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(1980 – 2006)


In this study, an attempt was made to investigate and analyze the impact of bank credit (loan) to the Nigeria industrial sector development.

This study involves an appraisal of the extent to which banks have succeeded in enhancing the growth and development and also the general performance of the Nigerian industrial sector since 1980 – 2005, through their various lending portfolios.

The incipient stage of Chapter one opens with an introduction through to the limitation of the study.

Chapter two gave a detail discussion in literature review, beginning with a brief history of the industrial sector, conceptual issues and consequent economic related issues such as the Nigerian industrial policies. This chapter also looked at commercial banks and industries in Nigeria, and also the problems faced by industries in obtaining credit facilities.

Chapter three involves the theoretical framework, model specification and source of data collected for analysis.

Chapter four is a detailed empirical interpretation of ordinary least square (OLS) – regression estimation results of collected data from Central Bank of Nigeria (CBN) Statistical Bulletin.

Finally, in Chapter five which combines the research’s summary of findings, recommendations and then in conclusion that the banking sector credit (loan) has a positive impact on industrial sector development in Nigeria.

Note that this study gave an insight on the relationship between the development of the Nigeria industrial sector and banking sector credit (loan).




1.1      Background to Study

1.2      Statement of the Research Problem

1.3      Objectives of the Study

1.4      Scope of Study

1.5      Significance of the Study

1.6      Statement of Hypothesis

1.7      Research Methodology

1.8      Definition of Keywords


2.1      Development of Industries in Nigeria (Brief History)

2.2      Structures/Types of Industries

2.3      Relevance of Industries

2.4      Problems Encountered by Industries

2.5      Commercialization and Privatization of Industrial Concerns

2.6      Commercial Banks and the Industrial Sector


3.1      Theoretical Framework

3.2      Model Specification

3.3      Data Requirements and Sources

3.4      Method of Data Analysis


4.1      Presentation of Results

4.2      Interpretation of Results

4.3      Policy Implications


5.1      Summary of Findings

5.2      Recommendation

5.3      Conclusion





Recently, most industries in the country (Nigeria) have been existing in the form of small industries (cottage industries) i.e. household limits carrying out industrial activities in the traditional methods without paid employment. It is to this end (that small and medium industries are the cornerstone of any nation’s industrial and

economic well-being) that successive government came with policies encouraging the development and growth of industries. The small and medium scale industries were not accorded significant importance in Nigeria until 1975 when the government realize that its industrialization strategy of import substitution only resulted in the setting up of large industries. It was not until the third national development plan of 1975 to 1980 that the programmes for the small and medium scale industries were explicitly spelled out; “The creation of employment opportunities, mitigation of rural-urban migration, mobilization of local resources, and a more even distribution of industrial enterprises in different parts of the country”.

Despite all efforts by the three tiers of government to enhance the development of industrialization, historical survey indicates that there have been inadequate credit facilities. This has been a major impediment in the development to small and medium scale industries in Nigeria. For this reason, many of them are either proprietary or partnership and so cannot obtain funds from the capital market.

As a result of this, they are either starved of funds or, at best obtain fund on extremely unfavourable terms from other sources like money lenders, thrift societies etc. The problem of finance hinders them from operating profitably in a competitive and depressed economy.

In other to overcome this problem, the federal and state government set up industrial credit schemes and gave guidelines to commercial banks to increase their lending to these categories of enterprises.

Blatantly, the pass military and civilian administrations made effort toward the development of small and medium scale industries, notably among them was the pass military administration of General Babangida’s regime with introduction of the Structural Adjustment Program (SAP). The introduction of SAP in 1986 gave birth to the various government organs and general conditions, which encourage the development of industries even in the rural areas. Some of this organs involves the Better Life for Rural Women Programme, National Directorate of Employment (NDE), the Export Promotion Council and also the Nigerian Economic Reconstruction Fund (NERFUN). Whether these organs are really achieving the derived results or not is above the scope of this study.

The establishment of the Nigerian Banks for Commerce and Industry (NBCI 1974), Nigerian Industrial Development Bank (NIDB) and various industrial development centers all over the country by pass governments shows the desire of the nation toward industrialization. The transformation of the economy of a depressed nation such as ours from her present agrarian position to positions of production and industrial productivity can only be brought about by indigenous industries.

Inegbenebor (1991) states that the desire of most developing countries including Nigeria is to have a self-reliant and self sustain growth. Nigeria is blessed with abundant mineral resources and if these resources are vividly harnessed and managed, she will compete with other industrialized nations of the world.

With these above assistance the question will now be, why is there shortage of credit (finance)? The explanations one can offer at this point is that the institutions responsible for finance (in this case, the banking sector) are still underdeveloped. This stage of underdevelopment of the credit system is caused by lack of trust attributed to default in meeting financial obligations as at when due by the users of the funds.

