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Effect Of Deposit Money Banks Credit On The Performance Of Micro, Small And Medium Scale Enterprises In Nigeria
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Credit-constrained groups, namely, micro,
small and medium enterprises traditionally risk-appraised by lenders as
the ‘’lower end’’ of the credit market often face discrimination from
formal credit purveyors resulting in stringent credit rationing and
high risk-premium charges, if even they secure credit. The repressive
circumstance derive from their incapacity to pledge the traditional
favoured securities such as; mortgages, land, sterling shares or other
‘’gilt-edges’’ to back up credit proposals (CBN/CeRAM, 2007). This is
why specialized financing schemes and funds have been evolved over the
years in Nigeria like in other developing countries.
While financing
is obviously not the only problem militating against the MSME sector, it
is certainly the most formidable. Like any other investment in the real
sector of the economy, investment in MSMEs is relatively bulky because
of the need for fixed assets such as land, civil works, buildings,
machinery and equipment and movable assets. Moreover, empirical studies
(Udechukwu, 2003; NISER, 2005), show that the incidence of the extra
outlays required to compensate for deficiencies in the supply of basic
utilities is relatively heavier on MSMEs than large enterprises. While
such extra investments have been shown to account for about 10 percent
of the cost of machinery and equipment of large enterprises, they
represent about 20 to 30 percent of that of MSMEs because of the absence
of economies of scale.
Furthermore, due to the long gestation period
of MSME investments in the real sector compared with trading
activities, and other ancillary reasons, MSMEs have suffered bias by
deposit money banks, which prefer to pay penalty rather than meet up the
20 percent target lending to small-scale enterprises (SSEs) following
the then CBN credit guidelines in the direct monetary policy regime
(CBN, Research Dept., 1995). This resulted in a drastic decline of SSEs
lending after the abolition of the sectoral allocation in 1996 (CBN,
Statistical Bulletin, 2009).
Statistics from the Central
Bank of Nigeria also revealed that commercial banks’ loans to SSEs as a
percentage of total credit dropped from 48.8 percent in 1992 to 17
percent in 1997, just one year after the abolition of the guidelines. By
2009, SSEs share of commercial banks’ total credit portfolio was a
paltry 0.17 percent. Similarly, the ratio of SSEs loans to merchant
banks’ total credit before the granting of universal banking license to
deposit money banks in 2000/2001 declined from 31.2 percent in 1992 to
9.0 percent in 2000. According to Anyanwu (2003), the technical
committee for the establishment of a national credit guarantee scheme
for SMEs in its analysis, established that not more than 50 percent of
aggregate effective demand for investment loans in the manufacturing
sector were being met. This therefore necessitates further action aimed
at enhancing the flow of financial resources to the MSMEs.
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ABSRACT - [ Total Page(s): 1 ]Banks are the most important example of a class of institutions called financial intermediaries, firms that extend credit to borrowers using funds raised from savers. However, credit is not an end in itself; it is a means to an end. The ultimate goal is to affect productivity. For both developing and developed countries, micro, small and medium scale enterprises (MSMEs) play important roles in the process of industrialization and economic growth. Thus, this paper set out to empirical ... Continue reading---
