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Impact Of
Commercial Bank Credit On The Performance Of Small Scale Enterprises In Nigeria
ABSTRACT
Prominent
among the obstacles facing the performance of manufacturing sector in Nigeria
is the lack of effectively bank credits to the manufacturing sector of the
economy. The banks especially the commercial ones have not been contributing
effectively to the output of manufacturing sector of the economy. This study
takes into cognizance the problems of manufacturing the range of one
understanding of something, or awareness of something). sector in Nigeria.
Besides, it looks into the various economics effects of inefficiency of bank
credits to the manufacturing sector in Nigeria over the period of 1989-2009,
using the Nigerian data set. The study employed the ordinary least square
regression method. Above all, this project examines the earlier interventionist
efforts by the CBN toward achieving a stable and low interest rate on the
credits from the commercial banks to the manufacturing sectors in the economy
and finally resolved to give useful recommendation on ways to improve upon the
performance of the bank credits to the manufacturing sector in the economy.
CHAPTER ONE
Manufacturing
sector plays a catalytic role in a modern economy and has many dynamic benefits
crucial for economic transformation. In typical advanced countries, the
manufacturing sector is leading, sector in many respects. It is an avenue for
increasing productivity related to import replacement and export expansion,
creating foreign exchange earning capacity; and raising employment and per
capital income which causes unique consumption patterns. Furthermore, it
creates investment capital at a faster rate than any other sector of the
economy while promoting wider and more effective linkages among different
sector. In terms of contribution to the Gross Domestic product, the
manufacturing sector is dominant but it has been overtaken by the services
sector in a number of Organization for Economic Cooperation and Development
(OECD) countries.
Before independent, agricultural
product dominant Nigeria’s economy and accounted for the major share of its
foreign exchange earnings. Initially, inadequate capital investment permitted
only modest expansion of manufacturing activities. Early efforts in the
manufacturing sector were oriented towards the adoption of an import
substituting strategy in which light industry and assembly related
manufacturing ventures were embarked upon by the formal trading companies. Up to
about 1980, the prime move in manufacturing activities was the private sector,
which established some agro-based light manufacturing units such as vegetable
oil extraction plants, turneries tobacco processing textiles, beverages and
petroleum products. The strategy of light and assemblage manufacturing shifted
some what to heavy industries from the period of the Third National Development
plan [1985-90] when Government intervened to establish care industrial plants
to provide basis import for the downstream industries.
The import dependent
industrialization strategy virtually came to a halt in the late 1980s and early
1990s when the liberal impart policy expanded the imports of finished goods to
the detriment of domestic production.
In this regard, industrialization
constitutes a veritable channel of attaining the lofty and desirable conception
and goals of improved quality of life for the populace. Thus in a supportive
mood, Lewis. (1967), assumes that “in any economy, one or more sectors serve as
a prime mover moving the rest of the economy forward”. This role of engine of
growth or leading sector has usually been played by industrial sector under the
industrialization process.
Against this background,
industrialization involves extensive technology based development of the
productive [Manufacturing] system of an economy. Thus, the development of the
industrial sector represents the deliberate and sustained application and
combination of suitable technology, management techniques and other resources
to move the economy from the traditional low level of production to a more
automated and efficient system of mass production of goods and services.
Arising from the foregoing affirmed centrality of industrialization as the
pivot of economic growth and development, industrialization process seems to be
main hope of most developing countries such as Nigeria with large population
and large labour force. In spite of these aspiration which ought to have
favoured effective industrialization process in an economically conducive
manufacturing environment, most of these results as reflected in the
performance of the manufacturing sector remain socio-economically undesirable.
Against this backdrop, current economic planning and policy instruments are
diverted at the development of the key productive sectors, particularly
manufacturing and commerce for the promotion of an increasing pace of
industrialization in Nigeria.
The major problem facing the Nigeria
manufacturing sector is having adequate finance resource for investment.
Because of the low level of income of this, saving is very low.
Since the attainment of independent
in 1960, commercial banks in Nigeria have been playing an important role in
development process of the nation. The banks in collaboration with other
financial institution, have been mobilizing the scare domestic resources for
rapid social, economic and industrial transformation of the country.
