This study is to ascertain the extent to which commercial banks have helped to finance small scale business enterprisein Sokoto. To achieve this study adopted a survey  research which employed the use of simple random sampling technique was employed and SMEs where selected which constitute the sample size of the research. Structured questionnaire was designed to facilitate the collection of the relevant data which was used for the analysis. Descriptive statistics which involves simple percentage and chi-square. The findings indicate that the operations of commercial banks towards SMEs have grown phenomenally in the last 3 years, driven largely by expanding informal sector activities. The study also reveals the challenges faced by SMEs, which has been addressed in this research. Commercial banks traditional lend to medium and large enterprise, which are judged to be credit worthy. They avoid doing business with small and medium scale industry because the associated







Small and medium enterprises are believed to be the engine room for the development of any economy, because they form the bulk of business activities in a growing economy like that of Nigeria. This is manifested in the following ways, Employment generation, rural development, Economic growth and Industrialization, Better Utilization of Indigenous Resources. In the past, Nigeria’s over dependence on oil which really exposed the economy to unprecedented macro-economic instability resulting from the effects of external shocks to oil prices. The world economic recession and the sustained slump in oil prices posed a serious challenge on Nigeria economy which accounted for a reduction in our external Reserves and also diminished on the nation’s capacity to finance much of its development needs. It was also observed that the real GDP growth slows to 2.2% from 2009; population growth rate will climb to 2.5%. Such situation could plunge the country into economic embarrassment and posed a major challenge to the Government. However, with the trend of this event, the Government under vision 20:2020 program came up with undoubtedly consolidated empowerment program called the National Economic and Empowerment Development Strategy (NEEDS) and other reforms which


imperatively leads to the recognition given to the development of SMEs The SME sector is positioned generate employment, create wealth, reduce the prevalence of poverty and sustain economic growth and development. Commercial banks provide broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and, their micro-enterprises. M.S Robinson asserts that ‘if it were widely available, institutional commercial banks could improve the economic activities and the quality of life of hundreds of millions of people in the developing world”. However it is generally agreed that micro-credit given to those of the poor who do not have a capacity to repay can increase their poverty. Until the early 1960s, many economists viewed the continued existence of small-scale enterprisein less developed countries as justified by scarify of capital and administrative experience. It was often argued that with economic growth, the small, traditional type of enterprise would, in one sector after another, be superseded by modem forms of large-scale production. In order to ensure an orderly transition, small enterprisewere seen to deserve support, but mainly in sectors where modem methods could not immediately applied. In the mid-160s a new approach to small to medium-scale enterprise (SME) development began to emerge due to several factors. First, there was growing concern over low employment elasticity of modem large-scale production. It was claimed


that even with more optimal policies, this form of industrial organizational was unable to absorb a significance proportion of the rapidly expanding labour force (Cherney et al 1974; ILO, 1973). Second, there was widespread recognition that the benefits of economic growth were not being fairly distributed, and that the use of large-scale, capital intensive techniques was partly to blame (McCormick, 1988; House, 1981; Cherney et al 1974). Third, empirical studies revealed that the causes of poverty were not confined to unemployment, and that most of the poor were employed in a large variety of small-scale production (Noor Mohamed 1985). This suggests a new role of small industries, in what has come to be labeled “the urban informal sector”. Small, labor-intensive enterprisewere seen not only to increase employment, but also to increase the living standards of the poor. They were also thought to be capable of providing a new dynamic of economic growth. The new objective was not just to stop to retreat, but to promote the small-scale sector (House, 1981; Schmitze, 1982; GiamartinoS, 1991). This change in approach was accompanies by a shift of focus towards a “rurally orientated smallholder” (ROSH) industrialization strategy, well-articulated in Kilby (1975), Child (1976), House (1978), Noor Mohamed (1’985), and Olofin (1990), among others. While the Word Bank 91992) and others have tended to favour the ROSH implementation strategy by assigning the major role to the private sector,


