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PROBLEMS OF PROJECT
FINANCING AND IMPLEMENTATION IN NIGERIAN BANK FOR COMMERCE AND INDUSTRY (NBCI)
ABSTRACT
It is generally accepted that
development banks like most other types of financial institutions are facing a
number of problems that most pressing and immediate of these, the problems of
project financing and implementation are most exacting and formidable.
This study is
therefore carried out as a first step towards identifying these problems, with
a view to finding lasting solution to them. the study also deals with the
introductory aspects of the research.
It briefly examines
the origin of development banking in Nigeria with particular reference to the
establishment of the Nigerian Bank for Commerce and Industry (NBCI).
Chapter one contains information on the statement of the problem, objectives of
study, the significance of the study, the scope and limitations of the study
and a clear definition of terms and abbreviations used in the study.
Chapter two contains
information on literature review.
Chapter three and
four deals with data collection and analysis. The research hypothesis deals
with both primary and secondary data, which also tested hypothesis formulated
in chapter one.
The research was
finalized with interesting research findings, recommendations and conclusions
as regards to the best means of eradicating or at least minimizing the problems
of project financing and implementation in Nigeria.
TABLE OF CONTENTS
CHAPTER ONE
1.0
Introduction
1.1
Background of the
study
1.2
Statement of the
Problem
1.3
Objectives of the
study
1.4
Research
hypothesis
1.5
Scope and limitations of the
study
1.6
Definition of terms and abbreviations
Notes
CHAPTER TWO
2.0
Literature
Review
2.1
History of the Bank
(NBCI)
2.2
Sources of
Fund
2.3
Functions and Operation of
NBCI
2.3.1
Cannon of
lending
2.3.2
Conditions for borrowing from NBCI
2.4
Securities acceptable for bank lending
2.5
Method of taking
security
2.6
Financing lease and
types
2.7
Advantages and disadvantages of
leasing
2.8
Problems of finance by banks
Notes
CHAPTER THREE
3.0
Introduction
3.1
Selection of Population
3.2
Sample and sampling
3.3
Method of data collection
3.4
The techniques of data analysis.
CHAPTER FOUR
Data Presentation and
Analysis
4.1
Data
Analysis
4.2
Test of
Hypothesis
CHAPTER FIVE
4.0
Research Findings, Recommendations and Conclusions
5.1
Research
Findings
5.2
Recommendations
5.3
Conclusions
Bibliography
Appendix
(questionnaire)
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
Specialized financial institutions in
Nigeria otherwise referred to as development banks are to a large extent a
financial innovation of the post independence era. In Nigeria,
development banking came to be conducted soon after the attainment of political
independence in 1960.
The
establishment of the Federal Government of a special financial institutions
such as the Nigeria Industrial Development Bank (NIDB) in 1964, the Nigerian
Agricultural and Co-Operative Bank (NACB) in 1973 and Nigerian Bank for
Commerce and Industry (NBCI) in 1973 came as a result of the increasing demand
for medium to long term loan capital for industrial development.
Traditionally,
commercial banks concentrate on short-term finance for commerce and industry by
granting self-liquidating loans strictly on a short-term basis. Since
commercial banks were of little assistance, the Nigerian enterpreneurs had to
look forward to these development finance institutions for long-term financial
assistance. A number of state owned development finance institutions have
also been established throughout the federation.
These
special financial institutions were established for the following functions:
·
Provision of medium to long-term finance for industry, mines, commerce and
agriculture.
·
To render assistance in the acquisition of local finance and initiative and
carrying these with foreign technical and managerial expertise.
·
To render corporate advice to investors on the most appropriate capital gearing
in order to enable them involve high prudent investment profit.
·
To render corporate advice to investors on the most appropriate capital gearing
in order to enable them involve high prudent investment profit.
·
To participate actively on the growth of the Nigerian currency and capital
market.
The
Nigerian Bank for Commerce and Industry (NBCI) is by legal status a statutory
corporation of the Federal Government of Nigeria an not a limited liability
company and was established by the NBCI Act, formerly NBCI Decree No. 22 of
1973. The NBCI engaged in all aspects of commercial and merchant banking
activity based on financial services such as identification of viable projects,
project appraisal and financing, portfolio management on behalf of corporate
customers and wealthy individual foreign exchange operations and stock market
operation comprising of share issue, underwriting and contingency, warehousing
of shares floated on the Nigerian currency and capital market.
The
NBCI is faced with a myriad of complex problems in an attempt to fulfill its
normal role expectations. The problems that militate against its project
development effort, both at the pre-disbursement and implementation stage of
project financing and evolution by NBCI and its customers. There are
three categories of problems that have been identified by way of casualty.
(i)
Problems attributed to NBCI Authorities.
(ii)
Problems caused by potential borrowers and investors.
(iii)
Constraints attributable and uncontrollable political and macro-economic
factors.
1.2
STATEMENT OF THE PROBLEM
Like any other development finance institution in the country, the NBCI has
been graphing with a series of difficulties and recurrent problems that emerge
both at the financing and implementation stage of project development in
Nigeria.
A
flurry of complaints and counter accusations have also been levied against NBCI
by its customer. While some of them apply fabrication, blackmail and
intimidation tactics. Others employ the use of graft against certain bank
officials to force their way through the needle’s eye.
The
provisions of long-term loan agreements are hardly honoured after the initial
loan agreements, both implementation, project supervision efforts by bank
officials are often frustrated by the client companies unco-operative
attitude. Furthermore, excessive borrowing by investors from other financial
institutions without consultations with the development bank that provided the
initial assistance thereby defying the relevant term loan agreement is yet
another widespread malpractice. Also a significant proportion of
potential investors and loan beneficiaries to divert funds into non-business or
private activities and to enter into clandestine agreements with suppliers of
raw materials, machinery and equipment quite irresistible. All these
malpractices constitute formidable problems to the development banker,
particularly ( NBCI).
