The Role of Commercial Banks in Entrepreneurial Development






Entrepreneurship is one of the economic variables that have attracted the attention of governments and scholars of both developed and developing countries. Several efforts and initiatives have been geared by governments and Non-Governmental Organizations (NGOs) in order to promote entrepreneurship and its contribution to the overall economic growth and development especially in Nigeria. The practice of entrepreneurship started when people produced more products than they needed, as such, they had to exchange these surpluses. Hence, the concept of trade by barter was introduced.

Traditionally, Nigeria was running an agricultural economy. The produce was notably palm oil, cacao/cocoa, rubber, and groundnuts (peanuts). At this time, Nigeria had entrepreneurs who had the entrepreneurial mind-set prevalent at the time. The peoples of Hausa, Ibo, Yoruba and Benin all had their own entrepreneurs (13th-19thcentury), who were exposed to entrepreneurship opportunities outside their native areas. The Hausas had astute entrepreneurs with skills in tanning, dyeing, weaving, and metalworking which were highly developed. The Ibos also specialized in buying and selling goods and perfected their entrepreneurial expertise in inventory control, management and distribution – which up till today, has remained their prevalent way of entrepreneuring.

The Yoruba were predominantly town dwellers who practiced small-scale, domestic agriculture and are well known as traders and craftspeople. Since the 13th century, Yoruba artists have been producing masterpieces of woodcarving and bronze casting. Like the Ibos, the finished products were traded on as business ventures and enterprises. The role of government in entrepreneurship

Development in Nigeria became significant only after the Nigeria civil war. there has been an increased commitment of government to entrepreneurship development especially after the introduction of the Structural Adjustment Program (SAP) in the country. Added to this is the establishment of the National Directorate of Employment (NDE), National Open Apprenticeship Scheme (NOAS) and, the Small and Medium Enterprise Development Association of Nigeria (SMEDAN) (Thaddeus, 2012). Basically the Nigerian government has promoted entrepreneurial culture through initiatives that build business confidence, positive attitude, pride in success, support and encouragement of new ideas, social responsibility, providing technological supports, encouraging inter-firm linkages and promotion of research and development. The Centre for Entrepreneurship Development (CED), which main objective was teaching and encouraging students of higher institutions (especially those in the sciences, engineering and technological (SET)) to acquire entrepreneurial, innovative, and management skills, was established. The major goal of the establishment is to make the graduates self-employed, create job opportunities and to generate wealth (Thaddeus, 2012).


The present economy constraints may well turn out to be a blessing in disguise to our entrepreneurship development industry effort particularly for the dynamic manufacturing sector. For instance, the market determined exchange rate through Foreign Exchange Market with its resultant high cost of imported inputs may serve as an impetus for industrialist to intensify their search for loan substitute.

Murphy (2010) conceives an entrepreneur as a person who is dynamic and continues to seek opportunities and/or different methods of operation and will do whatever it takes to be successful in business.

Reiss (2010: Quote in Bamidele et al,2017), views the entrepreneur as the person that recognizes and pursues opportunities without regard to the resources he/she is currently controlling, with confidence that he/she can succeed, with the flexibility to change course as necessary, and with the will to rebound from setbacks.

Oluba (2009:Quote in Dr. Kennedy & Joy,2014) summarized the contribution of SMESs to an economy, especially developing ones as: greater utilization of raw materials, employment generation, encourage of rural development, development of entrepreneurship, mobilization of local savings, linkages with bigger industries, provision of regional balance by spreading investments more evenly, provision of avenue for self employment and provision of opportunity for training managers and semi-skilled workers.

The present economy constraints may well turn out to be a blessing in disguise to our entrepreneurship development industry effort particularly for the dynamic manufacturing sector. For instance, the market determined exchange rate through Foreign Exchange Market with its resultant high cost of imported inputs may serve as impetus for industrialist to intensify their search for loan substitute.




There is dearth of financial institutions which cater for long and medium term credit needs of businesses operating in the economy. Entrepreneurship development is no exceptions to these, and they suffer a great deal for want of capital for development and expansion of the economic survival of the country. It cannot be over emphasized that they have moved from the subsistence level of pre-indigenization period to a position of importance in the country’s industrialization process (uduogu,2012).


