THE PROBLEM AND PROSPECT OF CAPITAL MOBILIZATION IN FINANCING SMALL INDUSTRIES

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THE PROBLEM AND PROSPECT OF CAPITAL MOBILIZATION IN FINANCING SMALL INDUSTRIES

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The successive development plans of Nigeria have laid emphasis on the attainment of self reliance the need for this national objective is because much is expected from individual on the view point of providing employment opportunities, self reliance in basic food and material production of industrial raw materials. But, Nigeria small-scale industries continued to decline despite the so called priority given to this sector. However, the discovery of the central banks that this policy was not enough from 1970 /80 that all commercial banks must reserve a proportion of their minimum credit allocation of indigenous borrowers for small scale Nigeria enterprises the largest prescribed in 1970 was 10 percent. This was subsequently raised to 16 percent in 1980 and has remained at that level to data.

Even though, available data showed that performance of commercial banks against this directive has been disappointing the central bank intends to spare no effort in ensuring that banks fully comply without compromising the smooth functioning of the nations banking system. Without the development of small scale industries in Nigeria guest for industrialization will certainly remain forever at a stake. It is the humble opinion of the researcher that future development in our industrialization must address the basic issue of creating linkages within the economy to begin to produce real inputs to our manufacturing activities.

Priority attention must therefore be given to there industries for which domestic inputs could easily produce of this automatically brings to mind the agro-allied industries like food processing and other by products. The objectives should be to maximize the value added in them processing and manufacturing as final goods or immediate inputs. Empirical evidence indicate that strong producer incentives to small scale industries are necessary not only to met the food requirement but also to provide growing input supplies and demand as a foundation for sustained industrial growth.

The present economic constraints 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 S T E M with its resultant at high cost of imported inputs may serve as an impetus to industrialists to intensify their search for local institute. In 1971, the government of the east- central state statutorily enacted an edict establishing an ministry of commerce and industry to be known as fund for small scale industry credit scheme (fussi) to give credit to prospective investors to enable them establish thus helping the country towards industrialization.

In the period 1980 to 1985, loans approved for small scale project by Nigeria bank for commerce and industry (NCB) amounted to N29,983 million for 126 projects while Nigerian industrial development bank (NIDB) during the same period sanctioned N250.7 million to the national directorate of employment (NDE) have approved a total amount of N23,353,938 (73.2%) as at the end of December 1988. Similarly, in the circular on small scale and medium enterprises loan scheme released by the central bank of Nigeria in February this year (1999) it was revealed that world bank has granted a loan of & 270 million to the federal government for the development of small sectors out of this loan, the sum of &265.7 million would be made available for on lending to small and medium scale enterprises through eligible participating banks. No doubt this help to revitalize the acting economy.

1.2 STATEMENT OF THE PROBLEM

Small-scale industry like any other business cannot be carried on extensively unless funds area available for maintenance and procurement of equipment and necessary inputs.

a. Short-term credit: the type of credit is used to finance yearly operations until the products / proceeds from the industry are sold. The amount, which is involved on this types of credit is usually small, but lack of this type of credit is not accurately felt by small scale industrialist who have little or no upon which to draw they are mostly beginners.

b. Long-term loan: this type of credit is necessary for acquisition of major industrial machines, improvement on industrial 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 acquisition of inexpensive equipment with relatively short scale industrial credit.

There fore smaller scale industrial credit can be a power full instrument in bringing about a revolution in industries if supplied in sufficient quality and used efficiently. It is well known that the development of small-scale industries and attainment of self-reliance in industrial production coupled with the provision of raw material for other industries is among the top priorities of the successive government in the country. Furthermore, the continuous escalation of Nigeria’s import, bill and unemployment are threat to the country. It is therefore necessary for all to put heads together to formulate a meaningful policy that scale industrial sector. Therefore the aim of this research work is to put an end to his abnormalities. The study therefore, identifies small-scale industries financed in Enugu state as part of the wider subject of industrial development because finance is just one of the factor of production.

1.3 OBJECTIVES OF STUDY

The objective of the study include: The ascertain the extent to which the capital mobilization has helped to finance small-scale industries and problems hindering such.

· To identify the problems encountered by the small scale industrialists in obtaining finance from banks

· To evaluate various measures introduced to boost industrial production and it’s financing and how this has affected the realization of the set goals.

· To determine the cause of variability in small-scale industries with regards to capital mobilization.

· To appraise and evaluate the situation and make recommendation on how to improve on capital mobilization provision of finance on small-scale industries.

1.4 SIGNIFICANCE OF THE STUDY

The development of small-scale industries and self-reliance of in industries and food production coupled with the provision of raw materials for other industries is among the top priorities of the Nigeria government in the successive development plan. Against this background, the review of the financing problem facing small-scale industries is essential. Such a review will enable this sector fact the ever – increasing demands upon it. An examination of capital mobilization performance will enable us find to a larger extent why there has been a decline in industrial output in recent years.

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