Bank Recapitalisation and Funds Availability to Small and Medium Enterprises in Nigeria

Abstract

Nigeria’s banking industry has experienced many reforms, the most recent of which was bank recapitalisation in 2004. One of the main thrusts of the recent reform was to address the financial problem of Small and Medium Enterprises (SMEs) that has been lingering despite various schemes and programmes introduced by successive governments to provide adequate loanable and equity finance to the sector. This study assesses the impact of bank recapitalisation on both credit availability to and equity investment in SMEs in Nigeria. The study formulates three hypotheses and applies three sets of simple regression to analyse banks aggregated secondary data extracted from various Central Bank of Nigeria (CBN)’s publications over the period 2001 through 2008. The study could not find evidence that bank recapitalisation has significant impact on credit availability to SMEs but confirms that it has significant impact on banks’ equity investment funds under Small and Medium Enterprises Equity Investment Scheme (SMEEIS). The study therefore, recommends that the Federal Government should come up with credit guarantee scheme to motivate banks to grant more credit to the SMEs. Also, CBN should facilitate the emergence of smaller banks that will provide an alternative to the preference of megabanks to finance big-ticket transactions at the expense of small borrowing such as that of SMEs. Furthermore, CBN should embark on awareness campaign to sensitise SMEs on SMEEIS and the requirement for accessing the funds in view of the gap observed between funds available and funds disbursed under the scheme.

Keywords: Bank Recapitalisation, Equity Investment Funds, SMEs