigeria. It could be seen as an institutions which primary function is collecting and giving out funds to individuals, firms, organizations etc. for business purposes. From the definition of financial institution, or its function, one can see that financial institution could aid the growth of small scale business. How can this be done or achieved? That is the next question that could come to one’s mind. It could be achieved by the financial institutions giving out funds in form of loans, overdraft, grants and aids etc on request from small scale business man or woman.
Typically, smaller enterprises face higher transactions costs than larger enterprises in obtaining credit (Olorunshola, 2003). Poor management and accounting practices have hampered the ability of smaller enterprises to raise finance. Information asymmetries associated with lending to small-scale borrowers have restricted the flow of finance to smaller enterprises. In spite of these claims however, some studies show a large number of small enterprises fail because of non-financial reasons.
The panacea for solving problems of economic growth in developing countries often resides in the development of small scale industries. The establishment of those industries has been the centre piece of industrial development of many countries such as India, Malaysia, Pakistan and Indonesia, to mention a few. It is expected that the gains to be derived from the establishment of small-scale industries will be translated into the generation of employment at a low investment cost. These industries will also be able to harness raw materials locally and serve as raw inputs to the large-scale industries. Therefore, this study seeks to investigate the financial problems and survival strategies of small scale industries.
Therefore, in Union Bank Offa where the research was carried out, the activities that was conducted is to know the impact of financial institution to the growth of small scale business.
1.3 Statement of Problems
Investigation revealed that the inability of the banks to support the entrepreneurs through loan and other instruments such as leasing of equipment result in low capital utilization, volume of production, provision of services and sales. The loan granted suffers additional problems of high interest rates and the burden creates higher probability of default in repayment of loans.
Financial institutions have some problems they are confronted with too. These problems include borrowers not paying back at stated time, government policies and regulations etc. These problems affect the smooth running of financial institutions because ties up capital that would have been used for further development of the sector. Government regulations or policies also affects also affects financial institutions because, government might make a policy to correct certain abnormalities in the economy. The policy might affect their profit as such it constitutes a problem.
The rapid policies of banks contrary to CBN guidelines and the attendant; lack of collateral securities from the entrepreneurs created additional problems of inability to procure and unitize capital from Union Bank Plc.
1.4 Aim and Objectives of Study
The aim of the study is to examine the impact of financial institution to the growth of small scale business. In achieving this aim, the following specific objectives were laid out as follows:
- To ascertain if the financing options available to the Small Scale Business are practically obtainable to support the capital required for their operation.
- To examine the extent to which Small Scale enterprise contributes to economic development.
- To identify the problems financial institution encounter in sourcing out funds.
- To investigate the extent finance hampered the growth of SMEs in the study area
- To determine the role finance plays in the growth of small scale and medium scale business in Union Bank Offa
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Does Union Bank Offa encounter problems in sourcing out funds?
- What are the financing options available to the Small Scale Business are practically obtainable to support the capital required for their operation?
- To what extent does Small Scale enterprise contributes to economic development?
- To what extent has finance hampered the growth of SMEs in Union Bank Offa?
- What are the role finance plays in the growth of small scale and medium scale business in Union Bank Offa?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Union Bank Nigeria plc in Offa does not provide financial assistance to entrepreneurs without collateral securities.
- H1: Union Bank Nigeria plc in Offa provides financial assistance to entrepreneurs without collateral securities.
Hypothesis Two
- H0: There are no significant role finance plays in the growth of small scale and medium scale business in Union Bank Offa
- H1: There are significant role finance plays in the growth of small scale and medium scale business in Union Bank Offa
1.7 Significance of Study
The findings of this study will contribute to a body of knowledge and increase information in the area of loan assessment to small scale business owners. Therefore it will be of immense importance to small business operators, government, industrialists, and other stake holders in the industrial sub-sector.
This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.8 Scope of Study
The scope of the research is focused on impact of financial institution to the growth of small scale business using Union Bank Offa as a case study.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Certain terms are used in this work which their definitions are relevant for easy understanding for the study.
Financial institution: Is defined as informational or formal act of providing money, this sense financial planning, the estimating of cash receipt and disbursement.
Finance: It is defined as the management function of managing the flow of funds in an organization.
Development: The term development is mostly applied in relation of land valuers and estate surveyors sees it as a way of embarking on constructional work that will amount or give rise to utilization of land with its improvement or re-improvement of an already utilized one.
