THE IMPACT OF BANK LOAN ON THE NIGERIAN INDUSTRIAL SECTOR DEVELOPMENT: AN EMPIRICAL ANALYSIS (1980 – 2006)
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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) 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 (loan).
TABLE OF CONTENTS
CHAPTER ONE
CHAPTER ONE: INTRODUCTION
1.1 Background to
Study
1.2 Statement of
the Research Problem
1.3 Objectives of
the Study
1.4 Scope of Study
1.5 Significance
of the Study
1.6 Statement of
Hypothesis
1.7 Research
Methodology
1.8 Definition of
Keywords
CHAPTER TWO: LITERATURE REVIEW
2.1 Development of Industries in Nigeria (Brief
History)
2.2
Structures/Types of Industries
2.3 Relevance of
Industries
2.4 Problems
Encountered by Industries
2.5
Commercialization and Privatization of Industrial Concerns
2.6 Commercial
Banks and the Industrial Sector
CHAPTER THREE: THEORETICAL FRAMEWORK AND MODEL SPECIFICATION
3.1 Theoretical
Framework
3.2 Model
Specification
3.3 Data
Requirements and Sources
3.4 Method of Data
Analysis
CHAPTER FOUR:
PRESENTATION AND INTERPRETATION OF REGRESSION RESULTS
4.1 Presentation
of Results
4.2 Interpretation
of Results
4.3 Policy
Implications
CHAPTER FIVE: SUMMARY,
RECOMMENDATION AND CONCLUSION
5.1 Summary of
Findings
5.2 Recommendation
5.3 Conclusion
BIBLIOGRAPHY
CHAPTER ONE
INTRODUCTION
1.9 BACKGROUND 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 indigenous industries.
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.
2. Tariffs
policies.
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 facilities guidelines.
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.
1.10
STATEMENT 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.
1.11
OBJECTIVES OF THE STUDY
Over the years, successive government both federal, state and
local governments have made policies geared towards making the country
self-reliant.
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 delivery system.
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.
1.12
SCOPE 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.
1.13
SIGNIFICANCE 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;
i. Null
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.
ii. Null
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 METHODOLOGY
The 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.
1.14
DEFINITION 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.
Lending: The granting of a credit facility for a specified
period of time and terms on the understanding that the facility will be repaid.
Credit: This 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.
Industrialization: The process of establishing or increasing
productive activities such as mining and quarrying, processing, manufacturing,
construction and assembly, crafts etc.
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