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Small Scale Business – Roles And Problems Of Financial Institutions To Growth In Nigeria

Small Scale Business – Roles And Problems Of Financial Institutions To Growth In Nigeria: (A Case Study Of Union Bank Of Nigeria Plc Enugu)

Small Scale Business – Roles And Problems Of Financial Institutions To Growth In Nigeria: (A Case Study Of Union Bank Of Nigeria Plc Enugu)

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.

Financial institutions 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.

I will not forget to talk about or explain what a small scale business is. A small scale business could be talked about or explained by different people in different ways.

And in their different views, a lot of factors or things is being considered before calling a business small scale business. What am saying in essence is that, what Mr A calls small scale business might not be what Mr. B calls small scale business. Therefore a small scale is business is being explained by these few people and school of thought. Blott Lawrence 1973 defines small scale business to be any industry which is independently owned and operated and not dominant in its area of operation.

The Committee for Economic Development (C.E.D) of the united States defines small scale business of having at least two of the underlisted characteristics:

(a) Managers are also owners.

(b) Area of operation mainly local

(c) Owner supply capital and

(d) Small in size within the industry.


1. Small scales industries are capable to source capital easily from Union Bank Plc and this problem prevents entrepreneurs from procurement of machinery and equipment required for production.

2. The banks are not helping matters because their condition for giving loans are not easily met and the small scale industry owners are unable to provide their request with well structured and circulated feasibility studies.

3. 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.

4. The loan granted suffers additional problems of high interest rates and the burden creates higher probability of default in repayment of loans.

5. 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.


The reason for the study of the roles and problems of financial institutions to the growth of small scale business is that it helps individuals, small scale business owners and all the sundries to be informed of the roles of financial institutions to the economy and at the same time so that they can take an advantage of the roles and develop themselves, their families and the nation at large. These roles include giving of loans, advances, overdrafts, grants and aids and advisory services. The roles when utilize properly by small scale business owners help in the growth of their businesses.

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. This 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 research was to determine the roles and problems of financial institutions to the growth of small scale business in Nigeria. The research carried out in-dept study on the operations of financial institutions to the growth of the said industries.

Due to the current emphasis on the industrialization of the industry in order to reduce country’s export bill from foreign countries and unemployment the study focuses attention on the evaluation of small scale industries that obtains loan from the Union Bank of Nigeria Plc to attain the needed heights and capacity. The research covers selected small scale industries in Enugu.

Small scale industries as used in this study are those indigenously owned fully by Nigerians and with an annual turnover not exceeding five hundred thousand naira (N500,000.00).



Ho. Union Bank Nigeria Plc would not accommodate small scale entrepreneurs in their priority sector for provision of funds for procurement of machinery and other equipment.

H1. Union Bank Nigeria Plc would accommodate small scale entrepreneurs in their priority sector for provision of funds for procurement of machinery and other equipment.


Ho: Union Bank Nigeria plc would not provide financial assistance to entrepreneurs without collateral securities.

H1: Union Bank Nigeria plc would provide financial assistance to entrepreneurs without collateral securities.


Financial institutions play a very significant5role in the growth of small scale business. The roles they play includes:

i. Giving of loans to small scale business.

ii. Giving of overdraft

iii. They render business advisory services.


This is one of the roles played by financial institutions in the growth of small scale business. They give loans to small business man or woman on request. This aids the small scale businessmen can now perform better compares to when they has small capital.


Financial institutions allow small scale businessmen that have a savings account deposit to withdraw from their accounts more than they have if they wish. This excess allows or enables the capital at hand to increase. The addition of the excess fund to the main amount withdrawn would aid the small scale businessmen to plan better than they would have done if they withdraws the main fund he has in his account.


Financial institutions render advisory services to small businessmen. This advisory services they render aids the small scale business who acts upon the advise rendered. It aids them to grow in business. Small scale businessmen are thought how to introduce simple record keeping and accounting in their operations. This is because, most business concerns do not keep accurate record of their business and this can lead to business failure. Banks or financial institutions providing this services have reported significant success.


