NIGERIAN FINANCIAL SYSTEM AS THE PRIME MOVER OF ECONOMIC ACTIVITIES (A CASE STUDY OF NIGERIAN BANK FOR COMMERCE AND INDUSTRY IN ENUGU STATE)
In Nigeria as in many developing countries, economic are overwhelming in the hand of small holders. As MC Namara (1973) put it “there are over 1000 million families involved and more than 7000 million individuals (in developing countries). The size of average is small and often fragmented. The growth and survival of small –scale industries as economic activities depend on the amount of funding and management of such firm. The small – scale industries are mainly in need of working capital financing of which the banks are the best providers of such need.
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According to Olusegun (1976) working capital financing is the easiest to arrange if is short term in nature and may take various forms such as bank overdrafts, on providing such loans expect the borrower to demonstrate how the loan will be redeemed, especially during the firm period of greatest liquidity. Although some writer has laid the emphasis on working capital financing as well, it should be noted that it is not the main solution to financing problem.
Thus, the central bank of Nigeria encourage the provision of growth capital for industries by emphasizing in its year to credit guideline the need for banks for improve the maturity pattern of their loans and advances to be of long term.
There are some writers who do not are small scale financing as a major role of Nigerian financial system according to Penwick, the need financing starts with desire to spend. Spending and the desire to spend by private individuals, business and governments lies at the heart of economics and thus financial activity. Hence the crucial perquisite for profitable financial analysis is uncluttered understanding of the economic of the situation the economic of what is being financed and why” it is when the economic is being financed that they are able to assess whether to finance small – scale industries. But then it should be noted that what one views as being important or reasonable may not be so with another and it is the guidelines are issued by the federal government through the central bank directive as regard the sections to be adequate financed. Financing we see is an act of funding and such funding can be internal or external means.
The pace of change in the business environment has accelerated and banks have become increasingly conscious of the peculiar problems and its grading important to the Nigerian economic recovery and self – reliance. As a result, Nigerian financial system are responding with added vitality on the affairs, at economic activities the financial system however do not fail to evaluate a business propositions and determine its viability more objectively before going into such firms. This is attributed to the fact that the risk of doing business is high and returns can hardly be predicated. Nigerian financing houses are said to delay in their financing sole but this is not without reason. The attitude of the entrepreneurs towards incomplete provision of necessary information that will guide finance house towards taking a decision as to whether loans are to be granted to them has been a contributing factor to this delay.
2.2 IMPORTANCE OF FINANCE TO SMALL SCALE INDUSTRIES
From the given background, a small scale industry is a means to an end and not ends itself. Yet it is regards as being of great importance in the present state of our economic life. We shall hereby examine the importance of finance to small – scale industries of an individual. Then we shall equally examine how the society will benefit from their existence.
- AN INDIVIDUAL: An individual will like to establish a small – scale industry for the following reason:
- PROFIT MOTIVE:- The individual would like to make as much profit as he can from a small – scale business. Depends on the level of finance he/she has Hence identification of a profit source will motivate one to establish a small scale business.
- INDEPENDENCE: this is more of a psychological reason than any other thing. Certain individual claims that they will enjoy a lot of independence running their own small – scale business then when they are employed any big co-operate organization.
- MONEY – MAKING:- An individual ought like to establish a small business not because he just want to make profit or feel independent but to make as much money as he can from the business. He simply wishes to be identified as some one who has made money
- SOURCE OF LIVELIHOOD JOB AND INVESTMENT: One can earn his living through little little business. One might decide to create job for his or herself and other by establishing a personal business. One might like to be noted as an investor with interest in various ventures. Hence setting up a small or personal business provides a means of invest.
- TO THE SOCIETY: the present day Nigerian society stands to benefit from the establishment of small – scale industries.
- EMPLOYMENT GENERATION:- This is one of the objectives of the Nigeria industrial policy that was adopted. The policy specified the establishment and promotion of small scale industries as the basic tool for tackling the various forms of unemployment that has been witnessed in the country over the past few years.
Establishing small-scale industries will in addition developed in Nigeria a broader base of entrepreneurial culture and a desired level of trained labour and manpower. In reality the small – scale industries will absorb a commendable percentage of the unemployed if encouraged with year.
- INCREASED EXPORT OF MANUFACTURED GOODS
With more goods manufactured by these industries there will be the need exposit of some of the goods. However, Nigerian export oriented production will become more competitive in the world market.
iii. DISPOSAL OF INDUSTRIES:- The idea of establishing small – scale industries would consider the issue of raw material souring in this way. Such industries would have to be located near the source of their raw materials. This would result in industries being concentrated in the urban areas only.
