In the eighties for instance,
government has operated a regime where banks were compelled to allocate
specific percentage of the annual credit to priority sectors like agriculture
and manufacturing and organizations that failed to observe such credit ceilings
were sanctioned (Okoroanyanwu et al, 2007). Most of the banks complied with the
directives while it lasted; yet the situation did not improve. As a means of
reducing, the financial squeeze on small and medium scale industry, the Federal
government has introduced the Small and Medium Enterprises Equity Investment
Scheme (SMEEIS). It was introduced with the objective of providing both finance
and managerial expertise to the Small and Medium Industries (SMIs) in the
Nigerian economy. The guidelines for the scheme require all deposit money banks
in Nigeria to set aside 10 percent of their pre-tax profit for equity
investment in the SMIs. They also provide among others that funds set
aside be invested within 18 months in the first instance and 12months thereafter. After the grace period, CBN is required to debit the bank that falls to invest the set aside funds and invest same in treasury bills for 6 months.
aside be invested within 18 months in the first instance and 12months thereafter. After the grace period, CBN is required to debit the bank that falls to invest the set aside funds and invest same in treasury bills for 6 months.
The funds set
aside by the banks under the scheme increased from N13.1 billion in 2002 to
N41.4 billion in 2005. However, actual investment grew much slower from N2.2
billion in 2002 to N12.1 billion in 2005 representing only 29.1 percent of the
funds set aside (Okoroanyanwu et al, 2007). Worried by the slow pace of
investment relative to the amount set aside, CBN conducted two studies in 2003
and 2004 respectively, to ascertain the bottlenecks on investment operations
and recommended ways of tackling them. The studies found that major constraints
to the implementation of the scheme included the desire of banks to acquire
controlling shares in the funded enterprise, poor state of infrastructure,
limitation of funding to only equity investments, restriction on range of
activities covered under the scheme and the reluctance of Nigerian
entrepreneurs to go public. (Okoroanyanwu et al, 2007). In February, 2005, two
major policy actions were taken by the Bankers committee to restructure the
scheme.
One, all business activities can be funded under the scheme and it was
therefore, changed to Small and Medium Enterprises Equity Investment Scheme
(SMEEIS), to reflect the expanded focus. Two, the limit of banks equity
investments in a single enterprise was increased from N200 million to N500
million, thus, accommodating the real medium size industries that constitute
the missing middle in Nigeria’s industrial structure. These two measures have
an immediate impact on the scheme, as investments rose by 29.4 percent in 2005.
Also, the cumulative amount set aside by the banks at the end of December,
2005, stood at N41.4 billion, compared with 28.8 billion at the end of the
preceding year. Similarly, cumulative investment increased by 41.3 percent.
Analysis of the investments showed that the real sector received N6.9 billion
on 136 projects compared with N5.6 billion on 115 projects in 2004
(Okoroanyanwu et al, 2007). However, even with all these interventions, the
manufacturing sector is still based by a plethora of problems to the extent
that capacity utilization is still below 50 percent.
CBN has turned in a damning report
about the industry, when it recorded that out of the over N10billion earmarked
for the development of the SMIs, only an insignificant proportion was indeed
utilized due to poor credit culture. The apex bank noted that only a little
over N16 billion of the estimated N40 billion was actually invested in various
SMI projects across the country.
It was obvious that despite the
consolidation programme, banker’s short term funding orientation has not
changed significantly, although they still claim that their enlarged
capitalization has given capacity to create more risky assets. Available data
from CBN revealed that growth in aggregate domestic credit declined by about
8.84 percent at the end of 2006 relative to its level at the end of 2005
despite 37 percent credit growth in the private sector.
Also, money supply during the year
was largely influenced by growth in banks’ credit to the private sector.
Shortly as the consolidation of the banking industry, the Central Bank of Nigeria
has seen the need to improve access to financial resources when it granted
licenses to about seven micro finance banks in 2006, while encouraging most
community banks in the country to transform into micro finance institutions.
Despite its good intentions to mobilize the more than N450 billion believed to
exist outside the banking system, which could help to strengthen activities in
the small and medium scale industries, indications from that sector suggest
that Nigeria is not there yet. From the foregoing analysis, we tend to ask:
what is the relationship between commercial bank credit and industrial growth
in Nigeria? What is the magnitude of this relation?
OBJECTIVES
The
objective of the study will include:
i.
To determine the RELATIONSHIP BETWEEN
COMMERCIAL BANK CREDIT AND INDUSTRIAL SECTOR GROWTH IN NIGERIA.
ii.
To determine the magnitude of this
relationship in Nigeria.
STATEMENT OF RESEARCH HYPOTHESIS
The research
hypotheses are:
H0: Commercial bank credit has no positive
relationship with industrial sector growth in Nigeria.
H1: Commercial bank credit has positive
relationship with industrial sector growth in Nigeria.
SIGNIFICANCE
The study will find significance in
the sense that it will fill the academic gap in this regard. After much casual
observation between the commercial bank credit and industrial growth in
Nigeria, no academic research has thoroughly investigated this relationship
within Nigeria economy.
It will contribute and add to the
stock of existing literature on commercial bank credit and industrial growth in
Nigeria. This will be very significant to the foreign investor already
investing in the real sector and those who wants to come in because they need
to know the potentials and weakness of the sector and how best to harness it.
It will also be significant to other
researcher for the fact that every research work is for another researcher,
this work will provide information and serve as a point of reference to both
student and lecturer who want further enquiry into this field.
It will also be beneficial effect to
general public in terms of the role commercial bank policy on industrial
growth.
SCOPE OF THE STUDY
This research work will explore and
cover the time frame in Nigeria from 1970-2007. The choice of the period is
based on availability of data and to capture the recent economic and political
reform that has taken place in the country.
LIMITATIONS OF THE STUDY
However, there cannot be a thorough
research without fund. Thus, lack of fund poses as a limiting factor to this
work; also, time factor is included because the issue of combining lectures
with research project is not an easy task.