The Effect of High Interest Rate in Small Scale Industry

The Effect of High Interest Rate in Small Scale Industry

The successive development plan in Nigeria has laid on the attainment of self-reliance. The need for this national objective is because much is expected form individual from the viewpoint of providing employment opportunity; self-reliance is the basic for food and material production of the industrial raw materials.

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But Nigeria small-scale industry continues to decline despite the so-called priority giving to this sector. However, the discoveries of the central bank must reserve a proportion of their minimum credit allocation for indigenous borrowers for small-scale enterprises. The largest prescribed in 1979 was 10%. This was subsequently raised to 16 percent in 1980 and had remained at that level till date. Even though the available data shows that the performance of the commercial against this directive have been disappointing the central bank intents to spare no effort in ensuring that bank fully comply without compromising the smooth functioning of the national banking systems.

Without the development of the small-scale industry in Nigeria, the national guest for industrialization will certainly remain at a stake. It the humble opinion of the researcher that future development in our induet4ization must address the basic issue of creating linkage within the economy to begin to produce real input to our manufacturing activities. Priority attention must therefore be giving to industry for which domestic input; could easily produce of this by automatically bringing to mind the agro-allied industry like food processing and other by-products, the objective should be to maximize the value added to them in processing and manufacturing as final goods or immediate inputs.

Empirical evidence indicate that strong producer incentive to small scale industry are necessarily o met the food requirement but also to provide growing input supplied and demand as a foundation for sustained industrial growth. The present economic constraint may well turn out to be a blessing in disguise to our industrialization effort particularly for the dynamic manufacturing sector for instance the market determined exchange rate through them with its resultant at high cost, and import input may serve as the adjustment to industrialist to intensify their search for location institution..

In the period of 1980 to 1985, loan approved for small scale project in the Nigeria bank for commerce and industry (NCB) amount to 29, 983 million for 126 projects while the Nigeria industrial development bank (NIDB) during the Same period sutured N250.7 million to the enterprise. It will be recall that all the bank participating in the national directorate of employment (NDE) have approve a total amount of N 23,353,938 (73.2%) as at the end of December 2002.

Similarly in the circular of small scale and medium scale enterprises, loan scheme release by the central bank of Nigeria in September 2005. it was reviewed that world bank have granted a loan of  270 million to the federal government for development of small sector, but of this loan, the sum of 265.7 million will be made available for on lending to small and medium scale enterprises through eligible participating bank. No doubt this will help to revitalize the economy.


 Small-scale industry like any other business can not be carried on extensively unless fund are available for maintenance and procurements of equipment in necessary input.

  1. Short term credit: this is the type of credit that is used to finance yearly operation until the products and proceeds from the industry are sold. The amount, which is involved in this type of credit, is usually small. But small-scale industrialists who have little or no savings upon which to draw, they are mostly beginners and do not accurately feel lack of this credit.
  2. Long-term loan: this type of credit is necessary for the acquisition of major industrial machines, improvement on the major industrial equipment building and land.
  3. Medium term loan: this type of loan is for more than one year maturity period but not exceeding three to five years. This loan is mostly required for the acquisition of most expensive equipment with relatively short scale industrial credit.
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Therefore small-scale industrial credit can be powerful instruments in bringing out a revolution in the industry if supplied in sufficient quantity and is used effectively and efficiently. It is well known that the development of a small-scale industry and the attainment of self-reliance in industrial production coupled with the provision of raw material for other industry is among the top priority of the successive government in the country.

Further more, the continues escalation of import bills and unemployment are threat to the country. It is therefore necessary for all to put heads together to formulate a meaningful policy that will stimulate a positive take-off of our small-scale industrial sector. Therefore, the aim of this research is to put an end to these abnormalities.

The study therefore identify small-scale industries high interest rate as part of the wilder subject of the industrial development because finance is just one of the factors of production.


  • To ascertain the extent to which High Interest Rate has not help the small-scale industry and problems hindering such.
  • To identify the problems encountered by small-scale industrialist in obtaining finance form banks of a very low interest rate.
  • To evaluate various measures introduced to boost the industrial production and its financing and how this have affected the realization of the set goals.
  • To appraised and evaluate the situation and make recommendation on high to improve on high interest rate provision of finance on small-scale industry.


The development of small scale industry and self-reliance in the industry and food production coupled with the provision of raw material for other industry is among there top priority of the Nigerian government in the successive development plan.

