ROLE OF COMMERCIAL BANKS IN FINANCING SMALL AND MEDIUM SCALE INDUSTRIES IN NIGERIA : CASE STUDY OF ACCESS BANK PLC, ABAKALIKI

ROLE OF COMMERCIAL BANKS IN FINANCING SMALL AND MEDIUM SCALE INDUSTRIES IN NIGERIA: CASE STUDY OF ACCESS BANK PLC, ABAKALIKI

ABSTRACT

The major objective of this study is to ascertain the extent to which commercial banks play a role in financing small and medium scale industries in Nigeria, using Access Bank Plc, Abakaliki as the case study. The instrument of data collection is a questionnaire and research questions, which formed the source of primary data. The method of analysis used is the chi-square statistical technique. Recent empirical evidence confirms that SMEs contribute approximately 48% of Nigeria's GDP and account for over 84% of employment, yet access to formal bank credit remains a critical constraint (SMEDAN, 2023; World Bank, 2022). The major finding of this research is that Access Bank Plc has helped to finance small and medium scale industries in Abakaliki, though stringent collateral requirements and high interest rates continue to limit credit accessibility for many SMEs. The recommendations based on the findings are that the Central Bank of Nigeria and the government should intensify intervention measures, including the expansion of the SME Credit Guarantee Scheme, while commercial banks such as Access Bank Plc should adopt more flexible lending guidelines to accommodate small and medium scale enterprises. The research concluded that if the desired objective of using small enterprises as catalysts of development is to be achieved, then the role of commercial banks must be mutually supportive and aligned with national development policy.

Keywords: Commercial banks, SME financing, Access Bank, Nigeria, credit accessibility, CBN policy.

TABLE OF CONTENTS

TITLE i

DEDICATION ii

APPROVAL iii

CERTIFICATION iv

ACKNOWLEDGEMENTS v

ABSTRACT vii

TABLE OF CONTENTS viii

LIST OF TABLES x

CHAPTER ONE: INTRODUCTION 1

1.1 Background of the Study 1

1.2 Statement of the Problem 5

1.3 Objectives of the Study 5

1.4 Research Questions 6

1.5 Research Hypotheses 6

1.6 Significance of the Study 7

1.7 Scope of the Study 7

1.8 Limitations of the Study 8

CHAPTER TWO: LITERATURE REVIEW 9

2.1 Conceptual Framework 9

2.2 Theoretical Framework 11

2.2.1 Historical Background and Development in Commercial Banks 14

2.2.2 General Operations of the Bank and Services Offered 15

2.3 Features of Small and Medium Scale Industries 22

2.4 Sources of Finance to Small and Medium Scale Industries 26

2.4.1 Internal Sources 27

2.4.2 External Sources 29

2.4.3 Other Sources 33

2.5 Nigeria Banks and the Problem of Financing SMEs 34

2.5.1 Asset-Based Lending Rule: An Assessment 35

2.6 The Role and Importance of SMEs in the Economic Development of Nigeria 39

CHAPTER THREE: METHODOLOGY 43

3.1 Research Design 43

3.2 Source of Data 43

3.3 Population of Study 43

3.4 Sample Size 44

3.5 Method of Data Collection 44

3.6 Validity and Reliability of Data 45

3.7 Techniques for Data Analysis 45

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS 46

4.1 Data Presentation 46

4.2 Analysis Based on Research Hypotheses 47

4.3 Test of Hypothesis 51

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION 56

5.1 Summary of Findings 56

5.2 Conclusion 57

5.3 Recommendation 58

REFERENCES 61

APPENDICES

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

For both developing and developed countries, small and medium scale enterprises (SMEs) play important roles in the process of industrialization and economic growth. Apart from increasing per capita income and output, SMEs create employment opportunities, enhance regional economic balance through industrial dispersal, and generally promote effective resource utilization considered critical to engineering economic growth (Okafor & Muriuki, 2024). According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN, 2023), SMEs contribute approximately 48% of Nigeria's GDP and account for over 84% of employment, making them the backbone of the Nigerian economy.

However, the seminal role played by SMEs notwithstanding, their development is everywhere constrained by inadequate funding and poor management. High interest rates, stringent collateral requirements, and restricted access to formal financial institutions continue to be significant obstacles for SMEs in Nigeria (Omeje, Chukwu, Mba & Ugwu, 2024). The unfavourable macroeconomic environment characterized by persistent inflation, exchange rate volatility, and tight monetary policy has also been identified as one of the major constraints which most times encourage financial institutions to be risk-averse in funding small and medium scale businesses (Ibrahim, 2024). Bello and Ajayi (2022) further identified that SMEs' contribution to GDP tends to contract during periods of high inflation and financial instability, underscoring the vulnerability of the sector to macroeconomic headwinds.

The manufacturing sector, including micro, small, and medium enterprises, is acknowledged to have huge potential for employment generation and wealth creation in any economy. Yet in Nigeria, the sector has stagnated and remains relatively small in terms of its contribution to GDP or gainful employment (Ekwunife, Nduka & Ogini, 2022). Activity mix in the sector is also quite limited, dominated by import-dependent processes. Although capacity utilization has improved since the return to democracy in 1999, the sector is still faced with a number of constraints, with lack of credit availability as the principal constraint (Central Bank of Nigeria [CBN], 2023).