Like in any other human activities the study has its limitations and constraints.

High cost of materials and increase in transportation fare, scarce financial resources have constituted a constraint to the study.

Time considerations and distance involved in collecting the primary data is another limitation of the study. This is because the time lag between the end of course work and the submission of the project is greatly inadequate.

Moreover, interview , attitude of respondents constituted a constraint on the researcher as some respondents gave inaccurate information or failed to return their questionnaires.



A financial institution that keeps custody of valuables such as money, gold, jewelries etc. for customers. They charge customer for their services.


The one who conceives the idea of a business, runs the business, bears the risk and enjoys profit or loss.


Are institutions responsible for collecting and giving out funds to individuals, firms, organization etc. for business purpose.


It is a financial assistance by financial institutions or government which is not repayable.


Financial assistance rendered by financial institutions to borrowers. It is payable and collateral is required before financial institution can grant the loan.


One who adopts a process for running the affairs of a business.


It is a kind of loan granted by banks, but before this loan is granted, the person who wants the loan must have an account in the bank. It is a situation where an account holder in a bank withdraws above the amount he has in his account


A business in which the managers are the owners, area of operation mainly local, owners supply capital and small in size within the industry.



The Nigerian financial system consists of financial markets, financial intermediaries or institutions, financial instruments, rules, conventions and norms that facilitate and regulate the flow of funds through the macro economy. The financial system is controlled by the government through the agency of the Central Bank, which supervises the activities of the financial intermediaries and monitors adherence to the government’s monetary and financial intermediaries are commercial banks, merchant banks development banks, financial companies insurance companies, credit and saving institutions, investment trust and mortgage institutions. The financial markets, on the other hand are simply the various facilities provided by the financial system for the creation custodianship and distribution of financial assets and liabilities.

Financial institutions also known as financial intermediaries, consist of commercial banks, savings and loan associations. Investment companies, insurance companies and pension funds. The most important contribution of intermediaries is a steady and relatively inexpensive flow of funds from savers to final users or investors. Every modern economy has intermediaries which perform key financial functions for individuals, households, corporation small and new business and government

Business entities include non-financial enterprises manufacture product (e.g cars, steel, computing and or provide non-financial service e.g transportation utilities, computer programming) financial enterprises more popularly referred to as financial institutions provide services related to one or more of the following:

1. Transforming financial assets acquired through the market and constituting then into a different and more widely preferable, type of asset which becomes their liability. This is the function performed by financial intermediaries the most important type of financial institution.

2. Exchanging of financial assets on behalf of customers.

3. Exchanging of financial assets for their own accounts.

4. Assisting in the creation of financial assets for their customers and then selling those financial assets to other market participants.

5. Providing investment advice to other market participants.

6. Managing the portfolios of other market participants.

Financial intermediaries include depository institution, which acquires the bulk of their funds by offering their liabilities to the public mostly in the form of deposits.


The regulatory authorities within the Nigerian financial system are as follows:

a. Central Bank of Nigeria (CBN)

b. Security and Exchange Commission (SEC)

c. Nigerian Deposit Insurance Company (NDIC)

d. Nigeria stock Exchange

Only the Central Bank of Nigeria (CBN) will be discussed in this context because it is the apex bank, which regulates the financial system.


This is the apex bank which regulates the financial system and serves as bank to all banks and government. It regulates the economy through its monetary policy guidelines and stands as the lender of last resort to banks and the Central government. On behalf of the central government, it liaise with other countries monetary authorities manages the currency exchange rate public debt, and balance of payment and reserves. The CBN monetary. Policy highlights credit ceiling to the economy, sectoral allocation of credit especially to the preferred sectors of the economy, interest rate policy, liquidity ratio and cash reserve requirements for banks and other financial institutions.