Against this background, the review of the financial problems facing small-scale industry id essential. Such a review will enable this sector face the ever-increasing demand upon it. An examination of the interest rate performance will enable us find to a larger extent why there has been a decline in the industrial output in recent years.


The research was to determine the affect of high interest rate in financing small scale industry in Nigeria. The researcher carried out in depth study on the operation of the commercial bank interest on loan in financing to said industry.

Due to the current emphasis on industrialization in the country in order to reduce the countries import bill for foreign countries and employment, the study focused attention on the evaluation of the small scale industry obtain loan for interest rate to attain the needed weight and capacity. The researcher cover selected small sale industry in Enugu.

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Small-scale industry as used in this study are those indigenously owned fully be Nigerians and with an annual turnover not exceeding five hundred thousand Naira (500,000.00). Some of the difficulty encountered by the researcher was the in=cooperate attitude of the small-scale industrialist who misunderstood the essence of the study. Another problem is that of time factor and high fare of the public transport cost. This greatly increases the cost of production one limited the scope of the area covered by the study.


Interest: the external money that you pay when you borrow money

Decline: This is a continuous decrease in number, values and quantity.

Priority: Something that you think it is more important than other things.

Rate: A fixed amount of money that is charged or paid.

Small Scale: These are organization or activity that is not large in size or intent but limited on what it dose.

Finance: This is the money used to run a business activity or a project.


There has not been a lot of work on the role of the commercial bank in financing of small-scale industry in Nigeria. But the available few have giving an in-depth up to date study of its operating. Most of the point raised by them is very important. Some other writer made immense contribution on topic relating to this course of study in wild horizon.

In the Nigerian economy, attention has been drowned to the fact that small scale enterprises have received a very little attention. This is true since it provides employment for approximately triple the number engaged in large-scale manufacturing as well as playing their role of crucial importance to our development economy. This is why it is important to reconsider the problems hindering the growth of this sector. There have been numerous opinions and commentary on he role banks should play in financing and advising the small enterprise. Since the federal government shift its policy with the greatest emphasis toward small-scale business in the achievement of self-reliance, unfortunately, some of this opinion has tended to obscure the long-standing relationship, which the bank enjoyed with the small community and some misconception arisen. Perhaps, there is need to classify some of the misconceptions.

In Nigeria, small-scale business constitutes 70% of all registered companies. They are considered to have specific importance to the economic development of the country for a number of reasons. Their enterprise provide opportunity for employment on an large scale and so make it possible for an equitable distribution of national income were realistic. The enterprise also provides a means of creating more opportunities at relatively low cost. Thus, in a labour abundance country like Nigeria, and the present economic down-turn, they are more relevant on the mobilization of capital and human resources that will be otherwise be left idle.


Edimond Ezeigbo defines it as a business that operate under strict amount of capital. That which is asset or liability cannot can enable or help it in obtaining loan or assistance form any other financial institution. This may be due to its inability to mortgage its asset or having a reasonable asset that will qualify it for a loan with the strict laid down rules for the loan granting. In this definition according to him, the totality of capital investment or asset is added as a whole. In essence, small-scale industries operate within the components of a strict limited capital and asset.

Central bank of Nigeria on its own part define the small scale industry as any manufacturing or saving enterprise whose annual business turnover dose not exceed five hundred thousand (500,000). It is pertinent to point out that there is no rigidity in the application of the definition. Manufacturing unit exceeding the limit of investment and employment as stated may still be classified as small scale industry compared with the prevalent size of plants and technology in fairy labour intensive. From the above, there are no universal stand and definition for small enterprise as they vary from country to country, organization to organization and based on the economic condition of the country.

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According to Edmond Ezeigbo, the inability of the small scale industry to pull their resources together ands form co-operative society has not only device them the attention of the government while formulating certain economic policy that affects them but has only retarded the prospects and the expansion of the community. In essence, any government policies towards the business community only favour the multi – national companies which exploit the situation to the detriment of the small-scale industry and the masses. The government should not allow the trend to continue. Small-scale firms are the backbone of any economy and therefore must be encouraged to flourish rather style then with harsh policy.

—-This article is not complete———–This article is not complete————

This article was extracted from a Project Research Work Topic


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 The Effect of High Interest Rate in Small Scale Industry



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