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Assessing the Effectiveness of Commercial Bank Loans as Sources of Funding/ Capital Formation for Small and Medium Enterprises (SMEs) in Southeast, Nigeria

Author

Listed:
  • Ugwu-Oju M. Obiageri

    (Department of Management, Faculty of Business Administration, University of Nigeria Enugu Campus)

  • Vincent A. Onodugo

    (Department of Management,Faculty of Business Administration,University of Nigeria, Enugu Campus)

  • Mbah, Paulinus Chigozie*

    (Department of Business Administration, Faculty of Management Sciences, Enugu State University of Science and Technology)

Abstract

The paper assesses the effectiveness of commercial bank loans as sources of funding Small and Medium Enterprises (SMEs) in Southeast, Nigeria. A cross-sectional survey method wherein structured questionnaire was used to collect data was adopted. A sample of 500 respondents was randomly selected from the five industrial hubs in the five states of Southeast, namely Nnewi, Aba, Enugu, Abakiliki, and Owerri. With the aid of pecking order theory (POT)/hypothesis of Lending, percentage formula, and SPSS version 20.0 tools, the data generated from the respondents were analysed. Among others, the results of the analysis reveal that SMEs and commercial banks are highly indifferent to the loans facilities; strict collateral requirements, high interest rates, and the nature of requirements for guarantors dissuade SMEs from accessing loans; and government interventions provided palliative measures but failed to address the problems associated with the loans. Therefore, this paper recommends policy reforms to reduce interest rate, collateral and guarantor requirements. Further research on how to modernise and harmonise other external sources of SME funding such as ‘daily contribution’ and ‘Isusu’ systems is required.

Suggested Citation

  • Ugwu-Oju M. Obiageri & Vincent A. Onodugo & Mbah, Paulinus Chigozie*, 2019. "Assessing the Effectiveness of Commercial Bank Loans as Sources of Funding/ Capital Formation for Small and Medium Enterprises (SMEs) in Southeast, Nigeria," Business, Management and Economics Research, Academic Research Publishing Group, vol. 5(4), pages 62-70, 04-2019.
    • Handle: RePEc:arp:bmerar:2019:p:62-70
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    References listed on IDEAS

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    4. Keasey, Kevin & Watson, Robert, 1994. "The Bank Financing of Small Firms in UK: Issues and Evidence," Small Business Economics, Springer, vol. 6(5), pages 349-362, October.
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