In an attempt to modernize many entrepreneurship developments, their standard of operation has moved into the capital intensive stage. The need in many cases is beyond the financial capability of the entrepreneurs who set up the business. The major alternative for the provision of such capital is the financial institutions and among the financial institutions operating in the country, commercial banks are the major sources of credit to the various sectors of the economy.


However, it is common knowledge that getting financial support from commercial banks has been grossly inadequate for budding indigenous entrepreneurs and even for those who have

been in the manufacturing business for a long term. Three types of credit are usually required by Enter. They include:


  1. Short Term Loan: This type of credit is used to finance yearly operation until the productor proceeds from the industry are sold. The amount which is involved in this type of credit is usually small but lack of this type of credit is most accurately felt by entrepreneur’s development that have little or no saving upon which to withdraw as they are mostly beginners.


  1. Medium Term Loan: This type of loan is for more than one year maturity period but notexceeding three to five years. This loan is mostly required for acquisition of inexpensive equipment with relatively short life span.


  • Long Term Loan: This type of credit is necessary for acquisition of major industrial machines, improvement in industrial equipment, building and land: It is a type of loan that the maturity period is for quite a longer duration.


Small scale enterprises therefore can be a powerful instrument in bringing about a revolution in industrial practices and in firms productivity especially if supplied in sufficient quantity and used effectively.


The study therefore identifies entrepreneurial development financing by commercial banks as a major role to entrepreneurial development because finance is just one of the major factors of production.




  1. To what extent can entrepreneurship developments obtain loans and advances from Nigerian Commercial Banks?


  1. What are the problems facing commercial banks in financing entrepreneurship development in Nigeria?


  1. What are the problems encountered by entrepreneurs in obtaining funds from commercial banks?


  1. How viable is entrepreneurship development financing by commercial banks?


  1. How can commercial bank’s provision of finance to entrepreneurship developments be improved upon?




In view of the above problem of entrepreneurship developments, the overall objectives of this study are to evaluate the role of commercial banks in financing entrepreneurship developments.


The specific objectives are:


  1. To evaluate the extent to which entrepreneurship developments have been able to obtain loans and advances from Nigerian Commercial Banks, as major source of finance to the economy.


  1. To ascertain the problems facing Commercial banks in financing entrepreneurship developments in Nigeria.


  • To identify problems encountered by entrepreneurs in obtaining funds from commercial banks.


  1. To determine the viability entrepreneurship development financing by commercial banks.


  1. To appraise and evaluate the situation and make recommendations on how to improve on commercial bank provision of finance to entrepreneurship developments.


1.5         HYPOTHESES


The hypotheses are as follows:


H1: There is significant statistical role played by commercial bank in entrepreneurial development.


Ho: There is no significant statistical role played by commercial bank in entrepreneurial development.



Information gathered from the study could be used by Entrepreneurs for planning appropriate measures for business growth and survival as well as the effective allocation of resources. To students in higher institutions of learning, it will provide them with some vital information concerning the role of commercial bank in entrepreneurship development. Also, it will provide basis for which further research could be conducted. Finally, it is believed that this research study will be of great use to general public by expanding their knowledge on the role of commercial bank in entrepreneurship development.


It is the desire of the researcher to investigate into the role of commercial bank in entrepreneurship development in Bauchi. But due to time and financial constraints, the researcher has chosen first bank, F.C.M.B, union bank, and two selected small scale enterprises in bauchi as case study firms.


In this study, the researcher would use the “Survey method” of research where personal interviews will be conducted and questionnaire issued. The population of this study will composed of the management and non-management staff of five (5) selected firms in Bauchi State. The researcher will use random sampling method in selecting five (5) case study firms. The selections

Were based on the important of the above mention commercial banks in the development of entrepreneurs.  About fifty (50) management staff and hundred and sixty (160) non-management staff of the Companies have been chosen to constitute the population of the study

The researcher will determined the sample size using the Taro Yamane’s formula as cited by Alugbuo,(2002). The formula is stated below:


n =              N

 1 +N(e)²

Where n is the sample size, N is the total number of the target population and 1 is the number of items in the population. The square of maximum allowance for sampling error or level of significance is 5%. It is represented by e.

