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BANK CREDIT AND PRIVATE SECTOR
INVESTMENT IN NIGERIA: 1980-2007
ABSTRACT
This study have been
able to analyze the effects that bank credit make on private sector investments
in Nigeria. On research question one which borders on volume of businesses/transactions
in the Private Sector, the study shows that Private investors expand their
businesses through bank facilities. This could be achieved through expansion of
space/office, purchase of large wears/stock and involvement in large scale operations.
Table 4.2 shows that 40(62%) of the respondents agree that bank credit actually
increase the volume of businesses of Private investors. Similarly, it was
ascertained that operational efficiency can be achieved in the Private sector
through acquisition of modern equipment, optimization of facilities and
involvement in research and development. Table 4.3 shows that majority of the
respondents (42%) maintain that to a great extent, bank credit leads to
increase in operational efficiency in the private sector. Finally, on research
question three which borders on increase in total number of private
investments, it was found that growth in number of Private Investments can be
achieved through Bank Credit. Table 4.4 shows that 42 (65%) of respondents share
the opinion that Bank Credit relates positively with private sector investment
in Nigeria. Based on the conclusions reached, the researcher recommends: the
Central Bank should device a means of compelling, Banks to channel credit
facilities to the private investors on soft terms, the regulatory agencies of
the private sector should do well to sensitize investors on the benefits of
credit facilities in business growth, the government and Central Bank should
encourage the rural banking scheme as to provide credit facilities to rural
investors. Based on the findings mad, the research conclude that: there is a
significant relationship between Bank Credit and volume of
transactions/businesses of Private Investors in Nigeria, there is a significant
relationship between bank credit and operational efficiency in Private
investment in Nigeria, there is significant relationship between bank credit
and increase in total number of Private investment in Nigeria.
TABLE
OF CONTENTS
Title page i
Declaration ii
Certification
iii
Dedication iv
Acknowledgment v
Table of contents vi
List of tables vii
List of figures viii
Abstract
x
Chapter
One: INTRODUCTION
1.1 Background
of the study 1
1.2 Statement
of the problem 2
1.3 Objective
of the study 3
1.4 Research
Questions 4
1.5 Research
Hypothesis 4
1.6 Significance
of the study 5
1.7 Scope
and Limitation of the study 5
1.8 Definition
of the Terms` 6
References 7
CHAPTER
TWO: LITERATURE REVIEW
2.1 Introduction 8
2.2 Origin
and Objectives of Credit in Banks 8
2.3 Bank
credit in Nigeria, types interest and control 10
2.4 Factors
affecting bank credit in Nigeria 13
2.5 Central
bank of Nigeria (CBN) credit police guidelines 15
2.6 Management
of credit administration and policy 19
2.7 Review
of credit policies in Nigeria (1980-2006) 21
2.8 Challenges
and prospects of private sector
investment in Nigeria 32
2.9 Credit
delivery channels in Nigeria 35
2.10 Factor
acting as barriers and limitations
to
credit delivery 39
2.11 Investment
40
References 42
CHAPTER
THREE METHOD OF STUDY
3.1 Introduction 44
3.2 Research
design 44
3.3 Population
of the study 44
3.4 Sample
and sampling procedure 45
3.5 Data
collection method 45
3.6 Questionnaire
design 45
3.7 Data
analysis technique 46
Reference
47
CHAPTER
FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 Introduction 48
4.1 Introduction 48
4.2 Presentation
of data
48
4.3 Testing
of hypothesis 51
4.4 Discussion
of finding 55
Reference 57
CHAPTER
FIVE: DISCUSSION, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction 58
5.2 Discussion
of findings 58
5.3 Recommendations 59
5.4 Conclusion 60
5.5 Suggestion
for further studies 60
Bibliography
61
Questionnaire
62
LISTS
OF TABLES
Table 4.1: Response
rate of questionnaire 48
Table 4.2: Respondents
view on bank credit and
increase in volume of businesses in private
sector 49
Table 4.3: Response
from bank credit customers 49
Table 4.4: Response
from private sector 50
Table 4.5: Test
data table for hypothesis I 51
Table 4.6: X2
Computation for hypothesis I 52
Table 4.7: Test
data table for hypothesis 53
Table 4.8: X2
Computation for hypothesis II 53
Table 4.9: Test
data table for hypothesis III 54
Table 4.10: X2 Computation for
hypothesis III 54
LIST
OF FIGURE
Fig:2.1 Growth
in total credit and credit to private sector 27
Fig:2.2 Banking
sector lending rate (prime) 1980-2006 28
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The flexibility, adaptability and
regenerative tendencies of the private sector to propel economic development
have made the sector a pivotal focus for government industrial development
efforts.
The sector is seen as the bedrock of
industrialization based on its expected impact and potential contribution
towards a diversified production base. Its accelerative effect in achieving
macro-objectives such as full employment, income distribution,
development, of local technology as well
as diffusion of management skills stimulation of indigenous entrepreneurship
have been well documented in economic development literature.
