Commercial Bank – Role in Financing Small Scale Industries in Nigeria
Industry development involves the development of a technical arrangement that moves an economy from the traditional method of production to a more complete system of more manufacturing of a variety of goods and services involving technology and management techniques. Industrialization tends to proper growth and quicken the achievement of structural transformation and diversification of economist it enables a country to utilized fully. It factor endowment and depends less on the external sector or its growth and substance. Through industrialization an economy gains the versatility and resilience that enables it to raise the standard of giving of its people and cope better with internal stress and strains. To order the Complete Project Material, Pay thr Sum of N3,000 to: BANK NAME: FIRST BANK PLC ACCOUNT NAME: CHIBUZOR TOCHI ONYEMENAM ACCOUNT NUMBER: 3066880122 Then send the Project Topic, Your Email Address and Full Name to 07033378184.
To order the Complete Project Material, Pay thr Sum of N3,000 to:
BANK NAME: FIRST BANK PLC
ACCOUNT NAME: CHIBUZOR TOCHI ONYEMENAM
ACCOUNT NUMBER: 3066880122
Then send the Project Topic, Your Email Address and Full Name to 07033378184.
Small scale industry have been defined variously by different authors. But Ndu Okoro (1989: 10), in his write up he accepted any business whose total Assets in capital equipment, plant and working capital are less than 4m and employing fewer than so full time workers as small scale business/industry, such an establishment must be wholly indigenously owned. He further pointed out that there is no rigidity in the application of this definition since manufacturing units exceeds these units of investments and employing as stated above.
Ihenefu (1988:18) consider business as small scale because they fail within the category of business with paid up capital of N750,000 according to federal ministry of industries, except those industries owned by the government or shareholders which some cases are very few. As he put it, small firms ranges from sole trader small partnership to the private owned industrial company.
Akuazalu (1989: 19 -20) defined small scale industry as any manufacturing processing or service industry wish capital investment not exceeding N50,000 in machinery and equipment alone. He adopted this definition since it was relevant to the subject matter, although one could think of definitions using business Earn and size of lasow free .
Edmud Ezeigbo (1987) affined small scale industry as “that which operates under strict amount of capital” which it’s assets and liabilities cannot enable or help it in obtaining loan or assisting from any financial institution. This may be due to its inability to mortgage its assets or having a reasonable assets that could qualified it for a loan within the laid down rules for loan granting.
In Nigeria, small scale industry could be defined by the Lagos state ministry of trade as a manufacturing industries concerned with a total capital investment of N150,000 and paid employees up to ten persons. The capital investment exclude land and building, such an establishment must be wholly Nigerian.
Central bank of Nigeria credit guidelines (1995) on it’s own defined small scale industry as any manufacturing or service enterprise whose annual business Eurover does not exceed N500,000.
From the above there is no universal standard action for small scale enterprises as those vary from country to country, from organization to another, are based on the economic condition of a country.
Still small scale industry was defined by the federal ministry of industry at the 8th annual conference (1997) as any industry with a capital investment above N1m and employing between 1 – 10 workers and with a capital investment below N1m is regarded as COTTAGE OR MICRO Industry. Those employing above 35 – 65 works with a capital investment up to N15m are regarded as medium while those employing above 65 workers and above N15m are considered as LARGE SCALE INDUSTRY.
Any other existing definition is subject to charge within the current economy of a country. The present global devaluation tend of our currency had considerably reduced the purchasing power of the waira and in this context, the cost of acquisition of equipment used in our country are high since they are mostly imported. Also taking into account the variable land prices in different location of the countries definition of small scale industries can be confirmed to the value of the machinery and equipment only.