Major objectives, which the CBN monetary policy guidelines aim to achieve are:

1. The reduction of excess liquidity in the financial system.

2. The moderation of the rate of inflation.

3. the reduction of pressure on the balance of payment

4. The building up of external reserve and stabilization of naira exchange rate.

5. The efficient allocation of scarce resource to the productive sector of the economy.

6. The encourage of direct local production.

7. Employment generation.


Financial institutions perform various roles, which are as follows:


This is the major role of financial institutions and it is a process by which financial intermediaries provide a linkage between the surplus units and the deficit units in the economy. Surplus units are firms, companies and individuals who have excess funds above their intermediate needs while those who need excess funds above their immediate investment programmes are referred to as deficit units. It is the financial intermediaries that develop the facilities, which make this lending and borrowing possible. There are four aspects of the intermediation, which are:

– Maturity intermediation,

– Liquidity intermediation

– Size / denomination intermediation

– Risk intermediation.

The four aspects of intermediation explain why financial intermediation exists.


This is the process of matching the maturity periods of the surplus units and the deficit units so as funds to each of the units as when required. For instance, banks mobilize deposits that are withdrawable on demand by depositors whereas the banks will lend these deposits to borrowers for a longer period. The satisfaction of these two contradictory objectives is what referred to as maturity intermediation. A great deal of expertise is required on the part of the financial intermediaries to avoid on the part of the financial intermediaries to avoid mismatch.


It is the process of turning assets deposits of depositors into cash within a short space of time without loosing much value and loaning funds to borrower as and when needed at reduced cost.


This is the process of mobilizing loanable from diversed sizes of small and large savers and lending the mobilized funds in large amounts to borrows. One could imagine how difficult it would be for the deficit units move from one surplus unit to another without financial intermediaries.


Financial intermediaries even out the risks of mismatch between borrowing and lending rates. Risk intermediation is the process of maximizing the exploitation of the opportunities available and minimizing the threats in the provision of funds.


This is the process whereby either ultimate borrowers and lenders by-pass the normal methods of financial intermediation and lend and borrow directly to each other. Take for instance, it the government squeezes bank lending and company liquidity is high, then companies are likely to lend directly to each in the inter-corporate money market usually by means of commercial papers.



The concept of small scale business has perhaps enjoyed more controversy in the literature than possibly any other concept could boast of. Economist, management consultant and government agencies are not variances at what parameters or criteria should be used in delineating, which business are small and which ones are big.

The grouping want of uniform criteria for identifying small business led shareholders to define it with one or more of the following:

i. Number of employees.

ii. Capital outlay.

iii. Asset base.

iv. Market size.

Ekpenyong (1989) defines small scale business as those enterprises that have relatively small capital investment, that produce in small quantities and as a result control a small share of the market, that employ not more than fifty workers and in which management, marketing and entrepreneurial functions are vested on the proprietor.

Ola (1983), In stating the CBN credit guidelines defines it as small business whose annual turnover ranges between one naira to fifty naira.

In the same vain, the federal ministry of industries, small scale division in 1973 define small scale business as those whose total capital outlay is below sixty thousand naira (N60,000.00)and whose total employment is not more than fifty (50) persons.

Furthermore, National Economic Reconstruction Fund (NERFUND) defines small and medium scale enterprises as those with total capital asset value (excluding land) of not more than ten million.

From the above array of definitions, it would be noted that emphasis was placed on initial capital outlay, number of employees, sales volume and assets among other variables.

In his problem and prospects of small scales industries, a design for Industrial Revolution, Ezeife held that definitions based on the number of workers should be rejected unless the level of technology employed is also specified because it is for computers, robots and a few technicians to be employed in an industrial venture into which a billion naira has been invested. Here the above argument is considered true because the engagement of a handful of employees in a billion naira establishment negates the essence of the use of number of employees as a determinant of which business is small except if such measure is further qualified accordingly.