there are those who favour its implementation by assigning a major role to government (Olofin 1990, Noormhamed, 1985). Assigning the major role to the private sector has its appeal in the fact that the private sector has the resources needed to implement the strategy. But the proponents of assigning the role to the government are aware that in many developing economies; government is the major mover of the economy with only a small and sometimes weak private sector. Thus, they argue that assigning such an important role to the private sector would not work. Besides, for the strategy to produce an optimal effect on the wellbeing of the people, the social environment has to be considered something the private sector may not be willing to do. Kilby (1969) Sees SMEs as a quasi sponge for urban employment and a provider of inexpensive consumer goods with little or  no import content, serving an important pressure-releasing and welfare- augmenting function. SMEs also contribute to long-run industrial growth by producing an increasing number of firms that grow up and out of the small-sector. Most previous studies throughout African treat the information sector as essentially homogenous in its characteristics (Morris and Pitt, 1995; Bewayo, 1995; Ekpenyong and Nyong; 1992). Recent research suggests that government policy should be more narrowly targeted to subsectors within the informal sector (Parker and Torres, 1994). This study examines survey data in order to evaluate the characteristics of small-


scale manufacturers that make it more difficult for them to be profitable and the particular problems that they face which may have contributed to their poor performance. Since her independent in 1960, Nigeria has been trying to meet the yearnings and aspirations of her teeming population, especially in the area of provision of employment. Unfortunately, not much has been achieved in this respect. Given the importance of ‘small’ and ‘very small’ enterprise in the creation of employment, this study seeks to evaluate the financing of microenterprises in Lagos State of Nigeria by identifying the problems of financing very small enterprises (VSE’s). However, the growth of the country’s economy has not been without problems. For instance, Omopariola (1978) notes three successive phases can be discerned in the economic history of Nigeria. The first phase, dating back to 1900, “was the pleasant economy characterized by static and subsistence product” and a “high birth rate which was equally matched by high death rate” (P.15 resulting in a low population growth rate. The second phase, which occurred in the middle of the nineteenth century, was’ a dynamic export-oriented economy” Omopariola (1978) reiterated further that during this economic phase, “Nigeria had a steady growth in her economy which was stimulated primarily by agricultural exports during the first three decades of the twentieth century.” (Ibid, p.16) the economic, starting from the collapse of international trade during the world economic crisis grinded


to a halt in its growth in 1929 and remained more or less stagnant until 1945. Form 1954 until the outbreak of the war of unity (civil war) in 1967 and up to the end of the war in 1970, “Nigeria experienced steady economic growth” (Ibid, P. 16). The third Phase, which has its roots in 1960 when the country attained political independence from the British colonialists, has been described as the indigenized economy. This is still the phase under which the Nigerian economy is characterized. Thus, over the years, the Nigerian economy has been going through a number of developmental stages and its growth has not been smooth. Although the economy continues to hold out a bright promise of growth, this has been hampered by factors such as under-productivity, unemployment, heavily depreciated national currency, inadequate infrastructure facilities and structural defects in the country’s industrial framework. The scope of this study focuses on the latter factors, structural defects in the nation’s industrial framework. A business whether small or big, simple or complex, private or public, etc. is created to provide competitive prices. Business in Nigeria has been classified as small, medium and large. However, a small scale industry can be defined by the criteria of project costs, capital, cost turnover by the employee, etc. the federal and state ministries of industry and commerce have adopted the criterion of value of installed fixed capital to determine what a small scale industry is, in this respect, the value has


varied  from  N60,000  in  1972,  N159,  000  in  1975,  N250,000  in 1979,


N500,000 in 1986, to a fixed investment of not more than N2,000,000 (Two Million Naira) in 1992. This figure is exclusive of a building and subject to government determination and land prevailing objectives of public policy. In the wake of SFEM, and SAP, this value has now been reviewed and subsequently, increased to five million naira. Since this happened, there may be a need to classify the small scale industry into MICRO and SUPER MICRO business, with a view to providing adequate incentives and protection for the former. In the meantime, any business or enterprises below the upper limit of N250,000 and whose annual turnover exceeds that of a cottage industry currently put at N5,000 per annum is a small scale industry. The National Directorate of Employment (NDE) concept of a small scale industry has been fixed to a maximum of N35,

  1. Contributed significantly to the growth of the Gross Domestic Product (GDP), employment generation and exports. The sector now includes not only SSI units but also small scale services and business enterprise (SSSBEs) and is thus referred to as the small enterprises sectors.



