THE IMPACT OF BANK LOAN ON THE NIGERIAN INDUSTRIAL SECTOR DEVELOPMENT: AN EMPIRICAL ANALYSIS (1980 – 2006)
IMPACT, BANK, LO NIGERI INDUSTRIAL, SECT DEVELOPMENT EMPIRICAL, ANALYSIS, 1980, 2006
The Impact Of Bank Loan On The Nigerian Industrial Sector Development: An Empirical Analysis (1980 – 2006), -abstract
In This Study-an Attempt Was Made To Investigate And Analyze The
Impact Of Bank Credit -loan- ...
In this study, an attempt was made to investigate and analyze the
impact of bank credit (loan) to the Nigeria industrial sector development.
This study involves an appraisal of the extent to which banks have
succeeded in enhancing the growth and development and also the general
performance of the Nigerian industrial sector since 1980 – 2005, through their
various lending portfolios.
The incipient stage of Chapter one opens with an introduction
through to the limitation of the study.
Chapter two gave a detail discussion in literature review,
beginning with a brief history of the industrial sector, conceptual issues and
consequent economic related issues such as the Nigerian industrial policies.
This chapter also looked at commercial banks and industries in Nigeria, and
also the problems faced by industries in obtaining credit facilities.
Chapter three involves the theoretical framework, model
specification and source of data collected for analysis.
Chapter four is a detailed empirical interpretation of ordinary
least square (OLS) – regression estimation results of collected data from Central
Bank of Nigeria (CBN) Statistical Bulletin.
Finally, in Chapter five which combines the research’s summary of
findings, recommendations and then in conclusion that the banking sector credit
(loan) has a positive impact on industrial sector development in Nigeria.
Note that this study gave an insight on the relationship between
the development of the Nigeria industrial sector and banking sector credit
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
1.1Background to Study
1.2Statement of the Research Problem
1.3Objectives of the Study
1.4Scope of Study
1.5Significance of the Study
1.6Statement of Hypothesis
1.8Definition of Keywords
CHAPTER TWO: LITERATURE REVIEW
2.1Development of Industries in Nigeria (Brief
2.2Structures/Types of Industries
2.3Relevance of Industries
2.4Problems Encountered by Industries
2.5Commercialization and Privatization of
2.6Commercial Banks and the Industrial Sector
CHAPTER THREE: THEORETICAL FRAMEWORK AND
3.3Data Requirements and Sources
3.4Method of Data Analysis
CHAPTER FOUR: PRESENTATION AND
INTERPRETATION OF REGRESSION RESULTS
4.1Presentation of Results
4.2Interpretation of Results
CHAPTER FIVE: SUMMARY,
RECOMMENDATION AND CONCLUSION
5.1Summary of Findings
1.9BACKGROUND TO STUDY
Recently, most industries in the country (Nigeria) have been
existing in the form of small industries (cottage industries) i.e. household
limits carrying out industrial activities in the traditional methods without
paid employment. It is to this end (that small and medium industries are the
cornerstone of any nation’s industrial and
economic well-being) that successive government came with policies
encouraging the development and growth of industries. The small and medium
scale industries were not accorded significant importance in Nigeria until 1975
when the government realize that its industrialization strategy of import
substitution only resulted in the setting up of large industries. It was not
until the third national development plan of 1975 to 1980 that the programmes
for the small and medium scale industries were explicitly spelled out; “The
creation of employment opportunities, mitigation of rural-urban migration,
mobilization of local resources, and a more even distribution of industrial
enterprises in different parts of the country”.
Despite all efforts by the three tiers of government to enhance
the development of industrialization, historical survey indicates that there
have been inadequate credit facilities. This has been a major impediment in the
development to small and medium scale industries in Nigeria. For this reason,
many of them are either proprietary or partnership and so cannot obtain funds
from the capital market.
As a result of this, they are either starved of funds or, at best
obtain fund on extremely unfavourable terms from other sources like money
lenders, thrift societies etc. The problem of finance hinders them from
operating profitably in a competitive and depressed economy.
In other to overcome this problem, the federal and state
government set up industrial credit schemes and gave guidelines to commercial
banks to increase their lending to these categories of enterprises.
Blatantly, the pass military and civilian administrations made
effort toward the development of small and medium scale industries, notably
among them was the pass military administration of General Babangida’s regime
with introduction of the Structural Adjustment Program (SAP). The introduction
of SAP in 1986 gave birth to the various government organs and general
conditions, which encourage the development of industries even in the rural
areas. Some of this organs involves the Better Life for Rural Women Programme,
National Directorate of Employment (NDE), the Export Promotion Council and also
the Nigerian Economic Reconstruction Fund (NERFUN). Whether these organs are
really achieving the derived results or not is above the scope of this study.
The establishment of the Nigerian Banks for Commerce and Industry
(NBCI 1974), Nigerian Industrial Development Bank (NIDB) and various industrial
development centers all over the country by pass governments shows the desire
of the nation toward industrialization. The transformation of the economy of a
depressed nation such as ours from her present agrarian position to positions
of production and industrial productivity can only be brought about by
Inegbenebor (1991) states that the desire of most developing
countries including Nigeria is to have a self-reliant and self sustain growth.
Nigeria is blessed with abundant mineral resources and if these resources are
vividly harnessed and managed, she will compete with other industrialized
nations of the world.
