The Impact of Commercial Bank Lending on Small Scale Industries

The Impact of Commercial Bank Lending on Small Scale Industries

The Impact of Commercial Bank Lending on Small Scale Industries – The chapter is specifically design review the literature on problems encountered by the commercial Banks in lending to small-scale industries. It has been observed that the commercial banks generally are unable to lend to an acceptable degree to small-scale industries despite the government efforts in ensuring that they meet up with the required guideline.

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The central Bank if Nigeria, through it credit guideline since 1993, directed the commercial banks to lend a given proportions of that total loans and advances to operators of small-scale industries. The target prescribe in 1994 was 20%. This was subsequently raised to 30% in 1995.

In the central bank of Nigeria Annual report and statement of account for the year ended 31st December 1994, the bank commented that the lending policy of the commercial banks has been a source of some concern to the authorities. The statement has it that not only productive sectors, they have consistently lend short fund despite the rapid and large increase in the savings and time deposits.

To every reasonable action, there be a cause for this commercial bank to default In the guideline irrespective of the huge penalties that awaits them, there must be some factors which initiate against their willingness to lend to small scale industries.

In a bid to related to some of these problems encountered by the commercial banks in the lending process, Mr. Sule (1990) observed that loan diversification by the small scale industries in a major problem being faced by the banks he stated that in order to obtain the required loans, small scale industrialist wait patiently on the managers of commercial Banks and show all sincerity of purpose. After the loan sought industrialist leave to co-operate with the lending terms when great enthusiasms has been received, the small industrialist leave to co-operate with the lending terms when the banker call him to discuss his business problems, he became evasive. According to him,

This attitude usually occur when the loans is given against the security of the assets proposed to acquired but the purpose which it was obtained for the banks interest popularly, loan defaults have been considered as another problem facing the commercial banks in the extension of credit to small scale industrialists they have National cake.

According to Osege (1994) apart from loans misapplication, there are the problems of repayment resulting in accumulative of arrears in many cases. He said that every where the business has earned reasonable profit of is generating sufficient funds to allow repayment of such loans and interest chee, the loans sometimes are not rapid regularly and in many cases at all consequently, many commercial banks are skeptical abut lending to small scale industrialist because o risk of money and also because of high administrative cost involved in loans recovery.

Ahmed (1990) in his own view about the lending problem of commercial banks to small scale industries observed that the ‘industrialists fail to meet theconditions laid down for lending to s mall scale industries some of these conditions he stressed are adequate collateral security, feasibility studies for project an accurate recording keeping. Sule (1989) identified shortage of still as one of the problems that has militated against the attractiveness of small-scale loan applicable to the commercial banks.

He said that “prompters or owners of small scale enterprise are people of average mans with to specialized skills or expertise who because of financial constraints are unable to hire the services of specialist on part time or full time basic. As a result, efficiency and productivity are low hence the enterprises cannot survive stuff competition.Orjih (1994) identified that inspite of the persuasive and coercive measure adopted by the monetary authorities in Nigeria to boast fund allocation to small scale enterprises, commercial bank still fail to channel sufficient financial resources to the sub-sector there by causing serous financial

starvation to the small scale enterprises, commercial bank still fail to channel sufficient financial resources to the sub-sector thereby causing serous financial starvation to the small scale industries in Nigeria.

Hw went further to say   that the commercial bank prefer to face sanctions and penalties of the central bank of Nigerian to lending to small-scale enterprises. They analyze some of the factors that militate against commercial banks lending to small-scale industries.

(1)     NON-AVAILABILITY OF DATA

According to him the appraisal of loan application would require analysis of some financial data (the balance sheet and the income statements)
He maintained that the small scale industrialist do not make the data available to the banks.

2.       FALSIFICATION OF ACCUSING RECORDS

He went further by saving that some industrialist deliberately falsifies their records by understanding their assets and projects to attract reduced taxation. He pointed out that the has boomeranging effect s when the records are presented to commercial banks for borrowing.

3.       POOR CAPITALIZATION

He identify that the small-scale business is set up with other ridiculously low equity capital bases. This situation he said poses a great of difficulty to the commercial banks on their efforts t o lend to the small-scale industries.