Furthermore, Ezeife holds the view that the level of capital involved as a basic for definition will have to respect time and place. This is because, according to him, what passes for a large scale today may be viewed as a small scale in the future and what constitute a giant enterprise in Nigeria may only be classified as small in the USA. This implies that what constitute a small business enterprises may vary from one country to another.

In view of the concentration on the fallacies of size measures of small business definitions. The following definition proffered the United National Committee on Economic Development (CED) is unique. The CED defines small business enterprises as an enterprise that meets two or more of the following criteria:

i. Management is independent, usually the managers are also the owners.

ii. Capital is supplied and an individual or group of individuals holds ownership.

iii. The area of operation is mainly local. Importers and owners are in one home community.

iv. The business is small when compared to the biggest units in its field.

Obviously, the above definition by CED appears to be the only one that attempts to conceptualize small business enterprises in a frame work that is relies enumerated in the earlier definitions.


Small business provides financial opportunity and a chance to develop wealth. It is a place where creative motivated individuals can use their talents and expertise to the fullest. Because it provides satisfying careers and job opportunities. It is the backbone of the market economy of the world.

Every big business starts as a small business. Every big business starts with an entrepreneur who, at first earns little or no profit. It was the new idea of small business that brought about the Ekene Dilichukwukwu Transport. The Fan Milk, Nnewi Tokumbo Parts and even the many commercial banks in Nigeria untried ideas because innovations that becomes concepts that changed the business world small business is the basis for the economic well being of many developed nations including USA and Japan.

Entrepreneurship is what makes small business successful. Entrepreneurship occurs when an individual develops a new venture, a new approach to an old business or idea or a unique ways of giving the market a place a product or service by using the resources in a new way under conditions of risk. Small business triumphs and entrepreneurship are closely related. It is difficult to separate them.


These are three basic ways to go into small business. Each presents opportunities and challenges to the owner manager and requires planning, organization, implementation and a control process in order to succeed.

The first way to go into business is to start a new firm from scratch. Here the entrepreneur takes an idea or a concept and creates a business entity where none existed. This is difficult but it can be it could be most satisfying when it works.

The second way to go into business is to acquire an existing business can be evaluated. Its financial records can be examined and its employees suppliers and customers can be questioned.

The last way to go into business is to operate a franchise or purchasing an existing franchise the entrepreneur gets help from the franchising company. Presumably, the organization has a successful operational approach that makes he franchise attractive and work the entrepreneur’s investment of time and money.


A strong competitive market economy exists when both the producers and users of the products and services can make independent buying and selling decisions. This competition helps preserve a market driven capitalistic society and promotes vitality within the small business community by preventing monopolistic control of the economy by huge, dominant companies.

Many incentives are provided by the government to assist small firms. These have included lower tax rate. In some cases special forms of organization for small business, insistence that large government contracts provide for small business sub-contract to help small business for exporting many others. In fact, government agencies are required to make purchases from smaller firms when possible. As a special aid to small business, the American government created the Small Business Administration (SBA) in 1953 to provide financial, managerial and procurement assistance and to be an overall advocate for small business. The same is being emulated by other countries of the world.

It is apparent that encouraging small business has worked. There are more small size than ever, and competition is a reality in the market place. Consumers have options and thus a higher standard of living because of the competition for their resources.


The importance of small business enterprise in any economy cannot be over-estimated.

Firstly, the continuing growth in the economy of any nation depends to a large extent on the start ups and development of a small business. Even on the reversionary economy small-scale enterprises are a legitimate and viable component in any strategy for reconstructing the economy.

Further, it is emphasized that the small scale enterprises make the possibility of the equitable distribution of national income more realistic by providing employment on a large scale by creating more employment opportunities. Small business enterprises help in mobilizing capital and human resources that would otherwise be left idle.

While some small business may meet untapped demand, some fill a niche in the market, yet others provide some district services that cannot be matched by large organizations. In this wise, they contribute to the succession of large businesses. In other words, if small businesses were suddenly removed from the contemporary scene, big business would find itself saddled with a myriad of activities that could be inefficiently performed.

