CHAPTER ONE

BACKGROUND OF THE STUDY

So much had been said and written about commercial bank lending to small and medium scale enterprises.  One still wonders why the small and medium scale enterprises are ever faced with the age-old syndrome of inadequate funds.  The presence of the small and medium scale industries are not found in large numbers in very city, towns and villages as one would have thought, at least judging by the preponderance of attention it had been enjoying for long time now.  Yet the problem is regarded as an ever-flagged issue even with out any real practical solution in sight.Due to the relevance of the small and medium scale enterprises to the rapid economic development of the country, I consider any research into how to proliferate the economy with relevant small and medium scale enterprises very essential to our survival and growth; hence the promoting of this research work.

STATEMENT OF PROBLEM

The federal and state government has recognized the importance of small and medium scale enterprises (SME) in accelerating the economic development of the nation.  As a result the monetary and fiscal policy guidelines since 1990 had directed commercial and merchant banks to increase their minimum lending limit to the small and medium scale enterprises to 20 percent of their total credit outstanding.  The loan shall be strictly for activities in the industrial sector.  Prior to 2004 the prescribed minimum was 16 percent.Commercial banks have been complying fully with this laudable objective of funding small and medium scale enterprises adequately as directed by the Central Bank of Nigeria.  Consequently, many of these small and medium scale enterprises (SME) get “choked” “die” because of inadequate financial support from the commercial banks.

OBJECTIVES OF THE STUDY

The relevance of the small and medium scale enterprises to the rapid economic development of the country is very fundamental to our survival as a people.  The commercial banks which number up to 120 in the country with branches spread all over the country do not provide adequate credit to the small and medium scale enterprises despite government stipulation requiring to commercial banks to increase credit facilities to the sub-sector.The research aims at identifying the major factors responsible for the inadequate financial support of the small and medium scale enterprises (SMEs).  It is the researchers desire to come up with recommendation that will help solve the problem of inadequate funds to the small and medium scale enterprises and to stimulate the interest of the commercial banks in increasing credit facilities to the sub-sector.

Consequently, the rate of unemployment in the country will reduce, as more and more people will be employed in small and medium scale enterprises that will be set up.  This will lead to increased savings, increased investments and growth of the economy.  The standard of living of the people eventually will rise as a result.

In addition, it is aimed at facilitating the flow of funds for the establishment of new SMI/SME projects, reactivations, expansion and modernization or restructuring of on-going projects.  And also, to stimulate economic growth, develop local technology and generate employment