Ahmed (1989) was concerned with based of the commercial banks are unwilling to lend to the small scale industrialist considering the risk involved in tying down their little resources to ventured that yield comparatively low return specifically, they lamented that the commercial banks hence fragile capital increase and therefore called on the central bank and the government to help in raising the capital base and therefore calls on the commercial bank and government to help in rising capital base of the commercial bank by allowing them to raise more capital from the public. This he said would help to increase their ability to lend out fund to sub-sector without much hesitation.

According to him, the government should not rely much on penalizing the commercial banks through more opportunities of meeting up with the required percentages In continuations of the identification of lending problem of the commercial bank to the small scale industries.

Usman (1992) notes that what is hindering the commercial banks from lending to small scale industrialists is more of funding problems He emphasized hat in the money market today it is difficult t o find money that slonger than 2 yrs in term deposit. He also maintained that inflationary trend have made people to be withdrawing t heir money form the commercial banks which drastically reduces the ability of the bank to lend out the required percentage.

This problem he said is the most contributing factor to the commercial banks problem in lending. This he supported by saying that without these banks having enough loanable lending to the small scale industries whether or not all other condition necessary for lending are available .the lending problems of the commercial banks to the small scale industries have been partly associated with the central bank of the country. As the bankers bank, it is difficult to discuss this aspect of problem without relating it to the CBN having in mind that degree of their liquidity.

Ughamadu (1995) in his own view observed that the constant increase by the central bank of Nigeria on its minimum rediscover rate creates a heavy burden on the commercial bank. He maintained that the increase in the discount rate makes it difficult for the commercial banks borrow at such rate especially, with the intention of lending to small-scale industries. He went further to d ay that it would be more advantageous for the central bank and government to rate to the commercial bank an reduce the rate within the reach of the lowest bank. This believes would cause the liquidity problem of the commercial banks to lend to the small-scale industries without much stringent condzonalities. It is his opinion that it is due to lack of enough loanable funds that makes requirement to the small-scale industrialists.

Also on the liquidly of the banks, Usman (1990) believers that the commercial banks are unable to loan out fund to satisfaction of the government and the small industrialists because of the fact that the small-scale industries most often apply for medium and long term loans enough balance in their reserves as to enable them to meet up with such demand by small scale industries. He suggested that the small-scale industrialists should apply for short-term loans so that their demands could be net as soon as they fulfill the requirement for such loans.

Adeuemo (1985)  observed that commercial banks is extremely difficult to lend out fund to the small scale industrialist should maintain current account with the bank(s) as it would enable the banks evaluate the credit worthiness of the loan applicant and consequently reduce the stringent conditions which are associated scale industries. On the other hand, it is being argued that the adequately of funds allocated by the government for financing small scale industries operates a gab by ensuring that they spend time medicating the small-scale industrialists on the appropriate mans of procedure of obtaining a credit from the M.

Eke (1993)  Observed that many commercial banks are unwillingly to lend to small-scale industries because of the high degree of failure of the small-scale industries. According to him, the failure of these small-scale industries is associated with lack of skilled labour, management skilled details feasibility study an adequate collateral. He concluded by saying that the commercial banks are not too buoyant as to enable such unfavourable conclusions. Ibezim (1988) is of the view that the commercial banks are reluctant to lend to the small-scale industries because they ignore the use of feasibility report. He went further by saying “one of the problem confirming Nigeria prospective industrialists is the ignorance of the sue of feasibility reports. They do not bother themselves to employ the services of experts to prepare feasibility student for them before setting up industries. The resultant effort is that the banks are unable to lend out fund to them.

Sule (1989) observed that the small-scale industries lost lack financial integrity hence the loans to them are how priorities in the lending schemes of the commercial banks he maintained that another problem facing the commerce bask is lack of adequate trained personnel. They lack qualified professional staff who can evaluate loan application with objectivity, also monitor business performance and provide professional advice on a continuing basic He finally calls on the commercial banks to help in designing methods of training these small- scale industries to enable them cope with the pearling circumstance in the act of borrowing and lending.

 

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

This article was extracted from a Project Research Work Topic

AN EVALUATION OF THE IMPACT OF COMMERCIAL BANK LENDING ON SMALL SCALE INDUSTRIES IN NIGERIA

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The Impact of Commercial Bank Lending on Small Scale Industries

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