COMPLETE SCHOOL PROJECT TOPICS & MATERIALS :
CHAPTERS: Chapter 1-5
|
DOC FORMAT: MS WORD/PDF
|
PRICE: ₦5,000
THE IMPACT OF BANK LOANS ON SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA (CASE STUDY: CUSTOMERS IN UNITED BANK FOR AFRICA)
ABSTRACT
Small and Medium Scale Enterprises (SMEs) constitute the cornerstone of Nigeria’s economy, driving employment, innovation, and contributions to gross domestic product (GDP). This study investigates the impact of bank loans on SMEs, with a specific focus on customers of United Bank for Africa (UBA) in Nigeria. The research adopts a survey design, targeting UBA SME loan beneficiaries to assess how access to formal credit influences business growth, performance, challenges encountered, and overall sustainability. Primary data were collected through structured questionnaires administered to a sample of UBA customers, supplemented by secondary sources such as bank reports and scholarly publications. Descriptive statistics, correlation analysis, and regression models were employed to analyze the data. Findings reveal that bank loans from UBA positively influence SME growth by providing working capital, enabling asset acquisition, and supporting expansion, particularly in post-pandemic recovery phases. However, high interest rates, stringent collateral demands, bureaucratic delays, and loan mismanagement limit optimal benefits, leading to cases of non-performing loans and subdued short-term performance. The study concludes that while bank loans significantly enhance SME viability and economic contributions, addressing access barriers through policy reforms and improved lending practices is essential. Recommendations include UBA adopting more flexible terms, digital lending enhancements, and collaboration with regulators like the Central Bank of Nigeria (CBN) to boost SME financing. This research contributes to understanding formal credit dynamics in Nigeria’s SME sector and offers practical insights for banks, entrepreneurs, and policymakers.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Small and Medium Scale Enterprises (SMEs) constitute the backbone of Nigeria’s economy, playing a pivotal role in employment generation, innovation, and gross domestic product (GDP) growth. In Nigeria, SMEs represent approximately 96% of businesses, employing over 84% of the workforce and contributing roughly 50% to the national GDP, particularly within sectors such as agriculture, manufacturing, and services. These enterprises are instrumental in driving economic diversification away from oil dependency, fostering entrepreneurship, and promoting inclusive growth across both urban and rural areas.
Despite their significance, SMEs frequently encounter constraints due to limited access to finance, with bank loans serving as a crucial mechanism for expansion, working capital, and technological advancement. Bank loans facilitate SME investment in assets, skilled labor recruitment, and operational scaling, thereby enhancing productivity and market competitiveness within an economic landscape characterized by inflation, currency volatility, and infrastructural deficiencies. The United Bank for Africa (UBA), a prominent commercial bank in Nigeria, has played a key role in this regard by offering specialized loan products such as SME loans and overdrafts, with a particular emphasis on underserved segments, including women-led and youth-owned enterprises.
The impact of bank loans on SMEs in Nigeria has been extensively examined in scholarly literature, revealing both positive and negative dimensions. On the positive side, access to commercial bank lending has been demonstrated to improve financial performance, particularly in industries like pharmaceuticals, where loans support inventory management, research and development, and market expansion. Empirical studies indicate that bank credit contributes to SME development by enabling job creation and poverty alleviation, with evidence suggesting that a 5% increase in bank credit correlates with a corresponding rise in SME output over a ten-year period.
In the context of Nigeria’s post-COVID-19 recovery, bank loans have been critical in sustaining SMEs, especially those within the Micro, Small, and Medium Enterprises (MSME) segment, which experienced significant disruptions between 2020 and 2021. For example, UBA’s initiatives, including expanded working capital loans for MSMEs, supported over 197,630 customers by 2024, with an emphasis on gender equity and financial inclusion. Additionally, the integration of fintech in lending processes has mitigated the effects of bank consolidation, improving loan accessibility and reducing non-performing loan risks for SMEs. These developments align with broader trends in which digital banking enhances SME performance by streamlining transaction efficiency and expanding market reach.
Nevertheless, the financing gap remains substantial, estimated at US$5.7 trillion across emerging markets equivalent to 19% of GDP with 40% of formal MSMEs in Nigeria and similar economies facing credit constraints. In Nigeria specifically, SMEs contribute 6.2% to gross exports and generate 62 million jobs, yet persistent challenges such as inadequate funding, high interest rates, and stringent collateral requirements continue to impede loan uptake. Bank loans from institutions like UBA have been vital in addressing this gap, with case studies indicating improved performance among borrowers in sectors such as wholesale/retail trade and agriculture. However, the microstructure of lending reveals ongoing issues, including loan diversion, weak managerial capacity, and elevated transaction costs, which increase perceived risks for lenders.
Deposit money bank loans promote long-term industrial development, they may exert adverse short-term effects on SME growth due to restrictive lending conditions. Central Bank of Nigeria (CBN) interventions, such as the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), have complemented commercial bank efforts, yet only 26% of surveyed MSMEs accessed bank loans in recent years.
