THE ROLE OF COMMERCIAL BANK IN A DEPRESSED ECONOMY

1.0 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 individuals form the view point of providing employment opportunities self reliance in basic food and material production high per capital income, foreign, exchanges earning and the production of industrial raw materials ok- porobic (1989:10) observes that Nigeria economic development of rural areas industries continued to decline despite the so called priority given to the sector.

However, the discovery by the central bank that this policy was not enough by it self bed to the central bank request with effect from 1970/80 that all commercial bank must reserve a proportion of the minimum credit allocation to indigenous borrowers for economic development of rural areas Nigeria enterprises. The target prescribed in 1979 was ten percent (10%) which subsequently raised to sixteen percent (16%).

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 bank fully couple without compromising the smooth functioning of the nation banning system.

He observed also, that without the development of economic development of rural areas industries in Nigeria, the nations 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 priority attention must therefore be given to these industries for which domestic inputs could easily be produced. This will bring about agro-allied industries like food processing and other by-products.

The objective should be to maximize the value added in their processing and manufacturing as final goods immediately inputs.

Nzewi and Oze (1985:56) observed that empirical evidence indicates that strong incentives to economic development of rural areas industrialists are necessary not also only to meet the food requirement but also to provide growing input supplies 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 effect particularly for dynamic manufacturing sector for instance, the make determinate exchange rate through seeing with its result and high cost of imported inputs may serve as an impetus for industrialist to indentify their search for local substitute Ekenyong and Nyong (1992) observed that economic development of rural areas enterprise are regarded an organic part of a viable structure for the attainment meaningful economy development in developing more cost Nigeria.

They are significantly more cost effective in brining about development then large enterprise because of the perceived Linkage and multiplier effects which economic development of rural areas enterprises have on the performance of the economy and economic growth in general. Osayavieh (1989) observes that the strength that make economic development of rural areas enterprises more amendable for assistance areas as follows.

1. Personal commitment of the proprietor whose life savings usually form the start up capital.
2. Low initial capital out lay requirement
3. Base of entry and exit and prevalence of just minimal legal constraints
4. Amenability to business advisory services because of their small size which makes than more responsive to improvement suggestions.

Olashone (1987) observes that the four main sources of enterprise financing open to economic development of rural areas in Nigeria are:

1. Formal financial institutions such as commercial banks, merchant banks, insurance companies and the development bank.
2. Informal financial landlords, credit and savings associations “esus” friends and relations personal savings and
3. Other financial scheme, NERFUND NEXIM.

In 2001, they was an introduction of small and medium industries equity investment scheme (Smes) in which N359 million was set aside to date by bank under small medium industries equity investment scheme. Through fidelity bank small and medium scale enterprise (SMES) department, the bank has remained in fore front of SMES financing nations were extended to the SMES as at 31st March 2004 Economic development of rural areas in Nigeria is any industry not exceeding N750,000 including working 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 assets in plant, equipment and working capital do not exceed N250,000 with not more than 50 employees.

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1.2 Statement of the Problem

The problem of credit to economic development of rural areas industries may not necessarily be as a result of financing insufficiency but rather for some other reason among which are:

1. Insufficient preparation on the part of economic development of rural areas entrepreneurs in their request for credit assistance.
2. Information gaps as to range of funding institutions and scope of services available in this institution.
3. Moreover, servicing of small business accounts is relatively experience, risky and difficult to monitor with low turn over of account.

However, the pensioners in the sector economic development of rural areas in Nigeria do not display competence in preparing justification for their project. It is to see most of them coming up with cash flow projections, projected balance sheets, among others. They are based on personnel rudimentary in formation and speculation. At times when they seek the advices of consultants, the outcome that are made figures project based on assumptions which are most of their time unrealistic. As a result such proposals are out righty rejected by banks.

There are suitahsle when credit demands in this sector are not in compliance in this government monetary policy and credit guidelines which musty be adhered to by banks. The researcher identifies these problems and considers it necessary to carry our study on them.

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1.3 Objectives of the Study

The objectives of the study include:

1. To ascertain the extent to which the fidelity bank of Nigeria plc has helped to finance economic development of rural areas industries.
2. To identity the problems encountered by economic development of rural areas industrialists in obtaining finance from fidelity bank of Nigeria plc.
3. To evaluate various measures introduced to boost industrial precaution and its financing and how this has affected realization of the set goals.
4. To determine the causing changes in economic development of rural areas industrial financing by fidelity bank of Nigeria plc.
5. What are the various measures introduced to boost industrial production and its financing and how this has affected the realization of the set goals?

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1.4 Research Questions

The critical appraisal to give answers to the following questions:

1. To what extent has fidelity bank of Nigeria plc helped to finance economic development of rural areas industries?
2. What are the problems encountered by the economic development of rural areas industrialist in obtaining finance from fidelity bank of Nigeria plc?
3. What are the various measures introduced to boost industrial production and its financing and how this has affected the realization of the set goals?

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1.5 Significance of the Study

This study will highlight problems associated with the role of commercial bank in financing economic development of rural areas in Nigeria. It will give information on the possible areas for improvement. Furthermore, the study will help commercial banks to asses and appraisal their role in financing economic development of rural areas industry in Nigeria.

Moreover, suggestions and recommendations made in this paper will help policy makers formulate new economic polices maintain or modify the existing one.

It will equally serve as a guideline to researchers who may wish to decide with this study in the future.

It will also help economic development of rural areas entrepreneurs to make sufficient preparation in their request for credit assistance.

It will guide the entrepreneurs in making credits demands that are compliance with government monetary policy.

The last but not the least if will help the entrepreneurs to displayed competence in preparing justification for their project. It is rear to see most of them coming up with cash projections, projected balance sheets.

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1.6 Scope of Study

The scope of the study is the role of commercial bank in a depressed economy. A case study of fidelity bank of Nigeria plc. It does not cover the role of commercial banks in financing medium and large scale industries.

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1.7 Limitation of Study

However, there were 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). Deartyh (Scarcity) of statistical data: lack of statistical data from our financial institutions like central bank of Nigeria (C.B.N) ministry of financial and economic development, commercial and merchant bank posed a constraints. Commercial banks adhere strictly to the rule of secret, in banking thus they refused to released information.

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1.8 Definition of Terms

Economic development of rural areas in Nigeria:

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 asses in plant equipment and working capital do not exceed N250,000 with not more than 50 employees.

Commercial Bank:

A financial institution that acquires deposit from sevings surplus units and give out loans to savings deficit units.

Industrial Development Center:

Provide management, technical, consultancy and extension services for the small scale.

Indigenisation Decree:

A decree that stipulate that most business become, at least 60 percent owned by Nigerians.

Sole Proprietorship:

Is a business owned and conducted by one person presumably assisted by one or more persons for intakes wife and children SS/CS economic development of rural areas in Nigeria credit scheme.