FINANCIAL INSTITUTION INVOLVES IN DEVELOPMENT OF SMALL SCALE
(A) Nigerian Bank for Commerce and Industries (NBCI)
The Nigerian Bank for commerce and industry was established in October, 1983 to finance the process of indigenization of the Nation’s economy with a capital of N50 million by the federal government and the central bank of Nigeria. In 1972 the Nigerian Enterprises Promotion Decree (NEPD) was promulgated by the military regime in Nigeria in attempt to gain economic independence. The decree was amended in 1973, 1976 and finally in 1977. it classified all enterprises into three schedules; specified Nigerian Equity participation Rates (EPR) ranging from 100% for schedules I enterprises through 60% for schedules II to 4% for schedule III enterprises. It also stipulated the appropriate equities of these enterprises were to be sold or transferred to Nigerian not later than December 31 1978 (or June 30th 1977 for some classes of business.
The banks first function in entrepreneurship development was by giving assistance to indigenous businessmen obtain funds in the form of loans and equity to acquire the ownership interest of aliens in business activities. Potential entrepreneurs were able to obtain funds from the bank to buy up shares or buy the entire business activities schedule I and II
Nigerian Bank for Commerce and Industry (NBCI) assists businessmen by providing consultancy services, in identification of viasie projects. Entrepreneurs who want to change into another line of business can be assisted by NBCI to identify projects that can be profitable and this usually minimizes the risk of business failure.
The bank also assists the entrepreneur in the preparation for well researched and articulated feasibility reports. After deciding on a particular business idea, the next thing is to begin to gather facts and figures to enables you take a decision as to which way to go. This state of fact finding aimed at determining the business profit potentials and return on investment is called feasibility study. It is therefore, necessary to carry out a feasibility study before committing any money. The study can be simple or detailed, depending on the size of the business, in either case, the objectives of the study are as follows:
(i) To gather as mush information as possible about the business.
(ii) To minimize the changes of embarking on an importable venture.\to reduce losses.
Furthermore, after the implementation of the enterprises promotion Decree, NBCI assisted entrepreneurs in the financing of the importation of machinery and equipment for business enterprises it was interested in the bank has also gone as far as opening letters of credit on behalf of enterprises it supported and is being deeply involved in new project identification and financing for entrepreneurs.
(B) The Nigerian Agricultural and Co-operative Bank (NACB)
The bank was established in 1973 by the federal government with an initial capital of Niz million. The bank was set up in order to improve the level and quality of all aspects of Agricultural production, to enhance the availability of storage facilities and to promote the marketing of agricultural product through liberal credit to farmers and agricultural related business establishment.
However, the bank has there main functions are as follows:-
i) They grant loans for agricultural production
ii) They grant direct loans to individual farm co-operative societies.
iii) They satisfied schemes for which the loans are requested.
With government programmes emphasizing more local sourcing of raw materials, some major private abolishment’s have gone into agricultural production. Some small and medium scale farmers, brewery industries have gone into mechanized farming for the production of sorghum, wheat and other product to provide the necessary raw material for manufacturing. For example, the Nigeria Breweries Limited Guinness Nigeria Limited have gone into mechanized farming for the production of wheat, sorghum and other substitutes to provide the necessary malt base for their manufacturing. All such agricultural investments by these private secotr establishments which have 60% or more indigenous ownership are qualified for loan facilities from NACB, it has offered loan facilities to some of from that have approached it (Nwabuzor 1990.) jointly by the federal government and the central Bank of Nigeria through the reconstitution of the investment corporation of Nigeria which had been in operation since 1959. the main functions of the bank are as follows:-
i) The bank provides medium and long term find for both public and private sector establishment, a functions which is not satisfactorily performed by the commercial and merchant banks.
ii) Identification of investment bottlenecks in the economy, therefore helping to determine investment priorities for both the government and private sector entrepreneurs.
iii) Foster the development of the capital market in Nigeria by encouraging prospective borrowers to list their shares in the Lagos stock exchange.
From the above, the bank has helped a lot in the development entrepreneurship in the country by assisting in setting up media size private enterprises and extending its funding and advisory service to entrepreneurs. In present and advisory service to entrepreneurs. In present times, NIDB has started broaden its areas of operation, as it has braches out into opening of letters of credit, acceptance of deposit form industrial customers. It also trade in the foreign exchange market.
