CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Business like people, are not established equally. There are some organization in Nigeria that would be greatly missed if they ceased to exist, but life would go on. There are some business that if they fold up it would cause vast sections of economies and societies to implode. Into this second category falls the deposit money bank. Deposit money banks are the most important savings mobilizing and financial resource allocation institutions. Consequently, their roles make them an important sector and strong pillar in economic growth and development.

Deposit money banks which are also known as commercial banks are financial institutions that provide services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of activities deposit. According to mainstream theory, they act as financial intermediaries to channel savers’ money to firms and individuals who seek funding for their acts. Their importance as a catalyst to economic growth/development is widely recognized by both monetary and development economists. The financial system of Nigeria is dominated by the banking sector, especially the deposit money bank which provides the foundation for the development of financial system. Their credit component constitutes a major link between the monetary sector and the real sector of the Nigerian economy. In performing these roles, deposit money banks must realize that they have the potentials, scopes and prospects of mobilizing financial resources and allocating them to productive investments and, in return, promote sustainable performance and ensures that businesses are flourishing and alive. They not only store our saved cash and lend us money when we need it, but act as the system of arteries that transport money around the economy, that is why they are often known as financial intermediaries. Hence their key function is to transfer money, en masse, from those who want to lend to those who want to borrow. In order for an economy whether rich or poor to function properly, it must have a well-developed and healthy deposit money banks. Why? The companies like medium and small scale enterprises and individuals need to borrow money to start business and subsequently to build decent, formidable and innovative businesses which constitute the launching pad for any meaningful growth in any developing economy and this is why Oluyemi (1995) regards the deposit money banks as an engine of growth of a country’s economy that could greatly assist in the promotion of rapid economic growth. The financial institution has also been described to be a catalyst for economic growth when it is well developed and judged to be healthy (Adeoye, 2007). A World Bank (1997) study emphasizes the role played by the banking sector in the process of financial integration in developing countries.

This is to say that deposit money banks are inseparably linked to economic growth of any nation. Figuratively, they are like the body and soul in the overall functions of the human person. Proper functioning of this banks leads to economic growth of a nation. They play an important role in economic growth of a nation. They are patterns of resources that aim to meet the needs of medium and small scale enterprises.

1.2     Statement of the Problem

In spite of the fact that SMEs have been regarded as the bulwark for employment generation and technological development in Nigeria, the sector nevertheless has had its own fair share of neglect with concomitant unsavoury impacts on the economy. In a seminar titled “Carer Crisis and Financial Distress- The Way Out”, the General Manager of Enterprise and Financial Support Company Limited, Mr. Oluseyi Oluboba, identified in his research that even though the problems of SMEs is much in Nigeria constrained access to money and capital markets is the main challenges faced with SMEs in Nigeria.

Secondly challenges that most deposit money bank in Nigeria face is the inability of the bank to meet its financial obligations to its stakeholders. This, in most cases, precipitates runs on banks, the banks and their customers engage in massive credit recalls and withdrawals which sometimes necessitate Central Bank liquidity support to the affected banks. Some terminal intervention mechanisms may occur in the form of consolidation (mergers and acquisitions), recapitalization, use of bridge banks, establishment of asset management companies to assume control and recovery of bank assets, and outright liquidation of non-redeemable banks. Bank consolidation, which is at the core of most banking system reform programmes, occurs, some of the time, independent of any banking crisis. There are so many reports of how Nigerian banks rip off their customers through various charges and practices. Often, customers complain and cry out for appropriate regulatory intervention. Unfortunately, their complaints seem to fall on deaf ears, because they are unaware of any positive regulatory action in response thereto.

In response to the aforementioned problems this research will investigate the influence of Deposit money bank (DMB) on growth of Small business in Nigeria and also the problems associated with DMB recapitalization and SMEs in Nigeria.

1.3     Objective of the Study

The main objective of this study is to find out the influence of DMB recapitalization on the growth of Small business in Nigeria, specifically the study intends to:

1.     Find out the relationship between deposit money recapitalization and growth of SMEs in Nigeria

2.     Investigate the problems associated with the DMB in Nigeria

3.     Find out the factors impeding growth of SMEs in Nigeria

1.4     Research Questions

1.     Is there any relationship between deposit money recapitalization and growth of SMEs in Nigeria

2.     What are the problems associated with the DMB in Nigeria

3.     What are those factors impeding growth of SMEs in Nigeria

1.5     Research Hypothesis

Ho:  there is no relationship between deposit money recapitalization and growth of SMEs in Nigeria

Hi: there is relationship between deposit money recapitalization and growth of SMEs in Nigeria

1.6     Significance of the Study

This study when completed will be a valuable help to various stakeholders for implementations with the concerned efforts of all and sundry including: governments at all levels, SME promoters etc.

Policy makers: It guides them in making policies and regulations that will create enabling environment for small and medium scale enterprises.

SMEs: This study will enable them to identify the problems confronting the development of small and medium scale enterprises.