There
are a number of uncontrollable factors that militate against their progress
such as the effects of instability in government policy, rules and regulations,
the difficulty of obtaining official permits and licenses, problems of the
expatriate quote and lack of technical knowledge, laziness and insufficient
interest and concern on the part of certain officials of the development
bank. The terms of financial assistance which are often complained about
are those pertaining to security, interest rate, equity, contributions and
finance or lost over run as well as restrictions placed on fundamental
operational procedures. Except for cases whereby the borrower offer as
collateral, assets and which he has a defective title, otherwise given
satisfactory technical and managerial arrangements, a development bank would
normally be satisfied with placing a fixed legal charge on a company’s forced
assets acquired purely for business making when the development bank would
require a filed asset coverage of 1.7.3 or any other official approved ratio,
otherwise collaterals would be demanded by the bank. The realization of
these fixed assets are the only hope the bank has for recovering its investment
in case of business failure.
Other
problems are continually being encountered during the financing and
implementation stages of most projects in the country by the (NBCI).
These problems are classified into three different categories, viz;
(i)
Problems attributable to the borrowers of term loan.
(ii)
Problems caused to NBCI authorities
(iii)
Problems attributable to non-controllable factors such as the structural
adjustment programme (SAP) and the introduction of the foreign exchange market
(FEM) etc.
It
is now thirty-one years since the NBCI was established; yet the bank has not
much to show in terms of dynamism, efficiency and contributions to the
aggregate levels of capital formation in Nigeria, in spite of the increasing
levels of demand for long term finance from the nations agro-allied and
industrial sector.
The
aim of this work is therefore to examine theses problems critically and
thereafter suggest lasting solutions for the minimization of some of the
problems.
1.3
OBJECTIVES OF THE STUDY
The broad objectives
of this research work is to identify the various constraints to project
financing and implementation in Nigerian Bank for Commerce and Industry (NBCI)
with a view to finding lasting solution to these problems.
Specific objectives
of study are listed below as follows:
(i)
To examine in detail, the various step involved in borrowing from NBCI and to
appraise the investment modalities and viability requirements of project
financing in Nigerian Bank for Commerce and Industry (NBCI).
(ii)
To examine the role expectations and performance of NBCI in industrial
project financing.
(iii)
To find out the banks investment priorities and the conditions under which the
loans are disbursed.
(iv)
To assess the average waiting time per prospective borrower before they can
obtain NBCI’S letter of intent.
(v)
To assess the total number of loan applications received to date as well as
total number of sanctions and loan disbursements made by the bank between 1988
and 2003.
(vi)
To identify the factors inhibiting the financing of industrial projects in
Nigeria as distinct from the constraints of project implementation in Nigeria.
(vii)
To examine the degree of relationship association and/or dependence of the
above problems classifications in greater detail and thereafter formulate and
test a suitable hypothesis.
(viii)
To make policy recommendations on the research findings with a view to finding
lasting solutions to some of these problems.
1.4
SIGNIFICANCE OF THE STUDY
The significance and
purpose of this study is to restore academic dimension to the problems and
prospects of development banking in Nigeria. The study also aimed as
giving a direct frontal attack to the major problems encountered by the NBCI
and prospective investors during the pre-disbursement implementation stage of
project financing in Nigeria. It is of immense benefit to NBCI policy and
investment appraisal staff who should therefore seek to minimize the magnitude
of complaints and accusations levied against them.
Similarly,
prospective investors would also learn to appreciate the constraints inhibiting
NBCI authorities as well as being able to identify the problems specifically,
attributable to borrowers to which they can hold no-one responsible except they
themselves. It will also be of immense economic benefit to other
development finance institutions in the country such as Nigerian Industrial
Development Bank (NIDB), Nigerian Agricultural and Co-operative Bank (NACB) and
as well as over twenty-eight owned development finance companies all over the
country.
Therefore, the
research findings may be accepted where applicable to improve upon the quality
of their investment service and modification of their excessively terms of
investment.
1.5
RESEARCH HYPOTHESIS
The researcher will
test the following hypothesis:
Hypothesis I:
HI:
Problems of project financing and implementation do not prevent Nigerian Bank
for Commerce and Industry (NBCI) from giving loan.
H0:
Problems of project financing and implementation prevents NBCI from giving
loans.
Hypothesis
II
HI:
Stringent terms and condition hampers NBCI project financing and
implementations.
H0:
Stringent terms and conditions do not hamper NBCI project financing and
implementations.
1.6
DEFINITION OF TERMS AND ABBREVIATIONS
(i)
NBCI:
Nigerian Bank for Commerce and Industry
(ii)
NACB:
Nigerian Agricultural and Co-operative Bank
(iii)
NIDB:
Nigerian Industry Development Bank
(iv)
ADB:
African Development Bank
(v)
IBRD:
International Bank for Reconstruction and Development.
(vi)
Levant Firm: A Levant Firms is referred to company
that absconds leaving behind a huge portion of its debt commitment unpaid.
(vii)
Front End Fee: NBCI charge a front end fee or
administrative charge on all schemes (project) financed by NBCI through the use
of IBRD on banking facility. This fee amounts to 11½of the book value of
the term loan and it must be paid at once to NBCI term loan.
(viii)
Beneficiary: A person or corporate body to whom a
certain sum of money is payable.
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