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.