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The economic reform programmes and successive development plans in Nigerian stressed much on attainment of self-reliance and self-actualisation. There has been a decisive switch of emphasis from expensive capital intensive, large-scale industrial projects based on the philosophy of import substitution to small-scale industries with immense projects for developing domestic linkages for rapid, sustainable industrial development. The reason for this national objective is that much is expected from individual and it is from the viewpoint of providing employment opportunity and self-reliance in industrial and food production coupled with the provision of raw materials.

Unfortunately, small-scale enterprises in Nigerian continue to decline, despite the priority given to this sector. In Nigeria, there are financial institutions like other developing countries of the world, which cater for long and medium term credit needs of businesses operating in the economy. Small and medium-scale industries are in desperate need of capital for development and expansion. That is why Central Bank requested from 1970/80 that all commercial banks must reserve a proportion of their minimum credit allocation to Indigenous borrowers for small and medium-scale Nigeria enterprises (S M N E). Central bank opted to achieve 10 percent in 1979, and was later raised to 19.8 percent in 1992. Currently, the reserve of their minimum credit allocation to indigenous borrowers for (S M N E) has been prescribed. From the available data, it is observed that the performance of commercial banks towards the achievement of the stated objective of the Central Bank to small and medium-scale enterprises has been disappointing the quest for industrialization. It is the humble opinion of the researcher that future development in our industrialization must address the basic issue of creating linkages within the economy to begin to produce real inputs to our manufacturing activities.

Due attention should therefore be given to these industries for which domestic inputs could easily be produced. For instance, agro-allied industries like food processing and other by products. The main objective should be to maximize the value added in their processing manufacturing as final goods or immediate input and minimize the cost of production.

It has shown that strong producer incentives to small and medium-scale enterprises are necessary not only to meet the food needs of the country but also to provide growing input supplies and demand as a vehicle for sustained industrial growth.

The present market determined exchange rate, through second tier foreign exchange market, is likely going to quicken the rate of industrialization in our manufacturing sector. This is due to the fact that this will lead to high cost of imported inputs, which invariably will stimulate our industrialists to sources for local substitutes. The government of the then East-Central State Statutorily enacted an edict, establishing an office which was a sub-system of the ministry of commerce and industry, to be known as Fund for small-scale Enterprises Credit Scheme (F U S S E) to give Credit to prospective investors to enable them invest to move the country towards industrialization.

In 1970, the Central Bank of Nigeria expanded its credit guidelines to incorporate the small-scale Enterprises through the directive, effective January 1971 to the banks to ensure that at least 10 percent of their total loans and advances are allocated to small-scale enterprises. This percentage was increased to 16, from April 1980 and to 20 since January 1990. In the period 1980 to 1985, loans approved for small-scale projects by Nigeria Bank for Commerce and Industry (N B C I) totalled N29.983 millions for 126 projects, while Nigerian Industrial Development Bank earmarked N250.7 million during the same period to the enterprises. All participating banks in the National Directorate of Employment (N D E) approved a total amount of N230, 353,939 (73.2 percent) as at the end of December 1998. Commercial and Agricultural banks total loans and advances rose by N294.6 million or 7.6 percent to N4.2 billion or 22.1 percent as at the end of August 1998.

With the adverse effect of structural Adjustment Programme (S A P), there was sharp rise in interest rate, many small and medium-scale enterprises were finding it more difficult to obtain loans to finance investment. This led to the setting up of   National Economic Reconstruction Fund (NERFUND), to provide relatively long-term loans (5-10 years) to small and medium –scale enterprises (SMEs), at relatively concessionary rates of interest. The resources of National Economic Reconstruction Fund (NERFUND) and the counterpart funding by the World Bank, the African Development Bank were projected to $ 280 million. The interest rate on (NERFUND) Naira loan was expected to be slightly lower than the prevailing commercial rates in the country and should be fixed during the duration of the loan.

The circular on small and medium–scale enterprises loan scheme, released by the central Bank of Nigeria (C B N) in February 1989, revealed that world Bank had granted a loan of US $270 million to the federal government for the development of small and medium-scale enterprises in the private sector, out of this loan the sum of US $265.7 million was made available for lending to small and medium-scale enterprises through participating banks.


The intention of the federal government to create conducive environment for viable small and medium-scale enterprises as the vehicle for self-reliance and attainment of economic growth can not be exclusively carried out without making funds available for maintenance and procurement of equipment and necessary inputs, the problems are as viz:

  • The funds projected to commercial Banks by Central Bank of Nigeria (C B N) are inadequate to satisfy the demand of small and medium-scale enterprises.
  • Small and medium-scale enterprises in Nigeria do not have collateral, as a result they are unable to benefit from the credit facilities of some banks.
  • Most commercial banks divert funds earmarked for financing small and medium-scale enterprises to other ventures.
  • Many small and medium –scale enterprises owners divert generated revenues to other uses and as a result unable to pay back loans mobilized for business.


The dynamic development of small and medium-scale enterprises as engine of self-reliance and growth in developing countries has its accelerative effect in achieving macro economic objectives such as full employment, income distribution and development, of local technology.

   The objectives include:

  1. To find out the problem of small and medium-scale industrials in obtaining loans from commercial banks.
  2. To identify the extent of commercial banks’ activities in     the development of small and medium-scale industries and its problems.
  3. To determine the causes of financial variability of commercial banks in the development of small and medium-scale enterprises.
  4. To examine the various measures introduced to revamp industrial production and it’s financing and how this has affected the realisation of the set-goals.
  5. To evaluate the situation and make recommendations on how to improve on commercial bank’s role in development of small and medium-scale industries.


The successive development plans of the Federal Government of Nigeria and the intention to develop both small and medium–scale enterprises to actualise self-reliance, increase food production and accelerated growth. It is as a result of this, that it is important to review the financial problems that hinder the development of small and medium-scale enterprises in Nigeria. This is because, the review will help the sub-sector of the economy to rise up to the challenges and move to actualise the macro economic objectives required of it. The assessment of the role of commercial banks in financing small and medium–scale enterprises in Nigeria will enable us to identify the extent of decline in industrial output as a result of decline in output of small and medium-scale industries in the recent years.


The hypothesis to be tested includes;

Hypothesis (I)

HO: There is no linear relationship between commercial banks lending to small and medium-scale enterprises and economic growth, and self-reliance.

HI: There is linear relationship between commercial banks lending to small and medium-scale enterprises and economic growth and self-reliance.

Hypothesis II

Ho: Interest rate do not affect the growth and development of small and medium scale enterprises.

HI: Interest rate affects the growth and development of small and scale enterprises.


The basis of this research is to identify the role of commercial banks in the development of small and medium –scale industries in Nigeria. The emphases of successive development plans on industrialization as a vehicle for economic recovery, place priority on the development of small and medium –scale industries as instrument of achieving economic growth, full employment and self-reliance. That is why; the study confers itself to the examination of lending of commercial banks between 1989-2003 to small and medium-scale enterprises in Nigeria to attain its objectives.


There is no way a research of this nature can go on smoothly without a hitch. It is not possible to come by all that is needed for the study, therefore, I have to do with the data at my disposals since there are certain things that hold this study as seen below.

Time is a major limiting factor for this study. This will not make it possible for this work to be given the thorough research as the researcher combines it with his academic work.

The non-availability of adequate information at the various organizations involved in the study is another limiting factor. Therefore, the work will be limited by the information available for use from media houses and Central Bank of Nigeria. So, the outcome of this study will depend heavenly on what is collected from the organizations involved.

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