The research questions would be analysed using the simple percentage while the hypothesis will be tested using the chi-square (X²) test statistic. The reason for the use of this test is that it can be used for one, two or more variables of general applicability.

The formula of chi-square is stated below:

X² = Σ (0i – ei)²

Σ ei


X² = Chi square

0i = Observed frequency

ei = Expected frequency

Σ = Summation


The financing needs of small firms arise from operational fund requirements for fixed asset acquisition/replacement capital as well as working capital requirements.  Small firms meet their financing needs by searching for funds both in the form of long-term and short-term facilities.  Some small firms especially those in preferred sectors attract loans from development finance institutions, like the Bank of Industry (BOI), Agriculture and Co-operative Bank and the Export Import Bank.  Many small firms do not extend their search for funds to the formal sector banking system i.e. commercial banks and micro finance banks because of fear of their limitations in operating characteristics such as poor banking relationship, limited information and management skills and low level and poor quality of collaterals to support loan applications.  In other words, credit from a bank can be provided in the context of information asymmetry on the entrepreneur and the bank  and this can be resolved if the entrepreneur can keep proper accounting records and demonstrate credit worthiness and project viability, which often are demanded by lending institutions (Dr. Regina & Ify,2012).  Providers of fund for small businesses regard firms that cannot do that as high credit risk customers.



Hornby,(2006). Define Entrepreneurs who makes money by starting or running business, especially when this involves taking financial risks.


Garba,(2010). Asserted that the term entrepreneurship means different thing to different people and with varying conceptual perspective. He stated that in spite of these different; there are some common aspect such as risk taking, creativity, independence and reward.


Abianga,(2010) define development as the act or process growth, progress and improvement within a physical setting.

Entrepreneurship development

Entrepreneurship development is referrin to the process of enhancing entrepreneurial skill and knowledge throgh structured training and institution building programs(UNDP,2010:quoted in Aliyu,2013).

Commercial Bank

The bank and other financial institution Decree no 25 of 1991 defined a commercial bank as “any bank in nigeria whose includes the acceptance of deposits, withrawable by cheques. This defination present the major distinguishing function of commercial banks from other bank(Aliyu,2013).

Small scale enterprise

Sometimes called a small business, a small-scale enterprise is a business that employs a small number of workers and does not have a high volume of sales. Such enterprises are generally privately owned and operated sole proprietorships, corporations or partnerships. The legal definition of a small-scale enterprise varies by industry and country.The U.S. Small Business Administration states that small-scale enterprises generally have fewer than 500 employees within a 12-month period in non-manufacturing industries. A company must consider any individual on its payroll as an employee. In Australia, however, a small-scale enterprise is one that has fewer than 15 employees on payroll, as defined by the Fair Work Act. The Small Business Act for Europe states that small enterprises are those that have 250 employees or less. Small-scale enterprises in Asian countries generally have 100 or fewer employees, while small-scale African enterprises hire 50 or fewer workers (Flora,2009).


In finance, a loan is the lending of money from one individual, organization or entity to another individual, organization or entity. A loan is a debt  provided by an organization or individual to another entity at an interest rate, and evidenced by a promissory note which specifies, among other things, the principal amount of money borrowed, the interest rate the lender is charging, and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of time, between the lender and the borrower (Guttentag, 2010).

Socio-economic development

Socio-economic development is the relationship between economic activity and social life. The NEPAD Declaration implies that socio-economic development is the continuous improvement in the well being and in the standard of living of the people

Financial institution

A financial institution is an establishment that conducts financial transactions such as investments, loans and deposits. Almost everyone deals with financial institutions on a regular basis. Everything from depositing money to taking out loans and exchanging currencies must be done through financial institutions. Here is an overview of some of the major categories of financial institutions and their roles in the financial system.




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