Small firms are also far less import dependent than large scale businesses and often depend on locally fabricated machinery and local raw material inputs. This point can be buttressed further considering the fact that small business provide solution to balance of payment problems as a result of its less dependence on imported inputs.

Innovation is another importance of small business enterprises. One of the essential attributes of entrepreneur (of small business) is the ability to perceive profitable business opportunity and a willingness to act on what is perceived. N most cases new services often are introduced by small business owners who perceive the need for such services.

Small scale enterprises promote competition and hinder monopoly. They also provide options for self employment. Small businesses constitute a vital source of self employment for retired officers or retrenched workers or even older persons and others who are handicapped and find it difficult to obtain gainful employment elsewhere.

Small business also serve as a training school for the indigenous entrepreneurs and provide ground for the acquisition of skill for a large number of workers. They are about the most outstanding guarantees for speedy development of indigenous technology.

The review of the importance of small business enterprise in any economy cannot be exhausted, the main reason why any study aimed at contributing to the improved performance of the sector should be encouraged.


When we examine the actual size of firms operating in Nigeria, it will be seen that small firms dominate. This is as a result of the disadvantages enjoyed by the small firms which are:


It is easier to set up a small firms rather than a large one because setting up a small firm may not require much capital, land, labour etc. this partly explains why small scale enterprises dominate the field of retailing, transportation, agriculture, building servicing etc in Nigeria.


The manager of a small business knows almost everybody. This makes administration easy. The manager has no problem of communicating his decisions and plans to the workers who will implement them.


Small business create jobs for our abundant labour. This saves much of our limited capital. There are many advantages but he shall make do with these three.



Many small business owners have limited formal education. This manifests in improper planning, lack of knowledge of where and how to source funds, myopic marketing activities. Etc. This accounts for a high rate of failure among small business.


Many small scale business owners entered into the business more by chance than by design. Some of them were forced into it. They lack adequate finance. They may not even know where credit facilities are available so that they can obtain and supplement whatever are at their disposal.


Efficiencies in competition will result if there is a quality product in a properly positioned market segment with a right price. These are often lacking in many small scale businesses lending to a poor competitive position.


writing in his book, Principles of Small Scale Business Management, willams Macfalene advanced one of the most apt explanations as to the high rate of mortality often associated with small business said he. The field of business probably offers more freedom, and fewer restrictions to the would be business owner than almost any other. Despite this freedom, many business are started each year on a shoestring with little more than money and ambition since freedom of opportunity does not guarantee success, thousands of new businesses fail each year.

Other factors, which account for the failure of small business enterprises are as follows:


The unpreparedness of small business owners in terms of capital before launching into their ventures, many infact be said to be the chief cause of many failures of small business enterprises. The average Nigerian small business owner is perpetually contending with the problem of poor finance in his business.


A typical small business enterprise is anchored around the owner of the outfit. He is the cashier and the accountant, the marketing officer as well as the general manager. He takes charge of the store and personally undertakes sales over the counter. Inevitably, he becomes the proverbial Jack of all trade who ended up not mastering any of the trades. In this care of one person management, failing health on the part of the owner – manager could also spell disaster for the business.


Bad business plan or complete lack of it also accounts for the relatively low success rate of small business. Most small business owners had dabbled into their ventures, lead long without first of all charting the cause they would follow. S.I. Owualah (1990) painted a vivid picture of the hopelessness of an unplanned business when he wrote that “a small business firm without a rubber or a radar. It is inconceivable that its captain or pilot should embark on any journey even if on a previously charted course. Baring an act of God, it is clear that it will be impossible to steer or pilot any of these crafts in one piece to its intended destination.


Acts of favouritism extended to members of a small business owners extended family does contribute to the eventual failure of such set-ups. Typically, the finances of the business can be badly depleted in the owner’s effort to live up to certain extended family obligations. In most cases, unproductive relations are usually installed in the business and placed on high salaries. Their incompetence and meddlesomeness soon brings the small business on the brings of collapse.