- IMPROVING TECHNOLOGICAL CAPACITY:- The extent and level of technological development is largely depend on the level of industrial development in the country. The establishment and dispersal of these industries would therefore propel Nigeria into embarking on technology researcher at least to attain independence of the developed world for the maintenance and growth of these industries and society as a whole.
V: INCREASED LOCAL CONCEPT: The establishment of small – scale industries will lead to not only increased local sourcing of raw – materials that would feed even the medium scale and large scale industries.
Vi: INCREASE PRIVATE SECTOR PARTICIPATION:
With increased establishment of small – scale industries private individual are given a wider opportunity of participating in the economic activities in the country. This is because individual entrepreneurs who mean their various business would also like to contribute tangibly or intangibly or both to major economic policies that are made in the countries for they constitute a pressure group.
vii. From the above, it become very clear that there is a great need for economic activities in Nigeria at least to satisfy the given personnel arise. How do you finance small-scale industries? Large firms must by their nature, operates in large scale. Many may be unwilling or unable to meet the special needs of smaller groups of consumers such group creates almost ready markets for small business, which can tailor their needs profitably.
A good example is a work shop that modifies machines to accommodate handicapped drivers. Small business also provide vanity of goods and services to each other and to large firms. Large firms generally buy parts and assemblies them together.
- THE MAJOR FORMS OF FINANCIAL ASSISTANCE
The major forms of financial assistance available from the financial system available from the banking system to Nigerian industrialists or entrepreneurs are as follows:-
- SHORT TERM FINANCE
Bank provide short – term facilities to Nigeria industrialist mainly through over-draft facilities, which are used to provide short-term working capital to keep up with the production cycle and to finance occasional seasonal business over-draft facilities are also granted as bridging loans in anticipation of payments carrying from export proceeds of contract payment.
- MEDIUM – TERM FINANCE: Banks also provide medium finance to industrialists in order to enable them buy assets such as plant and machinery or to finance permanent working capital requirement.
iii. LONG – TERM: Nigeria industrialist also have access to long-term finance from the banking industry in order to carry out large capital intensive projects. This sort of facility is more available from the merchant and development banks for which this lending represent a significant portfolio.
The typical used of long term finance are for the acquisition of fixed assets that have a fairly long life, such as major plan and machinery and to find the purchase or construction of factory and office buildings.
2.4 THE ROLE OF BANK AS A FINANCIAL SYSTEM IN FINANCING SMALL SCALE ENTERPRISES
A small scale industry could be financed either through the bank or funds revised personally by the entrepreneur funds revised personally by the entrepreneur can be through savings, gifts and borrowings. Funds revised through banks from the industrial and development banks. Nigeria industrial development bank (NDB) many financial institutions are involved in entrepreneurship development in Nigeria in many ways. Government for specific functions sets some of them up while others are set up by private organizations. Their main functions are to provide funding relief from financial consequences of uncertainly and advisory services for business enterprises, public and private. Through them, the government plays the role of financier companies. Some of these institution include Nigerian bank for Commerce and Industry (NBCI) / Nigerian Industrial Development bank (NIDB). Peoples bank of Nigeria (PBN), The commercial banks and merchant banks etc.
For any entrepreneur saving for fund and enough fund can not be mobilized from friends and relations the next thing that comes to mind is to try the banks. The Nigerian bank for Commerce and Industry (NBCI) and the commercial bank for instance the center of the leading marketing and makes the greatest number and variety of loans. The commercial banks are the creator of credit in the economy like wise Nigerian bank for commerce and industry (NBCI) but they are very conservative in leading.
The commercial banks look at any thing apart from the ability of the entrepreneur to provide the needed collateral and many be interested in haring a general view of the proposed business by looking at the feasibility report, the experience of the entrepreneur, his personal credit records, profit potentials etc.
The Central bank governor, Mr. Joseph Sanusi announced that in collaboration with the banking industry, the bank has designed a new financing scheme for the small and medium scale enterprises. (SMSE) in the country. When it becomes operational banks shall set aside 10% of their profit before tans for finding of the development of small business. The bank have the discretion to choose the mode of financing the prefer, either equity participation. Long term loan, project monitoring advisory service enterprise to maturing sanusis announcement was actually an amplification of a portion of the year’s monetary policy guideline which the central bank realized early in the year. Since the guidelines were released media reports have indicated that the banks have enthusiastically been pushing for the amendment of the banks and other financial institution act of 1991 so as to allow them to own more than 40 percent equity in such enterprises. Section 21(i) of the act states. A bank may acquire or hold part of the share capital of any agricultural, industrialist or venture capital long pay subject to the following conditions.
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