An Evaluation of the Role of Commercial Banks in Financing Small and Medium Scale Enterprises (SMEs): Evidence from Nigeria

Abstract

In this study an attempt was made to evaluate the role of commercial banks in financing small and medium scale enterprises in Nigeria. There is absolutely no doubt that small and medium scale enterprises play a pivotal role and contributes tremendously to the economic growth and development of many developing economy including Nigeria, but survival of Small and medium scale enterprises is often hampered by access to finance which key players were making attempt to solve. The objective of this study is to evaluate the extent to which commercial banks in Nigeria play their role in solving financing needs of small and medium scale enterprises. The study employed secondary data which use the ratio of loans to Small and Medium Scale Enterprises by commercial banks as a percentage of their total credit for the period between 1991-2012.The study utilize paired sample t-test and significance of ratio of loans to Small and Medium Scale Enterprises was tested to access the performance of Small and Medium Scale Enterprises Equity Investment Scheme by banks to provide finance to Small and Medium Scale Enterprises. The result shows that commercial banks loans even with the equity scheme introduction do not make significance positive impact on loan disbursement to finance SMEs. It is recommended that Nigerian commercial banks should embrace risk-averse behavior in respect of loans to SMEs, interest rate should be review for SMEs loans by Central bank of Nigeria and increase SMEEIS contribution by commercial banks. Specialized bank should be established by government to finance SMEs; it should also provide adequate infrastructural facilities in the country and address present security challenges so as to make Nigeria conducive for SMEs to operate.