With these above assistance the question will now be, why is there
shortage of credit (finance)? The explanations one can offer at this point is
that the institutions responsible for finance (in this case, the banking
sector) are still underdeveloped. This stage of underdevelopment of the credit
system is caused by lack of trust attributed to default in meeting financial
obligations as at when due by the users of the funds.
Others problems facing the industrial sector in Nigeria beside the
financial dilemma includes:
1.Imperfect knowledge of existing market.
3.Inadequate technical and economic counselling or
unavailability of qualified personnel on the side of the promoters.
4.Lack of common service facilities.
All the above mentioned problems have brought about
unemployment, lack of social amenities etc and hence a retarded economic growth.
Against these backdrop, this study will involve the following:
1.Government policies on interest and credit
2.Operates of NERFUND to fund out the adequacy of
fund provided by it.
3.Other compelling reasons such as foreign
competition, inflation, poor infrastructure or lack of raw-materials inhibiting
the realization of government schemes for industries.
1.10STATEMENT OF THE RESEARCH PROBLEM
The Nigerian industries are confronted with a myriad of problems
but notable among them is financial constraint caused by the sources of funds
used in financing the project. An industrial project has a long maturity or
gestation period and to finance such firms requires long-term sources of funds
instead of short-term funds often provided by commercial banks.
The banking sector, by nature of its operations has loanable
short-term deposits, which are very liquid. Thus, for banks to tend on
long-term basis creates a deposit loan maturity gap as the owners of such
deposits can call for their money at short notices. To solve this problem, commercial
banks adopt a careful strategy or strategic approach in extending medium to
long-term financing which always attracts high interest rate. This in itself
constitutes a hard condition for promoters or investors.
With the increasing cost of production and falling real income of
consumers, the demand for goods and services are on the decline. This leads to
stockpiles of finished goods (inventory) in their warehouses. As stated by Anao
and Osaze (1990):
“In financing the traditional small business in Africa often has
to depend on a mortgage from a commercial bank. Survival after a few years may
lead to success with obtaining seasonal overdrafts and lines of credit from
commercial banks, but no fund for permanent growth…”
Access to foreign exchange is another impediment to industries.
Most of these industries need to import machinery and they find it extremely
difficult to obtain foreign exchange even if they have the naira cover closely
related to the above. There is also the inability to secure foreign loans due
to high cost of servicing the loans.
1.11OBJECTIVES OF THE STUDY
Over the years, successive government both federal, state and
local governments have made policies geared towards making the country
Until recently, the survival and growth of small and medium scale
enterprises have always been given the front row position, considering their
immense contributions to the well-being of the nation’s economy. The objectives
of this study will therefore include,
i.To examine the activities of the major financial
institutions to ascertain their level of commitment.
ii.To determine why there is a gap in their credit
iii.To examine whether there is any relationship
between bank credit and the Nigerian industrial sector development.
iv.To ascertain the degree at which other economic
variables affect industrial development in Nigeria.
v.To examine the effect of banking sector credit
(loan) on the performance of the industrial sector.
1.12SCOPE OF STUDY
The study will attempt to diagnose the reasons for the slow growth
rate of the Nigerian industrial sector. It will also take a critical look at
the effects of banking sector credit (loans) on the overall performance or
development of the Nigeria industrial sector from 1980 – 2005. It intends to
know the possible ways through which Nigeria can become an industrialized giant.
1.13SIGNIFICANCE OF THE STUDY
The significance of the study is derived from the basic feature of
lending as an all time important function of most banks. The findings of this
study is believed would be of great value to the government – maybe in terms of
policy-making, the banking sector, the industrial sector operators, other
researchers, to students alike and the society at large.
STATEMENT OF HYPOTHESIS
The issue of banking sector credit made available to industries
has been a running battle between the government and banks. In the light of the
above, the study will attempt to test certain hypothesis, which will include;
Hypothesis Ho: b – O; That banks lending has no positive
relationship on industrial development.
Alternative Hypothesis H1: b = O; That
banks lending has a positive relationship on industrial development.
Hypothesis Ho: b – O; That the industrial sector has not
benefited from development.
Alternative Hypothesis H1: b = O; That
the industrial sector has benefited from development.
research will be carried out using secondary data from journals, textbooks,
magazines, financial newspapers, publications, bank annual reports, CBN –
journals, and other such journals. On these data a regression analysis will be
carried out using the Ordinary Least Square (OLS) method.
This will enable us test our hypothesis and give the necessary
interpretation and finally conclude based on our regression results.
1.14DEFINITION OF KEYWORDS
Cottages Industry: A
small business in which the work is done by people in their homes, weaving and
knitting are traditional cottage industries. It has to do with household units
carrying out industrial activities without paid employment.
Import Substitution: This
implies that we substitute most of our imports with what is available locally.
Lending Rate: The
rate of interest paid on funds borrowed from a financial institution.
granting of a credit facility for a specified period of time and terms on the understanding
that the facility will be repaid.
is the sum total of money granted by banks known as loans and advances for the
use of business and individuals alike to be repaid on an agreed period and
usually with interest.
Government Regulation: This
is legal control, directories, guidelines exercise by the government through it
regulatory or supervisory authorities (CBN and NDIC) on banking activities.
process of establishing or increasing productive activities such as mining and
quarrying, processing, manufacturing, construction and assembly, crafts etc.
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