Credit is the largest element of risk in the books of most banks, and failures in the management of credit risk have weakened individual banks and, in some cases, the banking system as a whole. A greater understanding of the nature of credit risk, leading to improved measurement and management, is therefore essential to the stability of the financial system and the long-term financing of small and medium enterprises (Adeyemi & Ibrahim, 2025). The CBN has historically responded to the SME financing gap through various intervention schemes; however, despite these funds, Nigerian SMEs continue to face a huge credit gap which ultimately leads to their premature closure with approximately 95% of Nigerian SMEs shutting down within their first five years (Nigerian MSME Report, 2022).

Generally, the stage of development and efficiency of the financial system varies among countries and changes over time. The more developed and sophisticated financial systems tend to be associated with mature economies, while underdeveloped financial systems feature in developing economies. A growing body of literature confirms that bank consolidation policies, while aimed at strengthening the banking sector, have inadvertently reduced the availability of relationship-based lending particularly for SMEs, which are crucial to Nigeria's economic development (Onyenwe, Egungwu, Nduka & Ogini, 2024). At the same time, emerging financial technologies such as artificial intelligence and fintech innovations are transforming traditional banking by introducing alternative credit scoring systems, digital lending platforms, and real-time financial services (Akande, 2025).

In Nigeria, every known administration has recognized the importance of promoting SMEs as the basis of economic growth. As a result, several micro-lending institutions were established to enhance the development of SMEs. Such institutions include the Bank of Industry (BOI), the Development Bank of Nigeria (DBN), the National Agricultural and Rural Development Bank (NACRDB), community banks (CB), and the Nigerian Export and Import Bank (NEXIM). In 2022, the World Bank noted that Nigeria was home to almost 40 million micro, small, and medium-sized enterprises (World Bank, 2022), reinforcing the critical importance of sustained financing support for the sector.

This study attempts to find out how commercial banks finance small and medium scale enterprises, taking Access Bank Plc, Abakaliki as the case study. Access Bank Plc was founded in 1989 and has grown to become Nigeria's largest bank by assets (FMO, 2024). The bank has demonstrated a strong institutional commitment to SME financing. In 2023, the European Investment Bank (EIB) signed a EUR 50 million loan facility with Access Bank specifically to finance eligible investments by SMEs and mid-caps in sectors such as transport, agriculture value chain, manufacturing, tourism, and services with a minimum of 30% of the loan targeting women-owned businesses (EIB, 2023). In July 2024, Dutch development bank FMO arranged a $295 million syndicated loan to Access Bank the largest ever syndicated loan arranged by FMO to expand the bank's capital reserves and provide working capital access to underserved SMEs at a time when many businesses in Nigeria are battling economic turmoil and rampant inflation (FMO & BII, 2024). The bank has also expanded cashflow-based lending to SMEs, moving beyond traditional collateral-heavy models, with loan disbursement data showing consistent growth between 2021 and 2023 (World Bank Open Knowledge, 2024).

Access Bank Plc is a retail and commercial bank with its headquarters located in the central business district of Lagos, Nigeria. It operates an extensive branch network across Nigeria and internationally, and is recognized as one of Africa's most systemically important financial institutions. The bank was named Nigeria's Best Bank in 2024 by the Euromoney Awards and has been at the forefront of promoting financial inclusion, particularly for SMEs and underserved segments (Access Bank Plc, 2024). The Abakaliki branch, which forms the geographic focus of this study, serves entrepreneurs and small business operators in Ebonyi State, a region where SME development is critical to poverty reduction and economic diversification.

1.2 STATEMENT OF THE PROBLEM

One of the primary obligations of commercial banks in Nigeria and elsewhere is to make maximum contributions to the economic development of the nation. Others include ensuring maximum profitability owed to shareholders and maximum liquidity owed to depositors. Despite the critical importance of SMEs to Nigeria's economy contributing about 48% of GDP and over 84% of employment (SMEDAN, 2023) commercial banks have historically maintained a cautious approach to SME lending, citing concerns about high default risk, inadequate collateral, and poor financial records among SME borrowers.

Recent empirical evidence reinforces the severity of this problem. Adeosun, Shittu, and Ugbede (2023) found that stringent collateral requirements significantly limit SMEs' accessibility to credit from formal financial institutions. Similarly, studies confirm a negative relationship between high interest rates and SME performance in Nigeria, with elevated borrowing costs significantly reducing SMEs' profitability, investment capacity, and employment growth (Ibrahim, 2024). The absence of flexible, risk-adjusted lending frameworks has meant that even when SME-directed credit schemes exist, actual disbursements remain far below demand.

This research therefore concentrates on the contribution of commercial banks specifically Access Bank Plc, Abakaliki to the economic development of Nigeria through the financing of SMEs. The analysis of the research problem poses fundamental questions: Do commercial banks finance small and medium scale enterprises adequately? If not, what are the prevailing limitations? And to what extent does Access Bank Plc comply with CBN guidelines on SME lending?

