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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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In
Nigeria, after several years of debt (credit) financing, inadequate
capital or lack of it is still believed within state planning circles
and even among MSME owners themselves to be a major inhibiting factor
for new and growing MSMEs. Specifically, it is argued that inadequate
equity capital creates the need for debt financing which the MSMEs are
ill-equipped to attract; and determines or influences their initial
decisions concerning the acquisition of fixed assets, working capital
requirements and even location (Owualah, 2002). To alleviate the
shortcomings of the past schemes towards the financing of MSMEs in
Nigeria, the Small and Medium Enterprises Equity Investment Scheme
(SMEEIS) was conceived and put into operation from August 2001 with
emphasis on banks providing equity financing rather than debt. From
inception in 2001 to end December 2008, the cumulative sum set aside by
banks under the SMEEIS was N42.0 billion. The sum of N28.2 billion or
67.1 percent of the sum was invested in 333 projects, out of which the
real sector accounted for 205 projects, and the service-related sector,
excluding trading, accounted for 128 projects (CBN, 2008). By the third
quarter of 2008, the Bankers Committee took the decision that
participation under SMEEIS be optional. After almost five decades of
tinkering with various financing schemes for the MSMEs, it has become
pertinent to carry out an empirical study on the effect of these funding
initiatives on the performance of the MSMEs in Nigeria.
From the
foregoing therefore, the major objective of this paper is to examine the
effect of deposit money banks credit on the performance of MSMEs in
Nigeria.
2.Theory, Conceptual Framework and Literature Review
2.1 Theory and Conceptual Framework
This
study is built on the theory of economic growth and the fundamental
role the financial system plays in the growth of the economy. All the
funding schemes in the past were intended to stimulate economic growth
and development, develop local technology and generate employment. Hence
it is pertinent to review the theory of economic growth and development
as basis for this study. The financial system plays a fundamental role
in the growth and development of an economy, particularly by serving as
the fulcrum for financial intermediation between the surplus and deficit
units in the economy. For many years, theoretical discussions about the
importance of credit development and the role that financial
intermediaries play in economic growth have occupied a key position in
the literature of developmental finance. Shaw (1973), stated that
financial or credit development can foster economic growth by raising
savings, improving efficiency of loan-able funds and promoting capital
accumulation. Following the adoption of the Universal Banking System in
Nigeria in January 2001, the dichotomy between the erstwhile commercial
and merchant banks was removed, thus paving the way for banks to
effectively play their intermediation role and provide level playing
ground for operators in the banking industry. Consequently, the banks
were able to pursue the business of receiving deposits, and the
provision of finance, consultancy and advisory services unhindered (CBN
Briefs, 2006-2007).
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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---