Lack of effective competence and dedicated management is yet another cause of small business failures. The success or failure of any business enterprise depends on how it is managed.


A small business enterprise can fail ultimately if the manager continues to overlook or cause some little losses to himself making obvious reference to this pitfall. Macforlane (opcit) again stated that “in several cases, serious losses were traced to a series of seemingly insignificant little leaks. Collectively, this dribbles amounted to the equivalent of a substantial break in the financial dike”.

For instance, a manager who reaches out too often into his treasury for a few coins or who lifts one or two items from his to stock to his own personal use may invariably be preparing the grounds for his own failure.


Government has many mechanisms through which it directly or indirectly influences actions in the small business sector. Some of the actions of government are deliberately aimed at achieving government objectives while others may be unintentional.

In Nigeria, policies and programmes promoting small business enterprises are being introduced to support the growing interest in this area as a means of economic and social development. For instance, the Third national Development plan 1975 – 1980 specifically stated that “the main objective of the government programme for development of small scale industries are the creating of employment opportunities, mobilization of local resources, mitigation of rural migration and more even distribution of industrial enterprises in different parts of the country”.

These objectives are still relevant today even more than they were during the third development plan period. The result is the financial and non-financial assistance programmes from the government, the world bank and other dedicated development agencies to promote the small business sector.

The establishment of the National Directorate of Employment (NDE) is an example of specific government programme aimed at the development of the small business enterprises in the country. This NDE loans to school leavers and graduates has had a tremendous impact n the development and growth of small business enterprises, especially in the agricultural sub-sector.

The Peoples Bank of Nigeria established by the federal government in 1989 is another specific influence of government to motivate entrepreneurship in small business.

Government through the ministry of finance, commerce and industry, chamber of commerce etc collects, collates, stores and avails business information to interested entrepreneurs. This is to enable start up new ventures and execute their transactions satisfactorily.

Although government influences small business development. It appears therefore, that the major challenge to the government is to create an environment by means of deliberate public policies to encourage competition and efficiency in the small business sector.


Financing a firm is a critical element for business success. Many potential successful firms have failed because of under-capitalization, lack of sufficient funds to pay for the needed assets of operating expenses.

It follows then that every firm should be planned with a clear and positive understanding of what funds will be needed to begin the operation, what additional funds will be kept it going once it is operating and just where the water can be found.

Then amount needed to begin the venture can be determined by developing a list of assets needed and establishing their values. Entrepreneurs have trouble acquiring needed and money because they are poor managers and are not prepared for the questions they will be asked by the official of financial institutions or by investors. They often do not take the time to forecast their capital and operating cash needs. As a result, they lacks an understanding of the use of the funds requested. Pay back arrangement and future plans for the business. Funds can come from dozens of sources, but few individuals or institu4tions are interested in investing in or loaning money to poor managers who cannot demonstrate an adequate plan for the use of the funds.

The entrepreneur should also pay close attention to the normal business ratios. Financial officers or investors use them as a guide to know whether the entrepreneurs’ venture is worth the risk.

Finally, no firm should by to operate without adequate cash at hand for emergencies, equipment, adequate inventor or products to sell, or adequate operating equipment. Firms that start live in a state of inadequacy will surely have tremendous difficulty acquiring additional funds 9if any) in the future. Countless firms have failed because of these inadequacies.


The following are the sources of funds available to the entrepreneurs:

i. Personal funds saved or inherited.

ii. Loan from relatives and friends.

iii. Trade credit (business to business credit given by suppliers and others

iv. Loans or credit from equipment or equipment sellers.

v. Mortgage loans.

vi. Commercial bank loans

vii. Assistance from state and regional business development companies.

viii. Partnership arrangements.

ix. Venture capital funding

x. Sale of capital stock

xi. Miscellaneous.