1.3 OBJECTIVES OF THE STUDY

The following are the objectives of the study:

1. To determine the extent to which the lending process of Access Bank Plc relates to the attitudes and needs of small scale business owners in Abakaliki.

2. To examine the role of Access Bank Plc in satisfying the financing needs of SMEs in Nigeria, with particular reference to the Abakaliki branch.

3. To evaluate the extent to which small and medium scale enterprises in Abakaliki access loans from Access Bank Plc and the impact on their business profitability.

1.4 RESEARCH QUESTIONS

The following research questions guide this study:

1. How does the attitude of SME business owners in Abakaliki relate to the method Access Bank Plc uses to lend money to them?

2. Does money lent to small and medium scale business owners by Access Bank Plc enhance profitability in their businesses?

3. Does Access Bank Plc, Abakaliki comply with CBN policy in lending to SME business owners?

1.5 RESEARCH HYPOTHESES

Based on the formulated research questions, the following hypotheses are proposed:

H₀₁: There is no significant relationship between Access Bank Plc's lending to SMEs in Abakaliki and the attitude of the business owners.

H₁: There is a significant relationship between Access Bank Plc's lending to SMEs in Abakaliki and the attitude of the business owners.

H₀₂: Lending to SMEs by Access Bank Plc does not significantly enhance the profitability of business owners in Abakaliki.

H₂: Lending to SMEs by Access Bank Plc significantly enhances the profitability of business owners in Abakaliki.

H₀₃: Access Bank Plc, Abakaliki does not comply with the Central Bank of Nigeria's credit guidelines as they affect lending to SMEs.

H₃: Access Bank Plc, Abakaliki complies with the Central Bank of Nigeria's credit guidelines as they affect lending to SMEs.

1.6 SIGNIFICANCE OF THE STUDY

The significance of this study is multidimensional. From a policy perspective, the findings contribute timely evidence to the ongoing discourse on how to bridge Nigeria's SME financing gap a challenge that the CBN's Anchor Borrowers' Programme, the SME Credit Guarantee Scheme, and other intervention instruments have only partially addressed (Central Bank of Nigeria, 2022; Uche & Adesanya, 2023). By evaluating Access Bank Plc's lending practices at the branch level in Abakaliki, this study provides granular insights that aggregate national data often obscure.

From an academic standpoint, this study extends the growing body of literature on bank-SME relationships in developing economies. Recent scholarship has emphasized that the relationship between bank credit accessibility and SME growth is not uniform it is mediated by factors such as firm size, sector, collateral availability, and the quality of bank-borrower relationships (Adedipe, 2023; Adebisi & Ajayi, 2023). This study adds to that literature with specific evidence from Abakaliki, a commercially underrepresented location in the academic SME financing literature.

For practitioners, including bank managers, loan officers, and SME operators, the study offers practical recommendations on how lending guidelines can be made more responsive to the realities of small business operations. It is anticipated that the findings will help make evidence-based recommendations for improving access to finance in a manner that balances bank risk management with the developmental mandate of commercial banking in Nigeria.

1.7 SCOPE OF THE STUDY

This research examines the financing of small and medium scale enterprises by commercial banks, with emphasis on Access Bank Plc, Abakaliki branch. The study covers all kinds of SME industries production, processing, and services operating in and around Abakaliki, Ebonyi State. The time scope of this study is primarily focused on the period from 2022 to 2024, reflecting the most recent developments in commercial bank SME financing policy and practice in Nigeria, including the CBN's post-pandemic credit interventions and Access Bank's expanded SME lending initiatives during this period.

While the study is anchored on Access Bank Plc, the findings are intended to have broader applicability to the Nigerian commercial banking sector, given that Access Bank represents a tier-1 institution whose SME lending policies largely mirror CBN regulatory expectations. The geographic focus on Abakaliki is deliberate, as Ebonyi State represents a developing state economy where SME development has significant potential to drive poverty reduction and inclusive growth.

1.8 LIMITATIONS OF THE STUDY

One of the major limitations in carrying out this work is the constraint of time, given the competing demands of academic responsibilities including lectures, assignments, and examinations. Another limitation is that only Access Bank Plc, Abakaliki is used as the case study. The operations and lending practices in this branch will certainly not represent the full range of approaches observable in other commercial banks or even other branches of Access Bank Plc across Nigeria. Different banks may have varying internal policies, financial capacities, and risk appetite that affect their SME lending behaviour.

Furthermore, the reliance on primary data through questionnaire administration introduces the possibility of response bias, as respondents may be inclined to provide socially desirable answers rather than candid assessments of their experiences with bank credit. Despite these limitations, Access Bank Plc, Abakaliki has been selected because of its strong institutional commitment to SME financing at the national level including a $295 million syndicated loan facility secured in 2024 for SME support (FMO & BII, 2024) making it a representative and relevant case for examining the role of commercial banks in SME financing in Nigeria.

REFERENCES

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