THE ROLE OF FINANCIAL INSTITUTIONS AS A CATALYST FOR SMALL BUSINESS DEVELOPMENT

1.0 Introduction

1.1 Background of the Study

Financial institutions are intermediaries between the owners and users of fund. An intermediary is a go between owners and financial intermediary. This is also an institution which links lenders and borrowers either (as principal) by obtaining deposits from lenders and then relenting to borrower or (a broker) arranging a transaction.

They provide obvious and convenient ways in which lenders can save money which can then be lent out on their behalf. They aggregate savings and provide ready source of funds from surplus units to deficit units without financial institutions, there will be no meaningful intermediation process and no financial system.

The financial system consists of various financial institutions, there will be no meaningful intermediations, operators and instruments for the mobilization of funds and at the fostering of economic growth and development of a nation. Whereas a financial system is a prime mover of economic developments, its ability to do this revolves round the institutions and the intermediation process. According to Christy (1977) the level of system development is the best indicator of general economic development potential of a nation.

Small business development is an important area in Nigeria economic which has not received the type of attention it deserves. In different countries of the world the Europe and Asia, small scale business plays important role in the economic development. In Nigeria today, small scale business provides employment to a large proportion of population.

Business can be defined as all profit directed economic and commercial activities that provide goods and services necessary to a nations perspective, it may be seen, involves organized activity and nothing happens through chance various business public or private exist in the country. Some of the businesses are on a small scale while others are on a large scale. These businesses include Agriculture, manufacturing, service industries, trading, exports, imports and distributive business to mention but few. Small scale business on the other hand could be defined according to Federal Ministry of industries as a manufacturing, process or services enterprise whose capital investment does not exceed N250, 000 in machinery and equipment only.

Practically, these businesses have been contributing towards the sustenance and buoyancy of the economy. Using the role the commercial banks will play in the financial of small scale business and the effect on the economy is what this research is set to examine.

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1.2 Statement of the Problem

It has observed that lack of finance coupled with poor management has dealt a big blow on the survival or development of small which are established in Nigeria do not live beyond their year of commencement due to poor financial management and lack of finance. As a result, the nations economic growth has suffered a serious set back since small business plays complementary role in the economic development of the nation.

In view of these problems, this research topic is designed to examine these financial problems and the ways by which commercial banks assist in alleviating this problems of finance posing a big barrier for the small business development with a particular reference to first bank Plc Owerri.

As the pivot of this study, the researcher is interested in finding out the supposed role of this commercial bank as a catalyst interest rate, and the extent it has helped in providing adequate finance for the small business in Nigeria.

The under listed problems go a long way to hamper their prospects in receiving adequate finance from commercial banks. The problems are:

Management inefficiencies, absence of viable feasibility study to their project before seeking for loan. Under capitalization and difficulties in obtaining loans financial institutions. Mis-application of loan and the default in repayment of such loan borrowed.

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1.3 Purpose of the Study

This research project seeks to achieve the following purposes or objectives:

1. To determine the various types of financial institutions in Nigeria.
2. To evaluate the role of financial institutions as a catalyst for small business development.
3. To determine the types of small business in Nigeria.
4. To evaluate the problems of small business development and the problem of financial institutions in assisting small business.

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1.4 Research Questions

1. Does financial institutions contribute to small business development?
2. What role do financial institutions play that serves as a catalyst for small business development?
3. Is there any factor that militates against the assistance of financial institution to small business enterprises?
4. These problem or factors can they be averted?
5. Does financial institutions assist small business financially only?

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1.5 Hypothesis

• Ho: Financial institution does not contribute to small business development
• HI: Financial institution does not contribute to small business development
• HI: Financial institution assist small business financially only.
• Ho: Financial institution assist small business financially
• Hi: Financial institution does not assist small business financially

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1.6 Significance of the Study

A small business enterprise plays a significant role in the economic development of a nation especially in Nigeria.

Here, so many people will benefit from this research work in so many ways. Owners of small business will find this study useful as it will expose them to consequences of not taking cognizance certain environment factors which affect small business development.

Obviously, this study will be useful to researchers and students especially in the literature review who do future research.

This study will equally be of a great important to the employers and employees of the private sectors of any economy through findings solutions to the numerous issues that have impeded the development of small scale businesses.

Lastly to organization, workers and subordinate, this research work will give them the insight of borrowing for business expansion.

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1.7 Scope of the Study

The research is basically concerned with the role of financial institution play in small business developing. Mainly the commercial banks like First bank Plc Owerri. This study covers also the evaluation of the role of First bank Plc in financing small business enterprises in Nigeria.

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1.8 Limitation of the Study

However, the researcher encountered so many problems during the research work. A time constraint was the major problem that omitted this work. Also lack of finance posed another barrier from the researcher in obtaining the necessary materials and data needed for this work.

More so, the tendency of the respondent to hear information need for this study posed another problem. There was exhibition of like warm attitude from the respondents especially from the respondents especially from the bank's officials at the first contact.

Again the time available to carry out this topic was extremely short and insufficient, coupled with other academic commitment, the writer view this long essay as being limited by time. These limitations notwithstanding, the researcher through his consented effort has endeavour to produce a research work which he hoped would not only meet the academic requirement, but also satisfy every interested party.

Lastly, lack of materials such as books and journals hindered the researcher from making more findings.

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1.9 Definition of Terms

Management:

This could be defined as the process of planning, organizing, controlling, co-coordinating, leading and directing organization resources to achieve stated organizational goals.

Small Scale Business:

These are those business in which its sales turnover do not exceed N500,000.

Small Scale Administration:

A federal agency established in 1953 solely to advise and assist the nation's small scale business.

Commercial Bank:

An organization chartered either by the comptroller of the currency and known as a national bank or chartered by the state in which it will conduct the business of banking.

Financial Intermediaries:

In spite of competition from mortgage institutions, insurance companies and other financial institutions, banks are still the major financial intermediaries in Nigeria for the following obvious reasons.

Borrower:

A person or an organization that borrows money especially from a bank

Fund:

An amount of money that has been made available for a particular purpose.

Mobilize:

To work together in order to achieve a particular aim to organize a group of people to do things. The union against the cuts

Financial:

Connect with money and finance financial services institutions to give financial advice assistance support to be in financial difficulties, an independent financial adviser.

Institution:

A very short period of time, a moment.