Without some demonstrated ability to manage and without a positive financial commitment, the entrepreneur’s capacity to operate a business successfully will be called into question by financial institutions and investors.


Financial institutions have roles which they play to the growth of small scale business and problems they encounter on the process of seeing of the growth of small scale business.

The roles they play to the growth of small scale business includes:

i. Advisory services to small scale business.

ii. Granting of loans and overdraft.

iii. Aids, grants and sub-ventions

iv. Subsidy.


This is one of he roles of financial institutions render to small-scale business. The main aim is to assist small business owners to develop their business in such a way that they can attract bank finance. Entrepreneurs are taught how to introduce simple record, keeping accounting in their operations. This is because, most business concerns do not keep accurate record of the business and this can lead to business failure. Financial institutions providing these services have reported the significant success.


This is also a role financial institution render to small scale business. They grant them loan on provision of collateral and they allow them withdraw more than they have in their account. This opportunity helps the small scale business to grow in their businesses.


Financial institution give aid or assistance to small scale business. They give grants and subvention to small scale business helping them to improve in their business.


Financial institutions also provide subsidy to small scale business. They make a provision whereby the small scale business owners would buy and pay less than the normal market price of the goods. These helps to improve the growth of small scale business.

Financial institution also encounter some problems in the course of seeing to the growth of small scale business. The problems they face include:

i. Not been able to pay back the loan.

ii. Not making good use of the fund.

iii. They meet different type of people they don’t know their intentions or their mind while coming for fund.

iv. Small scale business owners low level of education.


Financial institutions in the cause of seeing to the growth of small scale business encounter problems. The problem they encounter along the line is that the small scale business they have in mind to set up or make to grow fail to pay back the loan such institutions lend them. As such reduces the financial level of the institutions.


It is also a problems the financial institutions encounter in the cause of the growth of small scale business. Fir instance, a private person may lends money to another person that runs his business. The person they lend the money to another person to run his business. The person they lend the money instead of making effective use of the money to make the business grow, mismanages the money. This would affect the person, because in the first place getting back his money would be a problem and secondly the benefit the person would have been getting assuming the business succeeds is no longer there.

Thirdly, he might start thinking or planning on how to build you up again, by lending you another money, so all these affect the person. Likewise a financial institution when they lend money to small scale business and they succeed.


They don’t know their intentions or what they have at the back of their minds while coming for funds. This is another problem the financial institutions faces. They meet different small scale business owners that different intentions before coming for funds. They don’t know the one that have the intention to pay back the funds loaned to them, and the ones that are planning to run away with the money. This affects their income.


Small scale business owners do come to financial institutions for fund (both the literate and illiterate ones). Financial institutions do encounter problems atimes after lending the illiterate ones funds. Because of their low level of education they cannot communicate well and understand each other well. It then becomes a problem to financial institutions.


This chapter deals with the presentation and analysis of data generated from the respondents returns. The research was carried out with the aid of questionnaires, which was printed and administered on the respondents.

The essence of the questionnaire was to get the view of the respondents on the topic of the study so as to arrive at a reasonable conclusion based on the findings from the responses given by the respondents and to present useful recommendations to small scale business entrepreneurs so as to overcome or minimize the problem of findings which hinders the growth of small scale business in Nigeria.


A total number of 40 questionnaires were distributed to the sample population. The sample sent across the staff of Union Bank of Nigeria Plc. Enugu and some small scale business entrepreneurs were used because information was required of them. The questions were divided into two parts: the first part which contains 10 questions which were meant to be answered by Union Bank of Nigeria Plc Enugu staff while the second part containing 10 questions were to be by the small scale business entrepreneurs.

Note that: 30 staff of Union Bank comprising both senior and junior staff and some small scale business entrepreneurs were administered with the questionnaires.



From the study carried out, the following findings were made:

Union Bank Nigeria Plc Enugu required collateral from small scale business entrepreneurs before granting them loans. This system is good but should be done with understanding. Some of these small scale business owners have a very good business plan, but because of lack of fund and collateral to keep with financial institutions to aid them with fund, their ideas and plans have died.