Small and medium enterprises have not made the desired impact on the Nigerian economy in-spite of all the efforts and support of succeeding administrations and governments gives a cause for concern. The


expectation has been that, after the initial take off of the small scale enterprises, the business should be able to raise funds from the formal sector especially MFIs or banking enterpriseto expand its operations. This has not been the case for a number of reasons (Sule, 1986; Inang and Ukpong, 1996; Iniodu and Udomesiet, 2004);

  • The perception of small and medium enterprises as high risks;


  • Inability of the SMEs to prepare acceptable or viable banking business plans;
  • Poor record keeping, especially of financial operations which at times make the entrepreneur draw money than expected from the business either for personal or family use;
  • Discriminatory cultural practices which at times make it impossible or difficult for women to borrow or own assets or land titles;
  • Weak capacity on the part of banks to down-scale their lending to SMEs; and
  • High transaction cost of small and often segmented


The study will examine problems associated with the role of commercial banks in financing small scale industry in Nigeria.

It will give information on the possible areas for in provident.


Furthermore, the study will help commercial banks to assess and appraisal their role in financing small scale industry in Nigeria.


Moreover, suggestions and recommendations made in this paper will help policy makers formulate new economic policies maintain or modify the existing one.

It will equally serve as guidelines to researchers who may wish to decide with this study in the future.

It will also help small scale entrepreneurs to make sufficient preparation in their request for credit assistance.

It will guide the entrepreneurs in making credits demands that are compliance with government monetary policy.



Since the importance of SMEs forwards the development of any country’s economy, as already discussed. This write up is aim at achieving the following questions.

  1. To highlight the different sources of finance available to small and medium industries?
  2. To examine the role of commercial banks in satisfying the financial needs of SMEs in
  3. To examine method to reduce formality needed for financing the entrepreneurs by commercial banks.




HO1. There is no significant relationship between Financing of small and medium scale Enterprise and Commercial Banks.

HO2: There is significant relationship between commercial banks and lending to small scale business enterpriseand also in meeting the needs of small and medium scale Enterprises



The scope of the study is an appraisal of commercial banks in financing small scale business enterprisein Nigeria, a case study of first bank limited.

Commercial banks adhere strictly to the rule of secret; in banking thus they refused to release information.

It   will   guide   the  entrepreneurs in   making  credit  demand  that  are compliance with government monetary policy.

Finally it will help the entrepreneurs to display competence in preparing justification for their project; it is rear to see most of them coming up with cash projections, projected balance sheets.



However, there are constraint imposed on the researcher this includes the following.

  1. Time a study of this nature, needs a relatively long time during which information for accurate or at least near accurate inferences


could be drawn. The period of the study was short, hence time posed as a constraint to the researcher.

  1. Cost: The researcher would have extent the survey to areas. But limitations here included cost of transportation to source for materials and cost of type setting the already completed
  2. Dearth (Scarcity) of statistical data:


Lack of statistical data from our financial institutions like central bank of Nigeria (CBN) ministry of financial and economic development, commercial and merchant bank posed constraints.

Commercial banks adhere strictly to the rule of secret; in banking thus they refused to release information.



In the modern times, industrial production requires the procurement of equipment, machineries and other inputs. The capital required in procuring the requirements in limited in supply and very few industrialists have access to it

Considering the type of collateral security required by the banks which must be fulfilled before granting loans.

Since Commercial Banks act as intermediaries between surplus and deficit or as a bridge between scattered pockets of savers and the business


community desirous of loans for investment, at the end of this research work the following will be attained;

SMEs industrialist will be able to know some sources of finance and choose amongst them the best.

Commercial Banks will know how effective and efficient they have been towards economic development.

Commercial Banks will be able to make some adjustments in their lending processes.