THE ROLE OF FINANCIAL INSTITUTION IN FINANCING SMALL SCALE CONSTRUCTION INDUSTRY (A CASE STUDY OF UNION BANK OF NIGERIA PLC)

THE ROLE OF FINANCIAL INSTITUTION IN FINANCING SMALL SCALE CONSTRUCTION INDUSTRY (A CASE STUDY OF UNION BANK OF NIGERIA PLC)

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ABSTRACT

The study was carried out to examine the role of financial institutions in financing small scale construction industry (a case study of union bank of Nigeria plc). To achieve this objective, three research questions and two research hypotheses were formulated to guide this study. The data was collected from primary sources. The primary data were collected with the help of a well-structured questionnaire of two sections administered to staff and management of Union Bank of Nigeria Plc. The collected data were analyzed with tables and simple percentages to analyze the research questions while Chi-square statistical tool was used to test research hypotheses. The study reveals that commercial banks do play a significant role in the development of    SMEs in Nigeria and Union Bank of Nigeria Plc do helped to finance small scale industries in Nigeria. the study concluded with recommendations that government should provide more capital funding to the young          ones who present viable business ideas in order to reduce the rate of unemployment in Nigeria and the Nigeria banks should encourage the development of small and medium scale enterprises through reduction in the interest/charges on loan.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND TO PROBLEM

          Construction industry is a sector of national economy that is engaged in preparation of land and construction, alteration, and repair of buildings, structures and other real property. The construction industry is one of the best industries to invest in, in the economy today. This is as a result of the growth in real estate investment. A lot of developments are taking place in almost everywhere in the world with new buildings springing up, hotels, hospitals, commercial buildings, fast food outlets and restaurants, banks as well as recreational centers.      

          There has been a lot work on the contribution of commercial bank in financing small scale industries in Nigeria, but the available few have given an in depth up-to-date, study of its operation. Most of the writers made immense contribution on topics related to this course of the study in wider horizon (Adeyemi and Badmus, 2001). In the Nigeria economy, attention has been drawn to the fact that small scale enterprises had received little attention where as they provide employment for approximately triple the number engaged large scale manufacturing as well as playing their roles of crucial importance to our developing economy. This is why it is important to reconsider the problem hindering the growth of this sector. There have been numerous opinions and commentaries on the role banks should pay in financing and advising the small scale enterprises since the federal government shift in policy with greater emphasis towards small scale business in the achievement of set-reliance (Adeyemi and Badmus, 2001).   

          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 individuals from the view point of providing employment opportunities self reliance in basic food and material production high per capital income, foreign exchange earnings and the production of industrial raw materials.

          The construction industry is not only limited to building of houses, construction involves a wide spectrum of activities. Construction may refer to real estate development, road and bridges building, setting up of telecommunications infrastructure, repairs and alteration services, security installations, excavations, demolitions and a host of other activities.

          In Nigeria, small scale businesses constitute over ten percent of all registered companies. They are considered to have specific importance to the economic development of the country for a number of reasons.

          According to Adegbeni, Fasanya and Abdulrahman (2013), these enterprises provide opportunity for employment on a large scale and therefore, make possibility of the equitable distribution of national income more realistic. The enterprises also provide the means of creating more opportunity at relatively low cost. Thus, in a labour abundance economy, like Nigeria, and in the present economic down-turn, they are even more relevant in the mobilization of capital and human resources that otherwise be left idle.

          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 couple without compromising the smooth functioning of the nation banning system. The development of small scale industries in Nigeria, the nation’s quest for industrialization will certainly remain forever at stake. It is the opinion of the researcher that future development in our industrialization must address the basic issues of creating linkages without the economy to begin to produce real inputs to our manufacturing activities.

          Ekenyong and Nyong (1992), small scale enterprises are regarded an organic part of a viable structure for the attainment meaningful economy development in developing economic like Nigeria. They are significantly more cost effective in bringing about development than large enterprises because of the perceived linkage and multiplier effects which small scale enterprises have on the performance of the economy and economic growth in general.

1.2     STATEMENT OF THE PROBLEM

          The construction industry is considered by some economists as a leading driver of economic development in any country. This is basically due to the fact that almost all other sectors of the economy in one way or another depend solely on the products and services of the construction industry in order to carry out their operations (e.g. financial institutions).

