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Credit Availability to Small and Medium Scale Enterprises in

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  • Ogujiuba Kanayo

    (African Institute for Applied Economics, 128 Park Ave G.R.A; Enugu, Enugu State-Nigeria)

  • Ohuche Friday

    (Econs Dept; Ebonyi State University Abakaliki, Ebonyi State-Nigeria)

  • Adenuga Adeniyi

    (Central Bank of Nigeria)

Abstract

The critical causes of the risk-averse behaviour of banks in funding Small and Medium Enterprises ( SMEs) in Nigeria, monetary policy and financial stability implications of SMEs “Credit Crunch” were evaluated. This was done along the lines of inadequate capital base of the institutions in the sector vis-à-vis the effectiveness of Bankers Committees’ Small and Medium Scale Industries Equity Investment Scheme (SMIEIS) Initiative. The work adopted a conceptual analytical framework that employs theoretical and statistical comparative cross-sectional data to analyze the SMIEIS Programme of Nigeria vis-à-vis capital base of banks in ascertaining whether it offers an effective means of solving the problem of funding small and medium scale businesses in Nigeria and its attendant implication for financial stability in the system. The analysis confirms that Government needs to urgently address the problem of financial intermediaries cum stability in the system as a national priority and build institutions that will drive the reform process. This incidentally is the major thrust of the Government’s new economic blueprint. Banks could play more active role in actualizing the objectives of SMIEIS by re-capitalizing and setting up separate desks to manage the fund and vigorously conversing the idea such as any other bank product. Mega banks alone could provide the much needed funding for SMEs. This will mitigate the problem of weak asset-based and heavy collaterals. The macroeconomic environment should be stabilized through proper fiscal and monetary policy coordination to reduce interest rates, stabilize prices and reduce rent seeking behaviour among economic agents. This paper shows that capital matters for the response of bank lending to economic shocks and highlights the need for a sound, stable and efficient financial sector to assist SME’s. This goes in tandem with a stabilization of the macroeconomic environment. Notwithstanding, it is difficult to draw what are the implications of this result with respect to the new directions of the capitalization to be implemented in 2005.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0411002.

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Length: 25 pages
Date of creation: 02 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0411002

Note: Type of Document - doc; pages: 25. We would Appreciate Comments
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  1. Allen N. Berger & Gregory F. Udell, 2001. "Small business credit availability and relationship lending: the importance of bank organizational structure," Finance and Economics Discussion Series 2001-36, Board of Governors of the Federal Reserve System (U.S.).
  2. Allen N. Berger & W. Scott Frame & Nathan H. Miller, 2002. "Credit scoring and the availability, price, and risk of small business credit," Working Paper 2002-6, Federal Reserve Bank of Atlanta.
  3. Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
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