THE
EFFECT OF HIGH INTEREST RATE IN SMALL SCALE INDUSTRY
CHAPTER ONE
INTRODUCTION
1.1 GROUND OF
THE STUDY
The
successive development plan in Nigeria
has laid on the attainment of self-reliance. The need for this national
objective is because much is expected form individual from the viewpoint of
providing employment opportunity; self-reliance is the basic for food and
material production of the industrial raw materials.
But Nigeria
small-scale industry continues to decline despite the so-called priority giving
to this sector. However, the discoveries of the central bank must reserve a
proportion of their minimum credit allocation for indigenous borrowers for
small-scale enterprises. The largest prescribed in 1979 was 10%. This was
subsequently raised to 16 percent in 1980 and had remained at that level till
date. Even though the available data shows that the performance of the
commercial against this directive have been disappointing the central bank
intents to spare no effort in ensuring that bank fully comply without
compromising the smooth functioning of the national banking systems.
Without the development of the small-scale industry in Nigeria, the
national guest for industrialization will certainly remain at a stake. It the
humble opinion of the researcher that future development in our induet4ization
must address the basic issue of creating linkage within the economy to begin to
produce real input to our manufacturing activities. Priority attention must
therefore be giving to industry for which domestic input; could easily produce
of this by automatically bringing to mind the agro-allied industry like food
processing and other by-products, the objective should be to maximize the value
added to them in processing and manufacturing as final goods or immediate inputs.
Empirical evidence indicate that strong producer incentive to
small scale industry are necessarily o met the food requirement but also to
provide growing input supplied and demand as a foundation for sustained
industrial growth. The present economic constraint may well turn out to be a
blessing in disguise to our industrialization effort particularly for the
dynamic manufacturing sector for instance the market determined exchange rate
through them with its resultant at high cost, and import input may serve as the
adjustment to industrialist to intensify their search for location
institution..
In the period of 1980 to 1985, loan approved for small scale
project in the Nigeria bank for commerce and industry (NCB) amount to 29, 983
million for 126 projects while the Nigeria industrial development bank
(NIDB) during the Same period sutured N250.7 million to the enterprise. It will
be recall that all the bank participating in the national directorate of
employment (NDE) have approve a total amount of N 23,353,938 (73.2%) as at the
end of December 2002.
Similarly in the circular of small scale and medium scale
enterprises, loan scheme release by the central bank of Nigeria in
September 2005. it was reviewed that world bank have granted a loan of 270 million to the federal government for
development of small sector, but of this loan, the sum of 265.7 million will be
made available for on lending to small and medium scale enterprises through
eligible participating bank. No doubt this will help to revitalize the economy.
1.2 STATEMENT OF THE PROBLEM
Small-scale
industry like any other business can not be carried on extensively unless fund
are available for maintenance and procurements of equipment in necessary input.
a.
Short term credit: this is the type
of credit that is used to finance yearly operation until the products and
proceeds from the industry are sold. The amount, which is involved in this type
of credit, is usually small. But small-scale industrialists who have little or
no savings upon which to draw, they are mostly beginners and do not accurately
feel lack of this credit.
b.
Long-term loan: this type of credit
is necessary for the acquisition of major industrial machines, improvement on
the major indstrial equipment building and land.
c.
Medium term loan: this type of loan
is for more than one year maturity period but not exceeding three to five
years. This loan is mostly required for the acquisition of most expensive
equipment with relatively short scale industrial credit.
Therefore
small-scale industrial credit can be powerful instruments in bringing out a
revolution in the industry if supplied in sufficient quantity and is used
effectively and efficiently. It is well known that the development of a
small-scale industry and the attainment of self-reliance in industrial
production coupled with the provision of raw material for other industry is
among the top priority of the successive government in the country.
Further
more, the continues escalation of import bills and unemployment are threat to
the country. It is therefore necessary for all to put heads together to
formulate a meaningful policy that will stimulate a positive take-off of our
small-scale industrial sector. Therefore, the aim of this research is to put an
end to these abnormalities.
The
study therefore identify small-scale industries high interest rate as part of
the wilder subject of the industrial development because finance is just one of
the factors of production.
1.3 OBJECTIVE OF THE STUDY
Ø
To ascertain the extent to which High
Interest Rate has not help the small-scale industry and problems hindering
such.
Ø
To identify the problems
encountered by small-scale industrialist in obtaining finance form banks of a
very low interest rate.
Ø
To evaluate various measures
introduced to boost the industrial production and its financing and how this
have affected the realization of the set goals.
Ø
To appraised and evaluate the
situation and make recommendation on high to improve on high interest rate
provision of finance on small-scale industry.
1.4 SIGNIFICANCE OF THE STUDY
The
development of small scale industry and self-reliance in the industry and food
production coupled with the provision of raw material for other industry is
among there top priority of the Nigerian government in the successive development
plan.
Against this background, the review of the financial problems
facing small-scale industry id essential. Such a review will enable this sector
face the ever-increasing demand upon it. An examination of the interest rate
performance will enable us find to a larger extent why there has been a decline
in the industrial output in recent years.
1.5 LIMITATION OF THE STUDY
The
research was to determine the affect of high interest rate in financing small
scale industry in Nigeria.
The researcher carried out indept study on the operation of the commercial bank
interest on loan in financing to said industry.
Due to the current emphasis on industrialization in the
country in order to reduce the countries import bill for foreign countries and
employment, the study focused attention on the evaluation of the small scale
industry obtain loan for interest rate to attain the needed weight and
capacity. The researcher cover selected small sale industry in Enugu.
Small-scale industry as used in this study are those
indigenously owned fully be Nigerians and with an annual turnover not exceeding
five hundred thousand Naira (500,000.00). Some of the difficulty encountered by
the researcher was the in=cooperate attitude of the small-scale industrialist
who misunderstood the essence of the study. Another problem is that of time
factor and high fare of the public transport cost. This greatly increases the
cost of production one limited the scope of the area covered by the study.
1.6 DEFINITION OF TERMS
Interest:
the external money that you pay when you borrow money
Decline: This is a
continuous decrease in number, values and quantity.
Priority:
Something that you think it is more important than other things.
Rate:
A fixed amount of money that is charged or paid.
Small
Scale: These are organization or activity that is not large
in size or intent but limited on what it dose.
Finance:
This is the money used to run a business activity or a
project.
1.7 REFERNCE
Agu
C.C (1986, P.185–186): Commercial bank role in financing agricultural and
industrial production in Nigeria.
Akuazaolu
B.A, (1979, P. 18–20): Financing small-scale industry in billion (Lagos, the Nigerian
institution of bankers)
Akwaeze
G.C, (1986, P3): How the government can fund small-scale industrial development
“without tears.” In the catalyst volume 2.No 2 (The Nigeria bank for commercial
industry
Aluko
S.A (P.12): Defining the problem of small scale industry.
Babinton
Ashiaye (1985, P.4) the problem of selling up a small scale industry in the
Nigerian. Accountancy (the institution of chattered accountancy in Nigeria)
A
correspondent (1985, P.5 – 8 – 6) the status of small and medium enterprise in
Nigerian. (The Nigerian Accountancy)
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