However, there are a lot of problems encounter by this bank since its inception is the inherent weakness of the Nigerian entrepreneur who are unreliable and reluctant to co-operate with financing agencies, especially in matters relating to business intelligence and financial management. Many entrepreneurs divert funds approved for a specific project to other uneconomic ventures like buying new cars, taking titles, marrying new wives etc. This creates a high rate of loan losses. The situation has greatly improved with the constant check and timely intervention of the banks inspection departments.
D) The People’s bank of Nigeria (PBN)
The federal government in its effort to help the very small entrepreneurs, set up the people’s Bank of Nigeria. The bank was established on 3rd October, 1989. the people’s Bank is a new phenomenon in banking it is an innovative credit programme for poor people have due to non-availability of collaterals do not have access to the facilities available at commercial and merchant banks.
However, the objectives of the banks are as follows:-
i) The first objective is the extension of credit facilities to the less privileged members of the society who cannot normally benefit from the service of the conventional banks.
ii) Complement government efforts in improving the productive base of the economy.
iii) Provision of opportunities for self employment for the vast utilized and under-utilized manpower of the economy.
The people’s bank of Nigeria is one of factorial institutions responsible for the disbursement of family Economic Advancement programme (FEAP) loan. FEAP was established in 1997 to carry out the activities aimed at reforming the Nigerian economy. The establishment of FEAP marked an important milestone in the efforts of the government at alleviating and catering for the needs of the low income groups in our society. it was conceived, prepared and packaged as a grass root economic programme particularly to meet the needs of the under privileged citizens within the society, through the provision of micro credit and training needs in a sustainable manner as a tool for self empowerment.
ASSISTANCE PROVIDED BY COMMERCIAL BANKS TO SMALL INDUSTRIES
Commercial banking institutions in Nigeria can be classified into two: the purely indigenous bank owned 100% by Nigerian (government and individuals) and the mixed banks with a majority indigenous shareholding at least 60% equity and minority foreign interest as Nigerian law does not allow the establishment of foreign banks with a majority foreign interest (Femi 1986)
(1) Extension of credit facilities: Nigerian commercial banks in other free enterprises economies. Their primary function is the extension of credit to worthy borrowers. They are vehicles for implementing government National development plan. In making credit facilities available to industrialists or entrepreneurs they are cending a great social service. The commercial banks make funds available for general development in all aspects of the economy, for instance, in industries, commerce, mines and agriculture etc. through their actions, production is increased there is increased, there is extension of capital investments and a higher standard of living is realized.
Banks make it possible for industries to produce a large quantity of goods which may remain in stock as inventory before eventually being sold or reprocessed into another forms.
However, a good examples is the good industry where the quantity produced may be far in excess of what can be consumed immediately. By providing credit facilities to canners, for instance, they will be in a position to purchase cans and score the food that may at a later time be sold to retailers and ultimately be consumers. During this interval of time from producer to canner, to wholesaler, to retailer and finally to consumer-bank loans are made possible the economic handling of the food crop (Read et all 1984 in Femi “86)
Types of credit Facilities
Commercial Banks are more interested in providing short term loan facilities to their customers. These can come in the form of:
i) Loan account:- The loan is mainly used by entrepreneurs or other individuals to supplement what they already have. The amount granted is generally small and it is repayable in the shortest possible time.
ii) Overdraft:- Commercial banks also lend funds to their customers on overdraft, and funds advanced on this basis are in theory is repayable on demand, while interest is payable on the outstanding balance on a daily basis. It is generally granted to business customers – large, medium and small –scale enterprises. An overdraft is granted until can be renewed as longs as the bank considers that the customer is still |good risk”.
2. Business Advisory service:-
The main aim of this advisory services is to assist small business customers to develop their business in such a way that they can attract bank finance. Entrepreneurs are taught how to introduce simple record keeping and accounting in their operations. This is because most business concerns do not keep accurate recoding of their business and this can lead to business failure. Banks providing this services have reported significant success.