For UBA customers, loans have facilitated self-employment and industrialization, reducing unemployment and stimulating economic activity. Studies examining UBA’s role highlight that loan beneficiaries often experience accelerated growth rates, though challenges such as high lending rates persist. The 2020–2025 period, marked by economic volatility including the COVID-19 pandemic and inflation rates exceeding 29%, has underscored the resilience provided by bank loans, enabling SMEs to leverage financing for survival and innovation.
Overall, the relationship between bank loans and SME performance aligns with Nigeria’s Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure), reinforcing the necessity of targeted financing to fully realize SME potential.
1.2 Statement of the Problem
Despite the critical role of SMEs in Nigeria’s economy, access to bank loans remains a formidable barrier, leading to stunted growth, reduced innovation, and high failure rates among these enterprises. High interest rates, stringent collateral requirements, and bureaucratic processes often deter SMEs from securing necessary funding, resulting in liquidity shortages and an inability to compete effectively.
In Nigeria, where SMEs face a finance gap exacerbated by post-pandemic shocks, many enterprises resort to informal lending sources with exorbitant costs, further eroding profitability. For UBA customers, while loans have benefited some, issues such as loan diversion and inadequate debt servicing capacity have led to elevated non-performing loans, impacting overall bank-SME relationships. Empirical evidence indicates that commercial bank loans can have insignificant or even negative short-term impacts on SME output due to mismanagement and economic pressures.
Additionally, factors such as inflation, trade openness variability, and inconsistent monetary policies compound these challenges, with only a fraction of SMEs accessing formal credit. This situation not only hampers individual enterprise performance but also widens the poverty gap and slows national economic development. Consequently, a deeper examination of bank loan impacts on UBA’s SME clientele is warranted.
1.5 Research Hypotheses
HO1: There is no significant relationship between bank loans and SME growth.
HO2: Challenges in accessing bank loans do not significantly affect SME viability.
HO3: Bank loan terms have no significant impact on SME performance.
1.6 Significance of the Study
This study will provide valuable insights for SME owners on optimizing loan utilization, assist UBA and other banks in refining lending policies, guide policymakers like the CBN in enhancing SME financing frameworks, and serve as a reference for future researchers in banking and entrepreneurship.
1.7 Scope of the Study
The study is limited to customers of United Bank for Africa (UBA) in Nigeria, focusing on the impact of bank loans on SMEs from 2020 to 2025.
1.8 Limitations of the Study
Potential reluctance from respondents to disclose financial data; time and resource constraints in data collection; generalizability limited to UBA customers.
1.9 Definition of Terms
- Bank Loan: Funds provided by a financial institution to be repaid with interest over a specified period.
- Small and Medium Scale Enterprise (SME): Businesses with assets (excluding land) up to N500 million and employing fewer than 300 people, as per SMEDAN guidelines.
- Non-Performing Loan: A loan overdue by 90 days or more, classified as doubtful or lost.
Regerences
Abari-Ogunsona, O., et al. (2025). The effects of small and medium enterprises (SMEs) performance on poverty alleviation in Nigeria. International Journal of Research and Innovation in Social Science, 9(8). https://rsisinternational.org/journals/ijriss/articles/the-effects-of-small-and-medium-enterprises-smes-performance-on-poverty-alleviation-in-nigeria
El-Yaqub, A. B. (2025). Impact of financing small and medium enterprises on sustainable development in Nigeria. MRS Journal of Accounting and Business Management, 2(5), 9–20. https://mrspublisher.com/assets/articles/1749222179.pdf
Global Finance Magazine. (2024). World’s best SME banks 2025: Regional winners. https://gfmag.com/award/worlds-best-sme-banks-2025-regional-winners
Ibrahim, E.-Y., & Magaji, S. (2024). Impact of financing small and medium enterprises on sustainable development in Nigeria. MRS Journal of Accounting and Business Management, 2(5). (As cited in related 2025 analyses).
Ojo, A., & Adekunle, O. (2023). Access to commercial banks lending on the financial performance of SMEs in pharmaceutical business in Kwara State, Nigeria. International Journal of Applied Research in Business and Management. https://www.wr-publishing.org/index.php/ijarbm/article/view/259
United Bank for Africa. (2025a). H1 2025 investor presentation. https://www.ubagroup.com/wp-content/uploads/2025/09/UBA-H1-2025-Investor-Presentation_30.09.25FinalPDF.pdf
United Bank for Africa. (2025b). Q3 2025: UBA delivers N538bn PAT, robust balance sheet. https://www.ubagroup.com/q3-2025-uba-delivers-n538bn-pat-robust-balance-sheet
United Bank for Africa. (2025c). UBA named Nigeria’s strongest brand in 2025. https://www.ubagroup.com/57-marina/uba-named-nigerias-strongest-brand-in-2025