THE EFFECT OF HIGH INTEREST RATE IN SMALL SCALE INDUSTRY

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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.

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.

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.

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

ØTo ascertain the extent to which High Interest Rate has not help the small-scale industry and problems hindering such.

ØTo identify the problems encountered by small-scale industrialist in obtaining finance form banks of a very low interest rate.

ØTo evaluate various measures introduced to boost the industrial production and its financing and how this have affected the realization of the set goals.

ØTo appraised and evaluate the situation and make recommendation on high to improve on high interest rate provision of finance on small-scale industry.

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