However, commercial banks also help entrepreneurs in National and international business transaction. For instance giving letters of credit, bill of exchange etc to facilitate business transactions.
Because, government has substantial ownship interest in the commercial banks in Nigeria, they have served as an indirect means by which the government has sought to fund the development of business enterprises. In 1980, the central bank of Nigeria (CBN) credit policy guideline required the commercial banks to allocate a minimum of 16% o their total loans, and a chances to small scale enterprise and since then, the commercial banks have increased their loan portfolio to the private sector enterprises because of government policy on the development of the nations economy through the private sector.
GOVERNMENT POLICIES FOR PROMOTING SMALL AND MEDIUM SCALE INDUSTRIES
In realization of the importance of promoting small and medium enterprises (SMES), the federal government has continued to play pioneering and active role. The first serious policy to promote the development of SEMs came in 1970. To this effect, the small scale industries division of the federal ministry of industries was established to initiate and implement policy on the promotion of small scale industries in Nigeria and in the same year the industrial Development centers (IDCs) were established to provide technical support and manpower training facilities for industries.
Its policy objectives in the context have been summarized as follows:-
i) Industrial development and National integration through industrial dispersal.
ii) Provision of greater employment opportunities
iii) Increase production of manufactured exports
iv) The development of indigenous technology
v) Increasing local raw material output (use of local raw material to promote grate linkages and background integration to raise the general level of economic activity).
According, the government has employed a combination of monetary and fiscal measures as well as industrial incentive to enhance the achievement of the desired goals. It has enunciated policies through National development plans, annual budgets, and it’s agencies to provide financial and technical assistance to SEMS.
However, government introduce monetary and fiscal policies in-respect of small and medium scale enterprises. Monetary policy may be described as measures which deal with the discretionary control of money supply by the monetary authority with a view to influence the cost and availability of credit (Falegan in Femi 1986).
i) Development of the money capital market, and financial intermediaries. In order to enhance performance of the financial system and effectiveness of monetary policy, the monetary authorities paid great attention to the development of the money and capital markets and also establishment of financial institution to provide finance to small-scale industries. In addition, various financial intermediaries were encouraged on established , by Nigeria Industrial development Bank (NIDB) and Nigeria Bank for commerce and industry (NBCI).\
2. Direct control of credit: Prior to introduction of the Structural Adjustment Programme (SAP) and deregulation of the economy, the interest rates in Nigeria were direct managed by the monetary authorities. The practice in Nigeria makes it possible for the government to set the deposit and lending rates of the financial intermediaries. Also the practice made possible for the government to set rate for cending to specified sectors of the economy with a view to encouraging lending of these sectors. Thus, lending rates to small and medium scale enterprises like agriculture, residential and building construction subsectors were lower than the rates for other borrowers.
—This article is not complete———–This article is not complete————
This article was extracted from a Project Research Work/Material Topic
“COMMERCIAL BANK – ROLE IN FINANCING SMALL SCALE INDUSTRIES IN NIGERIA.”
To purchase complete Project Material, Pay the sum of N3, 000 to our bank accounts below:
BANK NAME: GUARANTY TRUST BANK (GTB)
ACCOUNT NAME: CHIBUZOR TOCHI ONYEMENAM
ACCOUNT NUMBER: 0044056891
BANK NAME: FIRST BANK PLC
ACCOUNT NAME: CHIBUZOR TOCHI ONYEMENAM
ACCOUNT NUMBER: 3066880122
After paying the sum of N3, 000 into any of our bank accounts, send the below details to our Phone: 07033378184
- Your Depositors Name
- Teller Number
- Amount Paid
- Project Topic
- Your Email Address
Send the above details to: 07033378184 or on/before 24hours of payment. We will send your complete project materials to your email 30 Mins after payment.
Articlesng.com will only provide papers as a reference for your research. The papers ordered and produced should be used as a guide or framework for your own paper. It is the aim of Articlesng.com to only provide guidance by which the paper should be pursued. We are neither encouraging any form of plagiarism nor are we advocating the use of the papers produced herein for cheating.