Others problems facing the industrial sector in Nigeria beside the financial dilemma includes:

1.          Imperfect  knowledge of existing market.

2.          Tariffs policies.

3.          Inadequate technical and economic counselling or unavailability of qualified personnel on the side of the promoters.

4.          Lack of common service facilities.

All the above mentioned problems have brought about unemployment, lack of social amenities etc and hence a retarded economic growth.

Against these backdrop, this study will involve the following:

1.          Government policies on interest and credit facilities guidelines.

2.          Operates of NERFUND to fund out the adequacy of fund provided by it.

3.          Other compelling reasons such as foreign competition, inflation, poor infrastructure or lack of raw-materials inhibiting the realization of government schemes for industries.


The Nigerian industries are confronted with a myriad of problems but notable among them is financial constraint caused by the sources of funds used in financing the project. An industrial project has a long maturity or gestation period and to finance such firms requires long-term sources of funds instead of short-term funds often provided by commercial banks.

The banking sector, by nature of its operations has loanable short-term deposits, which are very liquid. Thus, for banks to tend on long-term basis creates a deposit loan maturity gap as the owners of such deposits can call for their money at short notices. To solve this problem, commercial banks adopt a careful strategy or strategic approach in extending medium to long-term financing which always attracts high interest rate. This in itself constitutes a hard condition for promoters or investors.

With the increasing cost of production and falling real income of consumers, the demand for goods and services are on the decline. This leads to stockpiles of finished goods (inventory) in their warehouses. As stated by Anao and Osaze (1990):

“In financing the traditional small business in Africa often has to depend on a mortgage from a commercial bank. Survival after a few years may lead to success with obtaining seasonal overdrafts and lines of credit from commercial banks, but no fund for permanent growth…”

Access to foreign exchange is another impediment to industries. Most of these industries need to import machinery and they find it extremely difficult to obtain foreign exchange even if they have the naira cover closely related to the above. There is also the inability to secure foreign loans due to high cost of servicing the loans.

1.11                OBJECTIVES OF THE STUDY

Over the years, successive government both federal, state and local governments have made policies geared towards making the country self-reliant.

Until recently, the survival and growth of small and medium scale enterprises have always been given the front row position, considering their immense contributions to the well-being of the nation’s economy. The objectives of this study will therefore include,

i.            To examine the activities of the major financial institutions to ascertain their level of commitment.

ii.           To determine why there is a gap in their credit delivery system.

iii.         To examine whether there is any relationship between bank credit and the Nigerian industrial sector development.

iv.         To ascertain the degree at which other economic variables affect industrial development in Nigeria.

v.          To examine the effect of banking sector credit (loan) on the performance of the industrial sector.

1.12                SCOPE OF STUDY

The study will attempt to diagnose the reasons for the slow growth rate of the Nigerian industrial sector. It will also take a critical look at the effects of banking sector credit (loans) on the overall performance or development of the Nigeria industrial sector from 1980 – 2005. It intends to know the possible ways through which Nigeria can become an industrialized giant.

1.13                SIGNIFICANCE OF THE STUDY

The significance of the study is derived from the basic feature of lending as an all time important function of most banks. The findings of this study is believed would be of great value to the government – maybe in terms of policy-making, the banking sector, the industrial sector operators, other researchers, to students alike and the society at large.


The issue of banking sector credit made available to industries has been a running battle between the government and banks. In the light of the above, the study will attempt to test certain hypothesis, which will include;

i.            Null Hypothesis Ho: b – O; That banks lending has no positive relationship on industrial development.

Alternative Hypothesis H1: b = O; That banks lending has a positive relationship on industrial development.

ii.           Null Hypothesis Ho: b – O; That the industrial sector has not benefited from development.

Alternative Hypothesis H1: b = O; That the industrial sector has benefited from development.


The research will be carried out using secondary data from journals, textbooks, magazines, financial newspapers, publications, bank annual reports, CBN – journals, and other such journals. On these data a regression analysis will be carried out using the Ordinary Least Square (OLS) method.

This will enable us test our hypothesis and give the necessary interpretation and finally conclude based on our regression results.

1.14                DEFINITION OF KEYWORDS

Cottages Industry: A small business in which the work is done by people in their homes, weaving and knitting are traditional cottage industries. It has to do with household units carrying out industrial activities without paid employment.

Import Substitution: This implies that we substitute most of our imports with what is available locally.

Lending Rate: The rate of interest paid on funds borrowed from a financial institution.

Lending: The granting of a credit facility for a specified period of time and terms on the understanding that the facility will be repaid.

Credit: This is the sum total of money granted by banks known as loans and advances for the use of business and individuals alike to be repaid on an agreed period and usually with interest.

Government Regulation: This is legal control, directories, guidelines exercise by the government through it regulatory or supervisory authorities (CBN and NDIC) on banking activities.

Industrialization: The process of establishing or increasing productive activities such as mining and quarrying, processing, manufacturing, construction and assembly, crafts etc.

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