INTRODUCTION
Small and Medium Scale Enterprises (SMEs) are important engines of economic growth, jobs and social cohesion. SMEs play an important role in the economies of many developing countries including Nigeria. Thus, governments throughout the world focus on the development of the SMEs sector to promote economic growth Finlayson, (2003). However, the creation, survival and growth of SMEs are often hampered by access to finance. Thus access to SMEs finance has become a key priority in developing countries like Nigeria. Therefore, Non-availability of debt finance to finance operations and expansion is one of the major causes of failure for SMEs in Nigeria.
According to Global Entrepreneurship Monitor (GEM) Survey in 2008; financial constraint is the primary exit reason for most SMEs failure in Nigeria. However, the need for SMEs growth in Nigeria is beyond question, but access to finance is a major factor stagnating the way of its growth, as a financing tool, debt financing has a distinct advantages over equity financing for the development of SMEs, but debt financing in Nigeria presently comes with significant challenges as can be seen from low responses of commercial banks to finance SMEs. There is evidence that most SMEs in Nigeria with low capital formation raise capital through loans from family and friends because at the initial stage, majority of young budding entrepreneurs lack laudable forms of collateral, business plans and feasibility studies to actually meet the requirement and convince banks to grant them loans Ebube, (2011). This implies that a vast majority of SMEs depend on internal finance (i.e contribution from the owners, family and friends etc). Internal financing is often inadequate for SMEs in Nigeria to survive and grow, as it is increasingly difficult to keep the costs within the constraints of self-financing.
Therefore SMEs need capital from external sources (or Debt Financing). Because of this Nigerian Government over time introduced Small and Medium Enterprises Equity Investment scheme (SMEEIs) as an initiatives through Commercial banks by the CBN to solve financing problem of SMEs and the creation of (Small and Medium Enterprises Development Agency of Nigeria) SMEDAN as an agency to enhance the development of SMEs. The Banking System is very important for any nation because it is the pivot of socio-economic development of any economy Terungwa, (2011).
This implies that commercial banks have active developmental roles to play in the economy such as mobilizing fund from the surplus to the deficit spending units. Commercial banks are considering as the main source of finance for SMEs or rather entrepreneurs in Nigeria. Akabueze, (2002) assert that Finance has been seen as a critical element in the growth and development of SMEs. For instance the commencement and efficient performance of any industrial enterprises be it small or large will require the provision of funds for its capitalization, working capital and rehabilitation needs, as well as for the creation of new investments. Provision of funds to the industrial sector, particularly, for the SMEs has, therefore, been of prime interest to policy-makers in both the public and private sectors. It is a known fact that firms depend on a variety of sources for their finances. These include external and internal, formal and informal sources Aruwa 2004.
According to Demirguc-Kunt, Maksimovic, Beck and Laeven, (2006) External finance makes many SMEs developed, they depends on bank loans and overdrafts and suppliers credit for early stage financing. Despite the dependence of SMEs on debt finance, paradoxically access to debt finance is very limited for SMEs in Nigeria. Mambula (2002) laments that Small and medium scale enterprises dominate the private sector of the Nigerian economy, but almost all of them lack access to credit finance. This implies that Commercial banks and trade creditors hesitate to lend to SMEs. However, only few SMEs in Nigeria are able to access bank loans. Previous studies have decried the limited access to external financial resources available to smaller enterprises compared to larger organizations and the consequences for their growth and development (Hossain, 1998; Wattanpruttipaisan, 2003; Berger and Udell, 2004; Ogujiuba et al., 2004 ;). According to Velverde et al (2005) bank credit play a crucial role in providing for external financing to SMEs, but in Nigerian context, this crucial source of finance for SMEs is apparently non-functional Kadiri, (2012).
1.2      Statement of the Problem
Small and Medium Enterprises (SMEs) have been recognised as driving force for economic growth in any nation. Empirical evidences have shown that they contribute to employment, alleviate poverty and increase productivity level in a nation.In recognition of the role of SMEs in the economic growth process of Nigeria, government has taken concerted efforts to foster the growth of SMEs and also develop entrepreneurship. SMEs are of necessity to a nation’s industrialization process. One foremost way of promoting SMEs is by having easy access to finance. Finance is of high importance to the growth of SMEs.Afolabi (2013) noted that a major gap in Nigeria’s industrial development process in the past years has been the absence of a strong and virile SMEs sector attributable to the reluctance of banks especially commercial banks to lend to the sector. Commercial banks through their intermediation role are meant to provide financial succor to SMEs. Prior researchers have identified lack of finance as a threat to the performance of SMEs.For SMEs to perform their role in the economy, they need adequate funds in terms of short and long-term loans (Ohachosim, Onwuchekwa&Ifeanyi, 2013). Adequate financing of SMEs is paramount to their survival, as it has been recorded in literature that financial constraint is one of the main reasons SMEs fail in Nigeria.Osoba (1987) argued that financing strength is the main determinant of small and medium enterprises growth in developing countries. There is no gainsaying that finance would boost the performance of SMEs if adequate and optimally utilized. The dearth of funds in these businesses is capable of crippling their operations. Lack of funding for SMEs creates obstacles in allowing them contribute to economic growth and development. Onugu (2005) ranked access to finance as the second problem faced by SMEs in Nigeria. Commercial banks are often reluctant to lend to SMEs because of the perceived risky nature of SMEs by them. Analysis of the annual trend in the share of commercial bank credit to small-scale industries indicates a decline from about 7.5 per cent in 2003 to less than 1% in 2006 and a further decline in 2012 to 0.14 per cent (Sanusi, 2013). The decline shows that commercial banks have less preference to lend to SMEs.
1.3      Aims and Objectives of the Study
The main objective of this study is to examine the role of commercial banks’ credit on the development of SMEs in Nigeria, while others objective is to:
1.4      Research Questions
The following question will be raised to guide the study, and there are:
1.5      Research Hypothesis
H0:      Commercial banks credit to SMEs have no significance impact on their development in Nigeria
1.6      Significance of the Study
In the modern times, industrial production requires the procurement of equipment, machineries and other inputs. The capital required in procuring the requirements in limited in supply and very few industrialists have access to it considering the type of collateral security required by the banks which must be fulfilled before granting loans. Since commercial banks act as intermediaries between surplus and deficit or as a bridge between scattered pockets of savers and the business community desirous of loans for investment, at the end of this research work the following will be attained; SMEs industrialist will be able to know some sources of finance and choose amongst them the best. Commercial Banks will know how effective and efficient they have been towards economic development. Commercial Banks will be able to make some adjustments in their lending processes. This study will therefore be relevant to both SMEs and Commercial banks in Nigeria after providing possible recommendations.
1.7      Operational Definition of Terms
Small Scale Enterprise: An enterprise with a labor size of workers between 10-300 or a total cost of not more than 50 million including working capital but excluding cost of land (Sule, 1986:207).
Medium Scale Enterprise: An industry with a labor size of between 11-1000 workers or a total cost of over 50 million but not more than 200 million including working capital but excluding cost of land (Clifford, 1972).
Business: Business includes any trade, industry, professional and any occupation carried on for profit Jerome (1996).
Bank credit: Bank credit is an agreement between banks and borrowers where banks trust a borrower to repay funds plus interest for either a loan, credit card or line of credit at a later date.