          Unfortunately its contribution to the Nigerian Gross Domestic Product (GDP) and employment of labour is still very low compared to what is obtainable from other developed nations. But these will soon rise because of the recent focus of government to investments on infrastructural developments which are currently attracting foreign investors with the attendant benefit of increase in construction activities.  The bulk of commercial bank lending to industries is working capital which goes to well-entrenched blue-chip enterprises which have enough bargaining power to negotiate better borrowing terms. The negative bias against SMEs was demonstrated by commercial banks’ preference to pay penalty rather than meet the 20% target lending to Small and Medium Scale Enterprises (SMEs) by making risky investments when the Central Bank’s credit guidelines were in force. It is therefore not surprising that their lending to Small and Medium Scale Enterprises (SMEs) drastically declined after the abolition of the guidelines in 1996.

          The inability of SMEs to attract bank credit or resources has hindered or stifled their growth. The reasons for this inadequate fund can be attributed to the following reasons; high rate of inflation that led to the vast depreciation of Naira exchange rate, thus making it difficult for most Small and Medium Scale Enterprises to obtain and high rate of interest charged on loans, which scared off potential small and medium scale entrepreneurs.

1.3     OBJECTIVES OF THE STUDY

          The objectives of the study include:

a)       To examine role of financial institutions in financing small scale     construction industry.

b)      To examine the impact of construction industry and national          development in Nigeria.

c)       To identify the problems encountered by financial institutions in    financing small scale construction industry.

1.4     RESEARCH QUESTIONS

          The following research questions were generated to guide this study:

a)       Do financial institutions play any role in financing small scale construction industry?

b)      What are the impact of construction industry and national development in Nigeria?

c)       What are the problems encountered by financial institutions in financing small scale construction industry?

1.5     RESEARCH HYPOTHESES

1.       Financial institutions play a significant role in financing small scale          construction industry.

2.       There is no significant difference between the impact of         construction industry and national development in Nigeria

1.6     SCOPE OF STUDY

          This study is concerned           with the role of financing small scale construction industry using Union Bank of Nigeria Plc.  The research intends to highlight the essential problems encountered by Small and Medium Scale Enterprises and suggest ways by which they can be adequately and efficiently financed.

1.8     LIMITATION OF STUDY

          However, there wee constraint imposed on the researcher this includes the following.

a.       Time a study of this nature, needs a relatively long time during which information for accurate or at least near accurate inferences could be drawn. The period of the study was short, hence time posed as a constraint to the researcher.

b.       Cost: The researcher would have extent the survey to areas.  But limitations here included cost of transportation to source for materials and cost of type setting the already completed work.

c.       Dearth (Scarcity) of statistical data: lack of statistical data from our         financial institutions like Central Bank of Nigeria (CBN) Ministry       of Economic Development, commercial and merchant bank posed        constraints. Commercial banks adhere strictly to the rule of secret;        in banking thus they refused to release information.

1.8     SIGNIFICANCE OF THE STUDY

          This study is significance because it would help to evaluate the operations of a vital segment of the industrial sector (Small and Medium Scale Enterprises), which have been identified as having very high potential in promoting economic growth and development. This study will highlight problems associated with the role of commercial banks in financing small scale industry in Nigeria.

          It will give information on the possible areas for improvement. Furthermore, the study will help financial institutions to assess and appraisal their role in financing small scale construction industry in Nigeria.

Moreover, suggestions and recommendations made in this paper will help         policy makers formulate new economic policies maintain or modify the existing one. It will equally serve as a guideline to researchers who may wish to carry out research on the similar topic. It would also help small scale entrepreneurs to make sufficient preparation in their request for credit assistance.

1.9     DEFINITION OF TERMS

1.SMALL-SCALE INDUSTRY:  Any industry with capital not      exceeding N750,000 including capital but excluding cost of land.

          It is also defined by center for industrial research and development          of Obafemi Awolowo University Ile Ife as those industries whose total assess in plant equipment and working capital do not exceed          N250,000 with not more than 50 employees.

2.       COMMERCIAL BANK: A financial institution that acquires        deposit from savings surplus unit and gives out loans to savings         deficit units.

3.       INDUSTRIAL DEVELOPMENT CENTER: Provide         management, technical, consultancy and extension services for the          small scale.

4.       INDIGENISATION DECREE: A decree that stipulates that most          business become, at least 60 percent owned by Nigerians.

5.       SOLE PROPRIETORSHIP: Is a business owned and conducted   by one person presumably assisted by one or more persons for          intakes wife and children.



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