Small scale business entrepreneurs have nature and dimensions and small scale business is important for the growth of the economy. It helps them to be self employed and independent. They also engage in production as such contributes to the growth of the economy.

Union Bank of Nigeria Plc Enugu has stringent criteria for granting loans to small scale business entrepreneurs and their borrowers.

Financial institutions are composed of commercial banks, savings and loans associations, investment companies and pension funds.

Small scale business entrepreneurs have financial needs and they go to financial institutions for these needs.

They are regulatory institutions with the financial system.


Having enough capital is a prime consideration for the small scale business planner. How much will be needed, where the funds will come from, when they will be available are important questions.

Development of a statement of assets to be used will help determine the amount of capital needed. The entrepreneurs must then consider whether to use personal savings, to obtain funds from others through borrowing or selling part of the equity of the venture, or to engage in leasing arrangements.

Money from others can be borrowed as trade or business-to-business credit, as mortgages on buildings and equipments, or as commercial or government loans. A firm using borrowed capital must have sufficient revenues to be able to payback the money with interest.


The implications of the research findings is that, if financial institutions is too strict about collateral from small scale business owners would affect this people and their family and the economy of the nation. This is because this people would be handicapped and would not participate in the building of the economy of the nation.


Based on the findings, the following recommendations were made proposed:

• Financial institutions should make loans available to small scale business entrepreneurs at affordable rates so as to enhance the growth of the economy.

• Government should provide incentives such as grants, lowering of tax rates etc. to small scale business entrepreneurs , so as to assist them to overcome funding problems, which they encounter in running their firms.

• The government should also encourage people to go into small scale business entrepreneurship. This will help in reducing the unemployment in the society thereby raising the standard of living of the citizens and leading to the growth of the economy.


Having written on the topic, the roles and problems of financial institutions to the growth of small scale business in Nigeria. It will be worthwhile to render suggestions for further research to students, researchers, individuals or organizations who may wish to carryout research on small scale businesses to delve into the areas of:

i. Small scale business and collateral encouraging small scale businessmen and women by reducing the burden of collateral.

ii. Small scale businesses and financial institutions; providing an enabling environment for small scale business operations in Nigeria.

iii. The attitude of Nigerians to small scale business: Effects and prospects.

iv. Small scale business as a means of survival to many Nigerians.



1. Do you require collateral from small scale business entrepreneurs before granting them loans?

Yes [ ]

No [ ]

2. Do small scale business entrepreneurs encounter funding problems in running their businesses?

Yes [ ]

No [ ]

3. Is small scale business important to the economy?

Yes [ ]

No [ ]

4. Does your bank have a stringent criteria for granting loans?

Yes [ ]

No [ ]

5. Does financial institutions have any compositions?

Yes [ ]

No [ ]

6. Are they composed of commercial banks, savings and loans associations, investment companies, insurance companies and pensions fund?

Yes [ ]

No [ ]

7. When small scale business entrepreneurs comes for loan do you grant them?

Yes [ ]

No [ ]



1. Do small scale business entrepreneurs encounter funding problems in running their businesses?

Yes [ ]

No [ ]

2. Doses small scale business entrepreneurs have any nature and dimensions?

Yes [ ]

No [ ]

3. Is small scale business important to the economy?

Yes [ ]

No [ ]

4. Does financial institutions have any composition?

Yes [ ]

No [ ]

5. Are they composed of commercial banks, savings and loans association, investment company, insurance company and pension funds?

Yes [ ]

No [ ]

6. Do you have financial needs?

Yes [ ]

No [ ]

7. Do you go to financial institutions for financial needs?

Yes [ ]

No [ ]

Small Scale Business – Roles And Problems Of Financial Institutions To Growth In Nigeria: (A Case Study Of Union Bank Of Nigeria Plc Enugu)

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