IMPACT ON BANK LENDING ON INDUSTRIAL DEVELOPMENT IN NIGERIA: 1999-2008

IMPACT ON BANK LENDING ON INDUSTRIAL DEVELOPMENT IN NIGERIA: 1999-2008

ABSTRACT

This study was carried out to examine the impact of banking lending on industrial development in Nigeria. The objectives of the study were to examine the impact of bank lending on industrial development in Nigeria and to examine the relationship between bank lending and employment in the industrial sector. The method used in gathering data for this study was from publication of the Central Bank of Nigeria and the Federal office of statistics. The method used in testing hypothesis was analysis of variance (ANOVA) and regression analysis. Data was analyzed into gross domestic product and loan from 1999 to 2008. At the end of this work, the researcher made the following findings: (a) Industrial development will be achieved through promotion and encouraging of the small and medium scale industries in the country. (b) The industrial sector in Nigeria has been largely stunted in growth, since the era of the failed import substitution strategy of the 1960s. Also the researcher made the following recommendation; (a) financial assistance could be extended by banks as part of the preventive measure. (b) The policy of the import substitution and export promotion should be stipulated by the government to encourage infant industries. (c) The findings are expected to provide insight into likely contemporary policy choices facing a typical Nigeria economy in the pursuit of an export-led industrialization strategy.

CHAPTER ONE

1.0       INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Industries are found both in developed and developing nations of the world, and they form the bedrock of economic development of any country and essentially their impact is felt round the world through bank lending, the industrialization development in Nigeria will grow from small scale to medium scale and to large scale industry. Ekukanam (1999), notes with deep concern that development of industries in Nigeria will provide solution not only to the basic economic problems but also to social problems like unemployment, poverty and over dependence.

The development of industries through bank lending is not just an effective way of contributing to the diversification and development to the economy and thus the standard of living but also one of the principal means of attaining social and political emancipation of the people of the society.

Bank lending is a catalyst for industrial and economic development. This simply means that bank lending is directed towards stimulating and facilitates economic growth. Banks serve not only as store of value where money is deposited for safety purposes alone. Some percentage of loans is extended to the desirable public to gear up the economy. The banking industry is an important medium for investment of funds needed or organizations engaged in the production of goods and services.

Bank credit and lending function as we are aware, evolved from rather humble beginning as a result of discovery made by the goldsmith some century ago. Bank have in recent time been described as the machine of economic growth in an economy, banks extends credits (money which is an assets) to a customers.

Most people who want to start a business complain of lack of sufficient capital to start with. Commercial banks have proven to be financial intermediaries in Nigeria. They maintained a good position in economy. The role banks play in the industrial development cannot be over emphasized. Banks go a long way in providing financial resources for a business growth and development.

Over the years, the federal government has taken various steps; employing monetary, fiscal and industrial policy measures to promote the development of industries. A scheme was also set requires all banks in Nigeria to set 10 percent of their profit before tax (PBT) for equity investment and promotion of industries in Nigeria. The establishment of specialized financial institutions including the small scale industry credit scheme (SSICS), Nigeria Industrial Development Bank (NIDB), Nigeria Bank for Commerce and Industry (NBCI) to provide long term credit. The government also assists in the industrial development in Nigeria through;

1. Facilitating and guaranteeing external finance by the World Bank, African Development bank and other international financial institution.
2. Facilitating the establishment of the National Directorate of Employment (NDE), this also initiated the setting of new small and medium enterprise.
3. Establishment of the National Economic Reconstruction fund (NERFUND) to provide medium to long-term local and foreign loan for industries, particularly those located in the rural areas, Provision of technical training and advisory services through the industrial development centers.
4. Small and Medium Industry Equity Investment Scheme (SMIELS).

The fact that has emerged from the appraisal of the various past and policy initiatives on the promotion and development of industries in Nigeria is that fiancé is a major constraint to the development of industries in Nigeria. The banking sector tends to be lukewarm in meeting the credit requirements of industries.

This is because project proposals are poorly prepared, financial documentation and adequate collateral are not provided, as well as the inability of the promoters of industries to raise the required equity contribution. The banks regard many industries as high risk venture because of absence of succession plan in the event of the death of the proprietor. To most industries, working capital is still a major constraint on production, as most industries are restricted to funds from family members and friends and are therefore unable to respond to anticipated challenges in a timely manner.

1.2       STATEMENT OF THE PROBLEM

The Nigerian industrial sector is facing a lot of challenges in spite of several attempts by government, prominent among which, is accessibility to bank loan. This has impacted negatively on its growth and development. Most industries suffer from various problems such as poor infrastructural facilities, inadequate resource management; the most prominent that may lead to going concern problem is lack of capital to finance it’s activities.

As a result of the above, this researcher set out to investigate the dimension of the problem confronting industrial development through bank lending.

1.3       OBJECTIVES OF THE STUDY

The objectives of this study are as follows:

1. To examine the impact of bank lending on industrial development in Nigeria.
2. To examine the relationship between bank lending and employment in the industrial sector.

1.4       RESEARCH QUESTIONS

In a bid to address the issues raised in the research problem, the following question will provide a guide.

• To what extent is bank lending impacting on the performance of the industrial sector?

1.5       RESEARCH HYPOTHESES

The hypotheses for the study are:

• Ho: Bank Lending does not have a significant positive impact on industrial development in Nigeria.

1.6       SIGNIFICANCE OF THE STUDY

The study is expected to offer the following significance to the following:

It would help the government and financial institutions to ascertain the source of solution to the problem of industrial development due to lack of capital. The study will also enable industries operating in the country to avail themselves of the financing opportunities available, so that the failure of industries will minimized.

The study will provide useful information that will help in policy formation regarding industries financing in Nigeria.

Finally, it provides information, which those wishing to embark on similar studies can make, use of it in their work.

1.7       LIMITATIONS OF STUDY

The researcher in the course of the investigation encountered several constraints, prominent among these obstacles are highlighted below: As a result of lack of fund, the researcher found it difficult to carryout a much more thorough investigation, i.e. unable to tour round the country in order to get the relevant data that the researcher was looking for.

Time constraint: The study was also constrained by the time usually allowed in student’s research of this work.

However, these constraints are not so fundamental, material and pervasive to render the work useless.

1.8       OPERATIONAL DEFINITIONS OF TERMS

(ABBREVIATIONS)

1. IDC – Industrial Development
2. SSICS – Small Scale Industries Credit Scheme
3. NIDB – Nigeria Industrial Development Bank
4. NBCI – Nigeria Bank for Commerce and Industry
5. NERFUND – National Economic Reconstruction Fund
6. PBT – Profit before Tax
7. Industry – Firms engage in production of goods and services

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