Presently, the Nigerian government, like
other counterparts, world over is placing much emphasis on the growth of
private sector. There is, presently, a renewed effort to encourage private
participation in economic activities. It is a foregone conclusion that private
investors are the bedrock of national economic development. At least they
retain a competitive advantage over public sector by dispersed local market.
In recognition of the many benefit of
private sector investment to national development, the Nigerian government had
put to place a good number of policies aimed at encouraging the sector. The
concept of private sector investments, their roles, characteristics and
operational dynamics are not focus of this study. The research however,
concentrates on examining the impacts of bank credit on the performance of the
sector within the period 1980-2007. In the past, several scholars (Nwabueze,
1990; Partker, 1994; Harty and Partker 1991) have conducted studies in the area
of Private Sector. These studies, however, concentrated on justifying the need
for government support and commitment to the sector. Little or nothing have been
done in the area of the place of bank credit in the sectors operations. These
have left a serious vacuum in the literature of financial and economic studies.
It is this identified gap in literature that this study seeks to cover.
1.2 STATEMENT OF THE PROBLEM
It is undisputable that the government
has no moral right to go into serious business because it lacks the necessary
rudiments to run such business. The government stated in 1996 budget that the
public sector would be seen as the provider of an enabling environment for the
Private Sector to meaningfully contribute to the overall growth of the economy
(Awujo 1996). Such categorical statement entails that total support and
encouragement should, naturally, be accorded to the sector.
It is noteworthy however that majority
of the investment in the Private Sector are in the area of small and medium
scale enterprises (SMEs). This sub-sector, no doubt, has been beclouded by
Myriads of problems over the years in the country. Though the government had in
the past established a number of specialized credit financial institution, in
addition to the use of credit guidelines by the Central Bank, the private
sector still suffer lack of credit. This is because most banks prefer to be
penalized given the uneconomic nature of most businesses.
Similarly, the private sector can only
make the desired impact in an economy if there are sustainable development in
the areas of volume of transactions/businesses, operational efficiency and
increase in number of investors. These indices can only be attained when the
financial sector of this economy provide the desired credit facilities. Where
the desired financial support is lacking, the operators in the private sector
can only operate below optimum level.
The resultant effect
is stagnation in the economy and the public sector do of have the “Muscle to
shoulder the load alone. This study therefore, looks at Bank Credit vis a vis
Private Sector Investment within the period 1980-2007.
1.3 OBJECTIVES OF THE STUDY
This study is designed to exam how bank
credit affect Private Sector investment in Nigeria. The specific objectives
therefore are to:
1. Examine if Bank Credit influence the volume of
transactions/businesses of private Investors in Nigeria.
2. Determine
whether Bank Credit leads to operational efficiency among Private Investors in
Nigeria.
3. Ascertain
whether Bank Credit gives rise to increase in total number of private
Investments in Nigeria.
1.4 RESEARCH
QUESTIONS
This study is guided
by the following questions:
1. To what extent has Bank Credit influenced
the volume of transactions/businesses
of Private Sector Investors in Nigeria?
2. To what extent has Bank Credit led to
operational efficiency in Private
Sector Investments in Nigeria?
3. To what extent has Bank Credit given rise
to increased in total number of
Private Investments in Nigeria?
1.5 RESEARCH HYPOTHESES
This study is
conducted under the following assumptions:
H01: There is no significant relationship between
Bank Credit and volume of
transactions/businesses of Private Investors in Nigeria.
H02: There is no
significant relationship between Bank Credit and operational efficiency in Private Investments in Nigeria between Bank Credit and increase in total
number of private Investments in
Nigeria.
H03: There is no significant relationship between
Bank Credit and increase in total
number of private investments in Nigeria.
1.6 SIGNIFICANT OF THE STUDY
The result of this study will be of
immense benefit to existing and prospective Private Investors in the economy.
They will realize the advantages derivable from bank credit. They will also
realize the mechanism of bank lending with a view to making optimum use of
facilities available. Similarly, the banking sector will also benefit from the
result of this study. They will realize how the sector can help also find this
study as an invaluable material.
Finally, this study will add to the
existing bulk of knowledge on bank credit and private sector investment. It
will form the basis for further studies in this direction.
1.7 SCOPE AND LIMITATION OF THE STUDY
In a study of this magnitude so
many variable come to play. However, the researcher concentrated on volume of
businesses, operational efficiency and increase in total number of Private
Sector Investments. The research questions and hypotheses focus on this
direction.
The geographical scope of this study is
Port Harcourt metropolis. This is because the city has a good concentration of
Private Investors who are in a better position to supply the relevant data.
Proximity to the researchers base is
another factor considered in the choice Port Harcourt. The associated
constraints of this study include lack of literature materials insufficient
fund and short time period required to complete the study.
1.8 DEFINITION OF TERMS
The following are
contextual meaning of key terms used for this.
Advances:
Short-term accommodation by a bank for a specific purpose with the repayment
source know at the time of the advance.
Bank
Credit: Short-term loan given by a bank to its customers
.
Private
Sector: Investments economic embark upon by private
individuals in an economy.
Overdrafts:
Credit
facility offered by a bank to its current account customer which allows such
customers to overdraw his current account either on the strength of financial
instrument, or simply more than the credit balance.
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