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
n the commercial bank credit and industrial growth in Nigeria, no academic research has thoroughly investigated this relationship within Nigeria economy.
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.
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