Other services provided by the
commercial banks includes facilities for safe-keeping of important documents,
provision of advice to customers on insurance and investment matters, and
provision of cash for bulk payment of non customers salaries and wages
Umole.(1985).
In recognitions of this potential
roles of the sector, successive governments in Nigeria have continued to
articulate policy measures and programmes to achieve industrial growth
incentive and adequate finance. The central goal of government policy was to
foster growth in the manufacturing sector. Over the years, and largely in
response to some of the previous policy strategies, the main features of the
Nigerian manufacturing sector had emerged.
The role of bank credits in the
growth of manufacturing sector cannot be over-emphasized. For instance the
Federal government’s Appropriation Bill for the year 2005 has as one of it’s
broad policy objectives to achieve a high economic growth rate (i.e GDP of at
least 5%) through a better mobilization and prudent use of economic resources.
This objective is not achievable without significant levels of resources from
the financial sectors being mobilized and deployed to finance business
expansion and growth.. Bank’s have to be effective intermediaries for
mobilizing and channeling deposits to the productive sectors of the economy
especially, the manufacturing sector.
1.1
STATEMENT OF PROBLEMS
In spite of continuous policy
strategy to attract credits to the manufacturing sector, most Nigeria
manufacturing enterprises have remained unattractive for bank credits. For
instance as indicated in Central Bank of Nigeria (CBN) reports, most throughout
the regulatory era, commercial bank’s loan and advances to the manufacturing
sector deviated persistently from prescribed minima. Furthermore, the enhanced
financial intermediation in the economy following the financial reforms of the
1990s not with-standing, credits to manufacturing as a proportion of total
banking credits has not improved significantly averaging 15. 7% (percent)
between 1994 and 2000 and 25.85% between 2001 and 2005. Consequently, many
manufacturing firms in the country have continued to rely heavily on internally
generated funds, which have tended to limit their scope of operating.
In the process, attempts will be made
to provide answers to a series of questions including.
(1) How has
bank credits affected the growth of manufacturing sector in Nigeria?
(2) What
role can bank credit play in revitalizing the manufacturing sector?
(3)What are
the basic problems of the manufacturing sector in Nigeria?
(4) What are
the causes of inadequacy of skilled technical manpower in manufacturing sector
in Nigeria?
(5) The
causes of inadequacy of local technical support services for manufacturing
sector in Nigeria?
1.2 RATIONAL
FOR THE STUDY
This study
was motivated by the challenges pose by the lack of sufficient bank credit to
meet the increasing needs in the manufacturing sector of the Nigeria economy.
There is no idea doubt that a bank credit is
very crucial and essential in revitalizing the manufacturing sector. As
important as bank credit is to the sector inspite the continuous policy
strategies to attract credits to the sector, most Nigeria enterprises have
remained unattractive for bank credits. Hence, this study therefore intends to
throw more light on the operation of bank credits and their resultant effect on
the manufacturing sector.
1.3
OBJECTIVE OF THE STUDY
The
objectives of the study include;
(1)
Examining the problem facing the manufacturing sector in attracting bank
credits.
(2) To
review the different sources of finance available to the manufacturing sector in Nigeria.
(3) To review the policies scheme as well as the
as the developmental financial institution that have been up to promote the
growth of manufacturing sector in Nigeria.
(4) To
review the role and performance of this sector in the economy in facilitating
industrial development in Nigeria.
(5) Also to
look into the problems that militates against this sector (manufacturing) Apart
from finance in Nigeria and to make recommendation where necessary.
1.4
HYPOTHESIS OF THE STUDY
The
hypothesis to be testes in this research endeavour are put as follows:
NULL
HYPOTHESIS
HO;
Aggregates credits to the manufacturing sector has no significant impact on the
output of manufacturing sector.
ALTERNATIVE
HYPOTHESIS
H1; Aggregate credits to the
manufacturing sector has significant impact on the output of manufacturing sector.
1.5
ORGANIZATION OF WORKS
This study is divided into five
chapters, Chapter one deals with introductory aspect followed by chapter two
which is primarily central on the literature review. Chapter three is center on
research methodology while chapter four is the main thrust of this study and it
is concerned with the research findings.
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